<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 9, 1999
REGISTRATION NO. 333-71795
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
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.
------------------------
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 MARCH 9, 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
WIT CAPITAL CORPORATION
------------------------
The date of this prospectus is , 1999.
<PAGE> 3
PLX I/O Silicon and Software Solutions
PLX Technology delivers advanced semiconductor and software solutions that
accelerate data flow in equipment used to build the Internet and worldwide
communications infrastructure. More than 500 customers use PLX products
including 3Com, Cisco Systems, Compaq Computer, Hewlett-Packard, IBM, Lucent
Technologies, Nortel Networks, Siemens and Tektronix.
[Graphic of computer chips, books, CD-ROMs and computer circuitry with printed
computer code.]
GATE-FOLD PAGE ONE
Leaders in networking, telecommunications, imaging, enterprise storage and
industrial automation rely on PLX silicon and software solutions to help them
deliver high performance equipment to market quickly. Demand for these systems
is growing dramatically due to the rapid expansion of the Internet, high speed
networking and multimedia.
Networking & Telecommunications
[vertical text] Industrial
Imaging
[Graphic PLX Technology computer chip and representation of computer network
equipment with the following captions:
- Cellular Base Station
- Digital Telephony
- Cable Modem Router
- Ethernet Switch
- Remote Access Concentrator
- Process Control
- Enterprise Router
- Storage
- Printer]
GATE-FOLD PAGE TWO
[vertical text] Storage
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Forward-Looking Statements.................................. 13
Trademarks.................................................. 13
Information in Prospectus................................... 13
Use of Proceeds............................................. 14
Dividend Policy............................................. 14
Capitalization.............................................. 15
Dilution.................................................... 16
Selected Consolidated Financial Data........................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 26
Management.................................................. 41
Certain Transactions........................................ 49
Principal Stockholders...................................... 51
Description of Capital Stock................................ 53
Shares Eligible for Future Sale............................. 56
Underwriting................................................ 58
Legal Matters............................................... 61
Experts..................................................... 61
Where You Can Find More Information......................... 61
Glossary.................................................... 62
Index to Consolidated Financial Statements.................. F-1
</TABLE>
<PAGE> 5
PROSPECTUS SUMMARY
This summary is not complete and does 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.
PLX TECHNOLOGY
PLX is a leading developer and supplier of semiconductor devices and
software that accelerate and manage the transfer of data in high-performance
embedded systems. An embedded system is a computer that performs specific tasks
and is incorporated into another product. Our products are based on widely
accepted industry standards such as the Peripheral Component Interconnect (PCI)
standard. The PLX solution consists of three related types of products:
semiconductor devices, software development kits and hardware design kits. Our
semiconductor devices simplify the development of data transfer circuits in
embedded systems 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 hardware design kits promote sales of our semiconductor
devices by lowering customers' development costs and by accelerating their
ability to bring new products to market.
More than 500 customers 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.
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 the:
- growth of the Internet,
- deployment of high-speed networking, and
- proliferation of multimedia.
To reduce product development time, maximize the performance and minimize
the cost of their increasingly complex products, embedded system suppliers are
rapidly adopting industry standards such as PCI. Consequently, there is now a
large demand for standards-based components for embedded systems, such as our
semiconductor devices.
Our objective is to expand our leadership in data transfer technology 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 hardware design kits,
- extending our technology leadership by integrating new functions and
technologies,
1
<PAGE> 6
- driving industry standards for embedded systems, and
- strengthening and expanding our industry relationships.
PLX Technology, Inc. was incorporated in California in May 1986. In March
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
<TABLE>
<S> <C>
Common stock offered.................. 3,300,000 shares
Common stock outstanding after this
offering............................ 21,665,551 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 and 1,000,000 shares of common stock reserved for
issuance under our 1999 Stock Incentive Plan. See "Management -- Stock
Option Plans," "Description of Capital Stock" and Note 5 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(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
historical basic net
income per share.......... 2,848 2,897 3,137 3,293 3,601
Shares used to compute pro
forma basic net income per
share(1).................. 17,340
Shares used to compute
historical and pro forma
diluted net income per
share(1).................. 16,653 16,768 17,287 17,758 18,405
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
AS
ACTUAL ADJUSTED(2)
------- --------------
(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) Pro forma information is based on the conversion of all outstanding shares
of our preferred stock into shares of common stock.
(2) 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."
3
<PAGE> 8
RISK FACTORS
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 DUE TO FACTORS WHICH ARE NOT
WITHIN OUR CONTROL
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:
- 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.
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 LENGTHY SALES CYCLE CAN RESULT IN UNCERTAINTY AND DELAYS WITH REGARD TO OUR
EXPECTED REVENUES
Our customers typically perform numerous tests and extensively evaluate our
products before incorporating them into their systems. The time required for
test, evaluation and 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.
4
<PAGE> 9
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.
OUR FUTURE SUCCESS WILL DEPEND UPON OUR ABILITY TO RESPOND TO RAPID
TECHNOLOGICAL CHANGE
The semiconductor industry is characterized by rapidly changing technology
and industry standards, along with frequent new product introductions.
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.
OUR SIGNIFICANT RESEARCH AND DEVELOPMENT EXPENDITURE REQUIREMENTS MAY ADVERSELY
AFFECT OUR PROFITABILITY
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 MAY EXPERIENCE SHIPMENT DELAYS AND INCREASED COSTS DUE TO OUR DEPENDENCE ON
INDEPENDENT MANUFACTURERS
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, may delay our shipments or may
increase our costs.
5
<PAGE> 10
OUR RELIANCE ON SINGLE SOURCE MANUFACTURERS OF OUR SEMICONDUCTOR DEVICES COULD
DELAY SHIPMENTS AND INCREASE OUR COSTS
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.
INTENSE COMPETITION IN THE MARKETS IN WHICH WE OPERATE MAY REDUCE THE DEMAND FOR
OR PRICES OF OUR PRODUCTS
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.
In addition, 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. Also, as we start to sell our I/O processor products, we will
compete with established embedded microprocessor companies and others. Many of
these indirect competitors and microprocessor companies have significantly
greater financial, technical, marketing and other resources than PLX. Therefore,
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. See "Business -- Competition," and " -- Products."
OUR FUTURE SUCCESS WILL DEPEND ON SALES TO ELECTRONIC EQUIPMENT MANUFACTURERS
Our future success depends on electronic equipment manufacturers that
design our semiconductor devices into their systems. We must anticipate market
trends and the price, performance and functionality requirements of current and
potential future electronic equipment manufacturers and must successfully
develop and manufacture products that meet these requirements. In addition, we
must meet the timing requirements of these electronic equipment manufacturers
and must make products available to them in sufficient quantities. These
electronic equipment manufacturers 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, electronic equipment manufacturers 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 electronic
6
<PAGE> 11
equipment manufacturers that are leaders in the embedded systems markets.
Accordingly, we will often incur significant expenditures in order to build
relationships with electronic equipment manufacturers prior to volume sales of
new products. If we fail to develop relationships with additional electronic
equipment manufacturers, 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.
FLUCTUATIONS IN THE DEMAND FOR HIGH-PERFORMANCE EMBEDDED SYSTEMS MAY ADVERSELY
AFFECT THE DEMAND FOR OUR PRODUCTS
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 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.
DEFECTS IN OUR PRODUCTS COULD INCREASE OUR COSTS AND DELAY OUR PRODUCT SHIPMENTS
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. In the past, the
additional time required to correct defects has caused delays in product
shipments and resulted in lower revenues. 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.
OUR FUTURE PERFORMANCE WILL DEPEND ON OUR ABILITY TO 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.
7
<PAGE> 12
OUR DEPENDENCE ON KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS
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. We do not have employment
contracts with any of our executive officers.
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.
OUR DEPENDENCE ON THIRD-PARTY DISTRIBUTORS COULD ADVERSELY AFFECT OUR ABILITY TO
MARKET AND SUPPORT OUR PRODUCTS
We depend on distributors to sell a significant portion of our products. In
1998, net revenues through distributors accounted for approximately 49% of our
net revenues. 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.
THE DEMAND FOR OUR PRODUCTS IS DEPENDENT UPON OUR ABILITY TO SUPPORT EVOLVING
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.
THE SUCCESSFUL MARKETING AND SALES OF OUR PRODUCTS DEPEND UPON OUR THIRD PARTY
RELATIONSHIPS
When marketing and selling our semiconductor devices, we believe we enjoy a
competitive advantage based on the availability of development tools offered by
third parties. These development tools are used principally for the design of
other parts of the embedded system but also work with our products. 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
8
<PAGE> 13
business. We generally have no written agreements with such third parties, and
these parties could choose to stop providing these tools at any time.
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
COULD ADVERSELY AFFECT OUR COMPETITIVE POSITION
Our future success and competitive position depend upon our ability to
obtain and maintain proprietary technology used in our principal products.
Currently, we have limited protection of our intellectual property in the form
of patents and rely instead on trade secret protection. 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.
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. While there is currently no intellectual property litigation pending
against us, litigation could result in significant expenses to us, adversely
affect sales of the challenged product or technology. This litigation could also
divert the efforts of our technical and management personnel, whether or not
such litigation is determined in our favor. In addition, we may not be able to
develop or acquire non-infringing technology or procure licenses to the
infringing technology under reasonable terms. This 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 "Business -- Intellectual
Property."
OUR FINANCIAL RESULTS MAY BE ADVERSELY AFFECTED BY THE CYCLICAL NATURE OF THE
SEMICONDUCTOR INDUSTRY
In the last two years, the semiconductor industry has been characterized by
significant downturns and wide fluctuations in supply and demand. Also, during
this time, the industry has experienced significant fluctuations in anticipation
of changes in general economic conditions, including economic conditions in
Asia. 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.
CONDITIONS ASSOCIATED WITH INTERNATIONAL BUSINESS ACTIVITIES MAY ADVERSELY
AFFECT OUR REVENUES
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,
9
<PAGE> 14
- 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 Asian economic instability 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.
FAILURE OF COMPUTER SYSTEMS TO RECOGNIZE YEAR 2000 COULD ADVERSELY AFFECT OUR
OPERATIONS
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. 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. However, we do not have the resources to verify these
assurances. Thus, there is a risk that some of our customers' and suppliers'
systems will not 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
OUR POTENTIAL FUTURE ACQUISITIONS MAY NOT BE SUCCESSFUL BECAUSE WE HAVE NOT MADE
ACQUISITIONS IN THE PAST
There have been a significant number of mergers and acquisitions in the
semiconductor industry in the past. 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.
OUR PRINCIPAL STOCKHOLDERS HAVE SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS
THAT MAY NOT BE IN THE BEST INTERESTS OF OUR OTHER 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. Although these stockholders will not have
majority control, they currently have, and likely will continue to have,
significant influence with respect to the election of our directors and approval
or disapproval of our significant corporate actions. This influence over our
affairs might be adverse to the interests of other stockholders. In addition,
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.
THE ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION COULD ADVERSELY
AFFECT THE RIGHTS OF THE HOLDERS OF OUR COMMON STOCK
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
11
<PAGE> 16
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.
THE SUBSTANTIAL NUMBER OF SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE COULD
CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE
We will have 21,665,551 shares of our common stock outstanding immediately
after the offering. The shares sold in the offering will be freely transferable.
Additional shares may be sold in the public market to the extent permitted by
Rule 144 or exemptions under the Securities Act. The market price of our common
stock could decline 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. See "Shares Eligible for Future
Sale."
OUR COMMON STOCK HAS NOT BEEN PUBLICLY TRADED AND WE EXPECT THAT THE PRICE OF
OUR STOCK MAY FLUCTUATE SUBSTANTIALLY
Recently, the stock prices of technology companies, like PLX, have been
quite volatile. Moreover, 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. Therefore, the price of our stock may decline and the value of your
investment would be reduced.
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."
12
<PAGE> 17
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.
TRADEMARKS
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.
INFORMATION IN PROSPECTUS
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.
13
<PAGE> 18
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. If the underwriters' over-allotment option is
exercised in full, our net proceeds will be approximately $27,534,800.
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.
14
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of PLX as of December 31,
1998 (a) on an actual basis, (b) on a pro forma basis to give effect to the
conversion of all outstanding shares of our preferred stock into common stock,
and (c) on a pro forma, as adjusted basis to reflect the application of the
estimated net proceeds from the initial public offering 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, 4,626,643 shares issued and
outstanding -- actual; 18,365,551 shares issued
and outstanding -- pro forma; 21,665,551 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 March 1999.
(2) Excludes 1,300,000 shares of common stock reserved for issuance under our
1998 Stock Incentive Plan and 1,000,000 shares of common stock reserved for
issuance under our 1999 Stock Incentive Plan. See "Management -- Stock
Option Plans," "Description of Capital Stock" and Note 5 to Consolidated
Financial Statements.
15
<PAGE> 20
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, (a) the total number of shares of our common stock purchased from PLX, (b)
the total consideration paid and (c) the average price per share paid by the
existing stockholders and by the new investors in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing
stockholders....... 18,365,551 84.8% $ 5,264,682 16.6% $0.29
New investors........ 3,300,000 15.2 26,400,000 83.4 8.00
---------- ----- ----------- -----
Total...... 21,665,551 100.0% $31,664,682 100.0%
========== ===== =========== =====
</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 (a)
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 (b) 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 5 of Notes to
Consolidated Financial Statements.
16
<PAGE> 21
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 3,601
Shares used to compute pro forma basic
net income per share(1).............. 17,340
Shares used to compute historical and
pro forma diluted net income per
share(1)............................. 16,653 16,768 17,287 17,758 18,405
</TABLE>
17
<PAGE> 22
<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.
18
<PAGE> 23
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. In 1994 and 1995, a
significant portion of our revenues was from the sale of semiconductor devices
based on a variety of bus architectures. Our revenues since 1996 have been
derived predominantly from the sale of semiconductor devices based on the PCI
standard 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 generate a
small portion of our 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 electronic
equipment manufacturers. 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 -- Our Dependence on Third-Party Distributors Could Adversely Affect Our
Ability to Market and Support Our Products."
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.
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, 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 potentially
future quarters would be materially and adversely affected.
19
<PAGE> 24
See "Risk Factors -- Our Lengthy Sales Cycle Can Result in Uncertainty and
Delays With Regard to Our Expected Revenues."
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 higher volume shipments of 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.
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 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
20
<PAGE> 25
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, but will generally remain constant as a percentage of revenues.
Deferred Compensation. In connection with the grant of 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.
The valuation allowance for deferred tax assets decreased by $407,000 and
$639,000 in 1998 and 1997, respectively. Decreases in the valuation allowance
were based upon taxable income earned in 1998 and 1997, as well as management's
expectations of future taxable income. Although realization is not assured, we
believe we will generate future taxable income sufficient to realize the benefit
of the net deferred tax assets recognized.
21
<PAGE> 26
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
====== ====== ====== ====== ====== ====== ====== ======
Historical basic net income per share... $ 0.13 $ 0.05 $ 0.26 $ 0.15 $ 0.04 $ 0.08 $ 0.34 $ 0.28
Pro forma basic net income per share.... $ 0.01 $ 0.02 $ 0.07 $ 0.06
Historical and pro forma diluted net
income per share...................... $ 0.02 $ 0.01 $ 0.05 $ 0.03 $ 0.01 $ 0.02 $ 0.07 $ 0.06
Shares used in computing historical
basic net income per share............ 3,174 3,283 3,335 3,379 3,441 3,508 3,638 3,819
Shares used in computing pro forma basic
net income per share.................. 17,180 17,247 17,377 17,558
Shares used in computing historical and
pro forma diluted net income per
share................................. 17,385 17,505 17,863 18,280 18,420 18,420 18,405 18,375
</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>
22
<PAGE> 27
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 PCI 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 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. 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 when net revenues
grew faster than research and development expenditures. 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, which related to the timing and
completion of product development projects, 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;
23
<PAGE> 28
- 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.
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, $2.6
million and $307,688 in 1998, 1997 and 1996, respectively. Cash provided by
operating activities in 1998, 1997, and 1996 was primarily attributable to net
income adjusted for depreciation. In addition, cash provided by operating
activities in 1998 was also due to a decrease in our accounts receivable
balance. The decrease in accounts receivable was primarily related to
differences in the timing of shipments in the final quarter of 1998 compared to
1997.
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
24
<PAGE> 29
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. We
anticipate that modification or replacement and testing of these systems will be
completed by September 30, 1999. None of our hardware or software products has
Year 2000 issues that require product modification or replacement.
