<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended March 31, 2000.
OR
[ ] Transitional Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from: ___________ to: __________ .
Commission file number 0-26660
ESS TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2928582
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
48401 FREMONT BOULEVARD
FREMONT, CALIFORNIA 94538
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(510) 492-1088
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of April 28, 2000, the registrant had 42,206,361 shares of common
stock outstanding.
<PAGE> 2
ESS TECHNOLOGY, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets - March 31, 2000, unaudited and December 31, 1999, audited 3
Consolidated Statements of Operations - three months ended
March 31, 2000 and 1999, unaudited 4
Consolidated Statements of Cash Flows - three months ended
March 31, 2000 and 1999, unaudited 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ESS TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
MAR. 31, DEC. 31,
2000 1999
----------- ---------
(UNAUDITED) (AUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................ $ 134,870 $130,913
Short-term investments........................................... 54,235 50,618
Accounts receivable, net......................................... 56,995 34,362
Inventories...................................................... 51,605 42,347
Deferred income taxes............................................ 10,758 10,758
Prepaid expenses and other assets................................ 2,969 2,199
--------- --------
Total current assets........................................... 311,432 271,197
Property, plant and equipment, net................................. 41,548 40,564
Other assets....................................................... 14,071 9,266
--------- --------
Total assets.............................................. $ 367,051 $321,027
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................ $ 74,206 $ 72,303
Income taxes payable and deferred income taxes................... 19,315 12,285
--------- --------
Total current liabilities...................................... 93,521 84,588
--------- --------
Commitments and Contingencies (Note 5)
Minority Interest (Note 8)......................................... 79,907 52,860
--------- --------
Shareholders' equity:
Preferred stock, no par value, 10,000 shares authorized;
none issued and outstanding................................... -- --
Common stock, no par value, 100,000 shares authorized; 42,079
and 41,372 shares issued and outstanding at March 31, 2000
and December 31, 1999, respectively........................... 141,950 140,597
Retained earnings................................................ 51,673 42,982
--------- --------
Total shareholders' equity..................................... 193,623 183,579
--------- --------
Total liabilities and shareholders' equity............... $ 367,051 $321,027
========= ========
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE> 4
ESS TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------
MAR. 31, 2000 MAR. 31, 1999
------------- -------------
<S> <C> <C>
Net revenues ........................................................... $83,597 $79,295
Cost of revenues ....................................................... 53,114 48,047
------- -------
Gross profit ....................................................... 30,483 31,248
Operating expenses:
Research and development ........................................... 10,749 9,025
In-process research and development ................................ 2,625 --
Selling, general and administrative ................................ 10,390 8,446
------- -------
Operating income ....................................................... 6,719 13,777
Nonoperating income, net ............................................... 2,878 1,061
------- -------
Income before provision for income taxes .............................. 9,597 14,838
Provision for income taxes ............................................. 3,054 2,226
------- -------
Net income before minority interest .................................... 6,543 12,612
------- -------
Minority interest ...................................................... 2,148 --
Net income ............................................................. $ 8,691 $12,612
======= =======
Net income per share:
Basic .............................................................. $ 0.21 $ 0.31
======= =======
Diluted ............................................................ $ 0.19 $ 0.28
======= =======
Shares used in calculating net income per share:
Basic .............................................................. 41,804 40,579
======= =======
Diluted ............................................................ 46,869 44,669
======= =======
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE> 5
ESS TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
MAR. 31, MAR. 31,
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................................. $ 8,691 $ 12,612
Adjustments to reconcile net income
to net cash provided by (used in) operating activities excluding net
assets and liabilities from acquisition:
Depreciation and amortization .......................................... 4,413 4,777
Charges for in-process research and development ........................ 2,625 --
Minority interest loss ................................................. (2,148) --
Change in assets and liabilities:
Accounts receivable .................................................. (22,633) 3,721
Inventories .......................................................... (9,258) 2,171
Prepaid expenses and other assets .................................... (1,242) 2,596
Accounts payable and accrued expenses ................................ 1,233 (10,199)
Income taxes payable and deferred income taxes ....................... 7,030 1,670
--------- ---------
Net cash provided by (used in) operating activities ............. (11,289) 17,348
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment, net excluding capital equipment
from acquisition....................................................... (3,887) (2,999)
Cash paid for acquisition ............................................... (3,733) --
Sale of short-term investments .......................................... 14,837 4,928
Purchase of short-term investments ...................................... (18,454) (17,047)
Purchase of long-term investment ........................................ (4,065) (3,000)
--------- ---------
Net cash used in investing activities ........................... (15,302) (18,118)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received for minority interest ..................................... 29,195 --
Repurchase of common stock .............................................. -- (3,450)
Issuance of common stock ................................................ 1,353 57
--------- ---------
Net cash provided by (used in) financing activities ............. 30,548 (3,393)
--------- ---------
Net increase (decrease) in cash and cash equivalents ...................... 3,957 (4,163)
Cash and cash equivalents at beginning of period .......................... 130,913 65,752
--------- ---------
Cash and cash equivalents at end of period ................................ $ 134,870 $ 61,589
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (refunded) for income taxes ................................... $ (3,975) $ 550
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE> 6
ESS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The unaudited Consolidated Financial Statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the financial position, operating results and cash flows for
those periods presented. These Consolidated Financial Statements should be read
in conjunction with the Consolidated Financial Statements and notes thereto for
the years ended December 31, 1999 and 1998, included in the Company's Form 10-K.
The results of operations for this interim period are not necessarily indicative
of the results that may be expected for any other period or for the fiscal year
which ends December 31, 2000.
NOTE 2. BALANCE SHEET COMPONENTS (IN THOUSANDS)
<TABLE>
<CAPTION>
MAR. 31, DEC. 31,
2000 1999
-------- --------
<S> <C> <C>
Cash and cash equivalents:
Cash and money market accounts -- ESS .......... $ 25,307 $ 25,867
Cash and money market accounts -- ViAlta.com ... 975 992
U.S. government notes and bonds -- ESS ......... 8,234 14,419
U.S. government notes and bonds -- ViAlta.com .. 100,227 89,508
Certificates of deposit -- ESS ................. 127 127
-------- --------
$134,870 $130,913
======== ========
Short-term investments:
U.S. government notes and bonds -- ESS ......... $ 23,286 $ 28,274
U.S. government notes and bonds -- ViAlta.com .. 30,949 22,344
-------- --------
$ 54,235 $ 50,618
======== ========
Accounts receivable:
Accounts receivable ............................ $ 57,725 $ 36,821
Less: allowance for doubtful accounts .......... (730) (2,459)
-------- --------
$ 56,995 $ 34,362
======== ========
Inventories:
Raw materials .................................. $ 18,014 $ 10,697
Work-in-process ................................ 7,458 10,208
Finished goods ................................. 26,133 21,442
-------- --------
$ 51,605 $ 42,347
======== ========
</TABLE>
NOTE 3. REVENUE RECOGNITION
Revenue from product sales is recognized at the time of shipment except for
certain shipments to distributors with rights of return and allowances, in which
case revenue is deferred until the distributor resells the product. For sales
recognized at the time of shipment, reserves for estimated returns and price
adjustments are provided at the time of shipment.
NOTE 4. EARNINGS PER SHARE
Earnings per share are calculated in accordance with the provisions of
Statement of Financial Accounting Standards No. 128 "Earnings per Share" (SFAS
No. 128). SFAS No. 128 requires the Company to report both basic earnings per
share, which are based on the weighted-average number of common shares
outstanding, and diluted earnings per share, which are based on the weighted
average number of common shares outstanding and all dilutive potential common
shares outstanding.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------
MARCH 31, 2000 MARCH 31, 1999
--------------------------------- ----------------------------------
PER PER
NET SHARE NET SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS ............... $ 8,691 41,804 $ 0.21 $12,612 40,579 $ 0.31
Effects of Dilutive
Securities:
Stock options ......... -- 5,065 -- -- 4,090 --
------- ------ ------- ------- ------ -------
Diluted EPS ............. $ 8,691 46,869 $ 0.19 $12,612 44,669 $ 0.28
======= ====== ======= ======= ====== =======
</TABLE>
6
<PAGE> 7
NOTE 5. COMMITMENTS AND CONTINGENCIES
The Company is involved in litigation in the normal course of operations.
Management believes that the outcome of the litigation will not have a material
adverse effect on the Company's financial position or results of operations.
NOTE 6. ACQUISITION AND RELATED CHARGES
On February 3, 2000, the Company acquired all of the outstanding shares and
vested stock options of NetRidium Communications, Inc. for $5.3 million in cash
of which 10% will be paid after nine months pending the resolution of certain
contingencies. NetRidium is a development stage company which develops broadband
communication products enabling high-speed networking over existing phone lines
in the home. NetRidium's assets, liabilities and expenses were not material to
the Company. The purchase price was allocated to assets acquired and liabilities
assumed based upon the book value of NetRidium's current assets, equipment and
liabilities, which management believes approximate their fair market value and
independent appraisal for all other identifiable assets as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
In-process research and development $2,625
Technical infrastructure 797
Covenant not to compete 730
Current assets 1,071
Capital equipment, net 75
Other long-term assets 172
Current liabilities assumed (138)
------
Value of consideration for acquisition $5,332
Less cash acquired from acquisition (1,066)
10% deferred payment (533)
------
Business acquisition $3,733
======
</TABLE>
The acquisition was recorded using the purchase method of accounting and
accordingly, the results of operations and cash flows of such acquisition have
been included from the date of acquisition. Acquired in-process research and
development aggregating $2.6 million for the NetRidium acquisition was charged
to operations in the first quarter of 2000. Technical infrastructure and
covenant not to compete will be amortized over four years. In connection with
the acquisition, the Company granted certain NetRidium employees stock options
to purchase 500,000 shares of the Company's stock at $17.68 per share, the fair
market value on the date of grant. In addition certain employees of NetRidium
have signed employment contracts which, among other things, provide that if the
employee stays with the Company for the four year term of the employment
agreement, the employee's stock options will have a value of at least $8.85 more
than the exercise price when such options become exercisable. Approximately
428,000 of the options issued upon acquisition are subject to this guarantee.
During the first quarter of 2000, the Company recorded approximately $0.2
million as compensation expense under this guarantee.
NOTE 7. RELATED PARTY TRANSACTION
In January 2000, the Company and its subsidiary, ViAlta.com (ViAlta)
entered into an Assignment of Intellectual Property Agreement whereby ViAlta
will pay
<PAGE> 8
ESS $2.0 million for the transfer of the Videophone and EnReach-based Web
Browser technologies. The Company entered into a Research and Development
Service Agreement and a General and Administrative Service Agreement with ViAlta
whereby ESS provides services to ViAlta for a fee. During the first quarter of
2000, inter-company service fees of $1.8 million were charged to ViAlta.
ViAlta also entered into a Purchase Agreement with the Company for the
procurement of ESS' chip-sets to be used in ViAlta set-top boxes. The amount of
material purchase was approximately $0.4M for the first quarter of 2000. All
inter-company transactions were eliminated in the consolidated financial
statements.
NOTE 8. VIALTA.COM
In April 1999, the Company incorporated ViAlta, a subsidiary,
through which ESS plans to introduce advanced, user-friendly products and
applications for the Internet. ViAlta is incorporated in California and
headquartered in Fremont.
In September 1999, ViAlta issued 40 million shares of Series A Preferred
Stock at $0.25 per share to the Company for $10 million in cash. In October
1999, Mr. Fred Chan, Chairman of ESS and ViAlta, purchased 4 millions shares of
common stock at $0.25 per share by issuing a full recourse promissory note due
to ViAlta which bears interest at market rate. The promissory note and the
accrued interest were paid in March 2000. Also in October 1999, ViAlta issued
400,000 and 1,820,000 common shares to the Company and certain employees,
respectively, for full recourse promissory notes in the amount of $555,000.
