<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1997
REGISTRATION NO. 333-22885
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
RAMBUS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 3674 77-0449233
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
2465 LATHAM STREET
MOUNTAIN VIEW, CA 94040
(415) 903-3800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
GARY HARMON
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
RAMBUS INC.
2465 LATHAM STREET
MOUNTAIN VIEW, CA 94040
(415) 903-3800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
RICHARD J. CHAR, ESQ. GORDON K. DAVIDSON, ESQ.
GAIL C. HUSICK, ESQ. EILEEN DUFFY ROBINETT, ESQ.
J. MICHAEL ARRINGTON, ESQ. JEFFERY L. DONOVAN, ESQ.
WILSON SONSINI GOODRICH & ROSATI FENWICK & WEST LLP
PROFESSIONAL CORPORATION TWO PALO ALTO SQUARE
650 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94306
PALO ALTO, CALIFORNIA 94304 (415) 494-0600
(415) 493-9300
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE +
+SECURITIES LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued April 24, 1997
2,750,000 Shares
[LOGO OF RAMBUS INC.]
RAMBUS INC.
COMMON STOCK
-----------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE
COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL
PUBLIC OFFERING PRICE WILL BE BETWEEN $8 AND $10 PER SHARE. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS CONSIDERED IN DETERMINING
THE INITIAL PUBLIC OFFERING PRICE. THE SHARES OF COMMON STOCK OFFERED
HEREBY HAVE BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL "RMBS" SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
-----------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5 HEREOF.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share................................... $ $ $
Total(3).................................... $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2)Before deducting expenses payable by the Company estimated at $1,100,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of 412,500
additional Shares at the price to public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$ , $ and $ , respectively. See "Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Fenwick & West LLP, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1997, at the office of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
-----------
MORGAN STANLEY & CO.
Incorporated
HAMBRECHT & QUIST
ROBERTSON, STEPHENS & COMPANY
, 1997
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY
PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
----------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE PAGE
---- ----
<S> <C> <C> <C>
Prospectus Summary.................. 3 Business............................ 29
The Company......................... 4 Management.......................... 43
Risk Factors........................ 5 Certain Transactions................ 52
Use of Proceeds..................... 15 Principal Stockholders.............. 55
Dividend Policy..................... 15 Description of Capital Stock........ 58
Capitalization...................... 16 Shares Eligible for Future Sale..... 64
Dilution............................ 17 Underwriters........................ 66
Selected Consolidated Financial Legal Matters....................... 67
Data............................... 18 Experts............................. 67
Management's Discussion and Analysis Additional Information.............. 68
of Financial Condition and Results Index to Consolidated Financial
of Operations...................... 19 Statements......................... F-1
</TABLE>
----------------
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by its independent auditors and
quarterly reports containing unaudited consolidated financial data for the
first three quarters of each fiscal year.
----------------
RDRAM and the Rambus logo are registered trademarks, and Rambus, RAC, Rambus
Channel, RModule and RSocket are trademarks of the Company. This Prospectus
also includes product names and other trade names and trademarks of the
Company and of other organizations.
----------------
Unless otherwise indicated, the information in this Prospectus: (i) gives
effect to the conversion of all outstanding shares of Preferred Stock into
shares of Common Stock upon completion of this offering and (ii) does not give
effect to exercise of the Underwriters' over-allotment option.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE>
Left side of gatefold, insider cover page:
- ------------------------------------------
left half of page: caption - "Since 1980, the typical operating frequency of
Intel and other mainstream microprocessors has increased approximately 40 times
from 5 MHz (million cycles per second) to 200 MHz. During this same period, the
typical operating frequency of DRAMs has only increased by approximately ten
times. This growing disparity between the frequency of microprocessors and
DRAMs is termed the "Performance Gap."
right half of page:
Heading - "Traditional DRAM Memory System"
diagram showing Processor/Controller connecting to multiple DRAMs with
individual connections.
caption - "Conventional memory systems have addressed the Performance
Gap using a "wide bus" approach. This approach uses many DRAM components
in a wide, parallel bus and requires many connections to the logic
integrated circuits. While this can increase memory bandwidth, it also
results in complex circuit boards and costly systems. In addition, there
is a limit to which the bandwidth can be increased due to the limited
number of connections available on the integrated circuit."
Heading - "Rambus Solution"
diagram showing Processor/Controller connecting to multiple RDRAMs with
a single connection.
caption - "Rambus has created a revolutionary chip-to-chip interface
architecture which allows data to be transferred through a simplified
bus at significantly higher frequencies - 600 megabytes per second -
than permitted by conventional technologies. System performance can be
further enhanced by applying Rambus interface technology to multiple
channels on a logic integrated circuit. The result is greatly increased
memory bandwidth and reduced costs."
<PAGE>
Right side of gatefold, insider cover page:
- -------------------------------------------
Heading - "Selected RDRAM licensees, Rambus logic IC licensees and systems
companies that have adopted Rambus technology"
artwork consists of Company logos -
LSI Logic Toshiba LG Semicon
Cirrus Logic MoSys Hyundai
Creative Labs Nintendo
SGS Thomson Oki Chromatic Research
Samsung Silicon Graphics
Mitsubishi NEC Hitachi
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
THE COMPANY
Rambus Inc. ("Rambus" or the "Company") designs, develops, licenses and
markets high-speed chip-to-chip interface technology to enhance the performance
and cost-effectiveness of consumer electronics, computer systems and other
electronic systems. The Company licenses semiconductor companies to manufacture
and sell memory and logic ICs incorporating Rambus interface technology and
markets its solution to systems companies to encourage them to design Rambus
interface technology into their products. The Company's technology cost-
effectively increases the data transfer rate or "memory bandwidth," allowing
semiconductor memory devices to keep pace with faster generations of processors
and controllers, and thus supports the accelerating data transfer requirements
of multimedia and other high-bandwidth applications.
The high-speed interface technology Rambus has developed is applicable to
data transfer between most semiconductor chips. The Company has initially
chosen to concentrate the application of its technology on the interface
between logic ICs and memory devices because of the acute performance needs and
the relevant market sizes. The Company believes that the systems which will
best utilize the high bandwidth provided by current Rambus technology are the
relatively high-volume, low-cost systems in which the cost of the memory
subsystems represents a significant portion of the selling price. To date, the
principal applications for the Company's technology have been in the consumer
multimedia, PC multimedia and workstation multimedia markets. These areas
accounted for the sale of approximately $13,000, $11 million and $447 million
of Rambus ICs by Rambus licensees in calendar 1994, 1995 and 1996,
respectively. Although period-to-period changes in the Company's revenues are
dependent upon numerous factors other than changes in sales of Rambus ICs, the
Company believes that increases in sales of Rambus ICs are an indication of the
level of market acceptance of the Company's technology to date. Systems
companies utilizing Rambus technology in these multimedia markets include
Nintendo, Silicon Graphics, Chromatic Research and Creative Labs. The Company's
licensees include Cirrus Logic, Hitachi, Hyundai Electronics, IBM, LG Semicon,
LSI Logic, Micron Technology, Mitsubishi, NEC, Oki Electric Industry, Samsung
Electronics, SGS-THOMSON and Toshiba, which in the aggregate accounted for
approximately 83% of the Company's revenues in the first half of fiscal 1997.
Other applications currently being developed for Rambus technology include
multifunction peripheral controllers for combination fax/copier/scanner/laser
printer devices, and networking equipment such as high-speed ethernet switches.
In addition, the Company and Intel Corporation have entered into a development
and license agreement and are working together to develop an extension of the
Rambus interface technology optimized for the PC main memory market segment.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered........ 2,750,000 shares
Common Stock to be outstand-
ing after the offering..... 21,453,651 shares(1)
Use of proceeds............. For general corporate purposes, including working
capital and capital expenditures
Nasdaq National Market
symbol..................... RMBS
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- -------- --------
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA: (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues.......... $ 1,916 $ 3,371 $ 5,000 $ 7,364 $11,270 $ 5,072 $ 11,425
Total costs and
expenses............... 7,663 9,333 11,197 13,417 15,838 7,328 10,909
Operating income
(loss)................. (5,747) (5,962) (6,197) (6,053) (4,568) (2,256) 516
Net income (loss)....... (6,594) (6,336) (6,629) (7,020) (4,415) (2,235) 388
Net income (loss) per
share(2)............... $ (2.24) $ (1.44) $ (1.29) $ (1.24) $ (0.73) $ (0.37) $ 0.02
Shares used in per share
calculations(2)........ 2,945 4,394 5,124 5,665 6,088 6,047 20,083
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
CONSOLIDATED BALANCE
SHEET DATA: (UNAUDITED)
<S> <C> <C>
Cash, cash equivalents and marketable securities................ $ 10,492 $32,410
Total assets.................................................... 23,843 45,761
Total debt(4)................................................... 847 847
Stockholders' equity (deficit).................................. (11,065) 10,853
</TABLE>
- -------
(1) Based on the number of shares of Common Stock outstanding as of March 31,
1997. Excludes 2,174,470 shares of Common Stock issuable upon the exercise
of options outstanding under the Company's 1990 Stock Plan at March 31,
1997, with a weighted average exercise price of $2.70 per share, and 83,500
shares of Common Stock issuable upon the exercise of options granted under
the Company's 1990 Stock Plan subsequent to March 31, 1997, with a weighted
average exercise price of $8.00 per share. Also excludes (i) 1,000,000
shares of Common Stock reserved for issuance under the Company's 1997 Stock
Plan, (ii) 400,000 shares of Common Stock reserved for issuance under the
Company's 1997 Employee Stock Purchase Plan and (iii) 1,000,000 shares of
Common Stock issuable upon exercise of an outstanding warrant at an
exercise price of $10.00 per share. See "Capitalization," "Management--
Stock Plans" and Notes 10 and 17 of Notes to Consolidated Financial
Statements.
(2) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the determination of net income (loss) per share and the shares used in
per share calculations. The pro forma net income (loss) per share for the
year ended September 30, 1996 and the six months ended March 31, 1997 was
$(0.25) and $0.02, respectively. The pro forma shares used in per share
calculations for the year ended September 30, 1996 and the six months ended
March 31, 1997 were 17,385 and 20,083, respectively.
(3) Adjusted to reflect the sale by the Company of 2,750,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $9.00
per share, and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company. See
"Use of Proceeds" and "Capitalization."
(4) Total debt consists of indebtedness for capital lease obligations.
3
<PAGE>
THE COMPANY
Rambus designs, develops, licenses and markets high-speed chip-to-chip
interface technology to enhance the performance and cost-effectiveness of
consumer electronics, computer systems and other electronic systems. The
Company licenses semiconductor companies to manufacture and sell memory and
logic ICs incorporating Rambus interface technology and markets its solution
to systems companies to encourage them to design Rambus interface technology
into their products. The Company's technology cost-effectively increases the
data transfer rate, or "memory bandwidth," allowing semiconductor memory
devices to keep pace with faster generations of processors and controllers and
thus supports the accelerating data transfer requirements of multimedia and
other high-bandwidth applications.
The performance of a computer or other electronic system is typically
constrained by the speed of its slowest element. In the past, that element was
the logic IC that controlled the system's specific functions and performed
calculations--the microprocessor. In recent years, however, new generations of
microprocessors have become substantially faster and more powerful, and
increasingly the bottleneck in system performance is becoming the component
that stores the instructions and data needed by the microprocessor--the DRAM.
Since 1980, the typical operating frequency of Intel and other mainstream
microprocessors has increased approximately 40 times from 5 MHz (million
cycles per second) to 200 MHz. During this same period, the typical operating
frequency of DRAMs has increased by approximately ten times. This growing
disparity between the frequency of microprocessors and DRAMs is termed the
"Performance Gap."
Rambus has created a revolutionary chip-to-chip interface architecture,
which allows data to be transferred through a simplified bus at significantly
higher frequencies than permitted by conventional technologies. Rambus has
focused the application of its interface technology on the Performance Gap and
licenses its interface technology to memory and logic semiconductor
manufacturers, which incorporate this interface technology into their IC
designs to supply systems companies with Rambus ICs. The key elements of the
Rambus interface are Rambus-based DRAMs ("RDRAMs"), Rambus ASIC cells ("RACs")
and the interconnecting circuitry known as the "Rambus Channel." While Rambus
technology can be used to address a wide variety of chip-to-chip data transfer
requirements, the largest immediate application is to connect logic circuits
to memory in home video games, PCs, workstations and other electronic systems.
To date, the principal applications for the Company's technology have been
in the consumer multimedia, PC multimedia and workstation multimedia markets.
These areas accounted for the sale of approximately $13,000, $11 million and
$447 million of Rambus ICs by Rambus licensees in calendar 1994, 1995 and
1996, respectively. Although period-to-period changes in the Company's
revenues are dependent upon numerous factors other than changes in sales of
Rambus ICs, such as the structure of royalty arrangements with particular
licensees, the level of prepaid royalties to be offset, the mix of royalty-
bearing sales between RDRAMs and RACs and the one quarter lag time between
sales by licensees and the receipt of royalties by the Company, the Company
believes that increases in sales of Rambus ICs indicate the level of market
acceptance of the Company's technology to date. Systems companies utilizing
Rambus technology in the consumer multimedia, PC multimedia and workstation
multimedia markets include Nintendo, Silicon Graphics, Chromatic Research and
Creative Labs. The Company's licensees include Cirrus Logic, Hitachi, Hyundai
Electronics, IBM, LG Semicon, LSI Logic, Micron Technology, Mitsubishi, NEC,
Oki Electric Industry, Samsung Electronics, SGS-THOMSON and Toshiba, which in
the aggregate accounted for approximately 83% of the Company's revenues in the
first half of fiscal 1997. Other applications currently being developed for
Rambus technology include multifunction peripheral controllers for combination
fax/copier/scanner/laser printer devices, and networking equipment such as
high-speed ethernet switches. In addition, the Company and Intel Corporation
have entered into a development and license agreement and are working together
to develop an extension of the Rambus interface technology optimized for the
PC main memory market segment.
The Company was incorporated in California in March 1990 and reincorporated
in Delaware in March 1997. The Company's principal executive offices are
located at 2465 Latham Street, Mountain View, CA 94040. Its telephone number
is (415) 903-3800. The Company's home page can be located on the Internet at
http://www.rambus.com. Information contained on the Company's Web site does
not constitute part of this Prospectus.
4
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered hereby. This Prospectus contains forward-
looking statements that involve risks and uncertainties. The Company's actual
results may differ materially from the results discussed in such forward-
looking statements. Factors that may cause such a difference include, but are
not limited to, those discussed below and in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Unpredictable and Fluctuating Operating Results. Because many of the
Company's revenue components fluctuate and are difficult to predict, and its
expenses are largely independent of revenues in any particular period, it is
difficult for the Company to accurately forecast revenues and profits or
losses. Historically, contract revenues have represented the largest portion
of the Company's revenues. The Company recognizes contract revenues ratably
over the period during which post-contract customer support is expected to be
provided. While this means that contract revenues from current licenses are
relatively predictable, accurate prediction of revenues from new licenses is
difficult because the development of a business relationship with a potential
licensee is a lengthy process, frequently spanning a year or more, and the
fiscal period in which a new license agreement will be entered into, if at
all, and the financial terms of such an agreement are difficult to predict. In
addition to license fees, contract revenues include fees for engineering
services, which are dependent upon the varying level of assistance desired by
licensees and, therefore, the revenue from these services is also difficult to
predict. Adding to the complexity of making accurate financial forecasts is
the fact that certain expenses associated with a particular contract are
typically front-end loaded, except for expenses associated with upgrades and
enhancements, whereas contract fees associated with that contract are
recognized ratably over the period during which the post-contract customer
support is expected to be provided.
Royalties accounted for 25.9% of total revenues in the first half of fiscal
1997. While the Company does not expect a significant increase in royalty
revenue in the near term, the Company believes that royalties will represent
an increasing portion of total revenue in the long term. Increasing royalty
revenues will add to the difficulty in making accurate financial forecasts.
Such royalties (other than nonrefundable prepaid royalties) are recognized in
the quarter in which the Company receives a report from a licensee regarding
the shipment of Rambus ICs in the prior quarter, and are dependent upon
fluctuating sales volumes and prices of chips containing Rambus technology,
all of which are beyond the Company's ability to control or assess in advance.
A few contracts include nonrefundable prepaid royalties, which are recognized
ratably over the period during which post-contract customer support is
expected to be provided, and are not related to the actual rate at which
Rambus ICs are shipped by the licensee. Accordingly, the amount of
nonrefundable, prepaid royalties recognized in a period is not necessarily
representative of the rate at which the nonrefundable, prepaid royalties are
being offset by royalties earned on shipments made. The Company believes that
its continued success will be substantially dependent upon royalties
increasing at a rate which more than offsets decreases in the recognition of
deferred revenue under existing contracts as their recognition periods expire,
as well as the Company's ability to add new licensees and to license new
generations of its technology to its existing licensees. Because a systems
company can change its source of Rambus ICs at any time, and because the new
Rambus license source could have a considerable nonrefundable prepaid royalty
balance as well as different royalty rates, any such change by a systems
company, particularly one which accounts for substantial volumes of Rambus
ICs, could have a sudden and significant adverse effect on the Company's
revenues.
The Company's business is subject to a variety of additional risks that
could materially adversely affect quarterly and annual operating results,
including market acceptance of the Company's technology; systems companies'
acceptance of Rambus ICs produced by the Company's licensees; market
acceptance of the products of systems companies which have adopted the
Company's technology; the loss of any strategic relationships with systems
companies or licensees; announcements or introductions of new technologies or
products by the Company or the Company's competitors; delays or problems in
the introduction or performance of enhancements or future generations of the
Company's technology; fluctuations in the market price and demand for DRAMs
and logic ICs into which the Company's technology has been incorporated;
competitive pressures resulting in
5
<PAGE>
lower contract revenues or royalty rates; changes in the Company's and system
companies' development schedules and levels of expenditure on research and
development; personnel changes, particularly those involving engineering and
technical personnel; costs associated with protecting the Company's
intellectual property; changes in Company strategies; foreign exchange rate
fluctuations or other changes in the international business climate; and
general economic trends and other factors.