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 have requested
these plans and will evaluate them as they are received. We anticipate that this
evaluation will be completed by September 30, 1999. 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 believe that, if our suppliers are not Year 2000
compliant, the reasonably likely worst case would be that we would be unable to
receive products from them on a timely basis which would disrupt our shipments
to customers and could materially adversely affect our business. In addition, if
our IT systems are not Year 2000 compliant, we may be unable to process customer
orders, which could also lead to shipment delays. 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.
25
<PAGE> 30
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 semiconductor devices and
software that accelerate and manage the transfer of data in high-performance
embedded systems. An embedded system is a computer that performs specific tasks
and is incorporated into another product. Our products are based on widely
accepted industry standards such as the Peripheral Component Interconnect (PCI)
standard. The PLX solution consists of three related types of products:
semiconductor devices, software development kits and hardware design kits. Our
semiconductor devices simplify the development of data transfer circuits in
embedded systems 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 hardware design kits promote sales of our semiconductor
devices by lowering customers' development costs and by accelerating their
ability to bring new products to market.
More than 500 customers 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
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 the:
- growth of the Internet,
- deployment of high-speed networking and
- proliferation of multimedia.
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
26
<PAGE> 31
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).
Enterprise Storage. Enterprise storage applications include disk storage
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
input/output (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 such as network components, printers and
storage systems. 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
27
<PAGE> 32
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.]
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
28
<PAGE> 33
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 from
companies such as Wind River and Integrated Systems. In a related development, a
consortium of industry leaders approved a new specification, Intelligent I/O
(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 can benefit from several other design elements, such as data
control software, hardware design kits and third-party development tools to
complete their development work in a timely manner. These additional elements
simplify development and improve time to market. They provide the design team
with proven hardware and software design examples and the tools to adapt these
examples to the embedded designers' needs.
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.
29
<PAGE> 34
THE PLX SOLUTION
PLX is a leading developer and supplier of semiconductor devices and
software that accelerate and manage the transfer of data transfer in
high-performance embedded systems. Our solution consists of three related
products:
- semiconductor devices,
- software development kits which assist in developing systems that
incorporate our semiconductor devices, and
- hardware design kits that allow development of a system using our
semiconductor devices and software development kits.
Development tools provided by third parties support these three related
products. These development tools are used for the design of other parts of the
embedded system but also work with our products.
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
are 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 hardware 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 electronic equipment manufacturers 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.
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 products provide 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 hardware 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
30
<PAGE> 35
and five hardware 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.
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 electronic
equipment manufacturers incorporate our semiconductor devices in their products.
The following table
31
<PAGE> 36
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 products consist of semiconductor devices, software development kits
and hardware design kits. Development tools provided by third parties support
these three design elements. Our semiconductor device products include I/O
accelerators and our announced I/O processor, which are 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. We generate a small
portion of our revenues from sales of our software and hardware design kits. The
other layers of our solution 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 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, a set of circuits
and features that enable efficient flow of data within systems with minimal
supervision from the system processor. 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 have announced but are not yet shipping the IOP 480, our first I/O
processor, which combines the features of our I/O Accelerator devices with a
microprocessor core
32
<PAGE> 37
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 will enhance
overall system performance by maximizing data flow and off-loading I/O tasks
from the host processor. It will integrate, in one cost and space-saving device,
many of the circuit elements required for I/O 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 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 programming interface that enables developers to execute
complex transactions with simple commands. This programming interface allows
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 software development kit for I(2)O Architecture
simplifies the development of software for I(2)O architecture-based technology.
Hardware Design Kits. We offer hardware design kits that support the
development of systems incorporating PLX semiconductor devices. We call our
hardware design kits "reference design kits." Designers use the hardware design
kits to evaluate our semiconductor devices and to simplify and accelerate
product development. Each hardware design kit includes a development circuit
board that designers can use to evaluate the PLX products and also design their
own system. These hardware design kits also include technical drawings,
documentation and other design assistance tools. Current hardware design kits
support IBM's PowerPC processors, Motorola's PowerQuicc processors, Intel's i960
processors, IDT's MIPs processors and Hitachi's SH processors.
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 software development tools from
Diab Data, IBM, Integrated Systems, Microsoft, Netware, and Wind River and
software modeling tools from Synopsys.
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<PAGE> 38
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.
- -----------------------------------------------------------------------------
HARDWARE 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>
TECHNOLOGY
We believe that supplying high-performance I/O connectivity solutions for
I/O subsystems requires expertise in four areas:
- semiconductor design,
34
<PAGE> 39
- 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. 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 software development
kits, our third generation PCI debugger, PLXMon 98. We continue to enhance and
expand our software development kits, which contain a set of programming
interfaces that software developers use to create drivers and proprietary
message passing software. Our software development kit 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 hardware design kits. These kits are
high-performance adapters and embedded systems that customers can use to assist
development of their products. Each of these hardware 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 types of
peripherals which have
35
<PAGE> 40
different performance levels and functions. The host software and 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.
In addition, two alternative devices can perform some or all of the
functions of our semiconductor devices. The first is the Application Specific
Integrated Circuit (ASIC). 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 second alternative device is the Field
Programmable Gate Array (FPGA). The FPGA is a semiconductor device whose logic
function can be programmed by the system manufacturer. This 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 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.
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<PAGE> 41
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.
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 -- Our Dependence on
Third-Party Distributors Could Adversely Affect Our Ability to Market and
Support Our Products."
Net revenues through distributors accounted for approximately 49%, 56% and
41% of our net revenues for 1998, 1997 and 1996, respectively. 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
37
<PAGE> 42
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.
Our research and development has been focused in three main areas: PCI I/O
accelerators and I/O processors, hardware 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 -- Our Potential Future
Acquisitions May Not be Successful Because We Have Not Made Acquisitions in the
Past."
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 Future Success Will Depend Upon Our
Ability to Respond to 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
38
<PAGE> 43
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. We maintain inventory levels based on current lead times from
foundries plus safety stock to account for anticipated fluctuations in demand.
Our inventory comprises a major portion of our working capital. As a result, we
have limited 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
May Experience Shipment Delays and Increased Cost Due To Our Dependence on
Independent Manufacturers."
Our PCI devices are currently fabricated using a range of 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 -- Defects in Our
Products Could Increase Our Costs and Delay Our Product Shipments."
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
39
<PAGE> 44
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. See
"Risk Factors -- Our Limited Ability to Protect Our Intellectual Property and
Proprietary Rights Could Adversely Affect Our Competitive Position."
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.
40
<PAGE> 45
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 PLX's inception in May 1986. From 1980
through 1986, Mr. Salameh was employed in various marketing management positions
with Hewlett-Packard Company. 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, Inc., 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 Corporation, 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
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<PAGE> 46
Technical Sales, a manufacturers' representative company. From March 1986
through October 1993, Mr. Easley held various positions at Adaptec, Inc., 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 Corporation, 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 Inc., 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 Computer Corporation, 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, Inc., Intel Corporation,
Micro Component Technology, Inc., Novellus Systems, Inc., 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. Mr. Sohn is currently serving as CEO of Oak
Technology, a semiconductor manufacturer. From 1992 until March 1999, Mr. Sohn
held various executive management positions at Quantum Corporation, a disk drive
manufacturer, including 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.
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<PAGE> 47
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.
Officers are appointed by the Board of Directors. Our Bylaws provide that
the Board of Directors shall consist of five members. 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. 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 PLX. 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
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<PAGE> 48
serves as a member of the board of directors or compensation committee of any
entity 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 PLX.
EXECUTIVE COMPENSATION
The following table provides summary information concerning the
compensation earned by our chief executive officer and certain of our other
executive 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. This includes bonus amounts in the fiscal year earned,
rather than in the fiscal year in which each such bonus amount was paid. All
stock options were granted pursuant to the 1998 Stock Incentive Plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- -----------------
SHARES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
--------------------------- -------- -------- -----------------
<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>
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<PAGE> 49
The following table sets forth certain information concerning grants of
options to purchase shares of our common stock to each of the following officers
during fiscal 1998. In each case, the options vest pursuant to a four-year
schedule. Under this schedule, on the first anniversary of the date of grant,
25% of the total options granted vest. Thereafter, 2.083% of the total options
granted vest each month.
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. The Board of
Directors based this determination on our operating results and financial
condition and the valuations of comparable public companies in the
semiconductor industry.
(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 December
31, 1997, a total of 4,402,060 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
PLX (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: (a) on the first
anniversary of the date of issuance, the number of shares subject to the
Repurchase Option is reduced
45
<PAGE> 50
by 25%; and (b) 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 purchasers
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 (a) four years
from the date of issuance or (b) the effectiveness of a registration statement
pursuant to which the subject securities may be offered and sold by such
purchasers; 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. Each of the
directors and officers that has purchased Restricted Stock has executed a market
stand-off agreement, which prevents such officers and directors from selling our
securities for a period of at least 150 days following our issuance of
securities pursuant to an underwritten offering. 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 purchasers 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 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, 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 639,750 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 PLX, 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 of PLX, 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.
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<PAGE> 51
1999 STOCK INCENTIVE PLAN
Our 1999 Stock Incentive Plan was approved by the Board of Directors on
January 15, 1999 and by our stockholders in March 1999, effective as of the
effective date of the offering. The 1999 Plan permits the grant of securities of
PLX, including options intended to qualify as "incentive stock options" under
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. Shares issued under the Non-Employee Director Plan will
come from the 1,000,000 shares of common stock reserved for issuance pursuant to
the 1999 Plan. 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 (a) for
any breach of such director's duty of loyalty to PLX or to its stockholders, (b)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (c) for unlawful payments of dividends or
unlawful stock repurchases as provided in Section 174 of the Delaware General
Corporation Law or (d) for any transaction from which a director derives an
improper personal benefit.
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<PAGE> 52
Our Bylaws provide that PLX 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
PLX upon an undertaking by such 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, judgments, fines and
settlements 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 PLX, other than Liabilities arising from willful misconduct or
conduct that is knowingly fraudulent or deliberately dishonest. These agreements
also require us 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 PLX. 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 PLX 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.
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<PAGE> 53
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 to such officers subject to a repurchase option on
behalf of PLX. The repurchase price of the restricted stock is the original
sales price. Except as noted below, the number of shares subject to each
repurchase option is reduced according to our standard vesting schedule. As
consideration for the issuance of this 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 for the remaining 80% of the
aggregate purchase price. The notes contain the standard terms for all notes
issued in connection with the issuance of Restricted Stock.
<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 $ 5,520 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 $ 5,160 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 $ 9,000 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 1,166.67 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 8,000 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 Stock subject to the Repurchase Option is
reduced by 1,083.33 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.
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<PAGE> 54
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, 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, Draper Associates, L.P. and Eugene J. Flath. 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.
50
<PAGE> 55
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, by (a) 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, (b) certain of our
executive officers, (c) each of our directors, and (d) all current officers and
directors as a group.
In the table below, 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 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 18,365,551
shares of common stock outstanding prior to this offering and 21,665,551 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 person named in the table has sole
voting and investment power with respect to the shares set forth opposite such
person's name.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED
AS A RESULT OF PERCENTAGE OF
OPTIONS EXERCISABLE SHARES OUTSTANDING
5% BENEFICIAL OWNERS, DIRECTORS, WITHIN 60 DAYS OF ----------------------
NOMINEES FOR DIRECTOR, NAMED NUMBER OF SHARES THE DATE OF BEFORE THE AFTER THE
OFFICERS BENEFICIALLY OWNED(1) THIS PROSPECTUS OFFERING OFFERING
- -------------------------------- --------------------- ------------------- ---------- ---------
<S> <C> <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
Draper Associates........... 1,656,294 -- 9.0 7.7
400 Seaport Court, Suite 250
Redwood City, CA 94063
Wei-Ti Liu.................. 966,021 -- 5.3 4.5
Michael J. Salameh.......... 961,483 313,000(5) 5.2 4.4
Kenyon Mei, Ph.D............ 350,000 -- 1.9 1.6
Mark R. Easley.............. 350,000 165,000(6) 1.9 1.6
Michael S. Hopwood.......... 240,000 105,000(7) 1.3 1.1
Scott M. Gibson............. 180,000 70,000(8) 1.0 *
Young K. Sohn............... 15,000 15,000(9) * *
All directors, nominees for
director and executive
officers as a group (10
persons)(10).............. 8,896,205 723,000 48.5% 41.1%
</TABLE>
- ---------------
(1) Includes shares set forth in the column titled "Number of Shares
Beneficially Owned as a Result of Options Exercisable Within 60 days of the
Date of this Prospectus."
51
<PAGE> 56
(2) Includes (a) 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 (b) 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) Mr. Salameh has been granted an 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 reflected in the table.
(6) Mr. Easley has been granted an 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 reflected in the table.
(7) Mr. Hopwood has been granted an 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 reflected in the table.
(8) Mr. Gibson has been granted an 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 reflected in the table.
(9) Mr. Sohn has been granted an option to purchase 15,000 shares which will be
effective as of the date of this offering. The option will be immediately
exercisable. This option is reflected in the table.
(10) Includes 6,619,722 shares indirectly held by various directors of PLX. See
footnotes 2, 3, 4 and 5.
52
<PAGE> 57
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 21,665,551 shares of common stock (22,160,551 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.
Under our 1998 Stock Incentive Plan, 1,300,000 shares of common stock have
been reserved for issuance and options to purchase 645,250 shares were
outstanding as of December 31, 1998. In January 1999, our Board of Directors
approved the grant of options to purchase 639,750 shares at the initial public
offering price under our 1998 Stock Incentive Plan, to be effective as of the
offering. Further, 1,000,000 shares of our common stock have been reserved for
issuance under our 1999 Stock Incentive Plan, under which no options were
outstanding as of December 31, 1998.
COMMON STOCK
As of December 31, 1998, there were 18,365,551 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 21,665,551 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 PLX, 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.
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<PAGE> 58
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 delaying, deferring or preventing a change in control of PLX
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
PLX has entered into registration rights agreements with those individuals
who own 13,738,908 shares of our common stock which will be issued upon the
automatic conversion of their preferred stock into common stock in connection
with this offering. Under the registration rights agreements, the holders or
their transferees are entitled to 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 conditions and limitations, are entitled to include
such shares therein. In addition, at any time, the holders of at least 50% of
these shares of common stock 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 these shares of common stock
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 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:
- 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,
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting
54
<PAGE> 59
stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants
do not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer, or
- on or 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:
- any merger or consolidation involving the corporation or any
majority-owned subsidiary of the corporation and any other person or
entity,
- 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,
- 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,
- 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
- 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.
55
<PAGE> 60
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, there will be 21,665,551 shares of our
common stock outstanding. This assumes 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 PLX, as that term is defined by the
Securities Act, which shares will be subject to the resale limitations of Rule
144 adopted under the Securities Act.
As of the date of this prospectus, 18,365,551 "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. Upon the expiration of agreements not to sell entered into with us,
150 days after the effective date approximately 3,904,708 shares will become
eligible for sale subject to compliance with Rule 144 and Rule 701. Beginning
180 days after the effective date approximately 14,460,843 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. Restrictions pursuant
to such agreements not to sell may be waived by Merrill Lynch, Pierce, Fenner &
Smith Incorporated. See "Underwriting."
<TABLE>
<CAPTION>
SHARES FIRST
DAYS AFTER DATE OF THIS PROSPECTUS ELIGIBLE FOR SALE COMMENT
- ---------------------------------- ----------------- -------
<S> <C> <C>
Upon Effectiveness............... 3,300,000 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......................... 3,904,708 PLX lockup released; shares
saleable under Rules 144 and
701.
180 days......................... 14,460,843 Underwriter lockup released;
shares saleable under Rules 144
and 701.
</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 PLX, is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (a) 1% of the then outstanding shares of our common stock (21,665,551
shares immediately after the offering) or (b) 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. 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 PLX 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 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.
56
<PAGE> 61
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, 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 (a) by persons other than affiliates, subject only to
the manner of sale provisions of Rule 144, and (b) 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 639,750 shares at the initial public
offering price, to be effective at the offering.
57
<PAGE> 62
UNDERWRITING
GENERAL
We intend to offer our common stock in the United States and Canada through
a number of underwriters. Merrill Lynch, Pierce, Fenner & Smith Incorporated,
NationsBanc Montgomery Securities LLC and Wit Capital Corporation are acting as
representatives of each of the underwriters named below. Subject to the terms
and conditions set forth in a purchase agreement between us and the
underwriters, we have agreed to sell to 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.......................