These notes have been fully paid in cash to ViAlta in the first quarter of 2000.
In December 1999, ViAlta issued 40.3 million shares of Series B
Preferred Stock at $2.60 per share; 20 million to the Company and 20.3 million
to third party investors for a total of $52.8 million in cash. On January 4,
2000, ViAlta received $20.8 million in the form of a full recourse
promissory note from Mr. Chan for the purchase of 8 million shares of Series B
Preferred Stock at $2.60 per share. The principal and the accrued interest of
the promissory note were paid in full in March 2000. During the first quarter of
2000, ViAlta received $7.0 million in cash from third party investors for
subscription to 2.7 million shares of its Series B Preferred Stock.
As of March 31, 2000, minority interest in the Company's consolidated
balance is comprised of ViAlta Series B Preferred Stock and Common Stock
issued to third parties and contractors of ViAlta, net of net loss
pertaining to the minority interest shareholders.
<PAGE> 9
As of March 31, 2000, the Company has a 62.13% voting interest in
ViAlta.
According to ViAtla's Second Amended and Restated Articles of
Incorporation, ViAlta is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock".
CONVERTIBLE PREFERRED STOCK
Convertible Preferred Stock at March 31, 2000 consists of the following:
<TABLE>
<CAPTION>
Proceeds
Shares net of
-------------------------- issuance
Series Authorized Outstanding costs
- ------ ---------- ----------- ------------
<S> <C> <C> <C>
A 40,000,000 40,000,000 $ 10,000,000
B 51,000,000 51,000,000 $132,600,000
---------- ---------- ------------
91,000,000 91,000,000 $142,600,000
</TABLE>
NOTE 9. SEGMENT INFORMATION
The Company operates in two reportable segments: the semiconductor segment and
the Internet segment. In the semiconductor segment, the Company designs,
develops, supports and manufactures highly integrated mixed-signal
semiconductor, hardware, software and system solutions for multimedia
applications in the internet, personal computer and the consumer marketplace.
The semiconductor segment offers comprehensive solutions for audio, video and
modern applications. In the Internet segment, the Company plans to develop and
market advanced, user-friendly products and applications and content for the
Internet.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------
MAR. 31, 2000 MAR. 31, 1999
------------------------------------------------------- -------------
ESS ViAlta Elimination Consolidated Consolidated
------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues - external customers 82,595 1,002 -- 83,597 79,295
Net revenues - intersegment 401 -- (401) -- --
Operating income (loss) 12,365 (7,431) 1,785 6,719 13,777
Total assets 290,087 139,326 (62,362) 367,051 321,027
</TABLE>
In the first quarter of 1999, the Company operated in a single segment.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements contained in this discussion that are not statements of
historical fact may be deemed to be forward-looking statements. A number of
important factors could cause actual events or the Company's actual results to
differ materially from those indicated by such forward-looking statements,
including dependence on continued growth in demand for multimedia capabilities
for the PC marketplace as well as the market for consumer electronic products;
the Company's ability to take advantage of new markets; increased competition
and pricing pressures; general economic conditions specific to the semiconductor
industry; the timing and market acceptance of new product introductions; the
timely development of new products; continued availability of quality foundry
capacity; and other risks set forth in this filing and in the Company's filings
from time to time with the Securities and Exchange Commission.
This information should be read along with the unaudited Consolidated
Financial Statements and notes thereto included in Item I of this Quarterly
Report and the audited Consolidated Financial Statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the fiscal years ended December 31, 1999 and 1998, contained in
the Company's Annual Report filed on Form 10-K.
RESULTS OF OPERATIONS
The following table discloses key elements of the statements of operations,
expressed as a percentage of revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAR. 31, 2000 MAR. 31, 1999
------------- -------------
<S> <C> <C>
Net revenues ..................................... 100.0% 100.0%
Cost of revenues ................................. 63.5 60.6
----- -----
Gross margin ................................... 36.5 39.4
Operating expenses:
Research and development ....................... 12.9 11.4
In-process research and development ............ 3.1 --
Selling, general and administrative ............ 12.4 10.6
----- -----
Operating income ................................. 8.1 17.4
Nonoperating income, net ......................... 3.4 1.3
----- -----
Income before income taxes ....................... 11.5 18.7
Provision for income taxes ....................... 3.7 2.8
Net income before minority interest .............. 7.8 15.9
----- -----
Minority interest ................................ 2.6 --
----- -----
Net income ....................................... 10.4% 15.9%
----- -----
</TABLE>
Net Revenues. The Company's net revenues increased 5% to $83.6 million in
the first quarter of 2000, from $79.3 million in the first quarter of 1999. The
increase in net revenues was a result of higher overall unit shipments which
were partially offset by lower average selling prices ("ASP"). International
revenues accounted for approximately 91% and 97% of the Company's net revenues
in the first quarter of 2000 and 1999, respectively.
Gross Profit. The Company's gross profit decreased from $31.2 million in the
first quarter of 1999 to $30.5 million in the first quarter of 2000. The
decrease in gross profit was the result of a decline in ASP and an increase in
inventory reserves.
Research and Development. Research and development expenses before the $2.6
million charge for in-process research and development relating to the NetRidium
acquisition were $10.8 million in the first quarter of 2000, or 13% of net
revenues, compared to $9.0 million, or 11% of net revenues in the first quarter
of 1999. The increase in absolute dollars was primarily due to increased
expenses incurred by the Company's majority owned subsidiary, ViAlta.
Selling, General and Administrative. Selling, general and administrative
expenses were $10.4 million in the first quarter of 2000, or 12% of net
revenues, compared to $8.4 million, or 11% of net revenues, in the first quarter
of 1999. The increase in absolute dollars was primarily due to an increase in
marketing and promotion expenses relating to the video products.
7
<PAGE> 11
Nonoperating Income, Net. Nonoperating income, net was $2.9 million in the
first quarter of 2000 compared to $1.1 million in the first quarter of 1999.
Nonoperating income, net consisted primarily of interest income. The increase
in interest income was due to the increase in the Company's cash balance
holdings.
Provision for Income Taxes. The Company's effective tax rate was 17% and 15%
for the first quarter of 2000 and 1999, respectively. The tax rate for the first
quarter of 2000 of 17% was lower than the combined federal and state statutory
rate of 40% as a result of the lower foreign tax rate on earnings from the
Company's foreign subsidiary that were considered to be permanently reinvested.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its cash requirements from
cash generated from operations, the sale of equity securities, bank lines of
credit and long-term and short-term debt. At March 31, 2000, the Company had
cash and cash equivalents and short-term investments of $189.1 million of which
$132.2 million belongs to ViAlta and working capital of $217.9 million. As of
March 31, 2000, the Company had a $15.0 million bank line of credit expiring on
October 1, 2001. The line of credit requires the Company to achieve certain
financial ratios and operating results. As of March 31, 2000, the Company was in
compliance with its borrowing criteria. The line of credit was secured by land
and buildings with a net book value of $22.7 million. There were no borrowings
under this line of credit as of March 31, 2000.
In the first three months of 2000, the Company used $11.3 million in cash
from operating activities. This resulted from net income of $8.7 million,
depreciation and amortization of $4.4 million, charges for in-process research
and development of $2.6 million, a minority interest net loss of $2.1 million.
An increase in accounts receivable of $22.6 million, in inventory of $9.3
million, in prepaid expenses and other assets of $1.2 million, offset in part by
an increase in income taxes payable of $7.0 million and in accounts payable and
accrued expenses of $1.2 million. The Company invested $3.6 million in net
purchases of short-term investments, $3.7 million in business acquisition, $4.1
million in long-term investments, $3.9 million in property and equipment. The
Company's subsidiary received cash for investments in ViAlta of $29.2
million from outside investors and the Company received $1.4 million in issuance
of common stock in connection with the exercise of employee stock options and
employee stock purchase plan.
The Company believes that its existing cash and cash equivalents as of
March 31, 2000 together with the cash generated from operations, available
borrowings under its line of credit and other financing options, will be
sufficient to fund acquisitions of property and equipment and provide adequate
working capital through at least the next twelve months. Capital expenditures
for the next twelve months are anticipated to be approximately $29.0 million of
which $5.0 million is to be used by ESS and $24.0 million is to be used by
ViAlta primarily for the acquisition of capital equipment. The Company may
also utilize cash to acquire or invest in complementary businesses or products
or to obtain the right to use complementary technologies. From time to time, in
the ordinary course of business, the Company may evaluate potential acquisitions
of or investment in such businesses, products or technologies owned by third
parties.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This report contains certain forward-looking statements that are subject to
risk and uncertainties. For such statements, the Company desires to take
advantage of the "Safe Harbor" provisions of the Private Securities Litigation
Reform Act of 1995 and of Section 21E of and Rule 3b-6 under the Securities
Exchange Act of 1934. Such forward-looking statements include, without
limitation, statements regarding the Company's expectations, intentions or
future strategies and involve known and unknown risks, uncertainties and other
factors. All forward looking statements included in this document are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update such forward-looking statements.
Potential Fluctuations in Operating Results. The Company's operating results
are subject to quarterly and other fluctuations due to a variety of factors,
including the gain or loss of significant customers, increased competitive
pressures, changes in pricing policies by
8
<PAGE> 12
the Company, its competitors or its suppliers, including decreases in unit
average selling prices ("ASPs") of the Company's products, the timing of new
product announcements and introductions by the Company or its competitors and
market acceptance of new or enhanced versions of the Company's and its
customers' products. Other factors include the availability of foundry capacity,
fluctuations in manufacturing yields, availability and cost of raw materials,
changes in the mix of products sold, the cyclical nature of both the
semiconductor industry and the market for PCs, seasonal customer demand, the
timing of significant orders and significant increases in expenses associated
with the expansion of operations. The Company's operating results could also be
adversely affected by economic conditions in various geographic areas where the
Company or its customers do business, or order cancellations or rescheduling.
These factors are difficult to forecast, and these or other factors could
materially affect the Company's quarterly or annual operating results. There can
be no assurance as to the level of sales or earnings that may be attained by the
Company in any given period in the future. The Company currently places
non-cancelable orders to purchase its products from independent foundries on an
approximately three month rolling basis, while its customers generally place
purchase orders with the Company less than four weeks prior to delivery that may
be canceled without significant penalty. Consequently, if anticipated sales and
shipments in any quarter are canceled or do not occur as quickly as expected or
forecasted sales levels are not realized, expense and inventory levels could be
disproportionately high and the Company's business, financial condition and
results of operations could be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Competition; Pricing Pressures. The markets in which the Company competes
are intensely competitive and are characterized by rapid technological change,
price reductions and rapid product obsolescence. The Company currently competes
with add-in card suppliers and other semiconductor manufacturers. The Company
expects competition to increase in the future from existing competitors and from
other companies that may enter the Company's existing or future markets with
products that may be at lower costs or provide higher levels of integration,
higher performance or additional features. The Company is unable to predict the
timing and nature of any such competitive product offerings. The announcement
and commercial shipment of competitive products could adversely affect sales of
the Company's products and may result in increased price competition that would
adversely affect the average selling prices ("ASPs") and margins of the
Company's products. In general, product prices in the semiconductor industry
have decreased over the life of a particular product. The markets for most of
the applications for the Company's products are characterized by intense price
competition. The willingness of prospective customers to design the Company's
products into their products depends to a significant extent upon the ability of
the Company to sell its products at a price that is cost-effective for such
customers. As the markets for the Company's products mature and competition
increases, the Company anticipates that prices for its products will continue to
decline. If the Company is unable to reduce its costs sufficiently to offset
declines in product prices or is unable to introduce more advanced products with
higher product prices, the Company's business, financial condition and results
of operations would be materially adversely affected.