The Company has granted to Intel Corporation a warrant for the purchase of
1,000,000 shares of Common Stock at an exercise price of $10.00 per share. The
warrant will become exercisable only upon the achievement of certain
milestones, resulting in a charge to the statement of operations at the time
of achievement of the milestones based on the fair value of the warrant.
In future quarters, the Company's operating results may not meet the
expectations of public market analysts or investors. In such an event, the
market price of the Common Stock would be materially adversely affected. See
"--Dependence upon Limited Number of Licensees," "--Dependence upon Systems
Companies," "--No Assurance of Adoption of Rambus Technology as an Industry
Standard" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
History of Losses; No Assurance of Profitability. As of March 31, 1997, the
Company's accumulated deficit was approximately $34.1 million. While the
Company generated net income for the first time in the quarter ended December
31, 1996, it incurred significant losses in each quarter of fiscal 1996 and in
each quarter of its prior fiscal years. There can be no assurance that in the
future the Company will be profitable on a quarterly or annual basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Dependence upon Limited Number of Licensees. The Company neither
manufactures nor sells devices containing its interface technology. Rather,
the Company licenses its technology to semiconductor companies which in turn
manufacture and sell Rambus ICs to systems companies which incorporate Rambus
technology into their products. The Company's strategy to become an industry
standard is dependent upon the Company's ability to make its technology widely
available to systems companies through multiple semiconductor manufacturers,
and there can be no assurance that the Company will be successful in
maintaining its relationships with its current licensees or in entering into
new relationships with additional licensees. The Company faces numerous risks
in successfully obtaining licensees on terms consistent with the Company's
business model, including, among others, the lengthy and expensive process of
building a relationship with a potential licensee before there is any
assurance of a license agreement with such party; persuading large
semiconductor companies to work with, to rely for critical technology on, and
to disclose proprietary manufacturing technology to, a smaller company such as
Rambus; persuading potential licensees to bear certain development costs
associated with Rambus technology and to make the necessary investment to
successfully produce Rambus ICs; and successfully transferring technical know-
how to licensees. In addition, there are a relatively limited number of larger
semiconductor companies to which the Company could license its interface
technology in a manner consistent with its business model. The Company
believes that its principal competition may come from its licensees and
prospective licensees, many of which are evaluating and developing products
based on alternative technologies. See "--Competition" and "Business--Rambus
Licensees."
Dependence upon Systems Companies. Although sales of Rambus ICs to systems
companies which have adopted the Company's technology for their products are
not made directly by the Company, such sales directly affect the amount of
royalties received by the Company. Therefore, the Company's success is
substantially dependent upon the adoption of the Company's interface
technology by systems companies, particularly those which develop and market
high-volume business and consumer products such as home video games and PCs.
The Company is subject to many risks beyond its control that influence the
success or failure of a particular systems company, including among others
competition faced by the systems company in its particular industry; market
acceptance of the systems company's products; the engineering, sales and
marketing and management capabilities of the systems company; technical
challenges unrelated to Rambus technology faced by the systems company in
developing its products; and the financial and other resources of the systems
company. The process
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of persuading systems companies to adopt the Company's technology can be
lengthy and, even if adopted, there can be no assurance that the Rambus
technology will be used in a product that is ultimately brought to market,
achieves commercial acceptance or results in significant royalties to the
Company. Rambus must dedicate substantial resources to market to and support
systems companies, in addition to supporting the sales and marketing and
technical efforts of its licensees in promoting Rambus technology to systems
companies. To date, the Company has not charged systems companies for
technical support. Because the Company does not control the business practices
of its licensees, it has no ability to establish the prices at which its
technology is made available to systems companies or the degree to which its
licensees promote Rambus technology to systems companies. See "Business--The
Rambus Solution," "--Target Markets and Applications" and "--Rambus Business
Model and Strategy."
No Assurance of Adoption of Rambus Technology as an Industry Standard. An
important part of the Company's strategy to become an industry standard is to
penetrate new markets by targeting leaders in those markets. This strategy is
designed to encourage other participants in those markets to follow such
leaders in adopting Rambus technology. Should a high profile industry
participant adopt Rambus technology for one or more of its products but fail
to achieve success with those products, other industry participants'
perception of Rambus technology could be adversely affected. Any such event
could reduce future sales of Rambus ICs. Likewise, were a market leader to
adopt and achieve success with a competing technology, the Company's
reputation and sales could be adversely affected. In addition, some industry
participants have adopted, and others may in the future adopt, a strategy of
disparaging the Rambus solution adopted by their competitors. Failure of the
Company's technology to be adopted as an industry standard would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "--Competition", "Business--Target Markets and
Applications" and "--Competition."
Future Dependence upon PC Main Memory Market Segment and Intel. An important
part of the Company's strategy is to penetrate the market segment for PC main
memory. Rambus believes that PC main memory currently accounts for
approximately one-half of all DRAMs sold. In November 1996, Rambus signed a
development and license contract with Intel Corporation which provides for the
parties to cooperate in the development of a specification for an extension of
the RDRAM optimized for PC main memory applications. The contract also calls
for Intel to use reasonable best efforts to develop a PC main memory
controller designed for use with such RDRAMs. The anticipated development
period for the new RDRAM technology is at least two years and there are a
number of technological issues which must be successfully resolved prior to
implementation. There can be no assurance that Intel will successfully develop
a controller for use with RDRAMs in time to meet market requirements, or at
all. Under the contract, Intel can terminate its relationship with Rambus at
any time. Even if such development efforts are completed, there is no
assurance that RDRAMs will be built by the Company's licensees and purchased
by PC manufacturers in sufficient quantity to become a standard for PC main
memory. The Company established a relationship with Intel several years ago,
but Intel did not at that time pursue development relating to Rambus
technology. There can be no assurance that Intel's current emphasis or
priorities will not change in the future, resulting in less attention and
fewer resources being devoted to the current Rambus relationship. Although
certain aspects of the current relationship between the two companies are
contractual in nature, many important aspects depend on the continued
cooperation of the two companies. There can be no assurance that Rambus and
Intel will be able to work together successfully over an extended period of
time. In addition, there can be no assurance that Intel will not develop or
adopt competing technologies in the future. See "Business--Target Markets and
Applications--PC Main Memory" and "--Rambus Business Model and Strategy."
Revenue Concentration. The Company is subject to revenue concentration risks
at both the licensee and the systems company levels. In fiscal 1994, 1995 and
1996 and the first half of fiscal 1997, revenues from the Company's top five
licensees accounted for approximately 86%, 70%, 65% and 70% of the Company's
revenues, respectively. In the first half of fiscal 1997, NEC accounted for
approximately 32% of revenues and LG Semiconductor accounted for approximately
11% of revenues. Because the revenues derived from various licensees vary from
period to period depending on the addition of new contracts, the expiration of
deferred
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revenue schedules under existing contracts and the volumes and prices at which
the licensees have recently sold Rambus ICs to systems companies, the
particular licensees which account for revenue concentration have varied from
period to period. These variations are expected to continue in the foreseeable
future although the Company anticipates that revenue will continue to be
concentrated in a limited number of licensees.
The royalties received by the Company are a function of the adoption of
Rambus technology at the systems company level. Systems companies purchase
semiconductors containing Rambus technology from Rambus licensees, and
generally do not have a direct contractual relationship with the Company. The
Company's licensees generally do not provide detail as to the identity of, or
volume of Rambus ICs purchased by, particular systems companies. As a result,
the Company faces difficulty in analyzing the extent to which its future
revenues will be dependent upon particular systems companies.
The profitability first attained by the Company in the quarter ended
December 31, 1996 and sustained in the quarter ended March 31, 1997 was
attributable primarily to an increase in royalties from NEC, which the Company
believes was largely due to royalties on Rambus technology incorporated into
the Nintendo 64 video game system. For reasons described in the foregoing
paragraph, the Company cannot precisely quantify this amount, because its
licensees generally are not required to identify the particular products that
incorporate, or the particular systems companies which purchase, Rambus ICs.
The Company anticipates that sales from its licensees to Nintendo will
continue to account for a substantial portion of royalties in fiscal 1997.
Nintendo faces intense competitive pressure in the video game market, which is
characterized by extreme volatility, frequent new product introductions and
rapidly shifting consumer preferences, and there can be no assurance as to the
unit volumes of Rambus ICs that will be purchased by Nintendo in the future or
the level of royalty-bearing revenues that the Company's licensees will
receive from Nintendo.
The Company believes its potential to generate royalties in fiscal 1997 is
largely dependent on system sales by Nintendo and sales of multimedia
controller chips by Cirrus Logic and Chromatic. None of these companies is
under any obligation to continue using Rambus technology in its current
product or to incorporate Rambus technology into its future products. There
can be no assurance that a significant number of other systems companies will
adopt the Company's technology or that the Company's dependence upon
particular systems companies will decrease in the future. See "--Unpredictable
and Fluctuating Operating Results," "--Dependence upon Limited Number of
Licensees," "--Dependence upon Systems Companies," "--No Assurance of Adoption
of Rambus Technology as an Industry Standard," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Rambus Licensees."
Reliance upon DRAM Market; Declines in DRAM Price and Unit Volume per
System. In the first half of fiscal 1997, 25.9% of the Company's revenues was
in the form of royalties and the Company's business model assumes an
increasing percentage of total revenues from royalties in the long term. To
date, a majority of the Company's royalties has been derived from the sale of
logic ICs incorporating RACs. If the Company is successful in its strategy to
penetrate the PC main memory market, the Company expects that royalties from
the sale of RDRAMs will eventually account for the largest portion of
royalties. Royalties on RDRAMs are based on the volumes and prices of RDRAMs
manufactured and sold by the Company's licensees. The royalties received by
the Company therefore are influenced by many of the risks faced by the DRAM
market in general, including constraints on the volumes shipped during periods
of shortage and reduced average selling prices. The DRAM market is intensely
competitive and generally is characterized by declining average selling prices
over the life of a generation of chips. Such price decreases, and the
corresponding decreases in per unit royalties received by the Company, can be
sudden and dramatic. Compounding the effect of price decreases is the fact
that, under certain of the Company's license agreements, royalty rates
decrease as a function of time or volume. With the introduction of each new
generation of higher density RDRAMs, the Company generally expects higher
prices resulting in higher royalties per device, but with correspondingly
fewer devices required per system. There can be no assurance that decreases in
DRAM prices or in the Company's royalty rates will not have a material adverse
effect on the Company's business, results of operations and financial
condition. There can be no assurance that the Company will be successful in
maintaining or increasing its share of any market. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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Rapid Technological Change; Reliance on Fundamental Technology; Importance
of Timely New Product Development. The semiconductor industry is characterized
by rapid technological change, with new generations of semiconductors being
introduced periodically and with ongoing evolutionary improvements. Since
beginning operations in 1990, the Company has derived all of its revenue from
its interface technology and expects that this dependence on its fundamental
technology will continue for the foreseeable future. Accordingly, broad
acceptance of the Company's interface technology is critical to the Company's
future success. The introduction or market acceptance of competing technology
which renders the Company's interface technology less desirable or obsolete
would have a rapid and material adverse effect on the Company's business,
results of operations and financial condition. The announcement of new
products by the Company, such as the "Direct Rambus" technology which is under
development, could cause licensees or systems companies to delay or defer
entering into arrangements for the use of the Company's technology, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's operating results will depend to a significant extent on its
ability to introduce enhancements and new generations of its interface
technology which keep pace with other changes in the semiconductor industry
and which achieve rapid market acceptance. The Company must continually devote
significant engineering resources to addressing the ever-increasing need for
memory bandwidth associated with increases in the speed of microprocessors and
other controllers. Technical innovations of the type that will be required for
the Company to be successful are inherently complex and require long
development cycles, and there can be no assurance that the Company's
development efforts will ultimately be successful. In addition, these
innovations must be completed before changes in the semiconductor industry
have rendered them obsolete, must be available when systems companies require
these innovations, and must be sufficiently compelling to cause semiconductor
manufacturers to enter into licensing arrangements with Rambus for the new
technology. There can be no assurance that Rambus will be able to meet these
requirements. Moreover, significant technological innovations generally
require a substantial investment before their commercial viability can be
determined. There can be no assurance that the Company will have the financial
resources necessary to fund future development, that the Company's licensees
will continue to share certain research and development costs with the Company
as they have in the past, or that revenues from enhancements or new
generations of the Company's technology, even if successfully developed, will
exceed the costs of development. See "--Competition" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Rambus Business Model and Strategy" and "--Research and
Development."
Competition. The semiconductor industry is intensely competitive and has
been characterized by price erosion, rapid technological change, short product
life cycles, cyclical market patterns and increasing foreign and domestic
competition. Most major DRAM manufacturers are developing higher-frequency
versions of standard DRAMs such as EDO, SDRAMs and SGRAMs which compete with
RDRAMs. These DRAM manufacturers include most Rambus DRAM licensees, as well
as other major DRAM manufacturers such as IBM and Texas Instruments Inc. Most
of these companies are much larger and have better access to financial,
certain technical and other resources than Rambus. Additional high-speed DRAMs
have recently been introduced by other semiconductor companies for specialized
applications.
The Company believes that its principal competition may come from its
licensees and prospective licensees, many of which are evaluating and
developing products based on alternative technologies and are beginning to
take a systems approach similar to the Company's in solving the application
needs of systems companies. Many DRAM suppliers have indicated that they are
developing a new technology called Double Data Rate ("DDR") SDRAMs, aimed at
doubling the memory bandwidth from SDRAMs without increasing the clock
frequency. In addition, a consortium including both large DRAM manufacturers
and systems companies is promoting a specification for an alternative high-
speed interface standard called SyncLink. To the extent that these alternative
technologies provide comparable system performance at lower or similar cost
than RDRAMs, or do not require the payment of comparable royalties, the
Company's licensees and prospective licensees may adopt and promote the
alternative technologies. There can be no assurance that the Company's future
competition will not have a material adverse effect on the Company's business,
results of operations and financial condition. In addition,
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certain semiconductor companies have recently introduced a new kind of IC
which combines logic and DRAM on the same chip. Such chips, called "embedded
DRAM," eliminate the need for any chip-to-chip interface and are primarily
being used for graphics applications. Embedded DRAMs are well suited for
applications where component space saving and power consumption are important,
such as in the graphics subsystems of notebook PCs. There can be no assurance
that competition from embedded DRAMs will not increase in the future. See
"Business--Competition."
Limited Protection of Intellectual Property; Likelihood of Potential
Litigation. The Company has an active program to protect its proprietary
technology through the filing of patents. At March 31, 1997, the Company held
30 United States patents on various aspects of its technology, with expiration
dates ranging from 2010 to 2014. At March 31, 1997, the Company had
applications for 37 United States patents pending. The Company's United States
patents do not prevent the manufacture or sale of Rambus-based ICs abroad. At
March 31, 1997, the Company held six foreign patents and had additional
foreign patent applications pending in Taiwan, Korea, Japan and various other
jurisdictions. There can be no assurance that the Company's pending United
States or foreign patent applications or any future United States or foreign
patent applications will be approved, that any issued patents will protect the
Company's intellectual property or will not be challenged by third parties, or
that the patents of others will not have an adverse effect on the Company's
ability to do business. Furthermore, there can be no assurance that others
will not independently develop similar or competing technology or design
around any patents that may be issued to the Company.
The Company attempts to protect its trade secrets and other proprietary
information through agreements with licensees and systems companies,
proprietary information agreements with employees and consultants and other
security measures. The Company also relies on trademarks and trade secret laws
to protect its intellectual property. Despite these efforts, there can be no
assurance that others will not gain access to the Company's trade secrets, or
that the Company can meaningfully protect its intellectual property. In
addition, effective trade secret protection may be unavailable or limited in
certain foreign countries. Although the Company intends to protect its rights
vigorously, there can be no assurance that such measures will be successful.
Rambus believes that it is important to develop and maintain a uniform RDRAM
memory interface standard. The Company's contracts generally prevent a
licensee from using licensee-developed patented improvements related to Rambus
technology to block other licensees from using the improvements or requiring
them to pay additional royalties related to their use of Rambus interface
technology. Specifically, the contracts generally require licensees to grant
to Rambus a royalty-free cross-license on patented licensee intellectual
property related to the implementation of Rambus interface technology, which
Rambus sublicenses to other licensees that have entered into similar
arrangements. Not all licensees have granted Rambus cross-licenses, and there
is no assurance that such a blocking arrangement will not occur in the future.
The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights. While the Company has not
received formal notice of any infringement of the rights of any third party,
questions of infringement in the semiconductor field involve highly technical
and subjective analyses. Litigation may be necessary in the future to enforce
the Company's patents and other intellectual property rights, to protect the
Company's trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity, and there can be no assurance that the Company would prevail in
any future litigation. Any such litigation, whether or not determined in the
Company's favor or settled by the Company, would be costly and would divert
the efforts and attention of the Company's management and technical personnel
from normal business operations, which would have a material adverse effect on
the Company's business, financial condition and results of operations. Adverse
determinations in litigation could result in the loss of the Company's
proprietary rights, subject the Company to significant liabilities, require
the Company to seek licenses from third parties or prevent the Company from
licensing its technology, any of which could have a material adverse effect on
the Company's business, financial condition and results of operations.
In any potential dispute involving the Company's patents or other
intellectual property, the Company's licensees could also become the target of
litigation. While the Company generally does not indemnify its
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licensees, some of its license agreements require the Company to provide
technical support and information to a licensee which is involved in
litigation involving use of Rambus technology. The Company is bound to
indemnify certain licensees under the terms of certain license agreements, and
the Company may agree to indemnify others in the future. The Company's support
and indemnification obligations could result in substantial expenses to the
Company. In addition to the time and expense required for the Company to
supply such support or indemnification to its licensees, a licensee's
development, marketing and sales of Rambus ICs could be severely disrupted or
shut down as a result of litigation, which in turn could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Patents and Intellectual Property Protection."