Wit Capital Corporation.....................................
--------
Total.........................................
========
</TABLE>
In the purchase agreement, the several underwriters have agreed, subject to
the terms and conditions set forth in that agreement, to purchase all of the
shares of our common stock being sold under the terms of the agreement if any of
the shares of common stock are purchased. Under the purchase agreement, the
commitments of non-defaulting underwriters may be increased.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or to contribute to payments the underwriters may be required to
make in respect of those liabilities.
The expenses of this offering, exclusive of the underwriting discount, are
estimated at $700,000 and are payable by us.
The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters 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 to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
58
<PAGE> 63
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. This information is presented assuming either no exercise
or full exercise by the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
TOTAL
----------------
WITHOUT WITH
PER SHARE OPTION OPTION
--------- ------- ------
<S> <C> <C> <C>
Public offering price................................. $ $ $
Underwriting discount................................. $ $ $
Proceeds, before expenses, to PLX..................... $ $ $
</TABLE>
OVER-ALLOTMENT OPTION
We have granted an option to the underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of an
additional 495,000 shares of our 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 to
purchase a number of additional shares of our common stock proportionate to such
underwriter's initial amount reflected in the foregoing table.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 100,000 of the shares offered hereby to be sold to
some of 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 that those persons purchase the reserved
shares. Any reserved shares which are not orally confirmed for purchase within
one day of the pricing of the offering will be offered by the underwriters to
the general public on the same terms as the other shares offered by this
prospectus.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors have agreed not to directly or
indirectly
- 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, lend or otherwise dispose of or
transfer any shares of our common stock or securities convertible into or
exchangeable or exercisable for or repayable with our common stock,
whether now owned or later acquired by the person executing the agreement
or with respect to which the person executing the agreement later
acquires the power of disposition, or file any registration statement
under the Securities Act relating to any shares of our common stock or
- enter into any swap or other agreement or any other agreement that
transfers, in whole or in part, the economic consequence of ownership of
our common stock whether any such swap or transaction is to be settled by
delivery of our common stock or other securities, in cash or otherwise,
without the prior written consent of
59
<PAGE> 64
Merrill Lynch on behalf of the underwriters for a period of 180 days
after the date of the prospectus. See "Shares Eligible for Future Sale."
NASDAQ NATIONAL MARKET LISTING
Before this offering, there has been no market for our common stock. The
initial public offering price will be determined through negotiations between us
and the representatives of the underwriters. The factors to be considered in
determining the initial public offering price, in addition to prevailing market
conditions, include the valuation multiples of publicly traded companies that
the representatives believe to be comparable to us, certain of our financial
information, the history of, and the prospects for, us and the industry in which
we compete, and an assessment of our management, its past and present
operations, the prospects for, and timing of, future revenues of PLX, the
present state of our development, the percentage interest of PLX being sold as
compared to the valuation for PLX 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 expect our common stock to be approved for listing on the Nasdaq
National Market, subject to notice of issuance, under the symbol "PLXT."
The underwriters do not expect sales of our common stock to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares being offered under the prospectus.
PRICE STABILIZATION AND SHORT POSITIONS
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 underwriters 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, i.e., if they sell more shares of our common stock
than are set forth on the cover page of this prospectus, the underwriters may
reduce that short position by purchasing our common stock in the open market.
The underwriters may also elect to reduce any short position by exercising all
or part of the over-allotment option described above.
PENALTY BIDS
The underwriters may also impose a penalty bid on certain other
underwriters and selling group members. This means that if the underwriters
purchase shares of our common stock in the open market to reduce the their 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.
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.
60
<PAGE> 65
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.
WHERE YOU CAN FIND MORE 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. Prior to filing the Registration Statement on Form S-1,
we have not filed any reports with the Commission. 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. You may obtain information on the operation of the Public Reference
Room by calling 1-800-SEC-0330. 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.
61
<PAGE> 66
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 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.
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>
62
<PAGE> 67
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> 68
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. as of 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> 69
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 -- 4,674,416
in 1997 and 4,626,643 in 1998 and
18,365,551 pro forma..................... 4,675 4,627 18,366
Additional paid in capital.................... 5,500,352 5,616,775 5,607,616
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> 70
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 3,601,250
----------- ----------- -----------
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 18,405,143
=========== =========== ===========
Pro forma basic net income per share...... $ 0.16
===========
Shares used to compute pro forma basic net
income per share........................ 17,340,158
===========
Pro forma diluted net income per share.... $ 0.15
===========
Shares used to compute pro forma diluted
net income per share.................... 18,405,143
===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 71
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......... -- -- 413,000 413 61,537 -- (38,960) --
Repurchase of common stock.... -- -- (60,883) (61) (6,698) -- -- --
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......... -- -- 1,058,500 1,059 208,878 -- (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 4,674,416 4,675 5,500,352 (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 4,626,643 $4,627 $5,616,775 $(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......... 22,990
Repurchase of common stock.... (6,759)
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......... 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> 72
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.... 33,283 56,051 --
Repurchase of common stock............. (6,759) (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> 73
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 hardware
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> 74
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 provided there are no significant remaining obligations and
collectibility is probable. Recognition of sales to distributors, including
international distributors, is
F-8
<PAGE> 75
PLX TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
deferred until the product is resold by the distributors to end users, provided
there are no significant remaining obligations and collectibility is probable.
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.
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed," the Company capitalizes eligible computer software costs upon
achievement of technological feasibility subject to net realizable value
considerations. The Company has defined technological feasibility as completion
of a working model. The period between the achievement of technological
feasibility and release of the Company's software products has been of short
duration. As of December 31, 1998, such capitalizable costs were insignificant.
Accordingly the Company has charged all such costs to research and development
expenses in the accompanying consolidated statements of income.
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,
F-9
<PAGE> 76
PLX TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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> 77
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 3,601,250
=========== =========== ===========
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 3,601,250
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 18,405,143
=========== =========== ===========
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...................... 3,601,250
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.......................... 17,340,158
===========
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> 78
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> 79
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 the Company approved a form of
Restricted Stock Purchase Agreement to be used to sell restricted shares of the
Company's 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 4,402,060 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> 80
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> 81
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 of Restricted Stock 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 had
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> 82
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> 83
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:
United States........................ $7,130,882 $12,437,302 $16,370,246
Other North America.................. 634,836 1,192,763 1,009,028
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> 84
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 1999 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 1999 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> 85
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
WIT CAPITAL CORPORATION
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 86
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> 87
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 PLX'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 period from February 28, 1995 to February 28, 1999, 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 1,389,727 shares of
Restricted Stock to employees, directors and consultants pursuant to
restricted stock purchase agreements, at purchase prices ranging from
$0.0633 to $0.3000 with an average of $0.1803 per share. The 1,389,727
shares were sold to 76 employees, directors and consultants for cash in the
aggregate amount of $68,776 and promissory notes in the aggregate amount of
$275,104.
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. These shares were purchased by certain holders of
our preferred stock.
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> 88
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> 89
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Sunnyvale, State of California on the 9th day of March, 1999.
PLX TECHNOLOGY, INC.
By: /s/ MICHAEL J. SALAMEH
-----------------------------------
Michael J. Salameh
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the 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 March 9, 1999
- ------------------------------- (Principal Executive Officer)
Michael J. Salameh
/s/ SCOTT M. GIBSON* Vice President, Finance, Chief March 9, 1999
- ------------------------------- Financial Officer and Secretary
Scott M. Gibson (Principal Financial and Accounting
Officer)
/s/ D. JAMES GUZY, SR.* Director March 9, 1999
- -------------------------------
D. James Guzy, Sr.
/s/ TIMOTHY DRAPER* Director March 9, 1999
- -------------------------------
Timothy Draper
/s/ EUGENE FLATH* Director March 9, 1999
- -------------------------------
Eugene Flath
</TABLE>
*By: /s/ MICHAEL J. SALAMEH
---------------------------------
Michael J. Salameh
Attorney-In-Fact
II-4
<PAGE> 90
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> 91
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 PLX 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 PLX as Tenant.
10.5 Lease Agreement dated October 17, 1997 between The Arrillaga
Foundation and The Perry Foundation as Landlords and PLX 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.
10.9 PLX Technology, Inc. Stock Restriction, Information Rights
and Registration Rights Agreement dated April 19, 1989.
10.10 PLX Technology, Inc. Stock Restriction, Information Rights
and Registration Rights Agreement dated July 3, 1991.
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.
27.1* Financial Data Schedule.
99.1* Consent of Nominee Director.
</TABLE>
- -------------------------
* Previously filed.
** To be filed by Amendment
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
PLX TECHNOLOGY-DELAWARE, INC.
The undersigned, a natural person, for the purpose of organizing a corporation
for conducting the business and promoting the purposes hereinafter stated, under
the provisions and subject to the requirements of the laws of the State of
Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the acts
amendatory thereof and supplemental thereto, and know, identified, and referred
to as the "General Corporation Law of the State of Delaware"), hereby certifies
that:
ARTICLE I
The name of the Corporation is PLX Technology-Delaware, Inc.
(hereinafter called the "Corporation").
ARTICLE II
The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 1209 Orange
Street, City of Wilmington 19805, County of New Castle, Zip Code 19801. The name
of its registered agent at such address is The Corporation Trust Company.
ARTICLE III
The nature of the business and the purposes to be conducted and promoted
by the Corporation shall be: To conduct any lawful business, to promote any
lawful purpose, and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
ARTICLE IV
The Corporation is authorized to issue two classes of shares designated
respectively "Common Stock" and "Preferred Stock." The total number of shares of
all classes of stock which the Corporation has authority to issue is 35,000,000
consisting of 30,000,000 shares of Common Stock, with a par value of $0.001 and
5,000,000 shares of Preferred Stock, with a par value of $0.001.
ARTICLE V
The relative rights, preferences, privileges and restrictions granted to
or imposed upon the respective classes of Common and Preferred Stock are as
follows:
1
<PAGE> 2
Part I. COMMON STOCK
Section 1. Voting Rights. Except as otherwise provided by law and
subject to the provisions of Section 5 of Part II hereof with respect to the
election of directors, the holders of shares of Common Stock shall be entitled
to one (1) vote for each share so held with respect to each matter voted on by
the stockholders of the Corporation.
Section 2. Liquidation Rights. Subject to the prior and superior rights
of the holders of Preferred Stock (including those described in Part II, Section
3), upon any liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of Common Stock shall be entitled to receive the
remaining assets of the Corporation.
Section 3. Dividends. Dividends may be paid on the Common Stock as and
when declared by the Board of Directors, subject, however, to the prior and
superior rights of the holders of Preferred Stock.
Part II. PREFERRED STOCK
Preferred Stock may be issued in one or more series. The rights,
preferences, privileges and restrictions granted to, and imposed upon, the first
four such series, designated Series A, Series B, Series C and Series D are set
forth in succeeding provisions of this ARTICLE V. Except as to Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, and Series
D Preferred Stock, the Board of Directors is authorized to fix the number of any
such series of Preferred Stock and to determine the designation of any such
series, subject to (i) such stockholder approvals as may be provided for herein
and (ii) the number of shares of Preferred Stock authorized at that time by this
ARTICLE V. Subject to such stockholder approvals as may be provided for herein,
the Board of Directors is further authorized to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued series of Preferred Stock and to increase or decrease (but not below
the number of shares of such series then outstanding) the number of shares of
any series of Preferred Stock. In case the number of shares of any series shall
be so decreased, the shares constituting such decrease shall resume the status
that they had prior to the adoption of the resolution or amendment originally
fixing the number of shares of such series.
Section 1. Designation. The initial four series of Preferred Stock shall
be designated and known as "Series A Preferred Stock", "Series B Preferred
Stock", "Series C Preferred Stock", and "Series D Preferred Stock." The number
of authorized shares constituting Series A Preferred Stock shall be 1,300,000
with a par value of $0.001, the number of authorized shares constituting Series
B Preferred Stock shall be 650,000 with a par value of $0.001, the number of
authorized shares constituting Series C Preferred Stock shall be 1,418,738 with
a par value of $0.001, and the number of authorized shares constituting Series D
Preferred Stock shall be 1,500,000 with a par value of $0.001.
Section 2. Dividends. The holders of the Series A, Series B, Series C
and Series D Preferred Stock (collectively, the "Preferred Stock") shall be
entitled to receive, when, if and as declared by the Board of Directors,
noncumulative dividends at the rate of $0.05, $0.10, $.1375
2
<PAGE> 3
and $.14 per share, respectively, per annum, payable quarterly as the Board of
Directors may from time to time determine out of funds legally available
therefor. No dividends (other than those payable solely in the Common Stock of
the Corporation) shall be paid on any Common Stock of the Corporation during any
fiscal year of the Corporation until dividends in the total amount of $0.05 per
share, $0.10 per share, $.1375 per share and $.14 per share on Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and
the Series D Preferred Stock shall have been paid or declared and set apart
during that fiscal year. The right to such dividend on shares of Preferred Stock
shall not be cumulative and no right shall accrue to holders of Preferred Stock
by reason of the fact that dividends on said shares are not declared in any
prior year. No dividend may be declared and paid on any series of Preferred
Stock unless a proportionate dividend is declared and paid on all series of
Preferred Stock.
Section 3. Liquidation Preferences.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary, (i) the holders of the Series
A Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock by reason of their ownership thereof, the amount of
$0.50 per share for each share of Series A Preferred Stock then held by them
plus an amount equal to all declared but unpaid dividends on the Series A
Preferred Stock and (ii) the holders of the Series B Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of the assets
of the Corporation to the holders of the Common Stock by reason of their
ownership thereof, the amount of $1.00 per share for each share of Series B
Preferred Stock then held by them plus all declared but unpaid dividends on the
Series B Preferred Stock and (iii) the holders of the Series C Preferred Stock
shall be entitled to receive prior to and in preference to any distribution of
the assets of the Corporation to the holders of the Common Stock by reason of
their ownership thereof, the amount of $1.375 per share for each share of Series
C Preferred Stock then held by them plus all declared but unpaid dividends on
the Series C Preferred Stock and (iv) the holders of the Series D Preferred
Stock shall be entitled to receive prior to and in preference to any
distribution of the assets of the Corporation to the holders of the Common Stock
by reason of their ownership thereof, the amount of $1.40 per share for each
share of Series D Preferred Stock then held by them plus all declared but unpaid
dividends on the Series D Preferred Stock. If upon the occurrence of such event,
the assets and funds thus distributed among the holders of the Preferred Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amount for the Preferred Stock, then the entire assets
and funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Preferred Stock in proportion to
the preferential amount each such holder is otherwise entitled to receive.
(b) After full payment has been made to the holders of Preferred
Stock under subsection (a) above, any remaining assets of the Corporation shall
be distributed to the holders of Preferred Stock and of Common Stock in an equal
amount per "Common equivalent" share (each holder's shares of Preferred Stock
being treated as having been converted into the number of shares of Common Stock
into which such shares could be converted for the purposes of the calculation).
3
<PAGE> 4
(c) A consolidation or merger of the Corporation with or into any
other corporation or any other entity or person, or any other corporate
reorganization in which the Corporation shall not be the continuing or surviving
entity, or a sale of all or substantially all of the assets of the Corporation,
or a transaction or series of transactions in which more than fifty percent
(50%) or the outstanding stock of the Corporation is transferred, shall not be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 3, but shall be subjected to the provisions of Section 7 hereof.
Section 4. Redemption.