The Company's existing and potential competitors consist principally of
large domestic and international companies that have substantially greater
financial, manufacturing, technical, marketing, distribution and other
resources, greater intellectual property rights, broader product lines and
longer-standing relationships with customers than the Company. The Company's
competitors also include a number of smaller and emerging companies. The
Company's principal audio competitors include Cirrus Logic, Creative Technology
and Yamaha. The Company's principal video competitors include C-Cube
Microsystems, Winbond, LSI Logic, Zoran and SGS Thomson. The Company's principal
modem competitors include Lucent Technologies, PC-TEL, Conexant, 3Com and Texas
Instruments.
Certain of the Company's current and potential competitors maintain their
own semiconductor foundries and may therefore benefit from certain capacity,
cost and technical advantages. The Company believes that its ability to compete
successfully depends on a number of factors, both within and outside of its
control, including the price, quality and performance of the Company's and its
competitors' products, the timing and success of new product introductions by
the Company, its customers and its competitors, the emergence of new multimedia
standards, the development of technical innovations, the ability to obtain
adequate foundry capacity and sources of raw materials, the efficiency of
production, the rate at which the Company's customers design the Company's
products into their products, the number and nature of the Company's competitors
in a given market, the assertion of intellectual property rights and general
market and economic conditions. There can be no assurance that the Company will
be able to compete successfully in the future.
Each successive generation of microprocessors has provided increased
performance, which could result in microprocessors capable of performing
multimedia functions. In this regard, Intel Corporation includes MMX
Instructions (Multimedia Extensions) in its current generation of
microprocessors, which improve the microprocessor's performance for graphics,
image processing, and data computation applications. Intel is promoting the
processing power of the Pentium-III processor for data and signal intensive
functions such as graphics acceleration and other multimedia functions. The
microprocessor still requires analog and mixed-signal interface
9
<PAGE> 13
chips, such as ESS-supplied IC products, to complete a multimedia subsystem; but
there can be no assurance that the increased capabilities of microprocessors
will not adversely affect demand for the Company's products
Dependence on the PC and Consumer Markets. During the first quarter of
2000, sales of PC audio semi-conductor chips accounted for a significant portion
of the Company's net revenues, the Company expects that sales of audio
semiconductors will continue to account for a significant portion of its net
revenues for the foreseeable future. Sales of video semiconductor chips to the
video compact disk ("VCD") and digital video disk ("DVD") player market also
accounted for a significant portion of the Company's revenues during Q1 of 2000.
Any reduction in ASPs or demand for the Company's semiconductor chips, whether
because of a reduction in demand for PCs, DVD or VCD players in general,
increased competition or otherwise, would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company is currently engaged in the development and introduction of new
PC audio, video and modem semiconductor devices for the Internet, PC and
consumer markets. There can be no assurance that the Company will be able to
identify market trends or new product opportunities, develop and market new
products, achieve design wins or respond effectively to new technological
changes or product announcements by others. A failure in any of these areas
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's products are sold for incorporation into desktop and notebook
computers, VCD and DVD players. Therefore, the Company is heavily dependent on
the growth of the markets and the cost requirements for desktop and notebook
computers VCD and DVD players. There can be no assurance that these markets will
be able to grow. A slowing in unit volume and a decrease in ASPs could result in
a decline in revenues which would have a material adverse effect on the
Company's business, financial condition and results of operations.
Importance of New Products and Technological Changes. The markets for the
Company's products are characterized by evolving industry standards, rapid
technological change and product obsolescence. The Company's success is highly
dependent upon the successful development and timely introduction of new
products at competitive price and performance levels. The success of new
products depends on a number of factors, including timely completion of product
development, market acceptance of the Company's and its customers' new products,
securing sufficient foundry capacity for volume manufacturing of wafers,
achievement of acceptable wafer fabrication yields by the Company's independent
foundries and the Company's ability to offer new products at competitive prices.
In order to succeed in having the Company's products incorporated into new
products being designed by its customers, the Company must anticipate market
trends and meet performance, quality and functionality requirements of such OEMs
and must successfully develop and manufacture products that adhere to these
requirements. In addition, the Company must meet the timing and price
requirements of such manufacturers and must make such products available in
sufficient quantities. Accordingly, in selling to OEMs, the Company can often
incur significant expenditures prior to volume sales of new products, if any. In
order to help accomplish these goals, the Company has in the past and will
continue to consider in the future the acquisition of other companies or the
products and technologies of other companies. Such acquisitions carry additional
risks, such as a lack of integration with existing products and corporate
culture, the potential for large write-offs and the diversion of management
attention. There can be no assurance that the Company will be able to identify
market trends or new product opportunities, develop and market new products,
achieve design wins or respond effectively to new technological changes or
product announcements by others. A failure in any of these areas would have a
material adverse effect on the Company's business, financial condition and
results of operations
New Business Venture. In 1999, the Company incorporated ViAlta,
originally as a wholly-owned subsidiary of the Company, in order to develop and
market new products and applications for the Internet. The Company's investment
in ViAlta involves all of the risks normally associated with investments in
development stage companies. In order for ViAlta to begin earning revenues
and ultimately achieve profitability, it must successfully develop and market
new products and applications on a cost effective basis. There can be no
assurance that ViAlta will be able to do so, since, among other things, the
Company has limited experience in starting new business ventures and there is
intense competition in the marketplace for Internet products and applications
generally. In addition, the Company's investment in ViAlta may adversely
affect the Company's existing business, financial position and results of
operations by diverting management's attention, working capital and other
resources from the Company to the new ViAlta business venture.
Dependence on TSMC and Other Third Parties. The Company relies on
independent foundries to manufacture all of its products. A substantial majority
of the Company's products are currently manufactured by TSMC, which has
manufactured certain of the Company's products since 1989. The Company also has
foundry arrangements with UMC, which has manufactured certain of the Company's
products since 1995. These relationships provide the Company with access to
advanced process technology necessary for the manufacture of the Company's
products. These foundries fabricate products for other companies and, in certain
cases, manufacture
10
<PAGE> 14
products of their own design. In November 1999, the Company secured wafer
capacity that it believes will be adequate to meet its growth plans for the next
12 months. In September 1999, Taiwan experienced a series of earthquakes. While
the Company did not experience any material effects from these earthquakes,
there can be no assurance that any future earthquakes will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
While the Company has entered into agreements with its two foundries, the
Company's reliance on these independent foundries involves a number of risks,
including the absence of adequate capacity, the unavailability of, or
interruption in access to, certain process technologies and reduced control over
delivery schedules, manufacturing yields and costs, and the international risks
more fully described below. In addition, the Company has pre-negotiated certain
of its purchase orders and could be unable to benefit from enhanced yields
realized by its vendors. The Company expects to rely upon TSMC and UMC to
manufacture substantially all of the Company's products for the foreseeable
future. In the event that TSMC and UMC are unable to continue to manufacture the
Company's key products in required volumes, the Company will have to identify
and secure additional foundry capacity. In such an event, the Company may be
unable to identify or secure additional foundry capacity from another
manufacturer. Even if such capacity is available from another manufacturer, the
qualification process could take six months or longer. The loss of any of its
foundries as a supplier, the inability of the Company to acquire additional
capacity at its current suppliers or qualify other wafer manufacturers for
additional foundry capacity should additional capacity be necessary, or any
other circumstances causing a significant interruption in the supply of
semiconductors to the Company would have a material adverse effect on the
Company's business, financial condition and results of operations.
To address potential foundry capacity constraints in the future, ESS will
continue to consider and may be required to enter into additional arrangements,
including equity investments in or loans to independent wafer manufacturers in
exchange for guaranteed production capacity, joint ventures to own and operate
foundries, or "take or pay" contracts that commit the Company to purchase
specified quantities of wafers over extended periods. Any such arrangements
could require the Company to commit substantial capital and grant licenses to
its technology. The need to commit substantial capital may require the Company
to obtain additional debt or equity financing, which could result in dilution to
the Company's shareholders. There can be no assurance that such additional
financing, if required, will be available when needed or, if available, will be
obtained on terms acceptable to the Company.
Customer Concentration. A limited number of customers have accounted for a
substantial portion of the Company's net revenues. During the first quarter of
2000 and 1999 sales to the Company's top five customers including sales to
distributors, accounted for approximately 54% and 57% respectively, of the
Company's net revenues. Sales to distributors are generally subject to
agreements allowing limited rights of return and price protection with respect
to unsold products. Returns and allowances in excess of reserves could have a
material adverse impact on the Company's business, financial condition and
results of operation. During 1997, the Company adopted a policy of deferring
revenue recognition on sales of devices to distributors in Hong Kong and Taiwan
until devices are sold to the end customers. This has led to increased
operational visibility on product moving through the channel. The Company
expects that a limited number of customers may account for a substantial portion
of the net revenues for the foreseeable future. The Company has experienced
changes from year to year in the composition of its major customer base and
believes this pattern may continue. The Company does not have long-term purchase
agreements with any of its customers. The reduction, delay or cancellation of
orders from one or more major customers for any reason or the loss of one or
more of such major customers could materially and adversely affect the Company's
business, financial condition and results of operations. In addition, since the
Company's products are often sole sourced to its customers, the Company's
operating results could be materially and adversely affected if one or more of
its major customers were to develop other sources of supply. There can be no
assurance that the Company's current customers will continue to place orders
with the Company, that orders by existing customers will not be canceled or will
continue at the levels of previous periods or that the Company will be able to
obtain orders from new customers.
Management of Growth. The Company has experienced significant growth in unit
shipments and the addition of multiple product lines that require additional
management systems and processes. To manage its future operations and growth
effectively, the Company will need to hire and retain management, hire, train,
motivate, manage and retain its employees, continue to improve its operational,
financial and management information systems and implement additional systems
and controls. There can be no assurance that the Company will be able to manage
such growth effectively, and the failure to do so could have a material adverse
effect on the Company's business, financial condition and results of operations.
International Operations. Substantially all of the Company's international
sales were to customers in Hong Kong, Taiwan, Japan, Singapore and China. The
Company expects that international sales will continue to represent a
significant portion of its net revenues for the foreseeable future. In addition,
substantially all of the Company's products are manufactured, assembled and
tested by independent third parties in Asia. Due to its reliance on
international sales and foreign third-party manufacturing, assembly and testing
operations, the Company is subject to the risks of conducting business outside
of the United States. These risks include unexpected
11
<PAGE> 15
changes in, or impositions of legislative or regulatory requirements, delays
resulting from difficulty in obtaining export licenses for certain technology,
tariffs, quotas and other trade barriers and restrictions, longer payment
cycles, greater difficulty in accounts receivable collection, potentially
adverse taxes, the burdens of complying with a variety of foreign laws and other
factors beyond the Company's control. The Company is also subject to general
geopolitical risks in connection with its international trade relationships.
Although the Company has not to date experienced any material adverse effect on
its business, financial condition or results of operations as a result of such
regulatory, geopolitical and other factors, there can be no assurance that such
factors will not have a material adverse effect on the Company's business,
financial condition and results of operations in the future or require the
Company to modify its current business practices.
In addition, the laws of certain foreign countries in which the Company's
products are or may be manufactured or sold, including various countries in
Asia, may not protect the Company's products or intellectual property rights to
the same extent as do the laws of the United States and thus make the
possibility of piracy of the Company's technology and products more likely.