Risks Associated with International Licenses. To date, companies based in
Japan and Korea have accounted for the substantial majority of the Company's
revenues, and nearly all of its international revenues. In fiscal 1994, 1995
and 1996 and the first half of fiscal 1997, international revenues constituted
approximately 90%, 90%, 86% and 83% of the Company's net revenues,
respectively. The Company expects that revenues derived from international
licensees will continue to represent a significant portion of its total
revenues in the future. All of the revenues from international licensees have
to date been denominated in United States dollars. However, to the extent that
such licensees' sales to systems companies are not denominated in United
States dollars, any royalties that the Company receives as a result of such
sales could be subject to fluctuations in currency exchange rates. In
addition, if the effective price of Rambus ICs sold to the Company's foreign
licensees were to increase as a result of fluctuations in the exchange rate of
the relevant currencies, demand for Rambus ICs could fall, which in turn would
reduce the Company's royalties. The Company does not use derivative
instruments to hedge foreign exchange rate risk. In addition, international
operations and demand for the products of the Company's licensees are subject
to a variety of risks, including tariffs, import restrictions and other trade
barriers, changes in regulatory requirements, longer accounts receivable
payment cycles, adverse tax consequences, export license requirements, foreign
government regulation, political and economic instability and changes in
diplomatic and trade relationships. In particular, the laws of certain
countries in which the Company currently licenses or may in the future license
its technology require significant withholding taxes on payments for
intellectual property, which the Company may not be able to offset fully
against its United States tax obligations. The Company is subject to the
further risk of the tax authorities in those countries recharacterizing
certain engineering fees as license fees, which could result in increased tax
withholdings and penalties. The Company's licensees are subject to many of the
risks described above with respect to systems companies which are located in
different countries, particularly video game and PC manufacturers located in
Asia and elsewhere. There can be no assurance that one or more of the risks
associated with international licenses of the Company's technology will not
have a direct or indirect material adverse effect on the Company's business,
financial condition and results of operations. Moreover, the laws of certain
foreign countries in which the Company's technology is or may in the future be
licensed may not protect the Company's intellectual property rights to the
same extent as the laws of the United States, thus increasing the possibility
of infringement of the Company's intellectual property. See "--Limited
Protection of Intellectual Property; Likelihood of Potential Litigation" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Dependence on Key Personnel. The Company's success depends to a significant
extent on its ability to identify, attract, motivate and retain qualified
technical, sales, marketing, finance and executive personnel. Because the
future success of the Company is dependent upon its ability to continue
enhancing and introducing new generations of such technology, the Company is
particularly dependent upon its ability to identify, attract, motivate and
retain qualified engineers with the requisite educational background and
industry experience. As of December 31, 1996, approximately three quarters of
the Company's personnel had technical degrees, and over half of the Company's
personnel had graduate level technical degrees. Competition for qualified
engineers, particularly those with significant industry experience, is
intense. The Company is also dependent upon its senior management personnel,
most of whom have worked together at the Company for several years. The loss
of the services of any of the senior management personnel or a significant
number of the Company's engineers could be disruptive to the Company's
development efforts or business relationships and could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company generally does
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not enter into employment contracts with its employees. The Company does not
plan to maintain key person life insurance in the future. See "Business--
Employees" and "Management--Executive Officers, Directors and Key Personnel."
Management of Expanded Operations. The Company is not experienced in
managing rapid growth. The Company may not be equipped to successfully manage
any future periods of rapid growth or expansion, which could be expected to
place a significant strain on the Company's limited managerial, financial,
engineering and other resources. The Company's licensees and systems companies
rely heavily on the Company's technological expertise in designing, testing
and manufacturing products incorporating the Company's interface technologies.
Relationships with new licensees or systems companies generally require
significant engineering support. As a result, any increases in adoption of the
Company's technology will increase the strain on the Company's resources,
particularly the Company's engineers. Any delays or difficulties in the
Company's research and development process caused by these factors or others
could make it difficult for the Company to develop future generations of its
interface technology and to remain competitive. In addition, the rapid rate of
hiring new employees could be disruptive and adversely affect the efficiency
of the Company's research and development process. The rate of the Company's
future expansion, if any, in combination with the complexity of the technology
involved in the Company's licensee-based business model, may demand an
unusually high level of managerial effectiveness in anticipating, planning,
coordinating and meeting the operational needs of the Company as well as the
needs of the licensees and systems companies. Additionally, the Company may be
required to reorganize its managerial structure in order to more effectively
respond to the needs of customers. Given the small pool of potential licensees
and target systems companies, the adverse effect on the Company resulting from
a lack of effective management in any of these areas will be magnified.
Inability to manage the expansion of the Company's business would have a
material adverse effect on its business, financial condition and results of
operations. See "Management."
No Prior Public Market; Volatility of Stock Price. Prior to this offering,
there has been no public market for the Company's Common Stock, and there can
be no assurance that an active public market for the Company's Common Stock
will develop or be sustained after the offering. The initial public offering
price will be determined through negotiations between the Company and the
Underwriters and may not be indicative of the market price of the Common Stock
after the offering. The trading price of the Company's Common Stock could be
subject to wide fluctuations in response to quarterly variations in operating
results, announcements of technological innovations or new products by the
Company, its licensees or its competitors, developments with respect to
patents or proprietary rights, changes in financial estimates by securities
analysts and other events or factors. In addition, the equity markets have
experienced volatility that has particularly affected the market prices of
equity securities of many high technology companies and that often has been
unrelated or disproportionate to the operating performance of such companies.
These broad market fluctuations may adversely affect the market price of the
Company's Common Stock. See "Underwriters."
Concentration of Ownership. The Company's officers, directors and their
affiliates will, in the aggregate, beneficially own approximately 47.7% of the
Company's outstanding shares after the offering. As a result, these
stockholders, if acting together, would be able effectively to control
substantially all matters requiring approval by the stockholders of the
Company, including the election of directors. This ability may have the effect
of delaying or preventing a change in control of the Company, or causing a
change in control of the Company which may not be favored by the Company's
other stockholders. See "Principal Stockholders."
Certain Anti-Takeover Provisions. Upon completion of this offering, the
Company's Board of Directors will have the authority to issue up to 5,000,000
shares of Preferred Stock (less 40,000 shares which have been designated
"Series E Preferred Stock" pursuant to the stockholder rights plan recently
adopted by the Board of Directors) and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing flexibility in
connection with possible financings or acquisitions or other corporate
purposes, could have the effect of making it more difficult for a
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third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no current plans to issue shares of Preferred Stock.
The Company's Bylaws and indemnity agreements provide that the Company will
indemnify officers and directors against losses they may incur in legal
proceedings resulting from their service to the Company. In addition, the
Company recently amended its Certificate of Incorporation to provide for a
classified Board of Directors and eliminate the ability of stockholders to (i)
call special meetings of the stockholders, (ii) bring certain matters before a
meeting of the stockholders without prior notice to the Board, or (iii) amend
or repeal certain of the provisions of the Certificate or Bylaws by a vote of
less than two thirds of the outstanding stock, and, effective upon the
completion of this offering, eliminate the ability of stockholders to take
action by written consent. In addition, Section 203 of the Delaware General
Corporation Law restricts certain business combinations with any "interested
stockholder" as defined by such statute. These provisions and the stockholder
rights plan are designed to encourage potential acquirors to negotiate with
the Company's Board of Directors and give the Board sufficient opportunity to
consider various alternatives to maximize stockholder value. These provisions
and the stockholder rights plan are also intended to discourage certain
tactics that may be used in proxy fights. However, the stockholder rights plan
and each of these provisions of the Company's charter documents could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company and, as a consequence, they also may adversely
affect the market price of the Company's Common Stock. Such provisions also
may have the effect of preventing changes in the management of the Company.
See "Description of Capital Stock."
In addition, Intel has a contractual right to make a competitive bid in
connection with certain types of potential third-party acquisitions of Rambus.
While Rambus is not required to accept any such competing offer, certain
penalties would apply upon consummation of a third-party transaction following
rejection of a bona fide competing offer from Intel. This arrangement with
Intel may significantly discourage future acquisition attempts, even where
such acquisitions might be in the best interests of the Rambus stockholders.
See "Certain Transactions."
Shares Eligible for Future Sale. Upon completion of this offering (based on
shares outstanding at March 31, 1997), the Company will have outstanding an
aggregate of 21,453,651 shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options. Of
these shares, all of the shares sold in this offering will be freely tradeable
without restriction or further registration under the Securities Act, unless
such shares are purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Act (the "Affiliates"). The remaining 18,703,651
shares of Common Stock held by existing stockholders are "restricted
securities" as that term is defined in Rule 144 under the Securities Act
("Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 promulgated under the Securities Act. As a result of
the contractual restrictions described below and the provisions of Rules 144,
144(k) and 701, the Restricted Shares will be available for sale in the public
market as follows: (i) no shares will be eligible for immediate sale on the
date of this Prospectus; and (ii) 18,703,651 shares will be eligible for sale
upon expiration of the lock-up agreements 180 days after the date of this
Prospectus. All officers, directors, stockholders and option holders of the
Company have agreed not to offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly (or enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of), any shares of Common Stock or any securities convertible into
or exercisable or exchangeable for shares of Common Stock, for a period of 180
days after the date of this Prospectus, without the prior written consent of
Morgan Stanley & Co. Incorporated. The Company intends to file a registration
statement on Form S-8 which would allow shares issuable upon exercise of
options previously granted to be freely tradeable following release of such
lock-up obligations, subject to compliance with Rule 144 in the case of
affiliates of the Company. See "Shares Eligible for Future Sale."
Dilution. Investors participating in the Offering will incur immediate,
substantial dilution. To the extent that options or warrants to purchase the
Company's Common Stock are exercised, there will be further dilution. See
"Dilution."
13
<PAGE>
Management Discretion over Use of Proceeds. Approximately $1.5 million of
the net proceeds from the offering are expected to be used by the Company for
minimum equipment lease and office lease payments and approximately $3.0
million are expected to be used for capital expenditures over the next
12 months. The Company has no current plans for any significant portion of the
remainder of the net proceeds from this offering. Accordingly, the Company's
management will retain broad discretion as to the allocation of a substantial
portion of the net proceeds from this offering. See "Use of Proceeds."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,750,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$21.9 million (approximately $25.4 million if the Underwriters' over-allotment
option is exercised in full), at an assumed initial public offering price of
$9.00 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company. The
principal purposes of this offering are to obtain additional capital, create a
public market for the Company's Common Stock and facilitate future access by
the Company to public equity markets. The Company expects to use at least $1.5
million for minimum equipment lease and office lease payments and
approximately $3.0 million for capital expenditures over the next 12 months.
The remaining net proceeds from this offering will be used for general
corporate purposes, including the funding of working capital requirements. A
portion of the net proceeds may also be used to acquire or invest in
complementary businesses or products or to obtain the right to use
complementary technologies. There are no present understandings, commitments
or agreements with respect to any material acquisition of other businesses,
products or technologies. Pending such uses, the Company will invest the net
proceeds received by it in this offering in short-term, interest-bearing,
investment-grade securities.
DIVIDEND POLICY
The Company has never paid or declared any cash dividends on its Common
Stock or other securities and does not anticipate paying cash dividends in the
foreseeable future.
15
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization and deferred
revenue of the Company (i) as of March 31, 1997, and (ii) as adjusted to
reflect the automatic conversion of all outstanding shares of Preferred Stock
into Common Stock upon the closing of this offering and the receipt by the
Company of the estimated net proceeds from the sale of the shares of Common
Stock offered by the Company at an assumed initial public offering price of
$9.00 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company. Since
inception, the Company has funded its operations primarily from contract fees
and, to a lesser extent, the sale of capital stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Deferred revenue......................................... $ 32,217 $ 32,217
-------- --------
Total long-term debt(1).................................. $ 296 $ 296
-------- --------
Stockholders' equity (deficit):
Convertible preferred stock, $.001 par value:
Authorized: 11,336,096 shares;
Issued and outstanding: 11,296,822 shares actual and no
shares as adjusted ................................... 11 --
Common stock, $.001 par value:
Authorized: 22,500,000 shares;
Issued and outstanding: 7,406,829 shares actual and
21,453,651 shares as adjusted(2)...................... 7 21
Additional paid-in capital............................... 23,809 45,724
Stockholders' note receivable............................ (733) (733)
Accumulated deficit...................................... (34,104) (34,104)
Cumulative translation adjustment........................ (55) (55)
-------- --------
Total stockholders' equity (deficit) ................ $(11,065) $ 10,853
-------- --------
Total capitalization................................. $(10,769) $ 11,149
-------- --------
Total capitalization and deferred revenue............ $ 21,448 $ 43,366
======== ========
</TABLE>
- --------
(1) Total long-term debt consists of indebtedness for capital lease
obligations, excluding current portion. See Note 8 of Notes to
Consolidated Financial Statements.
(2) Excludes 2,174,470 shares of Common Stock issuable upon the exercise of
options outstanding under the Company's 1990 Stock Plan at March 31, 1997,
with a weighted average exercise price of $2.70 per share and 83,500
shares of Common Stock issuable upon the exercise of options granted under
the Company's 1990 Stock Plan subsequent to March 31, 1997, with a
weighted average exercise price of $8.00 per share. Also excludes (i)
1,000,000 shares of Common Stock reserved for issuance under the Company's
1997 Stock Plan, (ii) 400,000 shares of Common Stock reserved for issuance
under the Company's 1997 Employee Stock Purchase Plan, and (iii) 1,000,000
shares of Common Stock issuable upon exercise of an outstanding warrant at
an exercise price of $10.00 per share. See "Management--Stock Plans" and
Notes 10 and 17 of Notes to Consolidated Financial Statements.
16
<PAGE>
DILUTION
The net tangible book value of the Company as of March 31, 1997 was
$(11,065,000) or $(0.59) per share of Common Stock. Net tangible book value
per share is determined by dividing the tangible book value of the Company
(total tangible assets less total liabilities) by the number of outstanding
shares of Common Stock at that date (assuming the conversion of all
outstanding shares of Preferred Stock into Common Stock). After giving effect
to the sale by the Company of the 2,750,000 shares of Common Stock offered
hereby (at an assumed initial public offering price of $9.00 per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company), the Company's as adjusted net
tangible book value at March 31, 1997 would have been $10,853,000 or $0.51 per
share. This represents an immediate increase in net tangible book value to
existing stockholders of $1.10 per share and an immediate dilution to new
public investors of $8.49 per share. The following table illustrates the per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $9.00
Net tangible book value per share as of March 31, 1997..... $(0.59)
Increase in net tangible book value per share attributable
to new investors.......................................... 1.10
------
As adjusted net tangible book value per share after
offering.................................................... 0.51
-----
Dilution per share to new public investors................... $8.49
=====
</TABLE>
The following table summarizes on an as adjusted basis as of March 31, 1997
the difference between the number of shares of Common Stock purchased from the
Company (assuming the conversion of all outstanding shares of Preferred Stock
into Common Stock), the total consideration paid and the average price per
share paid by the existing stockholders and by the new investors (at an
assumed initial public offering price of $9.00 per share and before deducting
estimated underwriting discounts and commissions and estimated offering
expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 18,703,651 87.2% $23,901,000 49.1% $1.28
New public investors........... 2,750,000 12.8 24,750,000 50.9 9.00
---------- ----- ----------- -----
Total........................ 21,453,651 100.0% $48,651,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing analysis assumes no exercise of the Underwriters' over-
allotment option and no exercise of stock options and a warrant outstanding at
March 31, 1997. As of March 31, 1997, there were options outstanding to
purchase a total of 2,174,470 shares of Common Stock at a weighted average
exercise price of $2.70 per share and 1,000,000 shares of Common Stock
issuable upon the exercise of the warrant outstanding as of March 31, 1997 at
an exercise price of $10.00 per share. In addition, in February 1997, the
Board of Directors adopted the 1997 Stock Plan and the 1997 Employee Stock
Purchase Plan, pursuant to which 1,000,000 and 400,000 shares, respectively,
were reserved for issuance thereunder. As of March 31, 1997, no options or
shares had been issued under any of these plans. Subsequent to March 31, 1997,
the Board of Directors granted options under the 1990 Stock Plan to purchase
an additional 83,500 shares of Common Stock at weighted average exercise price
of $8.00 per share. To the extent that any of these options or the warrant is
exercised, there will be further dilution to new public investors. See
"Capitalization," "Management--Stock Plans" and Notes 10 and 17 of Notes to
Consolidated Financial Statements.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. The consolidated
statement of operations data for the fiscal years ended September 30, 1994,
1995 and 1996 and consolidated balance sheet data as of September 30, 1995 and
1996 are derived from consolidated financial statements which have been
audited by Coopers & Lybrand L.L.P., independent auditors, included elsewhere
in this Prospectus. The consolidated statement of operations data for the
years ended September 30, 1992 and 1993 and the consolidated balance sheet
data as of September 30, 1992, 1993 and 1994 are derived from consolidated
financial statements not included in this Prospectus, which have also been
audited by Coopers & Lybrand L.L.P. The consolidated statement of operations
data for the six months ended March 31, 1996 and 1997 and the consolidated
balance sheet data as of March 31, 1997 are derived from the unaudited
consolidated financial statements included elsewhere in this Prospectus that
have been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's financial position and results of operations for
such periods. Historical results are not necessarily indicative of the results
to be expected in the future and results for interim periods are not
necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues:
Contract revenues...... $ 1,916 $ 3,371 $ 5,000 $ 7,364 $11,205 $ 5,072 $ 8,467
Royalties.............. -- -- -- -- 65 -- 2,958
------- ------- ------- ------- ------- ------- -------
Total revenues......... 1,916 3,371 5,000 7,364 11,270 5,072 11,425
------- ------- ------- ------- ------- ======= -------
Costs and expenses:
Cost of contract
revenues.............. 1,053 1,950 3,844 5,236 4,821 2,301 2,396
Research and
development........... 3,546 4,291 3,067 3,117 5,218 2,413 4,368
Sales and marketing.... 1,250 1,798 2,569 3,376 4,052 1,781 2,867
General and
administrative........ 1,814 1,294 1,717 1,688 1,747 833 1,278
------- ------- ------- ------- ------- ------- -------
Total costs and
expenses.............. 7,663 9,333 11,197 13,417 15,838 7,328 10,909
------- ------- ------- ------- ------- ------- -------
Operating income
(loss)................. (5,747) (5,962) (6,197) (6,053) (4,568) (2,256) 516
Other income (expense).. 115 (123) (81) 322 439 204 125
------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... (5,632) (6,085) (6,278) (5,731) (4,129) (2,052) 641
Provision for income
taxes.................. 962 251 351 1,289 286 183 253
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $(6,594) $(6,336) $(6,629) $(7,020) $(4,415) $(2,235) $ 388
======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share(1)............... $ (2.24) $ (1.44) $ (1.29) $ (1.24) $ (0.73) $ (0.37) $ 0.02
======= ======= ======= ======= ======= ======= =======
Shares used in per share
calculations(1)........ 2,945 4,394 5,124 5,665 6,088 6,047 20,083
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
------- ------- -------- -------- -------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents
and marketable
securities............. $ 1,866 $ 2,459 $ 5,046 $ 14,150 $ 8,554 $ 10,492
Total assets............ 5,300 7,807 8,395 18,307 12,868 23,843
Total debt(2)........... 1,055 1,698 1,655 1,616 1,297 847
Stockholders' deficit... (7,061) (8,351) (10,006) (7,936) (12,144) (11,065)
</TABLE>
- --------
(1) For an explanation of net income (loss) per share and shares used in per
share calculations, see Note 2 of the Notes to Consolidated Financial
Statements included elsewhere in this Prospectus. The pro forma net income
(loss) per share for the year ended September 30, 1996 and the six months
ended March 31, 1997 was $(0.25) and $0.02, respectively. The pro forma
shares used in per share calculations for the year ended September 30,
1996 and the six months ended March 31, 1997 were 17,385 and 20,083,
respectively.