(a) At or at any time after the receipt by the Corporation in
writing from the holders of not less than 67% of the Series A Preferred Stock
then outstanding of their consent to redemption hereunder, the Corporation may
at any time it may lawfully do so, at the option of the Board of Directors,
redeem in whole or in part the Series A Preferred Stock by paying in cash
therefor $0.50 per share for each share of Series A Preferred Stock then
outstanding (appropriately adjusted for any stock dividend, stock split,
recapitalization, consolidation or the like of the Series A Preferred Stock),
plus an amount equal to all declared and unpaid dividends on the outstanding
shares of Series A Preferred Stock (such total amount is hereinafter referred to
as the "Series A Redemption Price"). At or at any time after the receipt by the
Corporation in writing from the holders of not less than 67% of the Series B
Preferred Stock then outstanding of their consent of redemption hereunder, the
Corporation may at any time it may lawfully do so, at the option of the Board of
Directors, redeem in whole or in part the Series B Preferred Stock by paying in
cash therefor $1.00 per share for each share of Series B Preferred Stock then
outstanding (appropriately adjusted for any stock dividend, stock split,
recapitalization, consolidation or the like of the Series B Preferred Stock),
plus an amount equal to all declared and unpaid dividends on the outstanding
shares of Series B Preferred Stock (such total amount is hereinafter referred to
as the "Series B Redemption Price"). At or at any time after the receipt by the
Corporation in writing from the holders of not less than 67% of the Series C
Preferred Stock then outstanding of their consent of redemption hereunder, the
Corporation may at any time it may lawfully do so, at the option of the Board of
Directors, redeem in whole or in part the Series C Preferred Stock by paying in
cash therefor $1.375 per share for each share of Series C Preferred Stock then
outstanding (appropriately adjusted for any stock dividend, stock split,
recapitalization, consolidation or the like of the Series C Preferred Stock),
plus an amount equal to all declared and unpaid dividends on the outstanding
shares of Series C Preferred Stock (such total amount is hereinafter referred to
as the Series C Redemption Price"). At or at any time after the receipt by the
Corporation in writing from the holders of not less than 67% of the Series D
Preferred Stock then outstanding of their consent of redemption hereunder, the
Corporation may at any time it may lawfully do so, at the option of the Board of
Directors, redeem in whole or in part the Series D Preferred Stock by paying in
cash therefor $1.40 per share for each share of Series D Preferred Stock then
outstanding (appropriately adjusted for any stock dividend, stock split,
recapitalization, consolidation or the like of the Series D Preferred Stock),
plus an amount equal to all declared and unpaid dividends on the outstanding
shares of Series D Preferred Stock (such total amount is hereinafter referred to
as the "Series D Redemption Price"). If the Corporation proposes to redeem any
series of Preferred Stock, it shall give notice to holders of
4
<PAGE> 5
all other series of Preferred Stock and offer to redeem shares of such series
upon request of the holders.
(b) In the event of any redemption of only a part of the then
outstanding shares of the Series A Preferred Stock, or Series B Preferred Stock,
or Series C Preferred Stock, or Series D Preferred Stock, the Corporation shall
effect such redemption pro rata among the holders thereof (as to the number of
shares held on the date of notice of redemption).
(c) At least forty-five (45) days prior to the date fixed for any
redemption of the Series A Preferred Stock or Series B Preferred Stock or Series
C Preferred Stock or Series D Preferred Stock (hereinafter referred to as the
"Redemption Date"), written notice shall be mailed, postage prepaid, to each
holder of record of such series of the Preferred Stock to be redeemed, at his
post office address last shown on the records of the Corporation, notifying such
holder of the election of the Corporation to redeem such shares, specifying the
Redemption Date and the date on which such holder's Conversion Rights (as
hereinafter defined) as to such shares terminate and calling upon such holder to
surrender to the Corporation, in the manner and at the place designated, his
certificate or certificates representing the shares to be redeemed (such notice
is hereinafter referred to as the "Redemption Notice"). On or prior to the
Redemption Date, each holder of the Series A Preferred Stock or Series B
Preferred Stock or Series C Preferred Stock or Series D Preferred Stock to be
redeemed shall surrender his certificate or certificates representing such
shares to the Corporation, in the manner and at the place designated in the
Redemption Notice, and thereupon the Redemption Price of such shares (except
that such number of shares shall be reduced by the number of shares which have
been converted pursuant to Section 6 hereof between the date of notice of
redemption and the date of which Conversion Rights to such shares terminate)
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares. From and after the Redemption Date,
unless there shall have been a default in payment of the Redemption Price
(whether because there is no source of funds legally available for such
redemption or because such funds shall not be paid or made available for
payment), all rights of the holders of the Series A Preferred Stock, or Series B
Preferred Stock, or Series C Preferred Stock, or Series D Preferred Stock
designated for redemption in the Redemption Notice as holders of such series of
the Preferred Stock of the Corporation (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
(d) On or prior to the Redemption Date, the Corporation shall
deposit the Redemption Price of all shares of Series A Preferred Stock, or
Series B Preferred Stock, or Series C Preferred Stock, or Series D Preferred
Stock designated for redemption in the Redemption Notice and not yet redeemed
with a bank or trust company having aggregate capital and surplus in excess
$20,000,000 as a trust fund for the benefit of the respective holders of the
shares designated for redemption and not yet redeemed, with irrevocable
instructions and authority to the bank or trust company to pay the Redemption
Price for such shares to their
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respective holders on or after the Redemption Date upon receipt of notification
from the Corporation that such holder has surrendered his share certificate to
the Corporation pursuant to Section 4(c) above. Such instructions shall also
provide that any moneys deposited by the Corporation pursuant to this Section
4(d) for the redemption of shares thereafter converted into shares of the
Corporation's Common Stock pursuant to Section 6 hereof no later than the fifth
(5th) day preceding the Redemption Date shall be returned to the Corporation
forthwith upon such conversion. The balance of any moneys deposited by the
Corporation pursuant to this Section 4(d) remaining unclaimed at the expiration
of two (2) years following the Redemption Date shall thereafter be returned to
the Corporation upon its request expressed in a resolution of its Board of
Directors.
Section 5. Voting Rights.
(a) Except as specifically provided herein and as otherwise
provided by law, the holder of each share of the Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which such share of Preferred Stock could be converted and shall have
voting rights and powers equal to the voting rights and powers of the Common
Stock (voting together with the Common Stock as a single class) and shall be
entitled to notice of any stockholders' meeting in accordance with the Bylaws of
the Corporation. Fractional votes shall not, however, be permitted and any
fractional voting rights resulting from the above formula shall be rounded to
the nearest whole number (with one/half being rounded upward).
(b) As to elections of directors, the holders of the Preferred
Stock shall vote together with the holders of the Common Stock as a single
class, as provided in the preceding subsection (a); provided, however, that so
long as there are at least one million (1,000,000) shares of Preferred Stock
outstanding, should the holders of all of the shares of Preferred Stock (by
cumulating their votes) not be able to elect at least three (3) of the
directors, then the holders of the Preferred Stock voting as a class shall be
entitled to elect three (3) directors and all remaining directors authorized by
the Bylaws shall be elected by the holders of the Common Stock as a class. At
such time as the holders of Preferred Stock are no longer entitled to elect any
directors voting as a separate class, the holders of the outstanding Preferred
shall vote with the holders of the Common Stock.
Section 6. Conversion. The holders of the Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Each share of each series of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share and on or prior to the fifth (5th) day prior to the
Redemption Date fixed in any Redemption Notice, at the office of the Corporation
or any transfer agent for such stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Conversion
Value (as hereinafter defined) per share in effect for such series by the per
share Conversion Price ( as hereinafter defined) of such series at the time of
conversion. The initial Conversion Price per
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share of the Series A Preferred Stock shall be $0.50 and the per share
Conversion Value of the Series A Preferred Stock shall be $0.50. The initial
Conversion Price of the Series B Preferred Stock shall be $1.00 and the per
share Conversion Value of the Series B Preferred Stock shall be $1.00. The
initial Conversion Price of the Series C Preferred Stock shall be $1.375 and the
per share Conversion Value of the Series C Preferred Stock shall be $1.375. The
initial Conversion Price of the Series D Preferred Stock shall be $1.40 and the
per share Conversion Value of the Series D Preferred Stock shall be $1.40. The
number of shares of Common Stock into which a series of Preferred Stock is
convertible is hereinafter referred to as the "Conversion Rate" of such series.
In the event of a call for redemption of any shares of Preferred Stock pursuant
to Section 4 hereof, the Conversion Rights shall terminate as to the shares
designated for redemption at the close of business on the fifth (5) day
preceding the Redemption Date, unless default is made in payment of the
Redemption Price, in which case the Conversion Rights for such shares shall
continue until such payment.
(ii) Each share of Preferred Stock shall automatically be
converted into shares of Common Stock at then effective applicable Conversion
Rate immediately upon the closing of the sale of the Corporation's Common Stock
in a firm commitment, underwritten public offering registered under the
Securities Act of 1933, as amended (the "Act"), at a public offering price equal
to or exceeding $5.00 per share of Common Stock (said offering price determined
prior to underwriting commissions and expenses and appropriately adjusted for
any stock dividend, stock split or combination, recapitalization, consolidation
or the like of the Common Stock) and the aggregate gross proceeds to the
Corporation of which equal or exceed $10,000,000 (before underwriting
commissions and expenses).
(b) Mechanics of Conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock he shall
surrender the certificate or certificates thereof, duly endorsed, at the office
of the Corporation or of any transfer agent for such stock, and shall give
written notice to the Corporation at such office that he elects to convert the
same and shall state therein the name or names in which he wishes the
certificate or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Preferred Stock, a certificate or certificates for the
number of shares of Common Stock to which he shall be entitled as aforesaid and
a check payable to holder in the amount of any cash amounts payable as the
result of a conversion into fractional shares of Common Stock pursuant to
Section 6(k) hereunder and any declared but unpaid dividends on the converted
Preferred Stock to which the holder may be entitled. Except for a conversion in
connection with an underwritten offer of securities under the Act, such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of surrender of the shares of Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date. In the
case of a conversion in connection with an underwritten offer of securities
under the Act, at the option of the holder of the Preferred Stock tendered for
conversion, the conversion may be conditioned upon the closing with the
underwriter or underwriters of the sale of securities pursuant to such offering,
and such conversion shall then be deemed to occur immediately prior to the
closing of such sale of securities.
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(c) Adjustments to Conversion Prices for Diluting Issues.
(i) Special Definitions. For purposes of this Section
6(c), the following definitions apply:
(1) `Options' shall mean rights, options, or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) `Original Issue Date' shall mean the date on
which a share of Series A Preferred Stock, or Series B Preferred Stock, or
Series C Preferred Stock, or Series D Preferred Stock was first issued.
(3) `Convertible Securities' shall mean any
evidence of indebtedness, shares (other than Common Stock and Series A Preferred
Stock and Series B Preferred Stock and Series C Preferred Stock and Series D
Preferred Stock) or other securities convertible into or exchangeable for Common
Stock.
(4) `Additional Shares of Common Stock' shall mean
all shares of Common Stock issued (or, pursuant to Section 6(c) (iii), deemed to
be issued) by the Corporation after the Original Issue Date, other than shares
of Common Stock issued or issuable:
(A) upon conversion of shares of Series A
Preferred Stock, or Series B Preferred Stock, or Series C Preferred Stock, or
Series D Preferred Stock;
(B) to founders, officers or employees of,
or consultants to, the Corporation pursuant to a stock grant or option plan or
other employee stock incentive program (collectively, the "Plans") approved by
the Board of Directors or assumed by the Corporation but not exceeding 1,363,064
shares of Common Stock, subject to adjustment for all subdivisions and
combinations and including reissuance of any such shares which may be
repurchased;
(C) as a dividend or distribution on Series
A Preferred Stock, or Series B Preferred Stock, or Series C Preferred Stock, or
Series D Preferred Stock;
(D) by way of dividend or other distribution
on shares of Common Stock excluded from the definition of Additional Shares of
Common Stock by the foregoing clauses (A), (B), and (C) or this clause (D) or on
shares of Common Stock so excluded.
(ii) No Adjustment of Conversion Prices. No adjustment in
the Conversion Price of a particular share of Preferred Stock shall be made in
respect of the issuance of Additional Shares of Common Stock unless the
consideration per share for an Additional Share of Common Stock issued or deemed
to be issued by the Corporation is less than the Conversion Price in effect on
the date of, and immediately prior to such issue, for such share of Preferred
Stock.
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(iii) Deemed Issue of Additional Shares of Common Stock.
(1) Options and Convertible Securities. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities then entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein designed to protect against dilution) of Common
Stock issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Section 6(c)(v) hereof) of such additional
Shares of Common Stock would be less than the Conversion Price for a series of
Preferred Stock in effect of the date of and immediately prior to such issue, or
such record date, as the case may be, and provided further that in any such case
in which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustments in the Conversion
Price for any series of Preferred Stock shall be made upon the subsequent issue
of Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;
(B) If such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Corporation, or decrease in the
number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Conversion Price for the Preferred Stock computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities (provided, however, that no such
adjustment of the Conversion Price for any series of Preferred Stock shall
affect Common Stock previously issued upon conversion on any Preferred Stock);
and
(C) no readjustment pursuant to clause (B)
above shall have the effect of increasing the Conversion Price for any series of
Preferred Stock to an amount which exceeds the lower of (i) the Conversion Price
for such series of Preferred Stock on the original adjustment date, or (ii) the
Conversion Price for such series of Preferred Stock that would have resulted
from any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date.
(iv) Adjustment of Conversion Prices Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to
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Section 6(c)(iii)) without consideration or for a consideration per share less
than the Conversion Price for any series of Preferred Stock in effect on the
date of and immediately prior such issue (except in the case of a stock dividend
or subdivision which shall have the results set forth in paragraph 6(C)(vi)
below), then and in such event, the Conversion Price for any such series shall
be reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue, plus the number of shares of Common Stock that
could be purchased for the aggregate consideration to be received for the
Additional Shares of Common Stock at the then existing Conversion Price, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of such Additional Shares of
Common Stock so issued; and provided further that, for the purposes of this
sentence, all shares of Common Stock issuable upon conversion of outstanding
Convertible Securities shall be deemed to be outstanding, and immediately after
any Additional Shares of Common Stock are deemed issued pursuant to Section
6(c)(iii), such Additional Shares of Common Stock shall be deemed to be
outstanding.
(v) Determination of Consideration. For purposes of this
Section 6(c), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall:
(A) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other
than cash, be computed at the fair market value thereof at the time of such
issue, as determined in good faith by the Board; and
(C) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board.
(2) Options and Convertible Securities. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 6(c)(iii)(1), relating to Options
and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable
by the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein designed to protect against dilution) payable to the
Corporation upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of
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such Options for Convertible Securities and the conversion or exchange of such
Convertible Securities by
(y) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein designed to protect against dilution) issuable upon
the exercise of such Options or the conversion or exchange of such Convertible
Securities.
(vi) Adjustments for Subdivisions, Stock Dividends,
Combinations or Consolidation of Common Stock
(1) In the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or otherwise, into
a lesser number of shares of Common Stock, the Conversion Price in effect
immediately prior to such combination or consolidation shall, concurrently with
the effectiveness of such combination or consolidation, be proportionately
increased.
(2) Stock Dividends and Subdivisions. In the event
that this Corporation at any time or from time to time after the Original Issue
Date shall declare or pay any dividend on the Common Stock payable in Common
Stock, or effect a subdivision of the outstanding shares of Common Stock into a
greater number of shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in Common Stock), then and in any such event, the
Conversion Price in effect immediately prior to such dividend or subdivision
shall, concurrently with the effectiveness of such dividend or subdivision, be
proportionately decreased. For purposes of this Section 6(c)(vi)(2) the
Conversion Price shall be proportionately decreased immediately after the
Original Issue Date to reflect a three for one stock split of the Common Stock
effected by the Corporation's predecessor, PLX Technology, Inc., a California
corporation.
(d) Adjustments for Other Distributions. In the event the
Corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive any
distribution payable in securities of the Corporation other than Common Stock,
Options or Convertible Securities, then in each such event provision shall be
made so that the holders of Preferred Stock shall receive upon conversion
thereof, in addition to the number of shares of Common Stock receivable
thereupon, the amount of securities of the Corporation which they would have
received had their Preferred Stock been converted into Common Stock on the date
of such event and had they thereafter, during the period from the date of such
event to and including the date of conversion, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 6 with respect to
the rights of the holders of the Preferred Stock.
(e) Adjustments for Reorganization, Reclassification, Exchange
and Substitution. If the Common Stock issuable upon conversion of the Preferred
Stock shall be changed into the same or a different number of shares of any
other class or classes of stock or other securities or property, whether by
reorganization (unless such reorganization is deemed a liquidation under Section
3(b) hereof), reclassification or otherwise (other than a subdivision or
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combination of shares provided for above), the Conversion Price then in effect
shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted such that the Preferred Stock
shall be convertible into, in lieu of the number of shares of Common Stock which
the holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock or other securities or property equivalent
to the number of shares of Common Stock that would have been subject to receipt
by the holders upon conversion of the Preferred Stock immediately before such
event; and, in any such case, appropriate adjustment (as determined by the
Board) shall be made in the application of the provisions herein set forth with
respect to the rights and interest thereafter of the holders of the Preferred
Stock, to the end that the provisions set forth herein (including provisions
with respect to change in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Preferred Stock.