Currently, all of the Company's product sales and all of its arrangements with
foundries and assembly and test vendors provide for pricing and payment in U.S.
dollars. The effect of significant currency fluctuations in Asia had no material
impact on the Company. There can be no assurance that future fluctuations in
currency exchange rates will not have a material adverse effect on the Company's
business, financial condition and results of operations. To date, the Company
has not engaged in any currency hedging activities, although the Company may do
so in the future. Furthermore, there can be no assurance that one or more of the
foregoing factors will not have a material adverse effect on the Company's
business, financial condition and results of operations or require the Company
to modify its current business practices.
Semiconductor Industry. The semiconductor industry has historically been
characterized by rapid technological change, cyclical market patterns,
significant price erosion, periods of over-capacity and production shortages,
variations in manufacturing costs and yields and significant expenditures for
capital equipment and product development. In addition, the industry has
experienced significant economic downturns at various times, characterized by
diminished product demand and accelerated erosion of product prices. The Company
may experience substantial period-to-period fluctuations in operating results
due to general semiconductor industry conditions.
Uncertainty Regarding Patents and Protection of Proprietary Rights. The
Company relies on a combination of patents, trademarks, copyrights, trade secret
laws and confidentiality procedures to protect its intellectual property rights.
As of March 31, 2000, the Company had 8 patents granted in the United States,
which expire over time, commencing in 2000 and ending in 2015, and 13
corresponding foreign patents. In addition, the Company intends to seek further
United States and international patents on its technology. There can be no
assurance that patents will be issued from any of the Company's pending
applications or applications in preparation or that any claims allowed from
pending applications or applications in preparation will be of sufficient scope
or strength, or be issued in all countries where the Company's products can be
sold, to provide meaningful protection or any commercial advantage to the
Company. Also, competitors of the Company may be able to design around the
Company's patents. The laws of certain foreign countries in which the Company's
products are or may be designed, manufactured or sold, including various
countries in Asia, may not protect the Company's products or intellectual
property rights to the same extent as do the laws of the United States and thus
make the possibility of piracy of the Company's technology and products more
likely. Although the Company is not aware of the development, distribution or
sales of any illegal copies of the Company's hardware or software, any
infringements of its patents, copyrights or trademarks, or any violation of its
trade secrets, confidentiality procedures or licensing agreements to date, there
can be no assurance that the steps taken by the Company to protect its
proprietary information will be adequate to prevent misappropriation of its
technology or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions, which have resulted in
significant and often protracted and expensive litigation. As of March 2000,
there was no pending intellectual property litigation against the Company.
However, the Company or its foundries may from time to time receive notice of
claims that the Company has infringed patents or other intellectual property
rights owned by others. The Company may seek licenses under such patents or
other intellectual property rights. However, there can be no assurance that
licenses will be offered or that the terms of any offered licenses will be
acceptable to the Company. The failure to obtain a license from a third party
for technology used by the Company could cause the Company to incur substantial
liabilities and to suspend the manufacture of products or the use by the
Company's foundries of processes requiring the technology. Furthermore, the
Company may initiate claims or litigation against third parties for infringement
of the Company's proprietary rights or to establish the validity of the
Company's proprietary rights. Litigation by or against the Company could result
in significant expense to the Company and divert the efforts of the Company's
technical and management personnel, whether or not such litigation results in a
favorable determination for the Company. In the event of an adverse result in
any such litigation, the Company could be required to pay substantial damages,
cease the manufacture, use and sale of
12
<PAGE> 16
infringing products, expend significant resources to develop non-infringing
technology, discontinue the use of certain processes or obtain licenses for the
infringing technology. There can be no assurance that the Company would be
successful in such development or that such licenses would be available on
reasonable terms, or at all, and any such development or license could require
expenditures by the Company of substantial time and other resources. Although
patent disputes in the semiconductor industry have often been settled through
cross-licensing arrangements, there can be no assurance that in the event that
any third party makes a successful claim against the Company or its customers, a
cross-licensing arrangement could be reached. In such a case, if a license is
not made available to the Company on commercially reasonable terms, the
Company's business, financial condition and results of operations could be
materially adversely affected.
The Company currently licenses certain of the technology utilized by the
Company in its products, and expects to continue to do so in the future. The
Company has in the past granted licenses to certain of its technology, some of
which have expired, such licenses have been limited and the Company has not
derived material revenues from such licenses in recent periods.
Dependence on Key Personnel. The Company's success depends to a significant
degree upon the continued contributions of Fred S.L. Chan, the Company's
Chairman of the Board of Directors. The present and future success of the
Company depends on its ability to continue to attract, retain and motivate
qualified senior management, sales and technical personnel, particularly highly
skilled semiconductor design personnel and software engineers, for whom
competition is intense. The loss of Mr. Chan, Mr. Blair, key executive officers,
key design personnel or software engineers or the inability to hire and retain
sufficient qualified personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that the Company will be able to retain these employees. The
Company currently does not maintain any key man life insurance on the life of
any of its key employees.
Control by Existing Shareholders. As of March 31, 2000, Fred S.L. Chan, the
Chairman of the Board of Directors, together with his spouse, Annie M.H. Chan, a
director of the Company, and certain trusts for the benefit of the Chan's
children beneficially owned, in the aggregate, 37% of the Company's outstanding
Common Stock. As a result, these shareholders, acting together, possess
significant voting power over the Company, giving them the ability among other
things to influence significantly the election of the Company's Board of
Directors and approve significant corporate transactions. Such control could
delay, defer or prevent a change in control of the Company, impede a merger,
consolidation, takeover or other business combination involving the Company, or
discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of the Company.
Volatility of Stock Price. The price of the Company's Common Stock has in
the past and may continue in the future to fluctuate widely. Future
announcements concerning the Company, its competitors or its principal
customers, including quarterly operating results, changes in earnings estimates
by analysts, technological innovations, new product introductions, governmental
regulations or litigation may cause the market price of the Company's Common
Stock to continue to fluctuate substantially. Further, in recent years the stock
market has experienced extreme price and volume fluctuations that have
particularly affected the market prices of equity securities of many high
technology companies and that often have been unrelated or disproportionate to
the operating performance of such companies. These fluctuations, as well as
general economic, political and market conditions such as recessions or
international currency fluctuations, may materially adversely affect the market
price of the Common Stock.
Euro Conversion. The Company is in the process of addressing the issues
raised by the introduction of the Single European Currency ("Euro"). The Company
does not expect the cost of any system modifications to be material or result in
any material increase in transaction costs. The Company will continue to
evaluate the impact of the Euro; however, based on currently available
information management does not believe that the introduction of the Euro will
have a material adverse impact on the Company's financial condition or the
overall trends in results of operations.
PART II OTHER INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
13
<PAGE> 17
Foreign Exchange Risks: The Company funds its operations from cash generated
from its operations, the sale of marketable securities and short and long-term
debt. As the Company operates primarily in Asia, the Company is exposed to
market risk from changes in foreign exchange rates, which could affect its
results of operations and financial condition. In order to reduce the risk from
fluctuation in foreign exchange rates, the Company's product sales and all of
its arrangements with its foundry and test and assembly vendors are denominated
in U.S. dollars. The Company has not entered into any currency hedging
activities.
Interest Rate Risks: The Company also invests in short-term investments.
Consequently, the Company is exposed to fluctuation in rates on these
investments. Increases or decreases in interest rates generally translate into
decreases and increases in the fair value of these investments. In addition, the
credit worthiness of the issuer, relative values of alternative investments, the
liquidity of the instrument and other general market conditions may affect the
fair values of interest rate sensitive investments. In order to reduce the risk
from fluctuation in rates, the Company invests in highly liquid governmental
notes and bonds with contractual maturities of less than two years. All of the
investments have been classified as available for a sale, and at March 31, 2000,
the fair market value of the Company's investments approximated their costs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended March 31, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.31 Purchase Agreement dated August 1, 1999 between Registrant
and ViAlta.com, Inc.
10.32 Assignment of Intellectual Property Agreement dated January 1,
2000 between Registrant and ViAlta.com, Inc.*
10.33 Research and Development Service Agreement dated August 1, 1999
between Registrant and ViAlta.com, Inc.*
10.34 Administrative and Management Service Agreement dated August 1,
1999 between Registrant and ViAlta.com, Inc.
27.01 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K. No reports were filed on Form 8-K for the quarter
ended March 31, 2000.
*Confidential treatment is requested with respect to certain portions of these
agreements.
14
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized.
ESS TECHNOLOGY, INC. (Registrant)
Date: May 15, 2000 By: /s/ Robert L. Blair
---------------------------------------
Robert L. Blair
President, Chief Executive Officer
and Chief Accounting Officer
Date: May 15, 2000 By: /s/ Matt Fong
---------------------------------------
Matt Fong
Chief Financial Officer and Secretary
15
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.31 Purchase Agreement dated August 1, 1999 between Registrant
and ViAlta.com, Inc.
10.32 Assignment of Intellectual Property Agreement dated January 1,
2000 between Registrant and ViAlta.com, Inc.
10.33 Research and Development Service Agreement dated August 1, 1999
between Registrant and ViAlta.com, Inc.
10.34 Administrative and Management Service Agreement dated August 1,
1999 between Registrant and ViAlta.com, Inc.
27.01 Financial Data Schedule
</TABLE>
16
<PAGE> 1
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "Agreement") is entered into effective as
of August 1, 1999 by and between VIALTA.com, a California corporation, with
principal offices at 48401 Fremont Boulevard, Fremont, California 94538
("Buyer") and ESS Technology, Inc., a California corporation, with principal
offices at 48401 Fremont Boulevard, Fremont, California 94538 and any of its
subsidiaries (collectively referred to as "Seller").
1. PURPOSE
A. The purpose of this Agreement is to set forth the terms and
conditions under which Buyer may purchase Products (as defined below) from
Seller. Buyer intends to enter into a long-term relationship with Seller. As
such, Seller agrees to use reasonable commercial efforts to cooperate with Buyer
to further mutual long-term goals by sharing product road map and technology
directions. Buyer also expects Seller to cooperate to achieve Buyer's long term
program goals such as shortening product lead-times, increasing volume
flexibility, achieving Just-in-Time delivery, achieving ongoing cost reductions,
specific quality goals, and continuous quality improvement.
B. This Agreement is not a requirements contract and does not
obligate Buyer to purchase any minimum quantity or product, but only establishes
the terms and conditions for such purchases if and when they occur. Seller is
not obligated to accept any orders from Buyer under the terms hereof.
2. PRODUCTS AND PURCHASE ORDERS
A. This Agreement covers the sale by Seller to Buyer of all
products, hereinafter referred to as ("Products"), as will be indicated on
purchase orders issued by Buyer to Seller.
B. Buyer will purchase Products only by issuing purchase orders
(hereinafter referred to as an "Order" or "Orders") to Seller. Each Order shall
include information regarding Product quantities, part numbers (including
identification of revision levels where relevant), prices and desired delivery
dates.
C. Seller agrees that all Buyer sites, subsidiaries, affiliate
companies and subcontractors, wherever located, shall be entitled to make
purchases under the terms and conditions of this Agreement. Seller agrees to
drop-ship Products to subcontractor sites as specified by Buyer in the Order.
3. PRICING
A. Buyer shall hold "most favored customer" status which means that
during the term of this Agreement, the terms and conditions for Products sold to
Buyer, including the prices for which such Products are offered, shall be no
less favorable than those accorded by Seller to any of its other customers. In
the event Seller provides prices and/or terms and conditions for Products to
another of its customers that are more favorable than those set forth in
Order(s), Buyer shall be entitled to a reduction or amendment of such prices and
terms retroactive to the date such prices and/or terms were made available to
such other customer.
<PAGE> 2
B. Seller shall maintain a vigorous cost reduction program to
ensure that pricing is competitive at all times. In the event that Buyer does
not consider Seller's pricing aggressive relative to the market, Buyer shall
have the right to request an immediate meeting with the Seller to re-negotiate
pricing.