(2) Total debt consists of indebtedness for borrowed money and capital lease
obligations.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
The following discussion contains forward-looking statements. The Company's
actual results may differ significantly from those projected in the forward-
looking statements. Factors that might cause future actual results to differ
materially from the Company's recent results or those projected in the
forward-looking statements include, but are not limited to, those discussed in
"Risk Factors" and below. The Company assumes no obligation to update the
forward-looking statements or such factors.
OVERVIEW
Since its founding in March 1990, Rambus has been engaged in the development
of high-speed chip-to-chip interface technology which can be used to enhance
the performance and cost-effectiveness of consumer electronics, computer
systems and other electronic systems. The Company neither manufactures nor
sells semiconductors incorporating the Company's technology. Rather, the
Company licenses its technology on a nonexclusive and worldwide basis to
semiconductor companies which manufacture and sell RDRAMs and logic ICs
containing RACs to systems companies which have adopted Rambus technology.
Systems companies are not required to obtain a Rambus license to incorporate
Rambus ICs into their products. See "Business."
REVENUES
The Company's revenues consist of contract fees and royalties. Contract fees
are comprised of license fees, engineering service fees and nonrefundable,
prepaid royalties, and have represented substantially all of the Company's
revenues through fiscal 1996. The Company's contracts generally require a
licensee to pay a contract fee to Rambus typically ranging from a few hundred
thousand dollars for a narrow license covering a single logic product to
millions of dollars for a license with broad coverage of Rambus technology.
Part of these fees may be due upon the achievement of certain milestones, such
as provision of certain deliverables by Rambus or production of chips by the
licensee. All contract fees are nonrefundable. See "Business--Rambus
Licensees" and "--Rambus Business Model and Strategy."
In a few cases, the Company has received nonrefundable, prepaid royalties
which offset the earliest royalty payments otherwise due from the licensee. As
of March 31, 1997, $2.7 million of such nonrefundable, prepaid royalties had
offset initial royalties, and the Company had a balance of $4.1 million
remaining to be offset against future royalties.
Royalties, which are generally a percentage of the revenues received by a
licensee on its sales of Rambus ICs, are normally payable by the licensee on
sales occurring during the life of the Rambus patents being licensed. For a
typical application of Rambus technology, the Company receives royalties from
the sale of both RDRAMs and logic ICs containing RACs. Royalty rates range up
to a maximum of approximately 2.5% for RDRAMs and a maximum of approximately
5% for logic ICs, and in some cases may decline based on the passage of time
or on the total volume of Rambus ICs shipped by a licensee. The exact rate and
structure of a royalty arrangement with a particular licensee depend on a
number of factors, including the amount of the contract fee paid by the
licensee and the marketing and engineering commitment made by the licensee.
Substantially all of the license fees, engineering service fees and
nonrefundable, prepaid royalties are bundled together as contract fees because
the Company generally does not provide or price these components separately.
The contracts also include rights to upgrades and enhancements. Accordingly,
Rambus recognizes contract revenues ratably over the period during which post-
contract customer support is expected to be provided. The excess of contract
fees received over contract revenue recognized is shown on the Company's
balance sheet as "deferred revenue." As of March 31, 1997, the Company's
deferred revenue was $32.2 million, substantially all of which is scheduled to
be recognized in varying amounts over the next five years.
19
<PAGE>
Rambus recognizes royalties from a licensee in the quarter in which it
receives the report detailing shipments of Rambus ICs by such licensee in the
prior quarter. The first sale of Rambus ICs by a licensee occurred during the
fourth quarter of fiscal 1994. However, due to a combination of the one-
quarter reporting delay and nonrefundable, prepaid royalty offsets, the first
royalties were not reported by the Company until the third quarter of fiscal
1996. Royalties became significant only during the first two quarters of
fiscal 1997, and the Company does not expect a significant increase in royalty
revenue in the near term. However, as prepaid royalties are offset and as
Rambus ICs are incorporated into additional applications, the Company believes
that royalties will become an increasing portion of revenues over the long
term. See Note 2 of Notes to Consolidated Financial Statements.
In the past, certain components of the Company's revenues have fluctuated
and have been difficult to predict. The Company expects that this will
continue to be the case in the future. Although the schedule for recognizing
deferred revenue under existing contracts is known, it is difficult for the
Company to predict the timing and amount of deferred revenue streams
associated with new contracts, if any, because the Company's contracts
typically involve long business development cycles and negotiated financial
terms. The Company's contract revenues may be subject to sudden increases or
decreases upon the addition of a new contract or the expiration of the
deferred revenue schedule under an existing contract. Because these events may
involve substantial amounts and do not occur with any regularity, any such
increase or decrease generally is not indicative of future period-to-period
increases or decreases. The Company believes that its continued success will
be substantially dependent upon royalties increasing at a rate which more than
offsets decreases in the recognition of deferred revenue under existing
contracts as their recognition periods expire, as well as the Company's
ability to add new licensees and to license new generations of its technology
to its existing licensees. Nonrefundable, prepaid royalties, which are bundled
into contract fees, are recognized ratably over the period during which post-
contract customer support is expected to be provided, and are not related to
the actual rate at which Rambus ICs are shipped by the licensee. Accordingly,
the amount of nonrefundable, prepaid royalties recognized in a period is not
necessarily representative of the rate at which the prepaid royalties are
being offset. In addition, the Company may experience sudden and significant
fluctuations in royalties to the extent that one or more systems companies
switches its source of Rambus ICs for a particular application to a licensee
with a different nonrefundable, prepaid royalty balance or different royalty
rate than the original source. See "Risk Factors--Unpredictable and
Fluctuating Operating Results."
To date, a majority of the Company's royalties has been derived from the
sale of logic ICs incorporating RACs. If the Company is successful in its
strategy to penetrate the PC main memory market segment, the Company expects
that royalties from the sale of RDRAMs will eventually account for the largest
portion of royalties. See "Risk Factors--Future Dependence upon PC Main Memory
Market Segment and Intel" and "--Reliance upon DRAM Market; Declines in DRAM
Price and Unit Volume per System."
As of March 31, 1997, the Company had 20 licensees. Because all of the
Company's revenues are derived from its relatively small number of licensees,
the Company's revenues tend to be highly concentrated. In fiscal 1994, 1995
and 1996 and the first half of fiscal 1997, revenues from the top five
licensees accounted for approximately 86%, 70%, 65% and 70% of the Company's
revenues, respectively. In the first half of fiscal 1997, NEC accounted for
approximately 32% of revenues and LG Semicon accounted for approximately 11%
of revenues. The Company expects that it will continue to experience
significant revenue concentration for the foreseeable future. However, the
particular licensees which account for revenue concentration may vary from
period to period depending on the addition of new contracts, the expiration of
deferred revenue schedules under existing contracts, and the volumes and
prices at which the licensees sell Rambus ICs to systems companies in any
given period. See "Risk Factors--Revenue Concentration" and Note 3 of Notes to
Consolidated Financial Statements.
The royalties received by the Company are also a function of the adoption of
Rambus technology by systems companies and the acceptance of the systems
companies' products by end users. The Company generally does not have a direct
contractual relationship with systems companies, and the royalty reports
submitted by the Company's licensees generally do not disclose the identity
of, or unit volume of Rambus ICs purchased by,
20
<PAGE>
particular systems companies. As a result, it is difficult for the Company to
predict the extent to which its future revenues will be dependent upon
particular systems companies. See "Risk Factors--Dependence upon Systems
Companies."
To date, companies based in Japan and Korea have accounted for the
substantial majority of the Company's revenues, and nearly all of its
international revenues. In fiscal 1994, 1995 and 1996 and the first half of
fiscal 1997, international revenues comprised approximately 90%, 90%, 86% and
83% of the Company's net revenues, respectively. The Company expects that
revenues derived from international licensees will continue to represent a
significant portion of its total revenues in the future. All of the revenues
from international licensees to date have been denominated in United States
dollars. See "Risk Factors--Risks Associated with International Licenses" and
Note 14 of Notes to Consolidated Financial Statements.
EXPENSES
Since the Company's inception in March 1990, its engineering costs (which
consist of cost of contract revenues and research and development expenses)
and sales and marketing expenses have continually increased as the Company has
added personnel and ramped up its activities in these areas. Engineering costs
and sales and marketing expenses generally have decreased as a percentage of
revenues throughout this period due to the relatively rapid revenue base
expansion which the Company experienced as it began entering into license
agreements. The Company intends to continue making significant expenditures
associated with engineering and sales and marketing, and expects that these
costs and expenses will continue to be a significant percentage of revenues in
future periods. Whether such expenses increase or decrease as a percentage of
revenues will be substantially dependent upon the rate at which the Company's
revenues change. See Note 2 of Notes to Consolidated Financial Statements.
Engineering costs are allocated between cost of contract revenues and
research and development expenses. Cost of contract revenues is determined
based on the portion of engineering costs which have been incurred during the
period for the adaptation of Rambus interface technology for specific licensee
processes. The balance of engineering costs, incurred for general development
of Rambus technology, is charged to research and development. In a given
period, the allocation of engineering costs between these two components is a
function of the timing of development and implementation cycles. As a
generation of technology matures from the development stage through
implementation, the majority of engineering costs shifts from research and
development expenses to cost of contract revenues. Engineering costs are
recognized as incurred and do not correspond to the recognition of revenues
under the related contracts. See "Business--Technology and Products" and "--
Research and Development."
Sales and marketing expenses include salaries, travel expenses and costs
associated with trade shows, advertising and other marketing efforts. Costs of
technical support for systems companies, including applications engineering,
are also expensed to sales and marketing. Consistent with the Company's
business model, sales and marketing activities are focused on developing
relationships with potential licensees and on participating with existing
licensees in marketing, sales and technical efforts directed to systems
companies. In many cases, Rambus must dedicate substantial resources to market
to and support systems companies. Due to the long business development cycles
faced by the Company, as well as the fact that the Company does not have a
commission compensation structure, sales and marketing expenses in a given
period generally are unrelated to the level of revenues in that period or in
recent or near-term future periods. See "Business--Rambus Business Model and
Strategy" and "--Sales and Marketing."
TAXES
The Company has incurred cumulative net operating losses for federal tax
purposes of approximately $8.9 million through September 30, 1996. Net
operating losses for state tax purposes were approximately $3.5 million
through September 30, 1996. The Company also has foreign tax credit
carryforwards of approximately $2.4 million, and research and development
credit carryforwards of $868,000 through September 30, 1996.
21
<PAGE>
The Company reports certain items of income and expense for financial
statement purposes in different years than they are reported in the tax
return. Specifically, the Company reports contract fees and royalties when
received for tax purposes, as required by tax law. For financial reporting
purposes, the Company records revenues from contract fees over the period
post-contract support is expected to be provided. Accordingly, the Company's
net operating loss for tax purposes is less than the cumulative operating
deficit recorded for financial statement purposes. See Notes 2 and 12 of Notes
to Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain items reflected in the Company's
consolidated statements of operations:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
------------------------------- -------------
1994 1995 1996 1996 1997
--------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Contract revenues.......... 100.0 % 100.0 % 99.4 % 100.0 % 74.1%
Royalties.................. -- -- 0.6 -- 25.9
--------- -------- -------- ----- -----
Total revenues........... 100.0 % 100.0 % 100.0 % 100.0 % 100.0%
========= ======== ======== ===== =====
Costs and Expenses:
Cost of contract revenues.. 76.9 71.1 42.8 45.4 21.0
Research and development... 61.3 42.3 46.3 47.6 38.2
Sales and marketing........ 51.4 45.8 36.0 35.1 25.1
General and
administrative............ 34.3 22.9 15.5 16.4 11.2
--------- -------- -------- ----- -----
Total costs and
expenses................ 223.9 182.2 140.5 144.5 95.5
--------- -------- -------- ----- -----
Operating income (loss)...... (123.9) (82.2) (40.5) (44.5) 4.5
Other income (expense)....... (1.6) 4.4 3.9 4.0 1.1
--------- -------- -------- ----- -----
Income (loss) before income
taxes....................... (125.6) (77.8) (36.6) (40.5) 5.6
Provision for income taxes... 7.0 17.5 2.5 3.6 2.2
--------- -------- -------- ----- -----
Net income (loss)............ (132.6)% (95.3)% (39.2)% (44.1)% 3.4%
========= ======== ======== ===== =====
</TABLE>
SIX MONTHS ENDED MARCH 31, 1996 AND 1997
Revenues. Revenues were $5.1 million and $11.4 million in the first half of
fiscal 1996 and fiscal 1997, respectively. Contract revenues increased 67.0%,
from $5.1 million in the first half of fiscal 1996 to $8.5 million in the
first half of fiscal 1997. This increase was a result of the Company's
entering into contracts with new licensees and additional contracts with
current licensees for new developments, especially for an extension of the
Company's technology to provide a higher bandwidth interface for future PC
main memory applications.
The Company recorded its first significant royalties in the first half of
fiscal 1997, a total of $3.0 million, consisting primarily of royalties from
NEC, which the Company believes were largely based on sales of Rambus ICs for
use in the Nintendo 64 home video game system. Royalties constituted 25.9% of
total revenues in the first half of fiscal 1997. The Company anticipates that
its potential to generate royalties in the remainder of fiscal 1997 is largely
dependent on system sales by Nintendo and, to a lesser extent, sales by Cirrus
Logic and Chromatic. Nintendo faces intense competitive pressure in the home
video game market, which is characterized by extreme volatility, frequent new
product introductions and rapidly shifting consumer preferences, and there can
be no assurance as to the unit volumes of Rambus ICs that will be purchased by
Nintendo in the future or the level of royalty-bearing revenues that the
Company's licensees will receive from Nintendo. None of the systems companies
currently incorporating Rambus interface technology into their products is
contractually
22
<PAGE>
obligated to continue using Rambus ICs. See "Risk Factors--Dependence upon
Systems Companies," "--Revenue Concentration," "Business--Rambus Licensees"
and "--Rambus Business Model and Strategy."
Engineering Costs. Engineering costs, consisting of cost of contract
revenues and research and development expenses, were $4.7 million and $6.8
million, which represented 92.9% and 59.2% of revenues, in the first half of
fiscal 1996 and fiscal 1997, respectively. The increase in engineering costs
was due primarily to an increase in engineering personnel, and the decrease as
a percentage of revenues was primarily the result of the Company's growth in
revenues.
Cost of Contract Revenues. Cost of contract revenues was $2.3 million and
$2.4 million, which represented 45.4% and 21.0% of revenues, in the first half
of fiscal 1996 and fiscal 1997, respectively. The decrease in cost of contract
revenues as a percentage of revenues from the first half of fiscal 1996 to the
first half of fiscal 1997 was primarily the result of the Company's growth in
revenues. The Company believes that the level of cost of contract revenues
will continue to fluctuate in the future, both in absolute dollars and as a
percentage of revenues, as new generations of Rambus ICs go through the normal
development and implementation phases.
Research and Development. Research and development expenses were $2.4
million and $4.4 million, which represented 47.6% and 38.2% of revenues, in
the first half of fiscal 1996 and fiscal 1997, respectively. Research and
development expenses increased 81.0% in the first half of fiscal 1997 compared
to the same period in fiscal 1996 due to development efforts related to a new
generation of 64 Mbit RDRAMs and associated RACs, including an extension of
the Company's technology to provide a higher bandwidth interface for future PC
main memory applications. The higher costs were primarily due to increased
engineering personnel. The Company expects research and development expenses
to increase over time as it enhances and improves its technology and applies
it to new generations of ICs. The rate of increase of, and the percentage of
revenues represented by, research and development expenses in the future will
vary from period to period based on the research and development projects
underway and the change in research and development headcount in any given
period, as well as the rate of change in the Company's total revenues.