(f) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 6 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
(g) Certificates as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 6,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment and
readjustment is based. Then Corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such applicable adjustments and
readjustments, (ii) the applicable Conversion Price at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of Preferred
Stock. Any certificate sent to the holders of Preferred Stock pursuant to this
Section 6(g) shall be signed by an officer of the Corporation.
(h) Notice of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, any security or right convertible into or
entitling the holder thereof to receive Common Stock, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Corporation shall
mail to each holder of Preferred Stock at least twenty (20) days prior to the
date specified therein, a notice specifying the date on which any such record is
to be taken for the purpose of such dividend, distribution, security or right,
and the amount and character of such dividend, distribution, security or right.
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(i) Issue Taxes. The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock in conversion of shares of Preferred Stock pursuant hereto;
provided, however, that the Corporation shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder in connection
with any such conversion.
(j) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(k) Fractional Shares. No fractional share shall be issued upon
the conversion of any share or shares of Preferred Stock. If the conversion
would result in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market value
of such fraction on the date of conversion (as determined in good faith by the
Board of Directors of the Corporation).
(1) Notices. Any notice required by the provision of this Section
6 to be given to the holders of shares of Preferred Stock shall be deemed given
if delivered personally or deposited in the United States mail, first class
postage prepaid, and addressed to each holder of record at his address appearing
on the books of the Corporation.
Section 7. Merger, Consolidation.
(a) At any time, in the event of a consolidation or merger of the
Corporation with or into any other corporation, or any other entity or person,
or any other corporate reorganization in which the Corporation shall not be the
continuing or surviving entity, or a sale of all or substantially all of the
assets of the Corporation, or a transaction or series of transactions in which
more that fifty percent (50%) of the outstanding stock of the Corporation is
transferred, the documents effecting such transaction shall provide that the
holders of each series of Preferred Stock shall be entitled to receive, prior
and in preference to the holders of the Common Stock, the amount of the then
existing Redemption Price for such series, in cash or in securities received
from the acquiring corporation, or in a combination thereof, at the closing of
such transaction, before payment of any amount to the holders of Common Stock.
If, at such closing the proceeds are insufficient to permit the payment to the
holders of Preferred Stock of the full amount set forth above, then all of the
consideration paid by the acquiring corporation in such transaction shall be
distributed at the closing of such transaction to the holders of the Preferred
Stock, in proportion to the preferential amount such holder is entitled to
receive.
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(b) Any securities to be delivered to the holders of the
Preferred Stock pursuant to Section 7(a) above shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability.
(1) If traded on a securities exchange, or the
NASDAQ National Market System, the value shall be deemed to be the average of
the security's closing prices in such exchange or System over the 30-day period
ending three (3) days prior to the closing;
(2) If actively traded over-the-counter (but not on
the NASDAQ National Market System), the value shall be deemed to be the average
of the closing bid prices over the 30-day period ending three (3) days prior to
the closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
Corporation and the holders of not less than a majority of the outstanding
Preferred Stock; and
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in (i)(1), (2)
or (3) to reflect the approximate fair market value thereof, as mutually
determined by the Corporation and the holders of not less than a majority of the
outstanding Preferred Stock.
(c) The Corporation shall give each holder of record of Preferred
Stock written notice of such impending transaction not later than twenty (20)
days prior to the stockholders' meeting called to approve such transaction or
twenty (20) days prior to the closing of such transaction whichever is earlier,
and shall also notify such holders in writing of the final approval of such
transaction. The first of said notices shall describe the material terms and
conditions of the contemplated transaction as well as the terms and conditions
of this Section 7, and the Corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the mailing by the Corporation of the first
notice provided for herein or sooner than ten (10) days after the mailing by the
Corporation of any notice of material changes provided for herein; provided,
however, that such period may be shortened upon the written consent of the
holders of not less than a majority of the then outstanding Preferred Stock.
Section 8. Amendment. Any term relating to the Preferred Stock may be
amended only with the written consent of the holders of not less than sixty
seven percent (67%) of the shares of the Preferred Stock then outstanding and
the Corporation. Any amendment so effected shall be binding upon the Corporation
and any holder of shares of the Preferred Stock. Provided, however, consent of
sixty seven percent (67%) of the holders of a Series of Preferred Stock shall be
required for any amendment that would adversely affect that Series in a
different manner than other shares of the Preferred Stock.
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Section 9. [Intentionally Omitted]
Section 10. Covenants. In addition to any other rights provided by law,
so long as any Preferred Stock shall be outstanding, the Corporation shall not,
without the vote or written consent by the holders of at least sixty seven
percent (67%) of the then outstanding shares of Preferred Stock:
(i) Purchase, redeem or otherwise acquire (or pay into or
set aside for a sinking fund for such purpose), any of the Common Stock of the
Corporation, provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock from directors, officers, employees or
consultants of the Corporation or any subsidiary, at the initial purchase price
thereof, or at such other price as may be approved by the Board of Directors,
upon termination of their employment or services pursuant to agreements between
the Corporation and such person providing for the right of the Corporation to
repurchase such shares, or
(ii) Effect any sale or other conveyance of all or
substantially all of the assets of the Corporation or any of its subsidiaries,
or any consolidation or merger involving the Corporation or any of its
subsidiaries if the Corporation shall not be the continuing or surviving entity
of such consolidation or merger, or any reclassification or other change of any
stock, or any recapitalization, or any transaction or series of transactions in
which more than 50% of the outstanding stock of the Corporation is transferred,
or
(iii) Increase or decrease (other than by redemption or
conversion) the total number of shares of Preferred Stock of the Corporation (or
any other senior equity securities of the Corporation) (with such consent to be
obtained on a Series basis from the holders of each Series of Preferred Stock
whose rights would be adversely affected in a material manner by the proposed
increase or decrease);
(iv) Amend or repeal any provision of, or add any
provision to, its Certificate of Incorporation or Bylaws if such action would
alter or change any of the rights, preferences, privileges of, or limitations
provided for herein for the benefit of, any shares of any series of Preferred
Stock, or
(v) Authorize or issue, or obligate itself to issue, any
other equity security senior to or on a parity with any outstanding series of
Preferred Stock as to dividend or redemption rights, liquidation preferences,
conversion rights, voting rights or otherwise, create any obligation or security
convertible into or exchangeable for, or having any option rights to purchase,
any such equity security which is senior to or on a parity with any outstanding
series of Preferred Stock.
Section 11. No Reissuance of Preferred Stock. No share or shares of
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
cancelled, retired and eliminated from the shares which the Corporation shall be
authorized to issue.
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ARTICLE VI
The name and mailing address of the sole incorporator is as follows:
Name Mailing Address
Heike Fischer c/o Morrison & Foerster, LLP
755 Page Mill Road
Palo Alto, CA 94304
ARTICLE VII
The Corporation is to have perpetual existence.
ARTICLE VIII
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
ARTICLE IX
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation, and regulation of the
powers of the Corporation and of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided:
The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by, or in the
manner provided in, the Bylaws. The phrase "whole Board" and the phrase "total
number of directors" shall be deemed to have the same meaning, to
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wit, the total number of directors which the Corporation would have if there
were no vacancies. No election of directors need be by written ballot.
After the original or other Bylaws of the Corporation have been adopted,
amended, or repealed, as the case may be, in accordance with the provisions of
Section 109 of the General Corporation Law of the State of Delaware, and, after
the Corporation has received any payment for any of its stock, the power to
adopt, amend, or repeal the Bylaws of the Corporation may be exercised by the
Board of directors of the Corporation; provided, however, that any provision for
the classification of directors of the Corporation for staggered terms pursuant
to the provisions of subsection (d) of Section 141 of the General Corporation
Law of the State of Delaware shall be set forth in an initial Bylaw adopted by
the stockholders entitled to vote of the Corporation unless provisions for such
classification shall be set forth in this Certificate of Incorporation.
Whenever the Corporation shall be authorized to issue only one class of
stock, each outstanding share shall entitle the holder thereof to notice of, and
the right to vote at, any meeting of stockholders. Whenever the Corporation
shall be authorized to issue more than one class of stock, no outstanding share
of any class of stock which is denied voting power under the provisions of the
Certificate of Incorporation shall entitle the holder thereto to the right to
vote any meeting of stockholders except as the provisions of paragraph (2) of
subsection (b) of Section 242 of the General Corporation Law of the State of
Delaware shall otherwise require; provided, that no share of any such class
which is otherwise denied voting power shall entitle the holder thereof to vote
upon the increase or decrease in the number of authorized shares of said class.
ARTICLE X
The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by the provisions of Paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
ARTICLE XI
The Corporation shall, to the fullest extent permitted by the provisions
of Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such person.
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ARTICLE XII
From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article XII.
The undersigned, as the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Law of the State of Delaware,
makes this certificate, hereby declaring and certifying that this act and deed
and the facts herein stated are true, and accordingly, have hereunto set may
hand this 18th day of February, 1999.
___________________________________
Heike Fischer,
Sole Incorporator
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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 1,000,000 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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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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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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(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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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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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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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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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
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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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Initials: __________
<PAGE> 14
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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Initials: __________
<PAGE> 15
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.
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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 20
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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.
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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 20
<PAGE> 19
Exhibit A to Lease Agreement dated October 17, 1997, by and between the
Arrillaga Foundation and the Peery Foundation, as landlord, and PLX Technology,
Inc., as tenant.
Site Plan 1" = 20'-0"
[Diagram of leased property with buliding and parking lots]
Page 19 of 20
<PAGE> 20
Exhibit B to Lease Agreement dated October 17, 1997, between the
Arrillaga Foundation and the Peery Foundation, as landlord, and PLX Technology,
Inc., as tenant.
35 Potrero Drive Sunnyvale, CA
Scale: 1/8" = 1'0"
[Diagram of floorplan of buliding]
Page 20 of 20
<PAGE> 1
EXHIBIT 10.9
PLX TECHNOLOGY, INC.
STOCK RESTRICTION, INFORMATION RIGHTS AND -
REGISTRATION RIGHTS AGREEMENT
This Agreement is made as of the __________ day of __________1989,
among PLX Technology, Inc., a California corporation (the "Company") and the
persons and entities listed on the "Schedule of Holders of Registrable
Securities" attached hereto (the "Purchasers").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
SECTION 1.
Affirmative Covenants of the Company
Notwithstanding any provision of the Company's Bylaws regarding
delivery or nondelivery of financial information to shareholders of the Company,
the Company hereby covenants and agrees as follows:
1.1 Basic Financial Information. The Company will furnish the following
reports to each Purchaser for so long as it is a holder of any shares of the
Company's Series A Preferred Stock or Series B Preferred Stock or Series C
Preferred Stock (collectively "Shares") or Common Stock into which the Shares
are convertible:
(a) As soon as practicable after the end of each fiscal year,
and in any event within 90 days thereafter, a consolidated balance sheet of the
Company and its subsidiaries, if any, as of the end of such fiscal year, and a
consolidated statement of income and a consolidated statement of changes in
financial position of the Company and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles (subject to
such reasonable exceptions as may be disclosed by Company) and setting forth in
each case in comparative form the figures for the previous fiscal year, all in
reasonable detail and compiled and reviewed by independent public accountants of
recognized national standing selected by the Company.
(b) As soon as practicable after the end of the first, second
and third quarterly accounting periods in each fiscal year of the Company, and
in any event within 45 days thereafter, a consolidated balance sheet of the
Company and its subsidiaries, if any, as of the end of each such quarterly
period, and, if requested by holders of a majority of the Shares, a consolidated
statement of income and a consolidated statement of changes in financial
position of the Company and its subsidiaries, if any, for such period and for
the current fiscal year to date, prepared in accordance with generally accepted
accounting principles (subject to such reasonable exceptions as may be disclosed
by Company). Said financial statements shall be signed by an officer of the
Company who shall state that such financial statements are in accordance with
generally accepted accounting principals (subject to such reasonable exceptions
as may be disclosed by Company).
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<PAGE> 2
1.2 Additional Information.
(a) As long as Purchaser holds at least 150,000 Shares (or an
equivalent number of Shares and/or Common Stock issued upon conversion of -the
Shares), as adjusted for recapitalizations, stock splits, stock dividends, and
the like, and the Company is not subject to the reporting requirements Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Company will deliver to such Purchaser the following reports:
(i) As soon as practicable after the end of each
month beginning with April 1989, and in any event within 30 days thereafter,
consolidated balance sheets of the Company and its subsidiaries, if any, at the
end of such month, and consolidated statements of income and, if requested by
holders of a majority of the Shares, sources and uses of funds for each month
and for the current year to date, prepared in accordance with generally accepted
accounting principles (subject to such reasonable exceptions as may be disclosed
by Company).
(ii) Within 30 days of the end of each fiscal year,
an operating plan for the upcoming fiscal year.
(b) For so long as a Purchaser is eligible to receive such
reports, it shall have the right to visit and inspect any of the properties of
the Company or any of its subsidiaries, and to discuss their affairs, finances
and ac - counts with their officers, all at such reasonable times and as often
as may be reasonably requested.
1.3 Assignment of Rights to Information. The rights granted pursuant to
Section 1.1 and 1.2 may be assigned or otherwise conveyed by any Purchaser or by
any subsequent transferee of any such rights, subject to the satisfaction of the
requirements prescribed for the rights set forth in Section 1.2; provided that
the Company is given written notice by such transferee at the time of the
transfer, or within a reasonable time after such transfer, of the name and
address of such transferee and said transferee's agreement to be bound by the
provisions of Section 1.4 hereto; and provided further that the Company may
refuse such assignment or conveyance if the proposed transferee is a competitor
of the Company.
1.4 Confidentiality. Each Purchaser agrees that he or it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which such Purchaser may obtain from the Company, and which
is prominently marked "confidential", "proprietary" or "secret", pursuant to
financial statements, reports and other materials submitted by the Company as
required hereunder, or pursuant to visitation or inspection rights granted
hereunder unless such information is known, or until such information becomes
known, to the public, or unless the Company gives its written consent to the
Purchaser's release of such information, except that no such written consent
shall be required (and Purchaser shall be free to release such information) if
such information is to be provided to Purchaser's lawyer or accountant, or to an
officer, director or general or limited partner of a Purchaser provided that
each such person agrees to keep such information confidential pursuant to the
terms of this Section 1.4.
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<PAGE> 3
1.5 Market Standoff. The Company shall obtain a market standoff
agreement in the form of Section 2.9 of this agreement from all the holders of
securities of the Company.
SECTION 2.
Registration Rights
2.1 Certain Definitions. As used in this Section 2, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Registrable Securities" means (i) shares of the Company's
Common Stock issued or issuable pursuant to the conversion of the Series A
Preferred Stock or Series B Preferred Stock or Series C Preferred Stock of the
Company (the "Existing Shares") and (ii) any Common Stock of the Company issued
as a dividend or other distribution with respect to, or in exchange or in
replacement of, the Shares, the Existing Shares or such Common Stock.
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with Sections 2.2, 2.3 and 2.10 hereof, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, fees and disbursements of a single
counsel for the Holders, blue sky fees and expenses, and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company which shall be paid in any
event by the Company).
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale.
"Holder" shall mean any holder of outstanding shares of
Registrable Securities.
"Initiating Holders" shall mean any Holder or Holders of not
less than 50% of the Registrable Securities then outstanding and not registered
at the time of any request for registration pursuant to Section 2.2 of this
agreement.
2.2 Requested Registration. In case the Company shall receive from
Initiating Holders a written request that the Company effect any registration
(other than a registration on Form S-3 or any related form of Registration
Statement), with respect to at least twenty percent
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<PAGE> 4
(20%) of all the Registrable Securities the outstanding (or any lesser
percentage if the anticipated gross offering price would exceed $5,000,000), the
Company will:
(a) promptly give written notice of the proposed registration
to all other Holders; and
(b) as soon as practicable, use its diligent best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file posteffective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
provided that the Company shall not be obligated to take any action to effect
any such registration, qualification or compliance pursuant to this Section 2.2:
(i) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) Prior to the earlier of (A) January 1, 1990 or
(B) one year following the effective date of the Company's first registered
underwritten offering to the general public of its securities for its own
account;
(iii) Within four (4) months immediately following
the effective date of any registration statement pertaining to an underwritten
public offering of securities of the Company for its own account (other than a
registration relating solely to a Commission Rule 145 transaction or a
registration relating solely to employee benefit plans or a registration on any
registration form which does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Registrable Securities); and
(iv) After the Company has effected an aggregate of
two registrations pursuant to this Section 2.2 and such registrations have been
declared or ordered effective.