4. TERM OF AGREEMENT
A. This Agreement shall continue in force for a fixed term of one
(1) year from the date hereof. At the end of the fixed term, this Agreement
shall renew automatically for additional one (1) year terms, without notice,
unless prior to that time one party provides thirty (30) days' written notice of
non-renewal to the other party.
B. The terms and conditions of this Agreement shall remain in full
force and effect and shall be applicable to any Order(s) issued by Buyer to
Seller during the term of this Agreement until any and all obligations of the
parties under such Order(s) have been fulfilled.
5. DELIVERY
A. All sales are F.O.B. Point of Shipment. Title and risk of loss
shall pass to Buyer upon Seller's delivery of Product purchased hereunder to
carrier authorized by Buyer.
B. Buyer has the option to reschedule any scheduled delivery by
giving Seller thirty (30) calendar days notice. The Buyer, however, can not
reschedule the delivery beyond 90 days from the original requested delivery
date.
6. QUALITY
A. Seller agrees to deliver defect-free material to Buyer at all
times. A product shall be deemed defective to the extent that it does not comply
with Seller's published specification with regard to that product. Seller agrees
that the Products will be free of defects for 12 months from the original date
of Product shipment to Buyer or of any replacement thereof. This warranty shall
run in favor of Buyer only, and is contingent upon proper use of the Product for
which it was intended. Buyer's sole remedy shall be limited to the repair or
replacement of defective products.
B. Seller agrees to establish and/or maintain a quality improvement
plan reasonably acceptable to Buyer. Seller agrees to provide relevant outgoing
inspection, quality and reliability data upon Buyer's request, but not more
frequently than once per month.
2
<PAGE> 3
C. The express warranties set forth herein specifically exclude and
do not apply to defects: (a) caused through no fault of SELLER during shipment
to or from Buyer, (b) caused by the use or operation of Products in an
application or environment other than that intended or recommended by SELLER,
(c) caused by modifications or alterations made to the Products by Buyer or any
third party, (d) caused by maintenance performed on the Products by Buyer or any
third party, (e) caused by failure of Buyer to comply with any of the return
procedures specified in this Agreement, (f) caused by subjecting the Product to
unusual physical or electrical stress, or (g) defects caused by misuse, theft,
vandalism, fire, water or other peril. EXCEPT AS STATED HEREIN, THERE ARE NO
OTHER WARRANTIES WITH RESPECT TO THE PRODUCTS, INCLUDING, BUT NOT LIMITED TO,
ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
D. Seller agrees to advise Buyer of any material changes to its
processes, materials, or sources of supply and agrees to ensure that such
changes do not compromise specifications, quality, or reliability of the
Products purchased by Buyer and subsequently incorporated into Buyer's products.
7. TERMINATION
A. TERMINATION FOR CONVENIENCE. This Agreement may be terminated by
either party for any reason or no reason, whether or not extended beyond the
first year, by giving written notice 60 days in advance of the termination to
the other party.
B. TERMINATION FOR CAUSE. If either party materially defaults in
its performance or breaches any of the terms or conditions of this Agreement,
then the other party may give written notice to the breaching or defaulting
party that if the breach or default is not cured within 30 days that the
Agreement will be terminated. If such notice is given and the breach or default
is not cured during the 30-day period, then the Agreement shall automatically
terminate at the end of that notice period.
C. TERMINATION FOR INSOLVENCY. This Agreement shall terminate
immediately without notice: (i) upon the institution by or against Buyer or
Seller of insolvency, receivership or bankruptcy proceedings or any other
proceedings for the settlement of Buyer's or Seller's debts; (ii) upon Buyer's
or Seller's making an assignment for the benefit of creditors; or (iii) upon
Buyer's or Seller's dissolution or liquidation.
8. LIMITATION ON LIABILITY
BUYER'S AND SELLER'S LIABILITY ARISING OUT OF THIS AGREEMENT SHALL
BE LIMITED TO THE FULFILLMENT OF OPEN ORDERS BY SELLER AND THE PAYMENTS OF SUCH
ORDERS BY BUYER. IN NO EVENT SHALL BUYER OR SELLER BE LIABLE TO THE OTHER PARTY
OR ANY OTHER ENTITY FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT
DAMAGES HOWEVER CAUSED, ON ANY THEORY OF LIABILITY, AND NOTWITHSTANDING ANY
FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
3
<PAGE> 4
9. CONFIDENTIALITY
Buyer and Seller each acknowledge that by reason of its
relationship with the other party hereunder it may have access to certain
information and materials concerning such other party's business, plans,
customers, technology, and products that are confidential and of substantial
value to Buyer or Seller, as the case may be, which value would be impaired if
such information were disclosed to third parties. Buyer and Seller each agree
that they shall not use in any way for their own account or the account of any
third party, nor disclose to any third party, any such confidential information
revealed to it by the other party. Buyer and Seller shall each take every
reasonable precaution to protect the confidentiality of such information,
including, at the request of the other party, the entry by Buyer's or Seller's
agents and employees into confidentiality agreements in a form approved by the
other party, prohibiting any disclosure to third parties of confidential
information provided by Buyer or Seller, as the case may be. In the event of
termination or expiration of this Agreement, there shall be no use or disclosure
by Buyer or Seller, their agents, or employees of any confidential information
of the other party. Each party shall deliver to the other party all copies
within its possession or within its control of all documents and data relating
to the conduct of Buyer's or Seller's business.
10. GENERAL PROVISIONS
A. GOVERNING LAW AND JURISDICTION. This Agreement shall be governed
by and construed under the laws of the State of California, as applied to
contracts made and to be fully performed entirely within that state between
residents of that state. All disputes arising out of this Agreement shall be
subject to the exclusive jurisdiction and venue of the California State courts
of Santa Clara County, California (or, if there is federal jurisdiction, the
United States District Court for the Northern District of California). Buyer and
Seller hereby expressly consent to (i) the personal jurisdiction and venue of
these courts and (ii) service of process being effected by registered airmail
sent to the address set forth in Section 7(c) below.
B. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties relating to the subject matter herein and
merges all prior discussions between them. No modification of or amendment to
this Agreement, nor any waiver of any rights under this Agreement, shall be
effective unless in writing signed by the party to be charged.
C. NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed given if sent by prepaid registered or
certified airmail, return receipt requested (if available), or sent by telex,
facsimile or similar communication, and confirmed by such airmail, postage
prepaid, addressed to the other party at the address shown at the beginning of
this Agreement or at such other address for which such party gives notice
hereunder.
D. FORCE MAJEURE. Nonperformance of either party shall be excused
to the extent that performance is rendered impossible by strike, fire, flood,
governmental acts, orders or restrictions, or any other reason where failure to
perform is beyond the control and not caused by the negligence of the
non-performing party, provided that the non-performing party uses its reasonable
best efforts to promptly resume performance once it is possible to do so.
4
<PAGE> 5
E. NON-ASSIGNABILITY AND BINDING EFFECT. Neither party shall,
without the prior written consent of the other party, assign this Agreement in
whole or in part or delegate any right or duty hereunder to any third party,
sub-agent, representative or consultant. Any attempted assignment not having
such consent shall be void and without effect.
F. LEGAL EXPENSES. The prevailing party in any legal action brought
by one party against the other and arising out of this Agreement shall be
entitled, in addition to any other rights and remedies it may have, to
reimbursement for its expenses, including court costs and reasonable attorneys'
fees.
G. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original.
H. SEVERABILITY. If any term, provision, covenant or condition of
this Agreement is held invalid or unenforceable for any reason, the remaining
provisions shall continue in full force and effect as if the Agreement had been
executed with the invalid portion eliminated, so long as the Agreement continues
to express, without material change, the original intent of the parties.
11. INDEMNIFICATION
A. Seller shall defend, at its expense, any claim against Buyer
alleging that Products furnished under this Agreement infringes any patent,
copyright or trademark and shall pay all costs and damages awarded provided
Seller is notified in writing of such claims promptly when Buyer becomes aware
of such and Seller is permitted to control, defend and compromise such claim.
Sellers shall use commercially reasonable efforts to obtain for Buyer the right
to continue using the Products if an injunction against Buyer's use of the
Products is resulted. In the event that Seller can not obtain such right for
Buyer, Seller shall repurchase all such Products from Buyers at the purchase
price.
B. Seller agrees to protect, defend, indemnify and hold Buyer
harmless from all sums, costs and expenses which Buyer may incur or be obligated
to pay as a result of any and all loss, expenses, damages, liabilities, claims,
demands resulting personal injury or damages from the use of any product sold to
Buyer by Seller hereunder provided Buyer provides Seller notice of any such
loss, expenses, damages, liabilities, claims or demands. Seller shall be liable
only to the extent required by applicable law and only where such claims,
expenses, damages and demands are held by the court of law to be the result of
Products provided by Seller hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
VIALTA.COM ESS TECHNOLOGY, INC.
By: /s/ Fred S. L. Chan By: /s/ Robert L. Blair
------------------------------- ----------------------------------
Title: CEO Title: CEO
---------------------------- -------------------------------
5
<PAGE> 1
ASSIGNMENT OF INTELLECTUAL PROPERTY
THIS ASSIGNMENT OF INTELLECTUAL PROPERTY ("Assignment") is entered into
effective as of January 1, 2000 (the "Effective Date"), by and between ESS
Technology, Inc., a California corporation, with an office at 48401 Fremont
Blvd., Fremont, California 94538 ("Assignor"), and VIALTA.com, a California
corporation, with an office at 48401 Fremont Blvd., Fremont, California 94538
("Assignee").
WHEREAS, VIALTA is in the business of designing, developing,
manufacturing and marketing a line of Internet appliances such as browsers, set
top boxes and combination products utilizing the integrated technologies in
digital audio, digital video, communication Internet phones and video phones for
sale to the consumer market (the "VIALTA Products");
WHEREAS, ESS is in the business of designing, developing, manufacturing
and marketing highly integrated mixed signal semiconductor multimedia solutions
for sale to desktop and notebook personal computer markets and consumer product
markets (the "ESS Products"); and
WHEREAS, ESS has developed specialized technology regarding (i)
videophone and internet phone applications (the "Videophone Business") and (ii)
web browser technology (the "Web Browser Business");
WHEREAS, Assignor wishes to sell, transfer, assign and convey and
Assignee wishes to purchase, receive and accept all United States rights to
Intellectual Property (as defined below) relating to the Videophone Business and
the Web Browser Business, owned or developed by or for Assignor on the terms and
conditions contained herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency which is hereby
acknowledged, the parties hereto have entered into this Assignment:
1. DEFINITIONS.
"Intellectual Property" means any and all proprietary rights and
benefits conferred under the laws of the United States and any of its
constituent states or jurisdictions in and to any of the following held by
Assignor relating to the Videophone Business or the Web Browser Business (a)
patents, patent applications, inventions; (b) copyrights, copyright
registrations, moral rights, maskworks and other works of authorship, (c)
trademarks, trade names, service marks, domain names and similar rights, (d)
trade secrets, (e) all other intellectual and industrial property rights of
every kind and nature, and however designated, including processes, formulae,
industrial models, designs and design information, product information,
specifications, data, technology, methodologies, routines, techniques,
engineering information, engineering work papers and notes, computer programs
(including all source codes and documentation), object codes, designs,
algorithms, libraries of software, logos, "rental" rights and any other
confidential and proprietary right or information, whether arising by operation
of law, contract, license or otherwise, and whether or not subject to statutory
registration, (f) all related technical information and technical
<PAGE> 2
drawings, know-how, and the right to sue for past infringement, if any, in
connection with any of the foregoing, (g) all rights under the International
Convention for the Protection of Industrial Property, (h) all registrations,
initial applications, renewals, extensions, continuations,
continuations-in-part, divisions or reissues hereof now or hereafter in force
(including any rights in any of the foregoing), and (i) all associated goodwill.