Sales and Marketing. Sales and marketing expenses were $1.8 million and $2.9
million, which represented 35.1% and 25.1% of revenues, in the first half of
fiscal 1996 and fiscal 1997, respectively. Sales and marketing expenses
increased 61.0% in the first half of fiscal 1997 compared to the same period
in fiscal 1996 due to a buildup of the marketing and sales teams in both the
U.S. and Japan as well as increased costs associated with applications
engineering and other technical support for systems companies, trade shows,
advertising and other marketing efforts. The decrease in sales and marketing
expenses as a percentage of revenues reflects the increased revenue base. The
Company expects sales and marketing expenses to increase in the future as the
Company puts additional effort into marketing its technology and assisting
systems companies to adapt this technology to new generations of products. The
rate of increase of, and the percentage of revenues represented by, sales and
marketing expenses in the future will vary from period to period based on the
trade shows, advertising and other sales and marketing activities undertaken
and the change in sales and marketing headcount in any given period, as well
as the rate of change in the Company's total revenues.
General and Administrative. General and administrative expenses were
$833,000 and $1.3 million, which represented 16.4% and 11.2% of revenues, in
the first half of fiscal 1996 and fiscal 1997, respectively. General and
administrative expenses increased 53.4% in the first half of fiscal 1997
compared to the first half of fiscal 1996 as the Company added headcount to
support an increasing number of employees and licensees. As a percentage of
revenues, general and administrative expenses decreased, reflecting the
increased revenue base. The Company anticipates incurring additional general
and administrative expenses in the future as required to support an increasing
number of employees and licensees and as a result of becoming a public
company.
Other Income (Expense). Net other income consists primarily of interest
income from the Company's short-term cash investments, offset by interest
expense on leases and other equipment financing. Net other income was $204,000
and $125,000, which represented 4.0% and 1.1% of revenues, in the first half
of fiscal
23
<PAGE>
1996 and fiscal 1997, respectively. Net other income decreased 38.7% in the
first half of fiscal 1997 compared to the first half of fiscal 1996 due to
lower interest income on a lower average cash investment balance in the fiscal
1997 period. The Company expects net other income to increase in the future
due to additional interest income on higher cash balances.
Provision for Income Taxes. The Company recorded a provision for income
taxes of $253,000 in the first half of fiscal 1997, an increase of 38.3% over
the $183,000 recorded in the first half of fiscal 1996. Whereas the 1996
provision primarily represents foreign withholding tax on license revenue, the
1997 provision is based on an estimated federal and state combined rate of 40%
on income before income taxes. See Notes 2 and 12 of Notes to Consolidated
Financial Statements.
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
Revenues. Revenues were $5.0 million, $7.4 million and $11.3 million in
fiscal 1994, 1995 and 1996, respectively. In both fiscal 1994 and fiscal 1995,
the Company had no royalties, and the 47.3% increase in fiscal 1995 compared
to fiscal 1994 was due to a combination of new license contracts and a full
year of revenues from contracts booked during fiscal 1994. While the Company
received its first royalties in fiscal 1996, most of the 53.0% increase in
revenues compared to fiscal 1995 was again due to a combination of new
contracts and a full year of revenues from contracts booked during fiscal
1995.
Engineering Costs. Engineering costs, consisting of cost of contract
revenues and research and development expenses, were $6.9 million, $8.4
million and $10.0 million, which represented 138.2%, 113.4% and 89.1% of
revenues, in fiscal 1994, 1995 and 1996, respectively. The increase in
engineering costs was due primarily to an increase in engineering personnel,
and the decrease as a percentage of revenues was primarily the result of the
Company's growth in revenues.
Cost of Contract Revenues. Cost of contract revenues was $3.8 million, $5.2
million and $4.8 million, which represented 76.9%, 71.1% and 42.8% of
revenues, in fiscal 1994, 1995 and 1996, respectively. The increase in
absolute dollars from fiscal 1994 to fiscal 1995 was due to headcount
increases and costs associated with implementation, customization, customer
support and enhancements for a growing base of technology licensees. During
fiscal 1994 and fiscal 1995, most of these licensees were in the pre-
production phase of developing 16 Mbit and 18 Mbit Rambus RDRAMs and
associated RACs, and therefore the related costs of Company implementation and
support were high. Cost of contract revenues decreased 7.9% in fiscal 1996
compared to fiscal 1995 due to several of the Company's licensees reaching the
production phase during fiscal 1996, thus reducing the implementation,
customization, support and enhancement services required of the Company. The
decrease in cost of contract revenues as a percentage of revenues from fiscal
1994 to fiscal 1996 was primarily the result of the Company's growth in
revenues.
Research and Development. Research and development expenses were $3.1
million, $3.1 million and $5.2 million, which represented 61.3%, 42.3% and
46.3% of revenues, in fiscal 1994, fiscal 1995 and fiscal 1996, respectively.
Research and development expenses remained relatively flat between fiscal 1994
and fiscal 1995 due to the requirement for the Company's engineering
department to focus on licensee-specific implementations of 16 Mbit and 18
Mbit Rambus RDRAMs and associated RACs, which is charged to cost of contract
revenues. Research and development expenses increased 67.4% in fiscal 1996
compared to fiscal 1995 due to development efforts associated with a new
generation of 64 Mbit RDRAMs and associated RACs. The higher costs were
primarily due to increased headcount.
Sales and Marketing. Sales and marketing expenses were $2.6 million, $3.4
million and $4.1 million, which represented 51.4%, 45.8% and 36.0% of
revenues, in fiscal 1994, 1995 and 1996, respectively. This increase in
absolute dollars reflected the building of the sales and marketing teams in
both the U.S. and Japan, development of an applications engineering group to
help systems companies adapt Rambus technology to their needs, costs
associated with trade shows and other marketing efforts. The decrease in sales
and marketing expenses as a percentage of revenues reflected the increased
revenue base.
24
<PAGE>
General and Administrative. General and administrative expenses remained
flat at $1.7 million, which represented 34.3%, 22.9% and 15.5% of revenues, in
fiscal 1994, 1995 and 1996, respectively. In absolute dollars, these expenses
remained relatively constant as the Company was able to increase its revenues
without significantly increasing its infrastructure. As a percentage of
revenues, general and administrative expenses decreased, reflecting the
increased revenue base.
Other Income (Expense). Net other income (expense) was $(81,000), $322,000
and $439,000, which represented (1.6)%, 4.4% and 3.9% of revenues, in fiscal
1994, 1995 and 1996, respectively. The increase in absolute dollars was due to
interest on higher average cash investment balances, offset by interest
associated with leased equipment.
Provision for Income Taxes. The Company reported a tax net operating loss of
approximately $3.6 million for fiscal 1994. For fiscal 1995, the Company
reported taxable income of approximately $2.1 million, attributable to
contract fees and royalties received during that year. While net operating
loss carryovers were available to offset this income, alternative minimum tax
of approximately $40,000 for federal purposes and approximately $14,000 for
state purposes was incurred. The Company had a tax net operating loss of
approximately $4.9 million in the year ended September 30, 1996.
For fiscal 1994, 1995 and 1996, the Company paid foreign withholding taxes
of approximately $350,000, $1.2 million and $270,000, respectively, on income
from contract fees and royalties. These taxes may potentially be claimed as
foreign tax credits for U.S. federal tax purposes, provided the Company incurs
future U.S. tax liability, and are subject to foreign tax credit limitations
and a five year carryover restriction imposed by U.S. tax law. See Notes 2 and
12 of Notes to Consolidated Financial Statements.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables present certain unaudited quarterly consolidated
statements of operations data, both in absolute dollars and as a percentage of
revenues, for the six quarters ended March 31, 1997. In the opinion of
management, this information has been presented on the same basis as the
audited consolidated financial statements appearing elsewhere in this
Prospectus, and all necessary adjustments have been included in the amounts
stated below to present fairly the unaudited quarterly results when read in
conjunction with the audited consolidated financial statements of the Company.
Results of operations for any quarter are not necessarily indicative of the
results to be expected for the entire fiscal year or for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31,
1995 1996 1996 1996 1996 1997
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Contract revenues..... $ 2,510 $ 2,562 $ 2,833 $ 3,299 $4,066 $4,401
Royalties............. -- -- 1 64 1,425 1,533
------- ------- ------- ------- ------ ------
Total revenues...... 2,510 2,562 2,834 3,363 5,491 5,934
------- ------- ------- ------- ------ ------
Costs and Expenses:
Cost of contract
revenues............. 1,115 1,186 1,275 1,245 1,037 1,359
Research and
development.......... 1,142 1,271 1,235 1,569 2,263 2,105
Sales and marketing... 955 826 1,100 1,171 1,485 1,382
General and
administrative....... 454 379 397 518 603 675
------- ------- ------- ------- ------ ------
Total costs and
expenses........... 3,666 3,662 4,007 4,503 5,388 5,521
------- ------- ------- ------- ------ ------
Operating income
(loss)................. (1,156) (1,100) (1,173) (1,140) 103 413
Other income (expense).. 112 92 85 151 45 80
------- ------- ------- ------- ------ ------
Income (loss) before
income taxes........... (1,044) (1,008) (1,088) (989) 148 493
Provision for income
taxes.................. 82 101 -- 103 56 197
------- ------- ------- ------- ------ ------
Net income (loss)....... $(1,126) $(1,109) $(1,088) $(1,092) $ 92 $ 296
------- ------- ------- ------- ------ ------
Net income (loss) per
share.................. $ (0.19) $ (0.18) $ (0.18) $ (0.18) $ 0.01 $ 0.01
======= ======= ======= ======= ====== ======
Shares used in per share
calculation............ 5,997 6,097 6,113 6,145 19,971 20,196
<CAPTION>
AS A PERCENTAGE OF REVENUES
-------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31,
1995 1996 1996 1996 1996 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Contract revenues..... 100.0% 100.0% 100.0% 98.1% 74.0% 74.2%
Royalties............. -- -- -- 1.9 26.0 25.8
------- ------- ------- ------- ------ ------
Total revenues...... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======= ====== ======
Costs and Expenses:
Cost of contract
revenues............. 44.4 46.3 45.0 37.0 18.9 22.9
Research and
development.......... 45.5 49.6 43.6 46.7 41.2 35.5
Sales and marketing... 38.0 32.2 38.8 34.8 27.0 23.3
General and
administrative....... 18.1 14.8 14.0 15.4 11.0 11.4
------- ------- ------- ------- ------ ------
Total costs and
expenses........... 146.1 142.9 141.4 133.9 98.1 93.1
------- ------- ------- ------- ------ ------
Operating income
(loss)................. (46.1) (42.9) (41.4) (33.9) 1.9 7.0
Other income (expense).. 4.5 3.6 3.0 4.5 0.8 1.4
------- ------- ------- ------- ------ ------
Income (loss) before
income taxes........... (41.6) (39.3) (38.4) (29.4) 2.7 8.3
Provision for income
taxes.................. 3.3 3.9 -- 3.1 1.0 3.3
------- ------- ------- ------- ------ ------
Net income (loss)....... (44.9)% (43.3)% (38.4)% (32.5)% 1.7% 5.0%
======= ======= ======= ======= ====== ======
</TABLE>
26
<PAGE>
The Company's contract revenues have increased in each of the last six
quarters due to the addition of both new licensees and new engineering
implementations for existing licensees. While quarterly revenues from existing
licenses is predictable over the contracts' respective lives, total contract
revenues will decline in the future if the Company does not continue to obtain
new licensees or if it is unsuccessful in securing new engineering
implementation work from existing licensees.
Royalties became significant only in the first two quarters of fiscal 1997
and are the primary reason the Company became profitable in those quarters.
During each of those quarters, the Company received royalty reports from the
three licensees which had shipped Rambus-based products. Of these, one
licensee's royalties were completely offset against nonrefundable, prepaid
royalties and another, NEC, accounted for substantially all of the royalties
for the two quarters. While licensee reports generally do not break down sales
of license-bearing products by customer, the Company believes that a large
percentage of the royalties from NEC for the first two quarters of fiscal 1997
were due to sales of Rambus ICs to Nintendo for incorporation in the Nintendo
64 home video game system. With such a concentration of royalties based on one
system, it is likely that royalties will vary greatly in subsequent quarters.
If royalties were to decline, the Company would likely again become
unprofitable.
Costs and expenses have generally increased in each of the six quarters
ended March 31, 1997. Cost of contract revenues has remained relatively flat
during this period, reflecting both the relative independence of this cost
element from revenue changes and the relatively flat requirement for
engineering implementation, customization, customer support and enhancements
over this period. On the other hand, research and development expenses have
generally increased over this period due principally to personnel additions
associated with application of the Company's technology to a new generation of
64 Mbit RDRAMs and associated RACs, including an extension of the Company's
technology to provide a higher bandwidth interface for future PC main memory
applications. Sales and marketing expenses also increased throughout this
period due to a buildup of the marketing and sales teams, as well as increased
costs associated with applications engineering and other technical support for
systems companies, trade shows, advertising and other marketing efforts.
General and administrative expenses generally increased during this period as
the Company added headcount to support an increasing number of employees and
licensees. The Company believes that engineering costs, sales and marketing
expenses and general and administrative expenses all will increase in future
quarters.
The Company has granted to Intel Corporation a warrant for the purchase of
1,000,000 shares of Common Stock at an exercise price of $10.00 per share. The
warrant will become exercisable only upon the achievement of certain
milestones, which will result in a charge to the statement of operations at
the time of achievement of the milestones based on the fair value of the
warrant.
The Company's business is subject to a variety of additional risks that
could materially adversely affect quarterly and annual operating results,
including market acceptance of the Company's technology; systems companies'
acceptance of Rambus ICs produced by the Company's licensees; market
acceptance of the products of systems companies which have adopted the
Company's technology; the loss of any strategic relationships with systems
companies or licensees; announcements or introductions of new technologies or
products by the Company or the Company's competitors; delays or problems in
the introduction or performance of enhancements or future generations of the
Company's technology; fluctuations in the market price and demand for DRAMs
and logic ICs into which the Company's technology has been incorporated;
competitive pressures resulting in lower contract revenues or royalty rates;
changes in the Company's and system companies' development schedules and
levels of expenditure on research and development; personnel changes,
particularly those involving engineering and technical personnel; costs
associated with protecting the Company's intellectual property; changes in
Company strategies; foreign exchange rate fluctuations or other changes in the
international business climate; and general economic trends and other factors.
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations primarily from
approximately $58.3 million in contract payments (net of foreign withholding
taxes) received through March 31, 1997, and to a lesser extent, the sale of
approximately $21.4 million of convertible preferred stock and preferred stock
purchase rights. At March 31, 1997, the Company had cash and cash equivalents
and marketable securities of $10.5 million. As of March 31, 1997, the Company
had an accumulated deficit of $34.1 million and negative working capital of
$1.1 million, including a short-term component of deferred revenue of $17.9
million. Deferred revenue represents the excess of cash received from
licensees over revenue recognized on license contracts, and the short-term
component represents the amount of this deferred revenue to be recognized over
the next twelve months. Without the deferred revenue, working capital would
have been a positive $16.8 million.
The Company's operating activities used net cash of $1.8 million in fiscal
1994, provided net cash of $1.3 million in fiscal 1995, used net cash of $3.5
million in fiscal 1996 and provided net cash of $3.2 million in the first half
of fiscal 1997. Cash used by operations in fiscal 1994 was due to the net
loss, adjusted for non-cash items, offset by a decrease in accounts receivable
and other assets and an increase in deferred revenue. Cash generated by
operations in fiscal 1995 was primarily the result of an increase in deferred
revenue offset by the net loss, adjusted for non-cash items and an increase in
accounts receivable. Cash used by operations in fiscal 1996 was due to the net
loss, adjusted for non-cash items, and a decrease in deferred revenue offset
by a decrease in accounts receivable. Cash generated by operations in the
first half of fiscal 1997 was primarily the result of an increase in deferred
revenue offset by an increase in accounts receivable. Accounts receivable
increased primarily as a result of amounts billed under two new license
contracts entered into during the quarter ended March 31, 1997. The increase
in deferred revenue at March 31, 1997 was due to several new license contracts
entered into by the Company subsequent to the last fiscal year end.
Net cash used in investing activities was $3.6 million, $10.4 million and
$3.0 million in fiscal 1994, fiscal 1995 and the first half of fiscal 1997,
respectively; net cash provided by investing activities was $3.9 million in
fiscal 1996. Investing activities have consisted primarily of net purchases of
marketable securities and purchases of property and equipment. See Notes 2, 5,
9 and 15 of Notes to Consolidated Financial Statements.
Net cash provided by financing activities were $4.5 million, $8.5 million
and $307,000 in fiscal 1994, fiscal 1995 and the first half of fiscal 1997,
respectively; net cash used in financing activities was $546,000 in fiscal
1996. Financing activities have consisted primarily of sales of convertible
preferred stock and preferred stock purchase rights offset by principal
payments on capital leases. See Notes 2, 4 and 15 of Notes to Consolidated
Financial Statements.
In the first six months of fiscal 1997, the Company incurred total costs and
expenses of approximately $10.9 million. The Company expects to incur total
costs and expenses of at least this level over the next twelve months. In
particular, the Company has incurred substantial expenditures related to the
development and marketing of its technology. Future development and marketing
of extensions of the Company's technology and further enhancements to the
Company's original technology will require substantial additional funds. In
addition, the Company anticipates spending at least $1.5 million for equipment
lease and office lease payments and approximately $3.0 million for capital
expenditures over the next 12 months. While the first two quarters of fiscal
1997 were the Company's first profitable quarters, there can be no assurance
that the Company will remain profitable in the future. See Notes 8 and 9 of
Notes to Consolidated Financial Statements.
The Company presently anticipates that the net proceeds from this offering,
together with existing sources of liquidity and cash anticipated to be
provided by operations, will be adequate to meet its cash needs for at least
the next 12 months.