Subject to the foregoing clauses (i) through (iv) and to
Section 2.2(d), the Company shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as practicable
after receipt of the request of the Initiating Holders, and in any event within
one hundred twenty (120) days of such request; provided, however, that if the
Company shall furnish to such Initiating Holders a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such registration statement to be filed on or before the
date filing would be required and it is therefore essential to defer the date of
such filing, the Company shall have the right to defer such filing for a period
of not more than one hundred twenty (120) days after receipt of the request of
the Initiating Holders; provided,
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<PAGE> 5
however that the Company may not make such certification more than once in any
12 month period.
(c) Underwriting. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to Section 2.2 and the Company shall include such information in the
written notice referred to in Section 2.2(a). The right of any Holder to
registration pursuant to Section 2.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent requested (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders.
Notwithstanding any other provision of this Section 2.2, if the underwriter (or
the managing underwriter on behalf of the underwriters) determines that
marketing factors require a limitation of the number of shares to be
underwritten and so advises the Initiating Holders in writing, then the
Initiating Holders shall so advise all Holders (except those Holders who have
indicated to the Company their decision not to distribute any of their
Registrable Securities through such underwriting) and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated among all such Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities owned by such
Holders at the time of filing the registration statement. No Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration.
If any Holder disapproves of the terms of the underwriting, such person
may elect to withdraw therefrom by written notice to the Company, the
underwriter (or managing underwriter on behalf of all of the underwriters) and
the Initiating Holders. The Registrable Securities and/or other securities so
withdrawn from such underwriting shall also be withdrawn from such registration;
provided, however, that, if by the withdrawal of such Registrable Securities a
greater number of Registrable Securities held by other Holders may be included
in such registration (up to the maximum of any limitation imposed by the
underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section 2.2(c).
If the underwriter (or managing underwriter on behalf of all of the
underwriters) has not limited the number of Registrable Securities to be
underwritten, the Company may include securities for its own account in such
registration if the underwriters so agree and if the number of Registrable
Securities which would otherwise have been included in such registration and
underwriting will not thereby be limited.
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<PAGE> 6
(d) Delay of Registration. If at the time of any request to
register Registrable Securities pursuant to this Section 2.2 the Company is
engaged or has fixed plans to engage within sixty (60) days of the time of the
request in a registered public offering as to which the Holders may include
Registrable Securities pursuant to Sections 2.2 or 2.3, then the Company may at
its option direct that such request be delayed for a period not in excess of six
months from the effective date of such offering, provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and, provided further, that no other
person or entity could require the Company to file a registration statement
during such period. Such right to delay a request may be exercised by the
Company not more than once in any two-year period.
2.3 Company Registration.
(a) If at any time or from time to time, the Company shall
determine to register any of its Common Stock, for its own account or for the
account of stockholders (other than the Holders) exercising any demand
registration rights which they may have, other than a registration relating
solely to employee benefit plans, or a registration relating solely to a
Commission Rule 145 transaction or any Rule adopted by the Commission in
substitution thereof or in amendment thereto, or a registration on any
registration form which does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Registrable Securities, the Company will:
(i) promptly give to each Holder written notice
thereof and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance therewith), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within fifteen (15) days af ter receipt of
such written notice from the Company, by any Holder or Holders.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 2.3(a)(i). In such event the right of any Holder to
registration pursuant to Section 2.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 2.3, if the
underwriter (or managing underwriter on behalf -of all of the underwriters)
determines that marketing factors require a limitation of the number of shares
to be underwritten, the underwriter (or managing underwriter on behalf of all of
the underwriters) may exclude some or all Registrable Securities from such
registration and underwriting. The Company shall so advise all Holders (except
those Holders who have indicated to the Company their decision not to distribute
any of their Registrable Securities through such underwriting), and the number
of shares of Registrable
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<PAGE> 7
Securities that may be included in the registration and underwriting shall be
allocated among such Holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities owned by such Holders at the time
of filing the registration statement. No Registrable Securities excluded from
the underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. If any Holder disapproves of the terms of any
such underwriting, such person may elect to withdraw therefrom by written notice
to the Company and the underwriter. The Registrable Securities and/or other
securities so withdrawn from such underwriting shall also be withdrawn from such
registration.
2.4 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 2.2 or any registration under Section 2.3 or Section 2.10 shall be borne
by the Company; and all Selling Expenses shall be borne by the holders of the
securities so registered prorata on the basis of the number of shares so
registered; provided, however, that if a request for registration pursuant to
Section 2.2 is made at a time when the Company is unable to use year-end
financial statements in the registration statement filed pursuant to such
request and a special audit is required because of such inability, then the
Company shall bear up to $15,000 of the costs and fees of the Company's auditors
resulting from such special audit, and any additional costs and fees in excess
of $15,000 resulting from Such special audit shall be allocable to the sellers,
including the Company, of the securities so registered, borne pro rata on the
basis of the number of shares registered.
2.5 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 2,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Keep such registration, qualification or compliance
effective for a period of one hundred twenty (120) days or until the Holder or
Holders have completed the distribution described in the registration statement
relating thereto, whichever first occurs;
(b) Furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request;
(c) Use its best efforts and qualify the securities covered by
such registration statement under such securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
such states or jurisdictions;
(d) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the underwriter or underwriters of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement; and
(e) Notify each Holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto
covered by such registration statement
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<PAGE> 8
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
2.6 Indemnification.
(a) The Company will indemnify each Holder, each of its
officers and directors and partners, and such Holder's legal counsel and
independent accountants and each person controlling such Holder, with respect to
whose Registrable Securities registration, qualification or compliance has been
effected pursuant to this Section 2, and each underwriter, if any, and each
person who controls any underwriter against all claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on (i) any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other similar
document (including any amendment or supplement thereto and any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, or (ii) any violation by the Company
of any federal, state or common law rule or regulation applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance, and will reimburse each such
Holder each of its officers, directors and partners, and such Holder's legal
counsel and independent accountants and each person controlling such Holder,
each such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by an instrument duly executed by such Holder or underwriter and stated
to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each legal counsel and independent accountant of the
Company, each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of the Securities Act, and each other such Holder, each of
its officers and directors and each person controlling such Holder, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other similar document (including any amendment or supplement
thereto), or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the
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<PAGE> 9
light of the circumstances under which they were made, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein; provided, however, that the
obligations of such Holders hereunder shall be limited to an amount equal to the
proceeds to each such Holder of Registrable Securities sold as contemplated
herein.
(c) Each party entitled to indemnification under this Section
2.6 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has received written notice of any claim as to which indemnity may be s ought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, provided, however that the Indemnifying Party
shall bear the expense of such Indemnified Party if the Indemnified Party
reasonably determines that representation of both parties by the same counsel
would be inappropriate due to actual or potential conflicts of interest. The
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 2 unless
such failure to give notice shall materially adversely affect the Indemnifying
Party in the defense of any such claim or any such litigation. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
2.7 Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Section 2.
2.8 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to:
(a) Use its best efforts to facilitate the sale of the
Restricted Securities to the public, without registration under the Securities
Act, pursuant to Rule 144 under the Securities Act ("Rule 144"), provided that
this shall not require the Company to file reports under the
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<PAGE> 10
Securities Act and the Exchange Act at anytime prior to the Company's being
otherwise required to file such reports.
(b) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act at all times
after the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(c) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act, as amended (at any time after it has become
subject to such reporting requirements);
(d) So long as a Purchaser owns any Restricted Securities, to
furnish to the Purchaser forthwith upon request (i) a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), (ii) a copy of the most
recent annual or quarterly report of the Company, and (iii) such other reports
and documents so filed by the Company as a Purchaser may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Purchaser
to sell any such securities without registration.
2.9 "Market Stand-off" Agreement. Purchasers hereby agree, 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 Purchasers,
without the prior consent of the Company or of such underwriter during any
period requested by the Company and such underwriter (not to exceed one hundred
fifty (150) days) following the effective date of a registration statement of
the Company filed under the Securities Act provided that:
(a) such agreement shall only apply to 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. The Company may impose stop- transfer instructions with
respect to the shares (or securities) subject to the foregoing restriction until
the end of said period.
2.10 Form S-3. The Company shall use its best efforts to qualify for
registration on Form S-3 and to that end the Company shall register (whether or
not required by law to do so) its Common Stock under the Exchange Act within one
hundred twenty (120) days following the end of the fiscal year in which the
Company first registered any securities of the Company on Form S-1. After the
Company has qualified for the use of Form S-3, the Holders of Registrable
Securities shall have the right to request up to two (2) registrations on Form
S-3 in each twelve
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<PAGE> 11
month period thereafter under this Section 2.10 (such requests shall be in
writing and shall state the number of shares of Registrable Securities to be
disposed of and the intended method of disposition of such shares by such Holder
or Holders), provided that the Company shall not be required to effect a
registration pursuant to this Section 2.10 unless the Holder or Holders
requesting registration propose to dispose of shares of Registrable Securities
which they reasonably anticipate will have an aggregate disposition price
(before deduction of underwriting discounts and expenses of sale) of at least
$500,000.
The Company shall give notice to all Holders of Registrable
Securities of the receipt of a request for registration pursuant to this Section
2.10 and shall provide a reasonable opportunity for other Holders to participate
in the registration. In the event a registration pursuant to this Section 2.10
shall be underwritten, the substantive provisions of Section 2.2(c) shall apply
to such underwritten registration. Subject to the foregoing, the Company will
use its best efforts to effect promptly the registration of all shares of
Registrable Securities on Form S-3 to the extent requested by the Holder or
Holders thereof for purposes of disposition, and in any event within ninety (90)
days of such request; provided, however, that if the Company shall furnish to
such Initiating Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such registration statement to be filed on or before the date filing would
be required and it is therefore essential to defer the date of such filing, the
Company shall have the right to defer such filing for a period of not more than
sixty (60) days after receipt of the request of the Initiating Holders;
provided, however that the Company may not make such certification more than
once in any 12 month period.
2.11 Transfer of Registration Rights. The rights to cause the Company
to register securities granted Purchasers under Sections 2.2, 2.3 and 2.10 may
be assigned or otherwise conveyed by any Holder; provided, that the Company is
given written notice by such transferee at the time of or within a reasonable
time after said transfer, stating the name and address of said transferee and
said transferee's agreement to be bound by the provisions of Section 2 of this
agreement. Each Purchaser will cause any proposed transferee of the Shares (or
of the Common Stock into which the Shares are convertible) held by a Purchaser
to agree to -take and hold such securities subject to the provisions and upon
the conditions specified in this Section 2.
2.12 Certain Limitations in Connection with Future Grants of
Registration Rights. From and after the date of this agreement, the Company
shall not, without the consent of at least 67% of the Registrable Securities
then held by Holders, enter into any agreement with any holder or prospective
holder of any securities of the Company providing for the granting to such
holder of registration rights except that the Company may, without such consent,
amend this Agreement to provide any prospective holder which acquires securities
in a financing to raise capital for the Company may have Common Stock issuable
as a result of such financing included in the definition of "Registrable
Securities" hereunder, provided that the rights thereby granted are shared pro
rata with the existing Holders.
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<PAGE> 12
2.13 Termination of Registration Rights. The rights granted to any
holder under Section 2.3 to include Registrable Securities in any registration
shall terminate ten (10) years from the date of the Company's initial
registration statement including shares on its behalf to be sold to the public
is declared effective by the Commission and shall also terminate earlier (but in
no event prior to one year after the date of the Company's initial public
offering, as to any Holder who could sell all shares of Common Stock in any 90
day period pursuant to Rule 144.
SECTION 3.
Restrictions on Transferability of Notes; Compliance with Securities Act
3.1 Restrictions on Transferability. The Series B Preferred Stock which
certain Purchasers are receiving upon the conversion of certain convertible
promissory notes and the Series C Preferred Stock which certain Purchasers are
receiving in exchange for cash (collectively "Shares"), and the Common Stock
into which Series B and Series C Preferred Stock is convertible, shall not be
transferable except upon the conditions specified in this Section 3 " which
conditions are intended to insure compliance with the provisions of the
Securities Act. Each Purchaser will cause any proposed transferee of Shares or
of the Common Stock into which the Shares are convertible held by a Purchaser to
agree to take and hold such securities subject to the provisions and upon the
conditions specified in this Section 3. Each Purchaser represents that it (i) is
experienced in evaluating and investing in high technology companies such as the
Company, (ii) is experienced in investing in private placement transactions,
(iii) is capable of evaluating the risks and merits of its investment in the
Company and has the capacity to protect its own interests, (iv) is acquiring the
Shares for investment for its own account and not with a view to, or for resale
in connection with, any distribution thereof, and it has no present intention of
selling or distributing the Shares or any of the Common Stock into which the
Shares are convertible, (v) understands that the shares have not been registered
under the Securities Act and must be held indefinitely unless subsequently
registered under the Securities Act or unless an exemption from registration is
available and that no public market now exists for any securities of the Company
and that a public market may never exist for the Shares or the Common Stock into
which they are convertible, and (vi) has had an opportunity to discuss-the
Company's business, management and financial affairs with its management and
obtain any additional information it considered necessary or desirable.
3.2 Restrictive Legend. Each certificate representing (i) the Shares or
shares of the Company's Common Stock issued upon conversion of the Series B or
Series C Preferred Stock and (iii) any securities issued in respect of such
Preferred Stock or Common Stock (collectively, "Restricted Securities"), shall
(unless otherwise permitted by the provisions of Section 3.3 below) be stamped
or otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH
SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT OR AS PROVIDED IN THE AGREEMENT COVERING THE
PURCHASE OF
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<PAGE> 13
THESE SHARES AND RESTRICTING THEIR TRANSFER. COPIES OF THE AGREEMENT MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS
CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE CORPORATION'S PRINCIPAL
PLACE OF BUSINESS.
3.3 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 3.3. Prior to any proposed transfer
of any Restricted Securities, unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the holder thereof
shall give written notice to the Company of such holder's intention to effect
such transfer. Each such notice shall describe the manner and circumstances of
the proposed transfer in sufficient detail, and shall be accompanied (except in
the following cases, with respect to which the requirements set forth in the
balance of this sentence need not be complied with: transactions in compliance
with Rule 1-,44 so long as the Company is furnished with evidence of compliance
with such Rule; transactions involving the distribution of Restricted Securities
by any Purchaser which is a general or limited partnership to any of its
partners, or retired partners, or to the estate of any of its partners or
retired partners, so long as such transaction does not involve the disposition
of such Restricted Securities for value; transactions involving the transfer of
Restricted Securities by any holder who is an individual to a trust for the
benefit of such shareholder or his family members; or transfer by gift, will or
intestate succession by any holder who is an individual- to his spouse, lineal
descendants or ancestors) by either (i) an unqualified written opinion of legal
counsel who shall be reasonably satisfactory to the Company addressed to the
Company and reasonably satisfactory in form and substance to the Company's
counsel, to the effect that the proposed transfer of the Restricted Securities
may be effected without registration under the Securities Act, or (ii) a "no
action" letter from the Commission to the effect that the distribution of such
securities without registration will not result in a recommendation by the staff
of the Commission that action be taken with respect thereto, whereupon the
holder of such Restricted Securities shall be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
the holder to the Company. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear the appropriate restrictive legend set
forth in Section 3.2 above, except that such certificate shall not bear such
restrictive legend if in the opinion of counsel for the Company such legend is
not required in order to establish compliance with any provisions of the
Securities Act.
SECTION 4.
Miscellaneous
4.1 Governing Law. This agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
4.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any Purchaser and the
closing of the transactions contemplated hereby.
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<PAGE> 14
4.3 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
4.4 Entire Agreement; Amendment, This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
Any term of this Agreement may be amended and the observance of any term of this
agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), with the written consent of the Company and the
holders of at least 67% of the outstanding Existing Shares, as defined in
Section 2.1, (including, for such purposes, on a proportional basis, any shares
of Common Stock into which any of the Existing Shares have been converted that
have not been sold to the public). Any amendment or waiver effected in
accordance with this -section shall be binding upon each holder of any
securities purchased under this agreement at the time outstanding (including
securities into which such securities have been converted), each future holder
of all such securities, and the Company.