"Intellectual Property" includes without limitation proprietary rights and
benefits conferred under the laws of the United States and any of its
constituent states or jurisdictions in and to the items described in Schedule A
attached hereto.
"LOSSES" means any claim, loss, liability, damage, fine, penalty, cost,
expense, (including, without limitation, interest which may be imposed in
connection therewith, expenses of investigation, and fees and disbursements of
legal counsel and other experts), diminution of value, or the like, whether or
not involving a third-party claim.
2. ASSIGNMENT. Subject to the terms of the Research & Development Service
Agreement dated as of the date hereof, pursuant to which Assignee grants certain
rights relating to the Web Browser Business Intellectual Property back to
Assignor, Assignor hereby grants, sells, assigns, transfers, sets over and
conveys unto Assignee, its successors, legal representatives and assigns forever
all of Assignor's right, title and interest, now and in the future, in its
Intellectual Property, including:
(i) the right to use, reproduce, perform, display, develop, create
derivative works and inventions, exploit, assign, license or sub-license,
transfer, sell and market the Intellectual Property, with no duty to account to
Assignor for royalties or other consideration;
(ii) the right to own, apply for, prosecute, obtain and maintain all
patent, copyright, trademark, and other applications with respect to the
Intellectual Property; and
(iii) the right to independently enforce, without consent from or notice
to Assignor, all rights arising with respect to the Intellectual Property
against any party infringing or misappropriating the same, and to own all
monetary damages generated by such enforcement.
Assignor shall also provide to Assignee a copy of any U.S. Patent
Application Assignment from the inventors of any pending U.S. Patent
Applications listed in Schedule A to Assignor.
3. COMPENSATION. As full and final compensation for assignment under this
Assignment, Assignee shall pay to Assignor One Million Two Hundred Thirty-five
Thousand Dollars ($1,235,000) attributable to the Videophone Business and Eight
Hundred Twelve Thousand Dollars ($812,000) attributable to the Web Browser
Business (collectively, the "Purchase Price"). Assignee shall make such payment
by wire transfer of immediately available funds to the bank account designated
by Assignor 45 days after the invoice date.
4. REPRESENTATIONS AND WARRANTIES. Assignor hereby represents and warrants to
Assignee that the Intellectual Property transferred herein is owned solely and
lawfully by Assignor free and clear of all liens, licenses, third party rights,
claims of infringement, claims for payment, or any other encumbrance whatsoever,
that Assignor has good and full right and lawful authority to
2
<PAGE> 3
convey the same in the manner herein set forth and that upon execution and
delivery of this Assignment, Assignee shall have good and marketable title
thereto. Assignor has no knowledge that the Intellectual Property is being
infringed by any third party. Assignor has not granted to any third party any
license, agreement or other permission to use the Intellectual Property. No
claim that any third party has any interest in the Intellectual Property, or
that the Intellectual Property infringes the rights of any third party, is
pending or has been threatened. The Intellectual Property represents all
technology owned by Assignor in the United States.
5. INDEMNIFICATION. Assignor shall indemnify and hold harmless Assignee, its
officers, directors, employees, agents and representatives from and against any
and all Losses arising out of or resulting from (a) any breach of any of the
representations or warranties made by Assignor in this Assignment; or (b) any
failure by Assignor to perform any of its covenants or agreements contained in
this Assignment; provided, however, that notwithstanding the foregoing, the
liability of Assignor hereunder shall not, except in the event of intentional
misconduct or gross negligence, exceed the Purchase Price.
6. ASSISTANCE BY ASSIGNOR. Assignor shall, whenever counsel of the said
Assignee, or the counsel of its successors, legal representatives and assigns,
shall advise that any proceeding in connection with the Intellectual Property in
any country, including interference proceedings, is lawful and desirable, or
that any division, continuation or continuation-in-part of any application for
the Intellectual Property or any reissue or extension of the Intellectual
Property, to be obtained thereon, is lawful and desirable: sign all papers and
documents, take all lawful oaths and do all acts necessary or required to be
done for the procurement, maintenance, enforcement and defense of the
Intellectual Property, without charge to said Assignee, its successors, legal
representatives and assigns, but at the cost and expense of Assignee, its
successors, legal representatives and assigns.
7. CONFIDENTIALITY. "Confidential Information" means any proprietary
information, technical data, trade secrets, know-how or other non-public
information relating to the Intellectual Property assigned hereunder, including
but not limited to, research, product plans, products, designs, flow-charts,
algorithms, suppliers, software, developments, inventions, laboratory notebooks,
processes, formulas, technology, designs, drawings, engineering, hardware
configuration information, marketing, licenses, finances, budgets or other
business information. Confidential Information does not include any of the
foregoing items which has become publicly and widely known and made generally
available through no wrongful act of Assignor or of others who were under
confidentiality obligations as to the item or items involved. Assignor has
agreed, and hereby agrees, forever to hold in strictest confidence, and not to
use, except for the benefit of the Assignee, or to disclose to any person, firm,
corporation or other entity without written authorization of Assignee, any
Confidential Information. In the event that Assignor become legally compelled to
disclose any Confidential Information, Assignor will provide prompt written
notice to Assignee so that Assignee may seek a protective order or other
appropriate remedy. In the event that such a protective order or other remedy is
not obtained, Assignor shall furnish only that portion of the Confidential
Information which Assignor is advised by written opinion of counsel is legally
required and will exercise Assignor's best efforts to obtain reliable assurances
that confidential treatment will be accorded to that portion of the Confidential
Information so disclosed.
3
<PAGE> 4
8. NOTICES. All notices, requests, demands, and other communications required or
permitted to be given by a party under this Assignment shall be in writing in
the English language and shall be conclusively deemed to have been duly given
(a) when hand delivered to the other party; or (b) when received when sent by
facsimile at the address and number set forth below; or (c) five (5) business
days after the same have been deposited in a post office by registered or
recorded delivery international air post requested postage prepaid and addressed
to the parties as set forth below; or (d) three (3) business days after the same
have been deposited with a reputable international delivery service, postage
prepaid, addressed to the parties as set forth provided that the sending party
receives a confirmation of delivery from the delivery service provider.
If to Assignor, to:
ESS Technology, Inc.
48401 Fremont Blvd.
Fremont, CA 94538
Attn: Bob Blair
Fax:
Telephone: 510-492-1688
If to Assignee, to:
ViAlta.com
48401 Fremont Blvd.
Fremont, CA 94538
Attn: Fred Chan
Fax:
Telephone: 510-492-1888
9. ENTIRE AGREEMENT. This Assignment constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
agreements and undertakings among the parties relating to the subject matters
hereof.
10. AMENDMENT. This Assignment may be amended, supplemented or modified only by
a written instrument duly executed by or on behalf of each party hereto.
11. GOVERNING LAW. This assignment shall be governed by and construed in
accordance with the laws of the State of California, U.S.A., without regard to
conflict of interest rules.
12. FURTHER ASSURANCES. Assignor shall execute and deliver such other documents
and instruments, provide such materials and information and take such other
actions as may reasonably be requested by Assignee to fulfill the objectives of
this Assignment.
13. WAIVER. Any term or condition of this Assignment may be waived at any time
by the party that is entitled to the benefit thereof, but no such waiver shall
be effective unless set forth in a written instrument duly executed by or on
behalf of the party waiving such term or condition. No
4
<PAGE> 5
waiver by any party of any term or condition of this Assignment, in any one or
more instances, shall be deemed to be or construed as a waiver of the same or
any other term or condition of this Assignment on any future occasion.
14. SCOPE OF ASSIGNMENT. This Assignment is binding upon, inures to the benefit
of and is enforceable by the parties hereto and their respective successors and
assigns.
[Signature Pages Follow]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Assignment as of the
day and year first above written.
ESS TECHNOLOGY, INC.
By: /s/ ROBERT L. BLAIR
-----------------------------------
Title: CEO
VIALTA.COM
By: /s/ FRED S.L. CHAN
-----------------------------------
Title: CEO
6
<PAGE> 7
SCHEDULE A
[*]
* Confidential treatment is requested with respect to this portion of this
agreement.
<PAGE> 1
RESEARCH AND DEVELOPMENT
SERVICE AGREEMENT
(ESS to VIALTA)
THIS RESEARCH AND DEVELOPMENT SERVICE AGREEMENT (this "Agreement") is
entered into effective as of August 1, 1999 by and between VIALTA.com, a
California corporation, with principal offices at 48401 Fremont Boulevard,
Fremont, California 94538 ("VIALTA") and ESS Technology, Inc., a California
corporation, with principal offices at 48401 Fremont Boulevard, Fremont,
California 94538 ("ESS").
WHEREAS, VIALTA is in the business of designing, developing,
manufacturing and marketing a line of Internet appliances such as the EnReach
based web browser (the "EnReach Business") and the Access based web browser (the
"Access Business", together with the EnReach Business, the "Web Browser
Business"), set top boxes (the "Set Top Box Business") and combination products
utilizing the integrated technologies in digital audio, digital video,
communication Internet phones (the "Internetphone Business") and video phones
(the "Videophone Business") for sale to the consumer market (collectively, the
"VIALTA Products");
WHEREAS, ESS is in the business of designing, developing, manufacturing
and marketing highly integrated mixed signal semiconductor multimedia solutions
for sale to desktop and notebook personal computer markets and consumer product
markets (the "ESS Products");
WHEREAS, VIALTA desires to have ESS provide services, including
providing research and development services, to VIALTA relating to the Set Top
Box, Web Browser and Videophone Businesses and ESS desires to provide such
services;
NOW, THEREFORE, the parties hereto agree as follows:
1. DUTIES OF ESS
(a) SERVICES. Subject to the terms and conditions herein, VIALTA
hires ESS to perform certain research and development activities. ESS shall
provide to VIALTA, as required by VIALTA, certain NRE services for the design
and development of Internet related products and technologies. VIALTA shall
provide the design and technical specification to ESS and the desired timelines
thereof. ESS shall perform these services in consideration of a service fee, in
accordance with the terms of this Agreement.
(b) ACTIVITIES NOT COVERED. The parties hereto agree that this
Agreement does not apply to any stewardship or control services that are based
on a shareholder-corporation or parent-subsidiary relationship among affiliated
companies, nor to services which are duplicative of services which another party
is performing for itself.
(c) INDEPENDENT CONTRACTORS. The relationship of VIALTA and ESS
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to (i) give either party hereto
the power to direct and control the day-to-day activities of the other, (ii)
constitute the parties as partners, joint venturers, principal
<PAGE> 2
and agent, employer and employee, co-owners, or otherwise as participants in a
joint undertaking, or (iii) allow ESS to create or assume any obligation on
behalf of VIALTA for any purpose whatsoever. All financial and other obligations
associated with VIALTA's business are the sole responsibility of VIALTA. ESS
shall be solely responsible for, and shall indemnify and hold VIALTA free and
harmless from, any and all claims, damages or lawsuits (including VIALTA's
attorneys' fees) arising out of the acts of ESS, its employees or its agents.
2. REMUNERATION
(a) COMPENSATION. ESS' compensation for performing its services
under the terms of this Agreement shall be the service fees computed in
accordance with this section (the "Service Fees").
(b) THE SERVICE FEES. VIALTA shall pay ESS Service Fees in amounts
which shall be calculated based upon the following guidelines:
(i) Set Top Box Business Services: VIALTA shall pay to ESS
(A) [*] of the engineering labor hours specifically spent on
VIALTA software projects; and
(B) [*] of the engineering labor hours specifically spent on
VIALTA system projects.