28
<PAGE>
BUSINESS
The key elements of the Rambus interface are RDRAMs, RACs and the
interconnecting circuitry known as the "Rambus Channel." The high-speed
interface technology Rambus has developed is applicable to data transfer
between most semiconductor chips. The Company has initially chosen to
concentrate the application of its technology on the interface between logic
ICs and memory devices because of the acute performance needs and the relevant
market sizes. The Company believes that the systems which will best utilize
the high bandwidth provided by current Rambus technology are the relatively
high-volume, low-cost systems in which the cost of the memory subsystems
represents a significant portion of the selling price. To date, the principal
applications for the Company's technology have been in the consumer
multimedia, PC multimedia and workstation multimedia markets. These areas
accounted for the sale of approximately $13,000, $11 million and $447 million
of Rambus ICs by Rambus licensees in calendar 1994, 1995 and 1996,
respectively. Although period-to-period changes in the Company's revenues are
dependent upon numerous factors other than changes in sales of Rambus ICs,
such as the structure of royalty arrangements with particular licensees, the
level of prepaid royalties to be offset, the mix of royalty-bearing sales
between RDRAMs and RACs and the one quarter lag time between sales by
licensees and the receipt of royalties by the Company, the Company believes
that increases in sales of Rambus ICs indicate the level of market acceptance
of the Company's technology to date. Other applications currently being
developed include multifunction peripheral controllers for combination
fax/copier/scanner/laser printer devices, and networking equipment such as
high-speed ethernet switches. In addition, the Company and Intel Corporation
have entered into a development and license agreement and are working together
to develop an extension of the Rambus interface technology optimized for the
PC main memory market segment.
INDUSTRY BACKGROUND
Worldwide demand for semiconductor devices has increased significantly in
recent years due to growth in the demand for electronic systems which use
semiconductors, as well as an increase in the semiconductor content of these
systems. According to industry sources, the worldwide market for
semiconductors was estimated to be $137 billion in 1996, and is estimated to
reach $290 billion by the year 2000.
Among the factors that contribute to this growth are the reduced costs and
increasing performance of home video games, PCs, workstations, servers and
networking equipment, as well as the improving price/performance ratio of
semiconductors themselves. For example, home video game consumers are
requiring increasingly sophisticated color and 3D capabilities to match those
available in large arcade machines. PC purchasers are increasingly demanding
multimedia-equipped systems which support features such as full motion video,
sophisticated 3D graphics, high-quality audio and images with greater color
depth and higher resolution. The increased performance of PCs and the
availability of sophisticated PC engineering and multimedia authoring
applications are, in turn, driving manufacturers of workstations to develop
even more sophisticated 3D graphics and other multimedia capabilities.
Similarly, evolving network technology and infrastructure are driving the
demand for performance improvements in servers and networking equipment.
Systems manufacturers are under constant pressure to introduce enhanced
capabilities and higher performance while keeping prices within reach of their
target markets.
The performance of a computer or other electronic system is typically
constrained by the speed of its slowest element. In the past, that element was
the logic IC that controlled the system's specific functions and performed
calculations--the microprocessor. In recent years, however, new generations of
microprocessors have become substantially faster and more powerful, and
increasingly the bottleneck in system performance is becoming the component
that stores the instructions and data needed by the microprocessor--the DRAM.
Since 1980, the typical operating frequency of Intel and other mainstream
microprocessors has increased approximately 40 times from 5 MHz (million
cycles per second) to 200 MHz. During this same period, the typical operating
frequency of a standard DRAM (known as a "page mode" DRAM) has increased by
approximately five times. Even the evolutionary improvements to DRAM
technology, including the FPM (fast-page mode) DRAM, the EDO (extended-data-
out) DRAM, the SDRAM (synchronous DRAM) and the SGRAM
29
<PAGE>
(a version of the SDRAM for graphics applications), have only been able to
provide an improvement of up to approximately ten times. This growing
disparity between the frequency of microprocessors and DRAMs is termed the
"Performance Gap."
[PERFORMANCE GRAPH]
[Description of Graph: The graph omitted in the EDGAR filing consists of a
horizontal axis representing years between 1980 and 1996, and a vertical axis
representing frequencies in MHz. The graph contains data points for x86 MPU,
SDRAMs, EDOs and Page Made DRAMs. The data points for each of these
technologies which are plotted in the graph are set forth below. In the graph,
the data points for each respective technology are connected to form a line.
x86 MPU CLOCK FREQUENCY VS. DRAM DATA TRANSFER FREQUENCY
Measuring
Period Page X86
(Year) Mode EDO SDRAM MPU
- --------- ---- --- ----- ---
1980 5 5
1981 8
1982 10
1983
1984 12
1985
1986 8 16
1987 20
1988 25
1989 18 33
1990
1991 22 50
1992 66
1993 25
1994 28 100
1995 40 150
1996 33 50 66 200
- -------
(1) The material in this description is not deemed filed with the Securities
and Exchange Commission, and is not to be incorporated by reference into
any filing of the Company under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, whether made before
or after the date hereof and irrespective of any general incorporation
language contained in any such filing.]
Sources--
x86 MPU: Microprocessor Report
Page Mode DRAM, EDO DRAM: Micron, NEC, Texas Instruments, Toshiba data sheets
SDRAM: measured clock/data rate in Dell PC
While microprocessors have undergone both manufacturing and architectural
improvements, significant innovations for DRAMs have only occurred on the
manufacturing side. DRAM manufacturers have been successful in increasing DRAM
"density," or storage capacity, from roughly 1 Kbit (thousand bits) to 64
Mbits (million bits) per chip, thereby reducing the number of DRAMs required
for a given amount of memory. However, corresponding architectural
improvements necessary to increase DRAM data transfer rates to keep pace with
increasing microprocessor speeds have not occurred.
Systems manufacturers have attempted to bridge the Performance Gap with a
variety of performance-enhancing techniques. One approach is the use of SRAMs
(static RAMs), which are faster but more expensive than DRAMs, to build cache
memories. SRAM caches are effective for applications which repeatedly access a
particular set of data, such as scientific and spreadsheet applications, but
are not as effective for multimedia and other applications that must
continually access new data. For example, for a multimedia application to
display real-time video that is perceived as smooth motion by the human eye, a
new image must be decompressed, displayed and then discarded approximately 30
times every second. Because such an application requires a high rate of
transfer of constantly changing data and does not use data repetitively, SRAM
caches do not provide an effective solution.
Another technique used to address the Performance Gap, the "wide bus"
approach, relies on increasing the width of the "bus," or channel, through
which data is passed to and from the processor/controller and the DRAMs. A
wider bus will transfer proportionately more data than a narrower bus. Just as
the capacity of a highway can be increased by adding more lanes, bus width can
be increased by adding more external
30
<PAGE>
connections, or "pins." However, use of wider buses to increase the memory
bandwidth creates several problems. First, the routing scheme for conventional
DRAMs results in the wires on the printed circuit boards that have varying
lengths and electrical loads that cause timing problems, known as "signal
skew," as well as signal integrity problems. These problems become more
pronounced with increases in pincount. Another problem inherent in wider buses
is that larger pincount packages are more expensive to produce and require
more expensive testers. Additionally, every pin on the package must connect to
a bonding "pad" on the chip itself, typically at the edge of the chip. For
smaller chips it may not be possible to put as many pads on the chip as is
desired without increasing the die size and cost of the chip. Another problem
relates to the number of DRAMs necessary to achieve the greater memory
bandwidth associated with a wider bus. DRAM densities have been increasing
rapidly and larger DRAMs typically have a lower cost per bit. For some
applications, the most cost-effective solution for memory capacity may require
only one or two DRAMs. However, limitations on the data transfer rate of a
given DRAM often require that multiple DRAMs be used on a wide bus to provide
sufficient memory bandwidth. By requiring more DRAMs to provide the desired
memory bandwidth than are required to provide the desired memory capacity, the
wide bus solution often results in the use of a greater number of smaller
capacity DRAMs, which in turn results in a higher cost per bit.
Rambus believes that several major market trends will exacerbate the
Performance Gap in the future. The increased number and performance of
multimedia applications and other capabilities demanded by businesses and
consumers require ongoing improvements in memory bandwidth, which Rambus
believes cannot be achieved without significantly changing the DRAM interface
architecture. The memory bandwidth required by current systems, such as home
video games and PCs, can be hundreds of megabytes (million bytes) per second.
These bandwidth requirements are already taxing, and in many cases exceeding,
the limits of conventional DRAMs. The demand for memory bandwidth for PC main
memory will soon exceed one gigabyte (billion bytes) per second due to
continuing advances in microprocessor frequency, as well as software and
architecture changes that shift much of the load for multimedia processing to
the main memory subsystem. Rambus believes that these market trends have
created a significant opportunity for a high-speed, cost-effective, scalable
solution that addresses the widening Performance Gap.
THE RAMBUS SOLUTION
Rambus has created a revolutionary chip-to-chip interface architecture,
which allows data to be transferred through a simplified bus at significantly
higher frequencies than permitted by conventional technologies. Rambus has
focused the application of its interface technology on the Performance Gap and
licenses its interface technology to memory and logic semiconductor
manufacturers, which incorporate this interface technology into their IC
designs to supply systems companies with Rambus ICs. The key elements of the
Rambus interface are RDRAMs, RACs and the interconnecting circuitry known as
the "Rambus Channel." While Rambus technology can be used to address a wide
variety of chip-to-chip data transfer requirements, the largest immediate
application is to connect logic circuits to memory in home video games, PCs,
workstations and other electronic systems.
Key benefits of the Rambus solution are:
High Performance. Rambus interface technology currently allows data
transfers of up to 600 megabytes per second between a logic IC and DRAMs by
transferring data at a frequency of 600 MHz over a byte-wide bus known as the
"Rambus Channel." System performance can be further enhanced by applying
Rambus interface technology to multiple channels on a logic IC. For example, a
Rambus-based logic IC can utilize four channels to achieve data transfer of up
to 2.4 gigabytes per second. In addition, multiple DRAMs can be connected to
each channel on a Rambus-enabled logic device to increase memory capacity.
Rambus maintains ongoing research and development activities in conjunction
with its licensees to further improve the performance of its interface
technology.
Open Standard. Rambus interface technology is an open standard, with
compatible Rambus ICs available to systems companies from any IC manufacturer
that has obtained a license from Rambus. Rambus believes that systems
companies benefit from having compatible Rambus ICs and a consistent
implementation of the Rambus
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<PAGE>
interface technology, available from multiple sources. Rambus also believes
that making its technology available from established DRAM and logic IC
companies facilitates the adoption of Rambus technology by systems companies.
Cost-Effectiveness. Rambus technology can enable systems companies to
significantly improve system cost-effectiveness. Depending on the
implementation, Rambus technology allows a reduction in the number of pins per
logic device, the use of fewer DRAMs of greater density, a simplified circuit
board design and layout and a smaller circuit board. According to a recent
study by an independent research organization, Rambus enables the lowest-cost
2 megabyte frame buffer DRAM alternative to traditional page mode DRAMs.
Complete Systems Solution. Rambus' solution is based on a system-wide,
rather than a chip-level, perspective. Semiconductor companies have
traditionally attempted to improve chip-level performance by increasing the
"width," or number of pins, associated with a given DRAM, but this tends to
increase the size, cost and complexity of the overall system. In contrast,
Rambus has successfully increased memory bandwidth per pin, thereby increasing
performance gains and cost savings when its technology is incorporated into a
home video game, PC, workstation or other electronic system. As part of its
complete systems solution approach, Rambus provides technical support to
systems companies that incorporate Rambus technology into their products.
TARGET MARKETS AND APPLICATIONS
The high-speed interface technology Rambus has developed is applicable to
data transfer between most semiconductor chips. The Company has initially
chosen to concentrate the application of its technology on the interface
between logic ICs and memory devices because of the acute performance needs
and the relevant market sizes. According to industry sources, the total market
for DRAMs was estimated to be over $25 billion in 1996 and is expected to grow
to over $62 billion in 2000. While Rambus interface technology is useful in
providing increased memory bandwidth in any electronic system, the Company
believes that the systems which will best utilize the high bandwidth provided
by current Rambus technology are the relatively high-volume, low-cost systems
in which the cost of the memory subsystems represents a significant portion of
the selling price. To date, the principal applications for the Company's
technology have been in the consumer multimedia, PC multimedia and workstation
multimedia markets. These areas accounted for the sale of approximately
$13,000, $11 million and $447 million of Rambus ICs by Rambus licensees in
calendar 1994, 1995 and 1996, respectively. Although period-to-period changes
in the Company's revenues are dependent upon numerous factors other than
changes in sales of Rambus ICs, such as the structure of royalty arrangements
with particular licensees, the level of prepaid royalties to be offset, the
mix of royalty-bearing sales between RDRAMs and RACs and the one quarter lag
time between sales by licensees and the receipt of royalties by the Company,
the Company believes that increases in sales of Rambus ICs indicate the level
of market acceptance of the Company's technology to date. The Company believes
significant opportunities to expand adoption of its technology exist in the PC
main memory market segment and other markets.
MULTIMEDIA/GRAPHICS
The first generation of Rambus ICs has been targeted at consumer multimedia,
PC multimedia and workstation multimedia because these are the applications
which the Company believes are in most immediate need of the performance
improvements that can be enabled by an increase in memory bandwidth. The
Company also believes that systems running these applications, particularly
high-volume, low-cost consumer electronics and PC multimedia systems, will
benefit most from the significant improvement in the price/performance ratio
that is enabled by Rambus technology.
Consumer Multimedia. Manufacturers of consumer multimedia products, such as
home video games, are under constant competitive pressure to provide more
sophisticated graphics and other multimedia features at low cost. Rambus
believes that its interface technology provides consumer multimedia systems
companies with a competitive advantage in meeting this challenge. Nintendo,
Inc.'s new Nintendo 64 video game uses Rambus
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<PAGE>
interface technology to deliver sophisticated 3D graphics and CD-quality audio
at a retail selling price of less than $150. The high bandwidth delivered by
RDRAMs enables the creation of a unified system and graphics memory subsystem.
The Nintendo 64 began selling in June 1996 in Japan and in September 1996 in
the United States, and had sold approximately 4 million units through the end
of calendar 1996.
PC Multimedia. Similarly, PC manufacturers are striving to meet market
demand for increased multimedia performance at low cost. One aspect of this
demand is the shift from 2D to 3D capability, and an independent research
organization has estimated the market for 3D graphics controllers will grow
from over 7 million units in 1996 to over 120 million in 2000. In May 1996,
Cirrus Logic began commercial shipments of its Laguna graphics controller, the
first product in a planned family of VisualMedia PC graphics controllers using
Rambus memory interface technology. The Laguna graphics controller has been
adopted by Creative Labs, Inc. and others for use in add-in graphics
accelerator cards for the PC market. Another Rambus licensee, Chromatic
Research, Inc., has introduced a line of multimedia processors called Mpact.
Chromatic has licensed Toshiba Corporation, LG Semicon Co., Ltd. and SGS-
THOMSON Microelectronics, Inc., all of which are Rambus licensees, to build
and sell these Rambus-based processors.
In August 1996, Microsoft Corporation published its "Talisman" PC reference
design, which includes Rambus interface technology. Talisman is a set of
technology specifications promulgated by Microsoft to allow multimedia PC
systems running Microsoft software to provide multimedia performance
previously available only on workstations. Rambus believes that this is a
significant endorsement of its technology, although to date no commercial
applications of Talisman have been announced or released and there is no
assurance that any product will ever be developed based on this reference
design or that any products developed will include Rambus interface
technology.
Workstation Multimedia. Rambus interface technology significantly enhances
the multimedia performance of workstations in a cost-effective manner. The
first application of Rambus technology was the Impact line of 3D graphics
controllers for workstations from Silicon Graphics, Inc. ("SGI"). SGI uses
Rambus technology in the 3D graphics subsystem to help bring high-performance,
high-quality graphics to entry-level workstations. Each subsystem uses a
minimum of six RDRAMs and three Rambus-enabled logic ICs to achieve peak
bandwidth of 3 gigabytes per second.
PC MAIN MEMORY
A key element of the Company's strategy is to penetrate the market segment
for main memory in PCs. Industry sources estimate that over 72 million PCs
were sold in 1996 and that demand will grow to over 130 million units by 2000.
The Company believes that approximately half of all DRAMs are currently used
in PC main memory applications.
Development with Rambus Licensees. Rambus and a majority of its DRAM
licensees are currently developing an advanced version of next-generation 64
Mbit RDRAMs which will be targeted at the PC main memory market segment. The
Company believes that these devices will offer superior bandwidth compared to
other solutions for PC main memory applications. These devices are not
scheduled for mass production until at least 1999, and there can be no
assurance that such devices will be successfully developed or that, if
developed, will be successful in penetrating the market segment for PC main
memory. See "Risk Factors--Dependence upon Limited Number of Licensees" and
"--Future Dependence upon PC Main Memory Market Segment and Intel."
Intel Contract. In November 1996, Rambus entered into a development and
license contract with Intel. The contract provides for the parties to
cooperate in the development of a specification for the RDRAM to be developed
by Rambus and its DRAM licensees which will be optimized for PC main memory
applications. The contract also calls for Intel to use reasonable best efforts
to develop a PC main memory controller designed for use with these RDRAMs.
There can be no assurance that such a controller will be designed in time to
meet
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<PAGE>
market requirements or that the parties will be successful in specifying an
RDRAM that will be built by Rambus licensees at all or in sufficient quantity
to become a standard for PC main memory. See "Risk Factors--Future Dependence
upon PC Main Memory Market Segment and Intel" and "Certain Transactions--Intel
Contract."
OTHER
The Company believes that its technology, which enables high memory
bandwidth at low cost, is well suited to a broad range of other applications.
Other Rambus-based applications currently being developed include
multifunction peripheral controllers for use in combination
fax/copier/scanner/laser printer applications and networking equipment such as
high-speed ethernet switches. There can be no assurance that such devices will
be designed incorporating Rambus interface technology or that sales of such
devices will be meaningful.
RAMBUS LICENSEES
Rambus licenses its technology on a nonexclusive and worldwide basis to
semiconductor manufacturers which sell Rambus ICs to systems companies that
have adopted Rambus technology. An important element of the Company's strategy
is to license its technology broadly in order to establish Rambus interface
technology as a standard and to provide systems companies with sources from
established semiconductor companies for Rambus ICs. Rambus provides licenses
to both DRAM manufacturers and logic IC manufacturers, which can license
Rambus interface technology for use in producing RDRAMs and/or logic ICs
containing RACs. At March 31, 1997, Rambus had a total of 20 licensees. To
date, a majority of the Company's royalties has been derived from the sale of
logic ICs incorporating RACs. If the Company is successful in its strategy to
penetrate the PC main memory market, the Company expects that royalties from
the sale of RDRAMs will eventually account for the largest portion of
royalties.