4.5 Effect of Amendment or Waiver. Each Purchaser acknowledges that by
the operation of Section 4.4 hereof the holders of 67% of the outstanding
Existing Shares (and Common Stock issued upon conversion thereof) will have the
right and power to diminish or eliminate all rights of such Purchaser under this
Agreement.
4.6 Rights of Purchasers. Each holder of the Shares (and Common Stock
issued upon conversion thereof) shall have the absolute right to exercise or
refrain from exercising any right or rights that such holder may have by reason
of this Agreement or the Existing Shares, including without limitation the right
to consent to the waiver of any obligation of the Company under this Agreement
and to enter into an Agreement with the Company for the purpose of modifying
this Agreement or any agreement effecting any such modification, and such holder
shall not incur any liability to any other holder or holders of the Existing
Shares with respect to exercising or refraining from exercising any such right
or rights.
4.7 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first-class mail,
postage prepaid, or otherwise delivered by hand or by messenger, addressed (a)
if to a Purchaser, at such Purchaser's address set forth in the Schedule of
Holders of Registrable Securities, or at such other address as such Purchaser
shall have furnished to the Company in writing, or (b) if to any other holder of
any Shares, at such address as such holder shall have furnished the Company in
writing, or, until any such holder so furnishes an address to the Company, then
to and at the address of the last holder of such Shares who has so furnished an
address to the Company, or (c) if to the Company, at 625 Clyde Avenue, Mountain
View, California 94043 or at such other address as the Company shall have
furnished to each Purchaser and each such other holder in writing and shall be
deemed to have been received (a) upon delivery if delivered by hand or by
messenger or (b) five (5) days after mailing, if mailed.
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4.8 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Existing Shares, upon any breach
or default of the Company under this Agreement, shall impair any such right,
power or remedy of such holder nor shall it be construed to be a waiver of any
such breach or default, or an acquiescence therein, or of or in any similar
breach or default thereunder occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
4.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the Purchasers,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
4.10 Severability. In the case any provision of this Agreement shall
the remaining provisions shall not in any way be affected or impaired thereby.
4.11 Gender. The use of the neuter gender herein shall be deemed to
include the masculine and the feminine gender, if the context so requires.
4.12 Effectiveness. This Agreement shall be effective upon execution by
holders of at least eighty percent (80%) of the Existing Shares.
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<PAGE> 16
The foregoing Agreement is hereby executed as of the date first above
written.
PLX TECHNOLOGY, INC.
By:__________________________
Michael J. Salameh
President
Schedule of Holders of Registrable
Securities
("PURCHASERS")
CALIFORNIA PARTNERS
DRAPER ASSOCIATES,
a California Limited Partnership
By:_____________________________________
Timothy C. Draper
Chief Financial Officer
ARBOR FINANCIAL CORPORATION
By:_____________________________________
D. James Guzy President
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L.S. & Co.
By:_____________________________________
Laurence L. Spitters
BEAGLE LTD.
By:_____________________________________
Jean Pigozzi
By:_____________________________________
Anthony W. Roberts
By:_____________________________________
William H. Draper III
GC&H PARTNERS
By:_____________________________________
Michael Jacobson
By:_____________________________________
Michael Salameh
By:_____________________________________
Donald Etzbach
By:_____________________________________
Wei-Ti Liu
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OTHER SERIES C HOLDERS:
FIRM NAME: __________________________
SIGNATURE: By: ______________________
NAME: __________________________
FIRM NAME: __________________________
SIGNATURE: By: ______________________
NAME: __________________________
FIRM NAME: __________________________
SIGNATURE: By: ______________________
NAME: __________________________
FIRM NAME: __________________________
SIGNATURE: By: ______________________
NAME: __________________________
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EXHIBIT 10.10
PLX TECHNOLOGY, INC.
STOCK RESTRICTION, INFORMATION RIGHTS AND
REGISTRATION RIGHTS AGREEMENT
This First Amended Agreement is made as of 3rd day of July 1991, among
PLX Technology, Inc., a California corporation (the company") and the persons
and entities listed on the "Schedule of Holders of Registrable Securities"
attached hereto including the purchasers of Series D Preferred Stock following
the date of this First Amended Agreement (the "Series D Purchasers")
(collectively the "Purchasers").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
SECTION 1
Affirmative Covenants of the Company
Notwithstanding any provision of the Company's Bylaws regarding
delivery or nondelivery of financial information to shareholders of the Company,
the Company hereby covenants and agrees as follows:
1.1 Basic Financial Information. The Company will furnish the
following reports to each Purchaser for so long as it is a holder of any shares
of the Company's Series A Preferred Stock or Series B Preferred Stock or Series
C Preferred Stock or Series D Preferred Stock (collectively "Shares") or Common
Stock into which the Shares are convertible:
(a) As soon as practicable after the end of each
fiscal year, and in any event within 90 days thereafter, a consolidated balance
sheet of the Company and its subsidiaries, if any, as of the end of such fiscal
year, and a consolidated statement of income and a consolidated statement of
changes in financial position of the Company and its subsidiaries, if any, for
such year, prepared in accordance with generally accepted accounting principles
(subject to such reasonable exceptions as may be disclosed by Company) and
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and compiled and reviewed by independent
public accountants of recognized national standing selected by the Company.
(b) As soon as practicable after the end of the
first, second and third quarterly accounting periods in each fiscal year of the
Company, and in any event within 45 days thereafter, a consolidated balance
sheet of the Company and its subsidiaries, if any, as of the end of each such
quarterly period, and, if requested by holders of a majority of the Shares, a
consolidated statement of income and a consolidated statement of changes in
financial position of the Company and its subsidiaries, if any, for such period
and for the current fiscal year to date, prepared in accordance with generally
accepted accounting principles (subject to such reasonable exceptions as may be
disclosed by Company). Said financial statements shall be signed by an officer
of the Company who shall state that such financial statements are in accordance
with
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generally accepted accounting principals (subject to such reasonable exceptions
as may be disclosed by Company).
1.2 Additional Information.
(a) As long as Purchaser holds at least 150,000
Shares (or an equivalent number of Shares and/or Common Stock issued upon
conversion of the Shares), as adjusted for recapitalizations, stock splits,
stock dividends, and the like, and the Company is not subject to the reporting
requirements Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Company will deliver to such Purchaser the
following reports:
(i) As soon as practicable after the end
of each month beginning with April 1989, and in any event within 30 days
thereafter, consolidated balance sheets of the Company and its subsidiaries, if
any, at the end of such month, and consolidated statements of income and, if
requested by holders of a majority of the Shares, sources and uses of funds for
each month and for the current year to date, prepared in accordance with
generally accepted accounting principles (subject to such reasonable exceptions
as may; be disclosed by Company).
(ii) Within 30 days of the end of each
fiscal year, an operating plan for the upcoming fiscal year.
(b) For so long as a Purchaser is eligible to
receive such reports, it shall have the right to visit and inspect any of the
properties of the Company or any of its subsidiaries, and to discuss their
affairs, finances and accounts with their officers, all at such reasonable times
and as often as may be reasonably requested.
1.3 Assignment of Rights to Information. The rights granted
pursuant to Section 1.1 and 1.2 may be assigned or otherwise conveyed by any
Purchaser or by any subsequent transferee of any such rights, subject to the
satisfaction of the requirements prescribed for the rights set forth in Section
1.2; provided that the Company is given written notice by such transferee at the
time of the transfer, or within a reasonable time after such transfer, of the
name and address of such transferee and said transferee's agreement to be bound
by the provisions of Section 1.4 hereto; and provided further that the Company
may refuse such assignment or conveyance if the proposed transferee is a
competitor of the Company.
1.4 Confidentiality. Each Purchaser agrees that he or it will
keep confidential and will not disclose or divulge any confidential, proprietary
or secret information which such Purchaser may obtain from the Company, and
which is prominently marked "confidential", "proprietary" or "secret", pursuant
to financial statements, reports and other materials submitted by the Company as
required hereunder, or pursuant to visitation or inspection rights granted
hereunder unless such information is known, or until such information becomes
known, to the public, or unless the Company gives its written consent to the
Purchaser's release of such information, except that no such written consent
shall be required (and Purchaser shall be free to release such information) if
such information is to be provided to Purchaser's lawyer or
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accountant, or to an officer, director or general or limited partner of a
Purchaser provided that each such person agrees to keep such information
confidential pursuant to the terms of this Section 1.4.
1.5 Market Standoff. The Company shall obtain a market
standoff agreement in the form of Section 2.9 of this agreement from all the
holders, of securities of the Company.
SECTION 2.
Registration Rights
2.1 Certain Definitions. As used in this Section 2, the
following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Registrable Securities" means (i) shares of the Company's
Common Stock issued or issuable pursuant to the conversion of the Series A
Preferred Stock or Series B Preferred Stock or Series C Preferred Stock or
Series D Preferred Stock of the Company (the "Existing Shares") and (ii) any
Common Stock of the Company issued as a dividend or other distribution with
respect to, or in exchange or in replacement of, the Shares, the Existing Shares
or such Common Stock.
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with Sections 2.2, 2.3 and 2.10 hereof, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, fees and disbursements of a single
counsel for the Holders, blue sky fees and expenses, and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company which shall be paid in any
event by the Company).
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale.
"Holder" shall mean any holder of outstanding shares of
Registrable Securities.
"Initiating Holders" shall mean any Holder or Holders of not
less than 50% of the Registrable Securities then outstanding and not registered
at the time of any request for registration pursuant to Section 2.2 of this
agreement.
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2.2 Requested Registration. In case the Company shall receive
from Initiating Holders a written request that the Company effect any
registration (other than a registration on Form S-3 or any related form of
Registration Statement) with respect to at least twenty percent (20%) of all the
Registrable Securities the outstanding (or any lesser percentage if the
anticipated gross offering price would exceed $5,000,000), the Company will:
(a) promptly give written notice of the proposed
registration to all other Holders; and
(b) as soon as practicable, use its diligent best
efforts to effect such registration (including, without limitation, the
execution of an undertaking to file posteffective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act) as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request given within fifteen (15) days after receipt of such written
notice from the Company; provided that the Company shall not be obligated to
take any action to effect any such registration, qualification or compliance
pursuant to this Section 2.2:
(i) In any particular jurisdiction in
which the Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance unless the
Company is already subject to service in such jurisdiction and except as may be
required by the Securities Act;
(ii) Prior to the earlier of (A) January
1, 1993 or (B) one year following the effective date of the Company's first
registered underwritten offering to the general public of its securities for its
own account;
(iii) Within four (4) months immediately
following the effective date of any registration statement pertaining to an
underwritten public offering of securities of the Company for its own account
(other than a registration relating solely to a Commission Rule 145 transaction
or a registration relating solely to employee benefit plans or a registration on
any registration form which does not include substantially the same information
as would be required to be included in a registration statement covering the
sale of Registrable Securities); and
(iv) After the Company has effected an
aggregate of two registrations pursuant to this Section 2.2 and such
registrations have been declared or ordered effective.
Subject to the foregoing clauses (i) through (iv) and to Section
2.2(d), the Company shall file a registration statement covering the Registrable
Securities so requested to be registered as soon as practicable after receipt of
the request of the Initiating Holders, and in any event within one hundred
twenty (120) days of such request; provided, however, that if the Company shall
furnish to such Initiating Holders a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be
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seriously detrimental to the Company and its shareholders for such registration
statement to be filed on or before the date filing would be required and it is
therefore essential to defer the date of such filing, the Company shall have the
right to defer such filing for a period of not more than one hundred twenty
(120) days after receipt of the request of the Initiating Holders; provided,
however that the Company may not make such certification more than once in any
12 month period.
(c) Underwriting. If the Initiating Holders intend
to distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to Section 2.2 and the Company shall include such information in the
written notice referred to in Section 2.2(a). The right of any Holder to
registration pursuant to Section 2.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent requested (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein.
The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section 2.2, if the
underwriter (or the managing underwriter on behalf of the underwriters)
determines that marketing factors require a limitation of the number of shares
to be underwritten and so advises the Initiating Holders in writing, then the
Initiating Holders shall so advise all Holders' (except those Holders who have
indicated to the Company their decision not to distribute any of their
Registrable Securities through such underwriting) and the- number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated among all such Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities owned by such
Holders at the time of filing the registration statement. No Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration.
If any Holder disapproves of the terms of the underwriting,
such person may elect to withdraw therefrom by written notice to the Company,
the underwriter (or managing underwriter on behalf of all of the underwriters)
and the Initiating Holders. The Registrable Securities and/or other securities
so withdrawn from such underwriting shall also be withdrawn from such
registration; provided, however, that, if by the withdrawal of such Registrable
Securities a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the maximum of any limitation imposed by
the underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used in determining the
underwriter limitation in this Section 2.2(c).
If the underwriter (or managing underwriter on behalf of all
of the underwriters) has not limited the number of Registrable Securities to be
underwritten, the Company may include securities for its own account in such
registration if the underwriters so agree and if the number
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of Registrable Securities which would otherwise have been included in such
registration and underwriting will not thereby be limited.
(d) Delay of Registration. If at the time of any
request to register Registrable Securities pursuant to this Section 2.2 the
Company is engaged or has fixed plans to engage within sixty (60) days of the
time of the request in a registered public offering as to which the Holders may
include Registrable Securities pursuant to Sections 2.2 or 2.3, then the Company
may at its option direct that such request be delayed for a period not in excess
of six months from the effective date of such offering, provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and, provided further, that no other
person or entity could require the Company to file a registration statement
during such period. Such right to delay a request may be exercised by the
Company not more than once in any two-year period.
2.3 Company Registration.
(a) If at any time or from time to time, the Company
shall determine to register any of its Common Stock, for its own account or for
the account of stockholders (other than the Holders) exercising any demand
registration rights which they may have, other than a registration relating
solely to employee benefit plans, or a registration relating solely to a
Commission Rule 145 transaction or any Rule adopted by the Commission in
substitution thereof or in amendment thereto, or a registration on any
registration form which does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of Registrable Securities, the Company will:
(i) promptly give to each Holder written
notice thereof ; and
(ii) include in such registration (and any
related qualification under blue sky laws or other compliance therewith), and in
any underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within fifteen (15) days after receipt of such
written notice from the Company, by any Holder or Holders.
(b) Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Section 2.3(a)(i). In such event the right of any
Holder to registration pursuant to Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 2.3, if the
underwriter (or managing underwriter on behalf of all of the underwriters)
determines that marketing factors require a limitation of the number of shares
to be underwritten, the underwriter (or managing underwriter on behalf of all of
the underwriters) may exclude some or all Registrable Securities from such
registration and underwriting. The Company shall so advise all Holders (except
those
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Holders who have indicated to the Company their decision not to distribute any
of their Registrable Securities through such underwriting), and the number of
shares of Registrable Securities that may be included in the registration and
underwriting shall be allocated among such Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities owned by such
Holders at the time of filing the registration statement. No Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If any Holder
disapproves of the terms of any such underwriting, such person may elect to
withdraw therefrom by written notice to the Company and the underwriter. The
Registrable Securities and/or other securities so withdrawn from such
underwriting shall also be withdrawn from such registration.
2.4 Expenses of Registration. All Registration
Expenses incurred in connection with any registration, qualification or
compliance pursuant to Section 2.2 or any registration under Section 2.3 or
Section 2.10 shall be borne by the Company; and all Selling Expenses shall be
borne by the holders of the securities so registered prorata on the basis of the
number of shares so registered; provided, however, that if a request for
registration pursuant to Section 2.2 is made at a time when the Company is
unable to use year-end financial statements in the registration statement filed
pursuant to such request and a special audit is required because of such
inability, then the Company shall bear up to $15,000 of the costs and fees of
the Company's auditors resulting from such special audit, and any additional
costs and fees in excess of $15,000 resulting from such special audit shall be
allocable to the sellers, including the Company, of the securities so
registered, borne pro rata on the basis of the number of shares registered.