(ii) Videophone Business Services: VIALTA shall pay to ESS [*] of
its research and development costs incurred by ESS after January 1, 2000.
(iii) Internetphone Business Services: VIALTA shall pay to ESS [*]
of its research and development costs incurred by ESS after January 1, 2000.
(iv) Web Browser Business Services: VIALTA shall pay to ESS
(A) [*] of all costs incurred by ESS in connection with the
Enreach Business after January 1, 2000; and
(B) [*] of all costs incurred by ESS in connection with the
Access Business after January 1, 2000.
The hourly cost in all cases shall be calculated based on ESS' Direct and
Indirect Costs incurred for the engineering resources, enumerated as follows,
plus a 10% markup. "Direct Costs" shall include all costs of labor, plant and
office space, equipment and materials that are specifically attributable to the
services provided by ESS under this Agreement, including allowances for the
depreciation of equipment and other capital assets used in the performance of
the services, as carried out in ESS' local records of account. "Indirect Costs"
shall include a reasonable portion of ESS' general overhead expenses that are
reasonably allocable to the provision of the services hereunder.
* Confidential treatment is requested with respect to this portion of this
agreement.
2
<PAGE> 3
(c) MANNER OF PAYMENT. Payment of the Service Fees shall be made in
United States Dollars directly to ESS or to such bank as is designated by ESS,
and shall be made in strict compliance with all applicable governmental
regulations and rulings, including the withholding of any taxes required by law.
(d) TIME OF PAYMENT. The Service Fees shall be due and payable 45
days after the end of each calendar quarter (or 45 days after the end of the
first fiscal year hereof) during the term of this Agreement. To the extent not
otherwise prohibited under applicable local law, amounts owed by VIALTA to ESS
pursuant to this Section 2(d) may be offset or netted against other indebtedness
among the parties. To the extent desired by the parties hereto, payments due
hereunder may be made in a timely manner so as to avoid the imputation of
interest under applicable tax laws.
(e) QUARTERLY STATEMENTS. ESS shall submit to VIALTA quarterly
statements of the Service Fees due and payable under the terms of this
Agreement.
3. OWNERSHIP AND RIGHTS OF INTELLECTUAL PROPERTY
All rights, title and interest (including all intellectual property
interests) in and to the VIALTA Products, including the platforms, applications
and product technologies to service the Internet market, that are developed
under the terms of this Agreement (the "Developed Technologies") shall be owned
as follows:
(a) Set Top Box Business:
(i) Software: All software jointly developed by ESS and
VIALTA (the "Developed Software Technology"), including system software, shall
be jointly owned by each of them. Upon obtaining the prior written consent of
the other party, a party shall be entitled to sell, assign or otherwise transfer
its interests in such Developed Software Technology to a third party.
(ii) Systems: All systems jointly developed by ESS and
VIALTA listed in Attachment A (the "Developed System Technology") shall be
owned by VIALTA, provided that ESS shall have the following limited rights:
(A) ESS shall have the right to market products
based upon the Developed System Technology for a period of two (2) years from
the date of the shipment of 10,000 systems by VIALTA (the "Initial Period"),
with VIALTA's prior written consent, such consent not be unreasonably
withheld or delayed.
(B) Following the expiration of the Initial Period,
ESS shall have a worldwide, royalty free license to use such Developed System
Technology in order to make have made, sell or otherwise distribute products.
(C) Notwithstanding the above rights, ESS shall
have no rights to any VIALTA specific applications.
3
<PAGE> 4
(b) Videophone Developed Technology: All Developed Technology
relating to the Videophone Business (the "Videophone Developed Technology")
shall be owned by VIALTA.
(c) Internetphone Developed Technology: All Developed Technology
(including integration of the Internetphone technology) relating to the
Internetphone Business (the "Internetphone Developed Technology") that is
jointly developed by ESS and VIALTA shall be owned by VIALTA, provided that ESS
shall have the following limited rights:
(i) ESS shall have the right to market products based upon
the Internetphone Developed Technology during the Initial Period with Vialta's
prior written consent, such consent not be unreasonably withheld or delayed;
4
<PAGE> 5
(d) Web Browser Business:
(i) Access Developed Technology: All Developed Technology
relating to the Access Business (the "Access Developed Technology") that is
jointly developed by ESS and VIALTA shall be owned by VIALTA, provided that ESS
shall have the following limited rights:
(A) ESS' Access Business browser rights shall
include only normal web browsing functions and shall not include any rights to
VIALTA-specific browsing functions.
(B) ESS shall have the right to market products
based upon the Access Developed Technology during the Initial Period with
VIALTA's prior written consent, such consent not to be unreasonably withheld or
delayed;
(C) Following the expiration of the Initial Period,
ESS shall have a worldwide, Vialta royalty free license to use such Access
Developed Technology in order to make have made, sell or otherwise distribute
products.
(ii) EnReach Developed Technology: All Developed Technology
relating to the EnReach Business (the "EnReach Developed Technology") shall be
owned by VIALTA and ESS shall have no rights to this EnReach Developed
Technology.
Title to the Developed Technologies that are conceived or developed by
employees of either party or both parties shall be allocated according to the
provisions set forth above.
5
<PAGE> 6
4. TERM AND TERMINATION
(a) TERM. This Agreement shall continue in force for a fixed term
of 1 year from the date hereof unless terminated earlier under the provisions of
this Section 4. At the end of the fixed term, this Agreement shall renew
automatically for additional 1 year terms (subject to earlier termination under
the provisions of this Section 4), without notice, unless prior to that time one
party provides written notice of non-renewal to the other party.
(b) TERMINATION FOR CONVENIENCE. This Agreement may be terminated
by either party for any reason or no reason, whether or not extended beyond the
first year, by giving the other party written notice of the termination 60 days
in advance.
(c) TERMINATION FOR CAUSE. If either party materially defaults in
its performance or breaches any of the terms or conditions of this Agreement,
then the other party may give written notice to the breaching or defaulting
party that if the breach or default is not cured within 30 days the Agreement
will be terminated. If such notice is given and the breach or default is not
cured during the 30-day period, then the Agreement shall automatically terminate
at the end of that period.
(d) TERMINATION FOR INSOLVENCY. This Agreement shall terminate
immediately without notice: (i) upon the institution by or against VIALTA or ESS
of insolvency, receivership or bankruptcy proceedings or any other proceedings
for the settlement of VIALTA's or ESS's debts; (ii) upon VIALTA's or ESS's
making an assignment for the benefit of creditors; or (iii) upon VIALTA's or
ESS's dissolution or liquidation.
(e) TRANSITION. Upon termination or expiration of this Agreement,
each party shall diligently cooperate with the other to effect a smooth and
orderly transition. From the time that a notice of termination is received by
either party until the effective termination date, each party shall cooperate
fully with any newly appointed party performing the duties contemplated
hereunder.
(f) LIMITATION OF LIABILITY. In the event of termination by either
party in accordance with any of the provisions of this Agreement, neither party
shall be liable to the other because of such termination for compensation,
reimbursement or damages on account of the loss of prospective profits or
anticipated sales or on account of expenditures, investments, leases or
commitments in connection with the business or goodwill of the other party.
VIALTA's sole liability under the terms of this Agreement shall be for any
unpaid Service Fees under Section 2.
(g) SURVIVAL OF CERTAIN TERMS. The provisions of Sections 2, 3, 4,
5, 6 and 7 shall survive the termination or expiration of this Agreement for any
reason. All other rights and obligations of the parties shall cease upon
termination or expiration of this Agreement.
6
<PAGE> 7
5. LIMITATION OF LIABILITY
VIALTA'S AND ESS'S LIABILITY ARISING OUT OF THIS AGREEMENT SHALL BE
LIMITED TO THE SERVICE FEE PAYABLE TO ESS. IN NO EVENT SHALL VIALTA OR ESS BE
LIABLE TO THE OTHER PARTY OR ANY OTHER ENTITY FOR ANY SPECIAL, CONSEQUENTIAL,
INCIDENTAL, OR INDIRECT DAMAGES HOWEVER CAUSED, ON ANY THEORY OF LIABILITY, AND
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
6. CONFIDENTIALITY
VIALTA and ESS each acknowledge that by reason of its relationship
with the other party hereunder it may have access to certain information and
materials concerning such other party's business, plans, customers, technology,
and products that are confidential and of substantial value to VIALTA or ESS, as
the case may be, which value would be impaired if such information were
disclosed to third parties. VIALTA and ESS each agree that they shall not use in
any way for their own account or the account of any third party, nor disclose to
any third party, any such confidential information revealed to it by the other
party. VIALTA and ESS shall each take every reasonable precaution to protect the
confidentiality of such information, including, at the request of the other
party, the entry by VIALTA's or ESS's agents and employees into confidentiality
agreements in a form approved by the other party, prohibiting any disclosure to
third parties of confidential information provided by VIALTA or ESS, as the case
may be. In the event of termination or expiration of this Agreement, there shall
be no use or disclosure by VIALTA or ESS, their agents, or employees of any
confidential information of the other party. Each party shall deliver to the
other party all copies within its possession or within its control of all
documents and data relating to the conduct of VIALTA's or ESS's business.
7. GENERAL PROVISIONS
(a) GOVERNING LAW AND JURISDICTION. This Agreement shall be
governed by and construed under the laws of the State of California, as applied
to contracts made and to be fully performed entirely within that state between
residents of that state. All disputes arising out of this Agreement shall be
subject to the exclusive jurisdiction and venue of the California State courts
of Santa Clara County, California (or, if there is federal jurisdiction, the
United States District Court for the Northern District of California). VIALTA
and ESS hereby expressly consent to (i) the personal jurisdiction and venue of
these courts and (ii) service of process being effected by registered airmail
sent to the address set forth in Section 7(c) below.
(b) ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement and understanding of the parties relating to the subject matter herein
and merges all prior discussions between them. No modification of or amendment
to this Agreement, nor any waiver of any rights under this Agreement, shall be
effective unless in writing signed by the party to be charged.
(c) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed given if sent by prepaid registered or
certified airmail, return receipt requested (if available), or sent by telex,
facsimile or similar communication, and confirmed by
7
<PAGE> 8
such airmail, postage prepaid, addressed to the other party at the address shown
at the beginning of this Agreement or at such other address for which such party
gives notice hereunder.
(d) FORCE MAJEURE. Nonperformance of either party shall be excused
to the extent that performance is rendered impossible by strike, fire, flood,
governmental acts, orders or restrictions, or any other reason where failure to
perform is beyond the control and not caused by the negligence of the
non-performing party, provided that the non-performing party uses its reasonable
best efforts to promptly resume performance once it is possible to do so.
(e) NON-ASSIGNABILITY AND BINDING EFFECT. Neither party shall,
without the prior written consent of the other party, assign this Agreement in
whole or in part or delegate any right or duty hereunder to any third party,
sub-agent, representative or consultant. Any attempted assignment not having
such consent shall be void and without effect.
(f) LEGAL EXPENSES. The prevailing party in any legal action
brought by one party against the other and arising out of this Agreement shall
be entitled, in addition to any other rights and remedies it may have, to
reimbursement for its expenses, including court costs and reasonable attorneys'
fees.
(g) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
VIALTA.COM ESS TECHNOLOGY, INC.
By: /s/ Fred S.L. Chan By: /s/ Robert L. Blair
----------------------------- --------------------------------
Title: CEO Title: CEO
-------------------------- -----------------------------
ATTACHMENT A
Developed System Technology
---------------------------
[*]
* Confidential treatment is requested with respect to this portion of this
agreement.