Sales of Rambus ICs to systems companies, such as manufacturers of home
video games, PCs, workstations and graphics boards, are not made by Rambus,
but by semiconductor companies which are the Company's licensees. Systems
companies do not need a license to incorporate Rambus ICs in their products.
However, an important part of the Company's strategy is to maintain close ties
to these systems companies to encourage the adoption of Rambus technology. See
"Risk Factors--Dependence upon Limited Number of Licensees," "--Dependence
upon Systems Companies," "--No Assurance of Adoption of Rambus Technology as
an Industry Standard" and "Business--Target Markets and Applications."
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<PAGE>
RDRAM LICENSEES
The DRAM business is highly competitive, with approximately 20 major
manufacturers located throughout the world. Rambus' licensees include nine
DRAM manufacturers which collectively accounted for over 70% of worldwide DRAM
sales in calendar 1996. The Company's RDRAM licensees include:
<TABLE>
<CAPTION>
RAMBUS DATE OF INITIAL
LICENSEE RDRAM LICENSE STATUS OF DEVELOPMENT
-------- --------------- ---------------------
<S> <C> <C>
Hitachi, Ltd. September 1994 64 Mbit RDRAM in development.
Hyundai Electronics December 1995 16/18 Mbit and 64 Mbit RDRAMs in development.
Industries Co., Ltd.
LG Semicon Co., Ltd. February 1994 16/18 Mbit RDRAMs beginning production. 64 Mbit
RDRAM in development.
Micron Technology, Inc. March 1997 64 Mbit RDRAM commencing development.
Mitsubishi Electric Co. February 1997 64 Mbit RDRAM commencing development.
Monolithic System December 1996 Specialized 16 Mbit multi-bank RDRAMs
Technology, Inc. in development.
("MoSys")
NEC Corporation July 1991 16/18 Mbit RDRAMs in production. 64 Mbit
RDRAM in development.
Oki Electric Industry December 1993 16/18 Mbit RDRAMs beginning production. 64 Mbit
Co., Ltd. RDRAM in development.
Samsung Electronics Co., December 1994 16/18 Mbit and 64 Mbit RDRAMs in development.
Ltd.
Toshiba Corporation October 1990 16/18 Mbit RDRAMs in production. 64 Mbit
RDRAM in development.
</TABLE>
35
<PAGE>
LOGIC IC LICENSEES
A Rambus license for logic ICs may be for all uses, or may be restricted to
certain types of ICs such as ASICs or peripherals. Many of the RACs provided
by Rambus for use in logic ICs have been developed first for a 0.5^ (micron,
one millionth of a meter) process and then migrated to a 0.35^ process. In
addition, the Company is currently working with certain licensees on 0.25^
RACs. Information regarding certain of the Company's logic IC licensees is
provided in the table below.
<TABLE>
<CAPTION>
RAMBUS DATE OF INITIAL
LICENSEE LOGIC IC LICENSE STATUS OF DEVELOPMENT
-------- ---------------- ---------------------
<S> <C> <C>
Chromatic Research, Inc. February 1994 Multimedia processors developed by
Chromatic are manufactured and sold by LG
Semicon and Toshiba. SGS-THOMSON is also
developing a multimedia processor based on
a Chromatic design.
Cirrus Logic Inc. October 1993 Graphics controllers in production.
IBM Corporation December 1995 Logic chip in development for third party
customer of ASIC design and foundry
services. RAC available as part of cell
library.
Intel Corporation November 1996 Main memory controller to be developed.
LG Semicon Co., Ltd. February 1994 Multimedia processor in production.
LSI Logic Corporation June 1994 RAC available as part of its cell library.
NEC Corporation July 1991 Logic chip in production for third party
customer of ASIC design and foundry
services. RAC available as part of cell
library.
SGS-THOMSON December 1996 Multimedia processor in development.
Microelectronics, Inc.
Toshiba Corporation October 1990 Multimedia processor in production. Logic
chip in development for third party
customer of ASIC design and foundry
services. RAC available as part of cell
library.
</TABLE>
In addition to the licensees named in the two tables above, Rambus has other
licensees who are developing proprietary products using Rambus technology and
have chosen to keep their relationships with Rambus confidential until such
products are introduced to the market.
While all current RDRAM and certain current logic IC licensees have
fabrication facilities, some current and potential future logic licensees use
third-party fabrication facilities. The Company has developed a version of its
RAC for manufacture at Taiwan Semiconductor Manufacturing Company Limited
("TSMC"), the world's largest independent foundry. While not a Rambus licensee
itself, TSMC will be able to manufacture Rambus-based ICs for fabless Rambus
licensees.
RAMBUS BUSINESS MODEL AND STRATEGY
In order to establish Rambus interface technology as an industry standard,
the Company has adopted an innovative business model in which it neither
manufactures nor sells semiconductors incorporating the Company's technology.
The Company licenses its technology on a nonexclusive and worldwide basis to
semiconductor companies which manufacture and sell RDRAMs and logic ICs
containing RACs to systems companies which have adopted Rambus technology.
Systems companies are not required to obtain a Rambus license to incorporate
Rambus ICs into their products.
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<PAGE>
The Rambus business model and strategy are designed to promote Rambus as an
industry standard and are based on the following key elements:
Target Leading Systems Companies in Multiple Large Markets. The Company
targets leading systems companies in markets that the Company believes
represent the greatest potential for Rambus IC sales. The Company believes
that making these market leaders successful in their adoption of Rambus
technology will not only validate the Rambus technology as a practical,
performance-enhancing and cost-effective solution, but will also place
competitive pressure on other industry participants to adopt Rambus
technology. The Company actively participates with its licensees in their
marketing and selling efforts to systems companies, develops applications
notes and other technical material to promote and support Rambus technology in
the marketplace, and provides technical support, generally at no charge, to
systems companies which have adopted Rambus technology. Leading systems
companies which have adopted Rambus technology to date include Nintendo in the
home video game market and SGI in the workstation market. Additionally, Rambus
seeks to establish relationships with leading technology providers, such as
Intel, Microsoft and Cirrus Logic, whose technologies have been or are
expected to become widely adopted by systems companies. See "--Target Markets
and Applications."
Provide Multiple Sources for RDRAMs. The Company licenses its technology
broadly in order to provide systems companies with multiple sources for
RDRAMs. For example, the Company currently has nine separate licensees,
representing over 70% of total worldwide DRAM sales in calendar 1996. The
Company's license contracts generally require a licensee to develop a Rambus
IC in order to keep its license. The Company believes that systems companies
will be more inclined to adopt Rambus interface technology if it is available
from established DRAM manufacturers with which systems companies already have
relationships. The Rambus business model ensures the compatibility of all
Rambus ICs and a consistent implementation of the Rambus interface technology,
regardless of manufacturer.
Leverage Business Model by Sharing Research and Development Efforts with
Licensees. Rambus believes that cooperative development efforts with its
licensees allow the Company to improve its interface technology and bring it
to market faster, cheaper and with broader support than would be possible if
Rambus were to attempt to develop, manufacture or sell chips incorporating the
Rambus interface technology on its own. While all the development of the
fundamental technology and much of the specific process implementation has
been done by Rambus, a significant portion of the specific process
implementation has been accomplished by the partner licensees. By spreading
the cost of developing Rambus technology among all Rambus licensees, which
Rambus considers to be its partners in development, the Rambus business model
permits the Company to maintain a relatively low cost structure and devote a
relatively large portion of its resources to research and development efforts
which are directly related to the Company's fundamental technology.
Generate Revenue through a Combination of Contract Fees and
Royalties. Licensees generally pay a license fee to Rambus ranging from a few
hundred thousand dollars for a narrow license covering a single logic product
to millions of dollars for a license with broad coverage of Rambus technology.
Part of these fees may be due upon the achievement of certain milestones, such
as provision of certain deliverables by Rambus or production of chips by the
licensee. In a few cases, the Company has received nonrefundable, prepaid
royalties which will offset the earliest royalties due from the licensee.
Rambus' contracts also typically provide for engineering service fees, which
help pay the cost of developing the core technology. Licensees normally pay
additional engineering service fees if Rambus provides the modification of its
interface technology required for the licensee's specific chip manufacturing
process. All Rambus license fees and engineering service fees are
nonrefundable.
Royalties, which are generally a percentage of the revenues received by
licensees on their sales of Rambus ICs, are normally payable by a Rambus
licensee on sales occurring during the life of the Rambus patents being
licensed. For a typical systems application of Rambus technology, the Company
receives royalties from the sale of both logic ICs containing RACs and RDRAMs
as they are shipped by Rambus licensees. Royalty rates range up to a maximum
of approximately 2.5% for RDRAMs and a maximum of approximately 5% for logic
ICs, and
37
<PAGE>
in some cases may decline based on the passage of time or on the total volume
of Rambus ICs shipped. The exact rate and structure of a royalty arrangement
with a particular licensee depend on a number of factors, including the amount
of the license fee to be paid by the licensee and the marketing and
engineering commitment made by the licensee.
Contract fees have provided the majority of the capital needed to date by
the Company to develop its fundamental technology, and the Company believes
that its business model is well suited to continue funding future development.
However, there is no assurance that the Company's current partner licensees
will generate revenue, or that the Company will be able to add new license
contracts in the future, at levels sufficient to provide significant funding
for further development activities. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Maintain Technology Leadership. Rambus has pioneered a unique and
revolutionary solution to the Performance Gap. Rambus believes that the
factors which created this opportunity, including the accelerating
improvements in microprocessor speeds and DRAM densities and business and
consumer demand for ever increasing performance at lower cost, will continue
to require innovative technology. The Company is committed to continuing
research and development efforts, both internally and in conjunction with its
partner licensees, to further improve the Rambus interface technology.
Approximately three quarters of the Company's employees have technical
degrees, and more than half of the Company's employees have graduate technical
degrees. The Company plans to continue its emphasis on research and
development, and currently more than half of the Company's engineering staff
is assigned to developing future generations of the Company's fundamental
technology.
Pursue System-Level Approach. The Company believes that the value of its
technology to systems companies as a cost-effective way to improve system
performance is a result of the Company's system-level approach. Rather than
focusing exclusively on chip-level improvements, the Company designs its
technology with the goal of improving the overall performance and cost
effectiveness of systems such as home video games, PCs and workstations which
incorporate the technology. Rambus intends to continue this approach in its
future development efforts.
TECHNOLOGY AND PRODUCTS
ARCHITECTURE
Rambus has developed a revolutionary chip-to-chip interface technology which
combines a new bus architecture with major improvements in signaling
technology. Unlike other approaches, address, data and control information is
transferred together through a relatively narrow bus between a RAC and one or
more RDRAMs. To achieve a high bandwidth over the narrow bus, Rambus developed
a protocol for moving data rapidly and efficiently. To eliminate signal skew,
clock and data signals are sent in parallel over a precisely defined and
controlled route. Rambus' technological innovations, including the use of low
signal swings, data transfer on both edges of a synchronizing clock pulse and
the use of on-chip compensation circuits, all contribute to achieving a peak
memory bandwidth of 600 megabytes per second per channel. The Company believes
that its technology is scalable, and that higher peak bandwidths can be
achieved in the future.
The Company and its licensees are developing an extension of Rambus
interface technology, scheduled for introduction in mid-1997 and called
"Concurrent Rambus" technology, for both 16/18 Mbit and 64 Mbit generation
RDRAMs, which will provide more efficient use of the high peak bandwidth
currently provided by the base technology for graphics and multimedia
applications. In addition, Rambus and Intel are currently working on the
definition of another extension to the Rambus interface technology, scheduled
for introduction in late 1998 and called "Direct Rambus" technology, for 64
Mbit generation RDRAMs, which will be further optimized for PC main memory
applications.
38
<PAGE>
RAMBUS DESIGN METHODOLOGY
When developing either a generalized layout database for a new product or an
optimized implementation for a specific process, Rambus designers apply a
rigorous design methodology intended to accelerate the development process,
maintain consistent quality and promote the development and sharing of design
expertise among the engineering staff. Rambus design engineers generally use a
common set of third-party and custom computer aided design tools on a network
of computer workstations in order to allow them to share common resources. The
Company has developed proprietary software to assist in the modeling,
simulation, layout and verification of circuit designs. Additionally, the
Company promotes design integrity and sharing of expertise by subjecting
designs to a series of peer reviews and simulation and verification tests at
different stages of development. When a process-specific design has been
developed by Rambus, each implementation in silicon is generally tested by the
Company on high-speed testers in order to verify the device against the design
specifications.
LICENSEE DESIGN METHODOLOGY
Rambus interface technology has been developed to allow semiconductor
companies to use familiar, widely-available design tools and conventional
techniques when designing their Rambus-enabled chips. A new Rambus licensee
receives an implementation package from the Company which contains all the
information needed to develop a Rambus IC in the licensee's process. There are
separate implementation packages for RDRAMs and for RACs. An implementation
package includes a specification, a generalized circuit layout database for
the particular version of the RDRAM or RAC which the licensee intends to
develop, test parameters and, for RDRAMs, a DRAM core interface specification.
Many licensees have contracted to have Rambus produce the specific
implementation required to optimize the generalized circuit layout for the
licensee's manufacturing process. In such cases, the licensee provides
specific design rules and transistor models which Rambus designers use to
integrate RDRAM or RAC circuits into the licensee's process. However, Rambus
anticipates that as licensees become more familiar with the Rambus technology,
they will be able to do more of the implementation work without Rambus'
assistance.
MANUFACTURING AND YIELDS
Rambus has developed its technology to be manufacturable using familiar,
industry-standard CMOS semiconductor processes. For this reason the Company
believes that the wafer fabrication yields of RDRAMs and logic products
containing RACs are consistent with those for similar products in the same
manufacturing facility. However, because of the extra Rambus interface
circuitry, an RDRAM chip is somewhat larger than a standard DRAM. Therefore, a
manufacturer will generally produce fewer RDRAMs than standard DRAMs for a
given wafer size and an RDRAM chip will be somewhat more expensive than the
standard version. Rambus believes that this cost premium is about 10% to 20%
for the current 16 Mbit generation, but will be reduced to about 5% for 64
Mbit RDRAMs. In addition, RDRAM manufacturers are responsible for their own
manufacturing processes and Rambus has no role in the manufacture of RDRAMs.
For example, Rambus has no influence on decisions in regard to any process
changes or on whether or when to "shrink" or otherwise change a design to
reduce the cost of the chips.
PACKAGING AND CIRCUIT BOARD LAYOUT
Current implementations of RDRAMs and Rambus logic ICs can be packaged in
widely available, inexpensive packaging. System companies connect RDRAMs to
Rambus logic ICs using normal printed circuit board ("PCB") materials and
manufacturing techniques. System companies are provided with detailed
specifications from Rambus on circuit board layout and construction. Circuit
boards can be fabricated and assembled using standard PCB techniques and
equipment.
39
<PAGE>
RESEARCH AND DEVELOPMENT
The ability of the Company to compete in the future will be substantially
dependent on its ability to advance its interface technology in order to meet
changing market needs. To this end, Company engineers are involved in
developing new versions of the Rambus interface technology which will allow
chip-to-chip data transfer at higher speeds as well as provide other
improvements. The Company has assembled a team of highly skilled engineers
whose activities are focused on further development of Rambus interface
technology as well as adaptation of current technology to specific licensees'
processes. Because of the complexity of these activities, the design and
development process at Rambus is a multi-disciplinary effort requiring
expertise in computer architecture, digital and analog circuit design and
layout, DRAM and logic semiconductor process characteristics, packaging, PCB
routing and high-speed testing techniques.
As of December 31, 1996, Rambus had 75 employees in the engineering
department. Approximately two thirds of these employees have advanced
technical degrees. In fiscal 1994, 1995 and 1996 and the first half of fiscal
1997, research and development expenses were approximately $3.1 million, $3.1
million, $5.2 million and $4.4 million, respectively. In addition, because the
Company's license agreements often call for engineering support by Rambus, a
substantial portion of the Company's total engineering costs has been
allocated to cost of contract revenues, even though these engineering efforts
have direct applicability to Rambus' technology development. The Company
expects that it will continue to invest substantial funds on research and
development activities. Currently, more than half of the Company's technical
staff is primarily focused on the development of technologies which are not
currently in production. There can be no assurance that new versions of the
Rambus interface technology can be developed and introduced by the Company's
licensees in a timely fashion or that such new technology will be accepted by
the market. Moreover, the end markets for the Company's technology,
particularly the home video game and PC markets, are subject to rapid
technological change and there can be no assurance that as such markets change
the Company's interface technology will remain current and suitable.
COMPETITION
The semiconductor industry is intensely competitive and has been
characterized by price erosion, rapid technological change, short product life
cycles, cyclical market patterns and increasing foreign and domestic
competition. Most major DRAM manufacturers are developing higher-frequency
versions of standard DRAMs such as EDO, SDRAMs and SGRAMs which compete with
RDRAMs. These DRAM manufacturers include most Rambus DRAM licensees, as well
as other major DRAM manufacturers such as IBM and Texas Instruments Inc. Most
of these companies are much larger and have better access to financial,
certain technical and other resources than Rambus. Additional high-speed DRAMs
have recently been introduced by other semiconductor companies for specialized
applications.