2.5 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 2,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Keep such registration, qualification or
compliance effective for a period of one hundred twenty (120) days or until the
Holder or Holders have completed the distribution described in the registration
statement relating thereto, whichever first occurs;
(b) Furnish such number of prospectuses and other
documents incident thereto as a Holder from time to time may reasonably request;
(c) Use its best efforts and qualify the securities
covered by such registration statement under such securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the Holders, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in such states or jurisdictions;
(d) In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the underwriter or underwriters of
such offering. Each Holder participating in such underwriting shall also enter
into and perform its obligations under such an agreement; and
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(e) Notify each Holder of Registrable Securities
covered by such registration statement, at any time when a prospectus relating
thereto covered by such registration statement is required to be delivered under
the Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
2.6 Indemnification.
(a) The Company will indemnify each Holder, each of
its officers and directors and partners, and such Holder's legal counsel and
independent accountants and each person controlling such Holder, with respect to
whose Registrable Securities registration, qualification or compliance has been
effected pursuant to this Section 2, and each underwriter, if any, and each
person who controls any underwriter against all claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on (i) any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other similar
document (including any amendment or supplement thereto and any related
registration statement notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, or (ii) any violation by the Company
of any federal, state or common law rule or regulation applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance, and will reimburse each such
Holder, each of its officers, directors and partners, and such holder's legal
counsel and independent accountants and each person controlling such Holder,
each such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by an instrument duly executed by such Holder or underwriter and stated
to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held
by such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each legal counsel and independent accountant of the
Company, each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of the Securities Act, and each other such Holder, each of
its officers and directors and each person controlling such Holder, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other similar document (including any amendment or
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supplement thereto), or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made, and will reimburse the Company, such Holders, such directors, officers,
persons, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided, however, that the obligations of such Holders hereunder shall be
limited to an amount equal to the proceeds to each such Holder of Registrable
Securities sold as contemplated herein.
(c) Each party entitled to indemnification under
this Section 2.6 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has received written notice of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, provided, however that the Indemnifying Party
shall bear the expense of such Indemnified Party if the Indemnified Party
reasonably determines that representation of both parties by the same counsel
would be inappropriate due to actual or potential conflicts of interest. The
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 2 unless
such failure to give notice shall materially adversely affect the Indemnifying
Party in the defense of any such claim or any such litigation. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
2.7 Information by Holder. The Holder or Holders of
Registrable Securities included in any registration shall furnish to the Company
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Section 2.
2.8 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to:
(a) Use its best efforts to facilitate the sale of
the Restricted Securities to the public, without registration under the
Securities Act, pursuant to Rule 144 under the
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Securities Act ("Rule 144"), provided that th is shall not-require the Company
to file reports under the Securities Act and the Exchange Act at anytime prior
to the Company's being otherwise required to file such reports.
(b) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act at
all times after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to the
general public;
(c) Use its best efforts to file with the Commission
in a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act, as amended (at any time after it has
become subject to such reporting requirements);
(d) So long as a Purchaser owns any Restricted
Securities, to furnish to the Purchaser forthwith upon request (i) a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144 (at any time after ninety (90) days after the effective date of the
first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements),
(ii) a copy of the most recent annual or quarterly report of the Company, and
(iii) such other reports and documents so filed by the Company as a Purchaser
may reasonably request in availing itself of any rule or regulation of the
Commission allowing a Purchaser to sell any such securities without
registration.
2.9 "Market Stand-off" Agreement. Purchasers hereby agree, 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
Purchasers, without the prior consent of the Company or of such underwriter
during any period requested by the Company and such underwriter (not to exceed
one hundred fifty (150) days) following the effective date of a registration
statement of the Company filed under the Securities Act provided that:
(a) such agreement shall only apply to 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. The Company may impose stop-transfer instructions with
respect to the shares (or securities) subject to the foregoing restriction until
the end of said period.
2.10 Form S-3. The Company shall use its best efforts to
qualify for registration on Form S-3 and to that end the Company shall register
(whether or not required by law to do so) its Common Stock under the Exchange
Act within one hundred twenty (120) days following the end of the fiscal year in
which the Company first registered any securities of the Company on Form S1.
After the Company has qualified for the use of Form S-3, the Holders of
Registrable Securities shall have the right to request up to two (2)
registrations on Form S-3 in
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each twelve month period thereafter under this Section 2.10 (such requests shall
be in writing and shall state the number of shares of Registrable Securities to
be disposed of and the intended method of disposition of such shares by such
Holder or Holders), provided that the Company shall not be required to effect a
registration pursuant to this Section 2.10 unless the Holder or Holders
requesting registration propose to dispose of shares of Registrable Securities
which they reasonably anticipate will have an aggregate disposition price
(before deduction of underwriting discounts and expenses of sale) of at least
$500,000.
The Company shall give notice to all Holders of Registrable Securities
of the receipt of a request for registration pursuant to this Section 2.10 and
shall provide a reasonable opportunity for other Holders to participate-in the
registration. In the event a registration pursuant to this Section 2.10 shall be
underwritten, the substantive provisions of Section 2.2(c) shall apply to such
underwritten registration. Subject to the foregoing, the Company will use its
best efforts to effect promptly the registration of all shares of Registrable
Securities on Form S-3 to the extent requested by the Holder or Holders thereof
for purposes of disposition, and in any event within ninety (90) days of such
request; provided, however, that if the Company shall furnish to such Initiating
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed on or before the date filing would be required and it is
therefore essential to defer the date of such filing, the Company shall have the
right to defer such filing for a period of not more than sixty (60) days after
receipt of the request of the Initiating Holders; provided, however that the
Company may not make such certification more than once in any 12 month period.
2.11 Transfer of Registration Rights. The rights to cause the
Company to register securities granted Purchasers under Sections 2.2, 2.3 and
2.10 may be assigned or otherwise conveyed by any Holder; provided, that the
Company is given written notice by such transferee at the time of or within a
reasonable time after said transfer, stating the name and address of said
transferee and said transferee's agreement to be bound by the provisions of
Section 2. of this agreement. Each Purchaser will cause any proposed transferee
of the Shares (or of the Common Stock into which the Shares are convertible)
held by a Purchaser to agree to take and hold such securities subject to the
provisions and upon the conditions specified in this Section 2.
2.12 Certain Limitations in Connection with Future Grants of
Registration Rights. From and after the date of this agreement, the Company
shall not, without the consent of at least 67% of the Registrable Securities
then held by Holders, enter into any agreement with any holder or prospective
holder of any securities of the Company providing for the granting to such
holder of registration rights except that the Company may, without such consent,
amend this Agreement to provide any prospective holder which acquires securities
in a financing to raise capital for the Company may have Common Stock issuable
as a result of such financing included in the definition of "Registrable
Securities" hereunder, provided that the rights thereby granted are shared pro
rata with the existing Holders.
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2.13 Termination of Registration Rights. The rights granted to
any holder under Section 2.3 to include Registrable Securities in any
registration shall terminate ten (10) years from the date of the Company's
initial registration statement including shares on its behalf to be sold to the
public is declared effective by the Commission and shall also terminate earlier
(but in no event prior to one year after the date of the Company's initial
public offering, as to any Holder who could sell all shares of Common Stock in
any 90 day period pursuant to Rule 144.
SECTION 3.
Restrictions on Transferability of Notes; Compliance with Securities Act
3.1 Restrictions on Transferability. The Series B Preferred
Stock which certain Purchasers received upon the conversion of certain
convertible promissory notes and the Series C Preferred Stock which certain
Purchasers received in exchange for cash and the Series D Preferred Stock which
certain Series D Purchasers are receiving in exchange for cash (collectively
"Shares"), and the Common Stock into which Series B and Series C and Series D
Preferred Stock is convertible, shall not be transferable except upon the
conditions specified in this Section 3, which conditions are intended to insure
compliance with the provisions of the Securities Act. Each Purchaser will cause
any proposed transferee of Shares or of the Common Stock into which the Shares
are convertible held by a Purchaser to agree to take and hold such securities
subject to the provisions and upon the conditions specified in this Section 3.
Each Purchaser represents that it (i) is experienced in evaluating and investing
in high technology companies such as the Company, (ii) is experienced in
investing in private placement transactions, (iii) is capable-of evaluating the
risks and merits of its investment in the Company and has the capacity to
protect its own interests, (iv) is acquiring the Shares for investment for its
own account and not with a view to, or for resale in connection with, any
distribution thereof, and it has no present intention of selling or distributing
the Shares or any of the Common Stock into which the Shares are convertible, (v)
understands that the shares have not been registered under the Securities Act
and must be held indefinitely unless subsequently registered under the
Securities Act or unless an exemption from registration is available and that no
public market now exists for any securities of the Company and that a public
market may never exist for the Shares or the Common Stock into which they are
convertible, and (vi) has had an opportunity to discuss the Company's business,
management and financial affairs with its management and obtain any additional
information it considered necessary or desirable.
3.2 Restrictive Legend. Each certificate representing (i) the
Shares or (ii) shares of the Company's Common Stock issued upon conversion of
the Series B or Series C or Series D Preferred Stock and (iii) any securities
issued in respect of such Preferred Stock or Common Stock (collectively,
"Restricted Securities"), shall (unless otherwise permitted by the provisions of
Section 3.3 below) be stamped or otherwise imprinted with a legend substantially
in the following form (in addition to any legend required under applicable state
securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH
SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER
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SAID ACT OR AS PROVIDED IN THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES
AND RESTRICTING THEIR TRANSFER. COPIES OF THE AGREEMENT MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE CORPORATION'S PRINCIPAL PLACE OF BUSINESS.
3.3 Notice of Proposed Transfers. The holder of each
certificate representing Restricted Securities by acceptance thereof agrees to
comply in all respects with the provisions of this Section 3.3. Prior to any
proposed transfer of any Restricted Securities, unless there is in effect a
registration statement under the Securities Act covering the proposed transfer,
the holder thereof shall give written notice to the Company of such holder's
intention to effect such transfer. Each such notice shall describe the manner
and circumstances of the proposed transfer in sufficient detail, and shall be
accompanied (except in the following cases, with respect to which the
requirements set forth in the balance of this sentence need not be complied
with: transactions in compliance with Rule 144 so long as the Company is
furnished with evidence of compliance with such Rule; transactions involving the
distribution of Restricted Securities by any Purchaser which is a general or
limited partnership to any of its partners, or retired partners, or to the
estate of any of its partners or retired partners, so long as such transaction
does not involve the disposition of such Restricted Securities for value;
transactions involving the transfer of Restricted Securities by any holder who
is an individual to a trust for the benefit of such shareholder or his family
members; or transfer by gift, will or intestate succession by any holder who is
an individual to his spouse, lineal descendants or ancestors) by either (i) an
unqualified written opinion of legal counsel who shall be reasonably
satisfactory to the Company addressed to the Company and reasonably satisfactory
in form and substance to the Company's counsel, to the effect that the proposed
transfer of the Restricted Securities may be effected without registration under
the Securities Act, or (ii) a "no action" letter from the Commission to the
effect that the distribution of such securities without registration will not
result in a recommendation by the staff of the Commission that action be taken
with respect thereto, whereupon the holder of such Restricted Securities shall
be entitled to transfer such Restricted Securities in accordance with the terms
of the notice delivered by the holder to the Company. Each certificate
evidencing the Restricted Securities transferred as above provided shall bear
the appropriate restrictive legend set forth in Section 3.2 above, except that
such certificate shall not bear such restrictive legend if in the opinion of
counsel for the Company such legend is not required in order to establish
compliance with any provisions of the Securities Act.
SECTION 4.
Miscellaneous
4.1 Governing Law. This agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts between California residents entered into and to be performed entirely
within the State of California.
4.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser and
the closing of the transactions contemplated hereby.
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<PAGE> 14
4.3 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
4.4 Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof. Any term of this Agreement may be amended and the observance of any
term of this agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
the Company and the holders of at least 67% of the outstanding Existing Shares,
as defined in Section 2.1, (including, for such purposes, on a proportional
basis, any shares of Common Stock into which any of the Existing Shares have
been converted that have not been sold to the public). Any amendment or waiver
effected in accordance with this section shall be binding upon each holder of
any securities purchased under this agreement at the time outstanding (including
securities into which such securities have been converted), each future holder
of all such securities, and the Company. Provided, however, consent of sixty
seven (67%) of the holders of a Series of Preferred Stock shall be required for
any amendment that would adversely affect that Series in a different manner than
other shares of the Preferred Stock.
4.5 Effect of Amendment or Waiver. Each Purchaser acknowledges
that by the operation of Section 4.4 hereof the holders of 67% of the
outstanding Existing Shares (and Common Stock issued upon conversion thereof),
or of a Series (as the case may be), will have the right and power to diminish
or eliminate all rights of such Purchaser under this Agreement.
4.6 Rights of Purchasers. Each holder of the Shares (and
Common Stock issued upon conversion thereof) shall have the absolute right to
exercise or refrain from exercising any right or rights that such holder may
have by reason of this Agreement or the Existing Shares of including without
limitation the right to consent to the waiver of any obligation of the Company
under this Agreement and to enter into an Agreement with the Company for the
purpose of modifying this Agreement or any agreement effecting any such
modification, and such holder shall not incur any liability to any other holder
or holders of the Existing Shares with respect to exercising or refraining from
exercising any such right or rights.
4.7 Notices, etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
first-class mail, postage prepaid, or otherwise delivered by hand or by
messenger, addressed (a) if to a Purchaser, at such Purchaser's address set
forth in the Schedule of Holders of Registrable Securities, or at such other
address as such Purchaser shall have furnished to the Company in writing, or (b)
if to any other holder of any Shares, at such address as such holder shall have
furnished the Company in writing, or, until any such holder so furnishes an
address to the Company, then to and at the address of the last holder of such
Shares who has so furnished an address to the Company, or (c) if to the Company,
at 625 Clyde Avenue, Mountain View, California 94043 or at such other address as
the Company shall have furnished to each Purchaser and each such other holder in
writing and shall be deemed to have been received (a) upon delivery if delivered
by hand or by messenger or (b) five (5) days after mailing, if mailed.
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<PAGE> 15
4.8 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Existing Shares, upon any
breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of such holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereunder occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any holder of any breach or default under
this Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
4.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which may be executed by less than all of the
Purchasers, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
4.10 Severability. In the case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
4.11 Gender. The use of the neuter gender herein shall be
deemed to include the masculine and the feminine gender, if the context so
requires.
4.12 Effectiveness. This Agreement was initially effective
upon execution by holders of at least eighty percent (80%) of the Existing
Shares. This First Amended Agreement shall be effective upon approval by 67% of
the Purchasers as defined under the Agreement, and execution by the Series D
Purchasers.
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<PAGE> 16
This First Amended Agreement is hereby executed as of the date first
above written. PLX TECHNOLOGY, INC.
PLX TECHNOLOGY, INC.
By:__________________________
Michael J. Salameh
President
Schedule of Holders of Registrable
Securities
("PURCHASERS")
CALIFORNIA PARTNERS
DRAPER ASSOCIATES,
a California Limited Partnership
By:_____________________________________
Timothy C. Draper
Chief Financial Officer
ARBOR FINANCIAL CORPORATION
By:_____________________________________
D. James Guzy President
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<PAGE> 17
L.S. & Co.
By:_____________________________________
Laurence L. Spitters
BEAGLE LTD.
By:_____________________________________
Jean Pigozzi
By:_____________________________________
Anthony W. Roberts
By:_____________________________________
William H. Draper III
GC&H PARTNERS
By:_____________________________________
Michael Jacobson
By:_____________________________________
Michael Salameh
By:_____________________________________
Donald Etzbach
By:_____________________________________
Wei-Ti Liu
17
<PAGE> 18
AVI
By:_____________________________________
Eugene Flath
By:_____________________________________
James Bancroft
By:_____________________________________
Gaylord Galiher
By:_____________________________________
D. James Guzy, Jr.
By:_____________________________________
Michael Hopwood
By:_____________________________________
Richard Kelley
By:_____________________________________
Onslow Rudolph
By:_____________________________________
Kenneth Sletten
By:_____________________________________
Peter Sun
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<PAGE> 19
SIGNATURES OF SERIES D PURCHASERS:
FIRM NAME: ____________________________________
SIGNATURE: By: ________________________________
NAME: ____________________________________
FIRM NAME: ____________________________________
SIGNATURE: By: ________________________________
NAME: ____________________________________
FIRM NAME: ____________________________________
SIGNATURE: By: ________________________________
NAME: ____________________________________
FIRM NAME: ____________________________________
SIGNATURE: By: ________________________________
NAME: ____________________________________
19
<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 Amendment No. 1 to the Registration Statement (Form S-1 No. 333-71795) 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
March 8, 1999