8
<PAGE> 1
ADMINISTRATIVE AND MANAGEMENT
SERVICE AGREEMENT
(ESS to VIALTA)
THIS ADMINISTRATIVE AND MANAGEMENT SERVICE AGREEMENT (this "Agreement")
is entered into effective as of August 1, 1999 by and between VIALTA.com, a
California corporation, with offices at 48401 Fremont Boulevard, Fremont,
California 94538 ("VIALTA") and ESS Technology, Inc., a California corporation,
with principal offices at 48401 Fremont Boulevard, Fremont, California 94538
("ESS").
WHEREAS, VIALTA is in the business of designing, developing,
manufacturing and marketing multi-media appliances, applications and content for
the Internet utilizing highly integrated technologies in digital audio, digital
video, communication Internet phones and video phones for sale to the consumer
product markets, (the "VIALTA Products");
WHEREAS, ESS is in the business of designing, developing, manufacturing
and marketing highly integrated mixed signal semiconductor multi-media solutions
for sale to desktop and notebook personal computer markets and consumer product
markets; and
WHEREAS, VIALTA desires to have ESS provide services to VIALTA.
NOW, THEREFORE, the parties hereto agree as follows:
1. DUTIES OF ESS
(a) SERVICES. Subject to the terms and conditions herein, VIALTA
hires ESS to perform certain administrative and managerial functions. ESS shall
provide VIALTA as required by VIALTA with administrative and managerial services
to include, without limitation, G&A, sales support, marketing support,
production and logistical support, financial oversight, accounting assistance,
contract review, personnel services (including training of employees), and such
other general and administrative services as VIALTA shall require. ESS shall
perform these services in consideration of a service fee, in accordance with the
terms of this Agreement. ESS shall not have the authority to bind VIALTA in any
respect. Without limiting the foregoing, ESS shall not have the authority to
enter into contracts with customers on behalf of VIALTA except as authorized by
VIALTA.
(b) ACTIVITIES NOT COVERED. The parties hereto agree that this
Agreement does not apply to any stewardship or control services that are based
on a shareholder-corporation or parent-subsidiary relationship among affiliated
companies, nor to services which are duplicative of services which another party
is performing for itself.
(c) INDEPENDENT CONTRACTORS. The relationship of VIALTA and ESS
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to (i) give either party hereto
the power to direct and control the day-to-day activities of the other, (ii)
constitute the parties as partners, joint venturers, principal
<PAGE> 2
and agent, employer and employee, co-owners, or otherwise as participants in a
joint undertaking, or (iii) allow ESS to create or assume any obligation on
behalf of VIALTA for any purpose whatsoever. All financial and other obligations
associated with VIALTA's business are the sole responsibility of VIALTA. ESS
shall be solely responsible for, and shall indemnify and hold VIALTA free and
harmless from, any and all claims, damages or lawsuits (including VIALTA's
attorneys' fees) arising out of the acts of ESS, its employees or its agents.
2. REMUNERATION
(a) COMPENSATION. ESS's compensation for performing its
administrative functions under the terms of this Agreement shall be the service
fee computed in accordance with this section (the "Service Fee").
(b) THE SERVICE FEE. VIALTA shall pay ESS service fees in an amount
equal to the sum of all of ESS's Direct and Indirect Costs, enumerated as
follows, plus a 5% markup. "Direct Costs" shall include all costs of labor,
plant and office space, equipment and materials that are specifically
attributable to the services provided by ESS under this Agreement, including
allowances for the depreciation of equipment and other capital assets used in
the performance of the services, as carried out in ESS's local records of
account. "Indirect Costs" shall include a reasonable portion of ESS's general
overhead expenses that are reasonably allocable to the provision of the services
hereunder. All specific costs (ie. Advertising and consulting) pertaining to one
entity shall be paid for by that specific entity and shall be excluded from the
service fee.
(c) MANNER OF PAYMENT. Payment of the Service Fee shall be made in
United States Dollars directly to ESS or to such bank as is designated by ESS,
and shall be made in strict compliance with all applicable governmental
regulations and rulings, including the withholding of any taxes required by law.
(d) TIME OF PAYMENT. The Service Fee shall be due and payable 45
days after the end of each calendar quarter (or 45 days after the end of the
first fiscal year hereof) during the term of this Agreement. To the extent not
otherwise prohibited under applicable local law, amounts owed by VIALTA to ESS
pursuant to this Section 2(d) may be offset or netted against other indebtedness
among the parties. To the extent desired by the parties hereto, payments due
hereunder may be made in a timely manner so as to avoid the imputation of
interest under applicable tax laws.
(e) QUARTERLY STATEMENTS. ESS shall submit to VIALTA quarterly
statements of the Service Fee due and payable under the terms of this Agreement.
3. TERM AND TERMINATION
(a) TERM. This Agreement shall continue in force for a fixed term
of 1 year from the date hereof unless terminated earlier under the provisions of
this Section 3. At the end of the fixed term, this Agreement shall renew
automatically for additional 1 year terms (subject to earlier under the
provisions of this Section 3), without notice, unless prior to that time one
party provides written notice of non-renewal to the other party.
2
<PAGE> 3
(b) TERMINATION FOR CONVENIENCE. This Agreement may be terminated
by either party for any reason or no reason, whether or not extended beyond the
first year, by giving the other party written notice of the termination 60 days
in advance.
(c) TERMINATION FOR CAUSE. If either party materially defaults in
its performance or breaches any of the terms or conditions of this Agreement,
then the other party may given written notice to the breaching or defaulting
party that if the breach or default is not cured within 30 days the Agreement
will be terminated. If such notice is given and the breach or default is not
cured during the 30-day period, then the Agreement shall automatically terminate
at the end of that period.
(d) TERMINATION FOR INSOLVENCY. This Agreement shall terminate
immediately without notice: (i) upon the institution by or against VIALTA or ESS
of insolvency, receivership or bankruptcy proceedings or any other proceedings
for the settlement of VIALTA's or ESS's debts; (ii) upon VIALTA's or ESS's
making an assignment for the benefit of creditors; or (iii) upon VIALTA's or
ESS's dissolution or liquidation.
(e) TRANSITION. Upon termination or expiration of this Agreement,
each party shall diligently cooperate with the other to effect a smooth and
orderly transition. From the time that a notice of termination is received by
either party until the effective termination date, each party shall cooperate
fully with any newly appointed party performing the duties contemplated
hereunder.
(f) LIMITATION ON LIABILITY. In the event of termination by either
party in accordance with any of the provisions of this Agreement, neither party
shall be liable to the other because of such termination for compensation,
reimbursement or damages on account of the loss of prospective profits or
anticipated sales or on account of expenditures, investments, leases or
commitments in connection with the business or goodwill of the other party.
VIALTA's sole liability under the terms of this Agreement shall be for any
unpaid Service Fees under Section 2.
(g) SURVIVAL OF CERTAIN TERMS. The provisions of Sections 2, 3, 4,
5, and 6 shall survive the termination or expiration of this Agreement for any
reason. All other rights and obligations of the parties shall cease upon
termination or expiration of this Agreement.
4. LIMITATION ON LIABILITY
VIALTA'S AND ESS'S LIABILITY ARISING OUT OF THIS AGREEMENT SHALL BE
LIMITED TO THE SERVICE FEE PAYABLE TO ESS. IN NO EVENT SHALL VIALTA OR ESS BE
LIABLE TO THE OTHER PARTY OR ANY OTHER ENTITY FOR ANY SPECIAL, CONSEQUENTIAL,
INCIDENTAL, OR INDIRECT DAMAGES HOWEVER CAUSED, ON ANY THEORY OF LIABILITY, AND
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
5. CONFIDENTIALITY
VIALTA and ESS each acknowledge that by reason of its relationship
with the other party hereunder it may have access to certain information and
materials concerning such
3
<PAGE> 4
other party's business, plans, customers, technology, and products that are
confidential and of substantial value to VIALTA or ESS, as the case may be,
which value would be impaired if such information were disclosed to third
parties. VIALTA and ESS each agree that they shall not use in any way for their
own account or the account of any third party, nor disclose to any third party,
any such confidential information revealed to it by the other party. VIALTA and
ESS shall each take every reasonable precaution to protect the confidentiality
of such information, including, at the request of the other party, the entry by
VIALTA's or ESS's agents and employees into confidentiality agreements in a form
approved by the other party, prohibiting any disclosure to third parties of
confidential information provided by VIALTA or ESS, as the case may be. In the
event of termination or expiration of this Agreement, there shall be no use or
disclosure by VIALTA or ESS, their agents, or employees of any confidential
information of the other party. Each party shall deliver to the other party all
copies within its possession or within its control of all documents and data
relating to the conduct of VIALTA's or ESS's business.
6. GENERAL PROVISIONS
(a) GOVERNING LAW AND JURISDICTION. This Agreement shall be
governed by and construed under the laws of the State of California, as applied
to contracts made and to be fully performed entirely within that state between
residents of that state. All disputes arising out of this Agreement shall be
subject to the exclusive jurisdiction and venue of the California State courts
of Santa Clara County, California (or, if there is federal jurisdiction, the
United States District Court for the Northern District of California). VIALTA
and ESS hereby expressly consent to (i) the personal jurisdiction and venue of
these courts and (ii) service of process being effected by registered airmail
sent to the address set forth in Section 6(c) below.
(b) ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement and understanding of the parties relating to the subject matter herein
and merges all prior discussions between them. No modification of or amendment
to this Agreement, nor any waiver of any rights under this Agreement, shall be
effective unless in writing signed by the party to be charged.
(c) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed given if sent by prepaid registered or
certified airmail, return receipt requested (if available), or sent by telex,
facsimile or similar communication, and confirmed by such airmail, postage
prepaid, addressed to the other party at the address shown at the beginning of
this Agreement or at such other address for which such party gives notice
hereunder.
(d) FORCE MAJEURE. Nonperformance of either party shall be excused
to the extent that performance is rendered impossible by strike, fire, flood,
governmental acts, orders or restrictions, or any other reason where failure to
perform is beyond the control and not caused by the negligence of the
non-performing party, provided that the non-performing party uses its reasonable
best efforts to promptly resume performance once it is possible to do so.
(e) NON-ASSIGNABILITY AND BINDING EFFECT. Neither party shall,
without the prior written consent of the other party, assign this Agreement in
whole or in part or delegate any
4
<PAGE> 5
right or duty hereunder to any third party, sub-agent, representative or
consultant. Any attempted assignment not having such consent shall be void and
without effect.
(f) LEGAL EXPENSES. The prevailing party in any legal action
brought by one party against the other and arising out of this Agreement shall
be entitled, in addition to any other rights and remedies it may have, to
reimbursement for its expenses, including court costs and reasonable attorneys'
fees.
(g) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
VIALTA.COM ESS TECHNOLOGY, INC.
By: /s/ Fred S.L. Chan By: /s/ Robert L. Blair
-------------------------------- --------------------------------
Title: CEO Title: CEO
----------------------------- -----------------------------
5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 134,870
<SECURITIES> 54,235
<RECEIVABLES> 57,725
<ALLOWANCES> 730
<INVENTORY> 51,605
<CURRENT-ASSETS> 311,432
<PP&E> 72,228
<DEPRECIATION> 30,681
<TOTAL-ASSETS> 367,051
<CURRENT-LIABILITIES> 93,522
<BONDS> 0
0
0
<COMMON> 141,950
<OTHER-SE> 131,579
<TOTAL-LIABILITY-AND-EQUITY> 367,051
<SALES> 83,597
<TOTAL-REVENUES> 83,597
<CGS> 53,114
<TOTAL-COSTS> 53,114
<OTHER-EXPENSES> 23,764
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,878)
<INCOME-PRETAX> 9,597
<INCOME-TAX> 3,054
<INCOME-CONTINUING> 6,543
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,691
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.19
</TABLE>