The Company believes that its success in establishing a new high-speed
memory interface has been due to the systems approach it has taken to solving
the application needs of companies in home video game, PC and other electronic
systems businesses. However, the Company believes competitors have begun to
take a similar approach. The Company believes that its principal competition
may come from its licensees and prospective licensees, many of which are
evaluating and developing products based on alternative technologies. Many
DRAM suppliers have indicated that they are developing a new technology called
Double Data Rate ("DDR") SDRAMs, aimed at doubling the memory bandwidth from
SDRAMs without increasing the clock frequency. In addition, a consortium
including both large DRAM manufacturers and systems companies is promoting a
specification for an alternative high-speed interface standard called
SyncLink. To the extent that these alternative technologies provide comparable
system performance at lower cost than RDRAMs, or do not require the payment of
comparable royalties, the Company's licensees and prospective licensees may
adopt and promote the alternative technologies. There can be no assurance that
the Company's future competition will not have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, certain semiconductor companies have recently introduced a new kind
of IC which combines logic and DRAM on the same chip. Such chips, called
"embedded DRAM," eliminate the need for any chip-to-chip interface and are
primarily being used for graphics applications. Embedded DRAMs are well suited
for applications where
40
<PAGE>
component space saving and power consumption are important, such as in the
graphics subsystems of notebook PCs. There can be no assurance that
competition from embedded DRAMs will not increase in the future.
PATENTS AND INTELLECTUAL PROPERTY PROTECTION
The Company has an active program to protect its proprietary technology
through the filing of patents. At March 31, 1997, the Company held 30 United
States patents on various aspects of its technology, with expiration dates
ranging from 2010 to 2014. At March 31, 1997, the Company had applications for
37 United States patents pending. The Company's United States patents do not
prevent the manufacture or sale of Rambus-based ICs abroad. At March 31, 1997,
the Company held six foreign patents and had additional foreign patent
applications pending in Taiwan, Korea, Japan and various other jurisdictions.
There can be no assurance that the Company's pending United States or foreign
patent applications or any future United States or foreign patent applications
will be approved, that any issued patents will protect the Company's
intellectual property or will not be challenged by third parties, or that the
patents of others will not have an adverse effect on the Company's ability to
do business. Furthermore, there can be no assurance that others will not
independently develop similar or competing technology or design around any
patents that may be issued to the Company.
The Company attempts to protect its trade secrets and other proprietary
information through agreements with licensees and systems companies,
proprietary information agreements with employees and consultants and other
security measures. The Company also relies on trademarks and trade secret laws
to protect its intellectual property. Despite these efforts, there can be no
assurance that others will not gain access to the Company's trade secrets, or
that the Company can meaningfully protect its intellectual property. In
addition, effective trade secret protection may be unavailable or limited in
certain foreign countries. Although the Company intends to protect its rights
vigorously, there can be no assurance that such measures will be successful.
Rambus believes that it is important to develop and maintain a uniform RDRAM
memory interface standard. The Company's contracts generally prevent a
licensee from using licensee-developed patented improvements related to Rambus
technology to block other licensees from using the improvements or requiring
them to pay additional royalties related to their use of Rambus interface
technology. Specifically, the contracts generally require licensees to grant
to Rambus a royalty-free cross-license on patented licensee intellectual
property related to the implementation of Rambus interface technology, which
Rambus sublicenses to other licensees which have entered into similar
arrangements. Not all licensees have granted Rambus cross-licenses and there
is no assurance that such a blocking arrangement will not occur in the future.
The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights. While the Company has not
received formal notice of any infringement of the rights of any third party,
questions of infringement in the semiconductor field involve highly technical
and subjective analyses. Litigation may be necessary in the future to enforce
the Company's patents and other intellectual property rights, to protect the
Company's trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity, and there can be no assurance that the Company would prevail in
any future litigation. Any such litigation, whether or not determined in the
Company's favor or settled by the Company, would be costly and would divert
the efforts and attention of the Company's management and technical personnel
from normal business operations, which would have a material adverse effect on
the Company's business, financial condition and results of operations. Adverse
determinations in litigation could result in the loss of the Company's
proprietary rights, subject the Company to significant liabilities, require
the Company to seek licenses from third parties or prevent the Company from
licensing its technology, any of which could have a material adverse effect on
the Company's business, financial condition and results of operations.
Moreover, the laws of certain foreign countries in which the Company's
technology is or may in the future be licensed may not protect the Company's
intellectual property rights to the same extent as the laws of the United
States, thus increasing the possibility of infringement of the Company's
intellectual property.
In any potential dispute involving the Company's patents or other
intellectual property, the Company's licensees could also become the target of
litigation. While the Company generally does not indemnify its
41
<PAGE>
licensees, some of its license agreements require the Company to provide
technical support and information to a licensee which is involved in
litigation involving use of Rambus technology. The Company is bound to
indemnify certain licensees under the terms of certain license agreements, and
the Company may agree to indemnify others in the future. The Company's support
and indemnification obligations could result in substantial expenses to the
Company. In addition to the time and expense required for the Company to
supply such support or indemnification to its licensees, a licensee's
development, marketing and sales of Rambus ICs could be severely disrupted or
shut down as a result of litigation, which in turn could have a material
adverse effect on the Company's business, financial condition and results of
operations.
SALES AND MARKETING
Consistent with the Company's business model, sales and marketing activities
are focused on developing relationships with potential licensees and on
participating with existing licensees in marketing, sales and technical
efforts directed to systems companies. In many cases, Rambus must dedicate
substantial resources to market to and support systems companies. The
Company's sales and marketing efforts include applications engineering and
other technical support for systems companies, as well as trade shows,
advertising and other traditional marketing activities.
EMPLOYEES
As of December 31, 1996 the Company had 108 employees, including three in
Japan. Of this total, 75 were in engineering, 21 were in marketing and sales,
and 12 were in finance and administration. Overall, approximately three
quarters of the Company's employees have technical degrees, and more than half
of the Company's employees have advanced technical degrees. The Company's
future success will largely be dependent on its ability to attract, retain and
motivate highly qualified technical and management personnel who are in great
demand in the semiconductor industry. The Company's employees are not
represented by any collective bargaining agreements and the Company has never
experienced a work stoppage. The Company believes that its employee relations
are good.
FACILITIES
The Company leases approximately 31,000 square feet in one building in
Mountain View, California for its principal engineering, marketing and
administrative operations. The lease expires in February 2005, with an option
to extend the lease for an additional five years. The Company also leases
space in Tokyo for an office which provides sales and technical support to
systems companies in Japan. The Company expects that it will be required to
seek additional space to support operations within the next twelve months and
believes that it will not have difficulty in securing such additional
facilities.
42
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL
The executive officers, directors and key personnel of the Company, and
their ages and positions as of March 31, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Geoff Tate(1)........... 42 President, Chief Executive Officer and Director
Gary Harmon............. 59 Vice President, Finance, Chief Financial Officer and Secretary
Ed Larsen............... 44 Vice President, Human Resources
David Mooring........... 38 Vice President and General Manager, Personal Computer Division
Allen Roberts........... 41 Vice President and General Manager, Memory and Technology Division
Subodh Toprani.......... 42 Vice President and General Manager, Logic Products Division
Takahiro Kamo........... 62 Chairman, Rambus K.K.
William Davidow(2)(3)... 61 Chairman of the Board of Directors
Bruce Dunlevie(2)(3).... 40 Director
P. Michael Farmwald..... 42 Director
Charles Geschke(2)(3)... 57 Director
Mark Horowitz........... 39 Director
</TABLE>
- --------
(1) Member of the Stock Option Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
Geoff Tate has served as President, Chief Executive Officer and Director
since joining the Company in May 1990. From February 1989 to January 1990, Mr.
Tate served as Senior Vice President and Corporate Officer, Microprocessor and
Peripherals with Advanced Micro Devices, Inc. ("AMD"), a semiconductor
manufacturer. From 1979 to 1989, Mr. Tate served in various marketing and
product line management positions with AMD. Mr. Tate holds a B.Sc. degree in
Computer Science from the University of Alberta and an M.B.A. from the Harvard
Graduate School of Business Administration.
Gary Harmon has served as Vice President, Finance, Chief Financial Officer
and Secretary since joining the Company in March 1993. From November 1992 to
March 1993, Mr. Harmon was an independent consultant. From April 1992 to
November 1992, he served as Senior Vice President--Finance and Chief Financial
Officer for Novellus Systems Inc., a manufacturer of semiconductor equipment.
From October 1991 to March 1992, he served as Executive Vice President--
Finance and Chief Financial Officer of Digital Microwave Inc., a manufacturer
of telecommunications equipment. From 1989 to 1991, Mr. Harmon served as
Executive Vice President--Finance and Chief Financial Officer and was a co-
founder of International Golf Partners, a golf course development company.
From 1970 to 1989, Mr. Harmon served in various positions with electronics
manufacturer Avantek, Inc., including Senior Vice President--Finance,
Secretary and director. Mr. Harmon holds a B.S. degree in Electrical
Engineering from Stanford University and an M.B.A. from the Harvard Graduate
School of Business Administration.
Ed Larsen has served as Vice President, Human Resources, since joining the
Company in September 1996. From May 1995 to August 1996, he served as
Director, Human Resources for Cirrus Logic, Inc., a semiconductor
manufacturer. From June 1991 to July 1993 and May 1994 to May 1995, Mr. Larsen
was an independent consultant. From July 1993 to April 1994, he served as
Director, Human Resources for Zilog, Inc., a semiconductor manufacturer. Mr.
Larsen has also held various human resources positions with VLSI Technology
and Motorola. Mr. Larsen holds a B.S. degree in Business Administration from
the University of Minnesota.
David Mooring joined the Company in February 1991 as Vice President,
Marketing and Sales. He served as Vice President, Business Development from
May 1994 to March 1997, when he became Vice President and General Manager of
the Personal Computer Division. From 1989 to 1991, he served as Vice President
of
43
<PAGE>
Marketing and Sales at Vitesse Semiconductor, Inc., a semiconductor
manufacturer. From 1980 to 1989, Mr. Mooring held various marketing and sales
positions at Intel Corporation. Mr. Mooring holds a B.S. degree in Economics
from the University of Santa Clara, an M.B.A. from Pepperdine University and
an M.S. degree in Computer Engineering from the University of Southern
California.
Allen Roberts joined the Company in February 1991 as Vice President,
Engineering. In March 1997, he became Vice President and General Manager of
the Memory and Technology Division. In 1986, he co-founded FTL which merged
that year with MIPS Computer Systems, Inc. ("MIPS"). He served as Director of
High-End Engineering at MIPS from 1986 until 1991. Mr. Roberts has also held
various engineering positions at Elxsi Inc., Infotek Systems and the Jet
Propulsion Laboratory. Mr. Roberts holds a B.S. degree in Electrical
Engineering from Stanford University.
Subodh Toprani joined the Company in May 1994 as Vice President, Marketing.
In March 1997, he became Vice President and General Manager of the Logic
Products Division. From February 1992 to April 1994, Mr. Toprani served as
Director of Marketing and Systems Engineering with the Personal Computer
Products Division of AMD. From 1982 to 1992, Mr. Toprani served in various
field engineering and marketing positions with AMD. He has also held various
engineering positions with Bally Manufacturing Corp., a manufacturer of gaming
and leisure equipment, and Gaming Devices Inc., a manufacturer of gaming
equipment. Mr. Toprani holds a B.S. degree in Physics from St. Xavier's
College of Bombay and B.S. and M.S. degrees in Electrical Engineering from the
Illinois Institute of Technology.
Takahiro "Tom" Kamo is an independent consultant and has served as Chairman
of the Company's Japanese subsidiary, Rambus K.K., since June 1991. Mr. Kamo
is not deemed an executive officer of the Company for purposes of Section 16
of the Exchange Act or Rules 144 and 701 promulgated under the Securities Act.
In 1974, Mr. Kamo established Intel Corporation's Japanese subsidiary, Intel
Japan K.K., and served as its President and Vice Chairman. In 1988, he was
elected Chairman of Intel Japan K.K. and served in this capacity until his
retirement in 1990. In 1963, Mr. Kamo co-founded Tokyo Electron Laboratories
("TEL"), a Japanese importer/exporter of electronic products. He later founded
TEL Engineering, a subsidiary of TEL involved in the design and manufacturing
of semiconductor production equipment, where he served as President until
1974. Mr. Kamo holds a B.S. degree in Electrical Engineering from Waseda
University in Tokyo.
William Davidow has served as Chairman of the Board of Directors since the
Company was founded in March 1990. Since 1985, Dr. Davidow has been a general
partner of Mohr, Davidow Ventures, a venture capital firm. From 1973 to 1985,
he held a number of management positions at Intel Corporation, including
Senior Vice President of Marketing and Sales, Vice President of the
Microcomputer Division and Vice President of the Microcomputer Systems
Division. Dr. Davidow holds A.B. and M.S. degrees in Electrical Engineering
from Dartmouth College and a Ph.D. in Electrical Engineering from Stanford
University. He also serves as a director of Vantive Corporation and several
privately held companies.
Bruce Dunlevie has served as a director of the Company since its founding in
March 1990. He has been a member of the venture capital firm Benchmark Capital
since April 1996, and a general partner of the venture capital firm Merrill,
Pickard, Anderson & Eyre since 1989. Mr. Dunlevie also served as Vice
President and General Manager of the Personal Computer Systems Division of
Everex Systems, a personal computer manufacturer. He holds a B.A. degree in
History from Rice University and an M.B.A. from Stanford University. Mr.
Dunlevie also serves as a director of Geoworks, an operating systems software
company, and several privately held companies.
P. Michael Farmwald has served as a director since co-founding the Company
in March 1990, and as Vice President and Chief Scientist from March 1990 to
November 1993. He co-founded Chromatic Research Inc., a privately held
developer of media processors for the PC industry, in November 1993, where he
currently holds the title of Visionary and serves as a director. From 1988 to
1989, Dr. Farmwald was an associate professor of Electrical and Computer
Engineering at the University of Illinois. In 1986, he co-founded FTL which
merged that year with MIPS. From 1986 to 1988, Dr. Farmwald was Chief
Scientist for High End Systems at MIPS. Dr.
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<PAGE>
Farmwald holds a B.S. degree in Mathematics from Purdue University and a Ph.D.
in Computer Science from Stanford University. He also serves as a director of
a privately held company.
Charles Geschke has served as a director of the Company since February 1996.
He is a co-founder of Adobe Systems Incorporated, a software company, and has
served as a director of that company since 1982, Chief Operating Officer from
1986 to 1995 and President since 1989. Prior to 1982, Dr. Geschke held various
positions with Xerox's Palo Alto Research Center, including Manager of the
Imaging Sciences Laboratory. He holds an A.B. degree in Classics and an M.S.
degree in Mathematics from Xavier University of Ohio, and received his Ph.D.
in Computer Science from Carnegie-Mellon University. Dr. Geschke also serves
as a director of a privately held company.
Mark Horowitz has served as a director since co-founding the Company in
March 1990 and as Vice President from March 1990 to May 1994 and currently
continues to serve in a part-time capacity as a member of the technical staff.
Dr. Horowitz has taught at Stanford University since 1984 where he is
currently professor of Electrical Engineering. He holds B.S. and M.S. degrees
in Electrical Engineering from Massachusetts Institute of Technology and
received his Ph.D. in Electrical Engineering from Stanford University.
CLASSIFIED BOARD
The Company's Amended and Restated Certificate of Incorporation provides for
a Board of Directors consisting of two classes serving two-year staggered
terms. Class I consists of Mr. Dunlevie, Dr. Geschke and Dr. Horowitz. Class
II consists of Dr. Davidow, Dr. Farmwald and Mr. Tate. The initial term of
office of the Class I directors expires at the annual meeting of stockholders
in calendar 1998. The initial term of office of the Class II directors expires
at the annual meeting of stockholders held in calendar 1999.
BOARD COMMITTEES
The Company's Board of Directors the ("Board") has an Audit Committee, a
Compensation Committee and a Stock Option Committee. The Audit Committee,
currently comprised of Dr. Davidow, Mr. Dunlevie and Dr. Geschke, reviews the
internal accounting procedures of the Company and consults with and reviews
the services provided by the Company's independent auditors. The Compensation
Committee, currently comprised of Dr. Davidow, Mr. Dunlevie and Dr. Geschke,
reviews and recommends to the Board the compensation and benefits of all
officers, directors and consultants of the Company and reviews general policy
relating to compensation and benefits of the Company. The Compensation
Committee also administers the issuance of stock options and other awards
under the Company's 1997 Stock Plan and 1997 Employee Stock Purchase Plan.
The Stock Option Committee, currently comprised of Mr. Tate, administers the
grant of stock options under the Company's 1997 Stock Plan to all employees
other than executive officers, provided that options granted by the Stock
Option Committee shall not exceed 25,000 shares per year to any employee.
DIRECTOR COMPENSATION
Board members do not receive any cash fees for their service on the Board or
any Board committee, but they are entitled to reimbursement of all reasonable
out-of-pocket expenses incurred in connection with their attendance at Board
and Board committee meetings. All Board members are eligible to receive stock
options pursuant to the discretionary option grant program in effect under the
Company's 1997 Stock Plan, and outside directors receive stock options
pursuant to the automatic option grant program in effect under the 1997 Stock
Plan. During fiscal 1996, in connection with joining the Company's Board of
Directors, Dr. Geschke was granted an option for the purchase of 50,000 shares
of Common Stock at an exercise price of $4.00 per share. In February 1997, Dr.
Davidow, Mr. Dunlevie and Dr. Geschke were granted options for the purchase of
10,000 shares, 35,000 shares and 10,000 shares of Common Stock, respectively,
at an exercise price of $8.00 per share. See "Management--Stock Plans."
45
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee reviews and recommends to the Board the
compensation and benefits of all officers, directors and consultants of the
Company and reviews general policy relating to compensation and benefits of
the Company. The Compensation Committee also administers the issuance of stock
options and other awards under the Company's 1997 Stock Plan and 1997 Employee
Stock Purchase Plan. The Committee is currently comprised of Dr. Davidow, Mr.
Dunlevie and Dr. Geschke. No interlocking relationship exists between any
member of the Company's Compensation Committee and any member of any other
company's board of directors or compensation committee.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Amended and Restated Certificate of Incorporation limits the
liability of directors to the maximum extent permitted by Delaware law.
Delaware law provides that a corporation's certificate of incorporation may
contain, and the Company's Amended and Restated Certificate of Incorporation
does contain, a provision eliminating or limiting the personal liability of a
director for monetary damages for breach of their fiduciary duties as
directors, except for liability (i) for any breach of their duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith for which involve intentional misconduct or a knowing violation of law,
(iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation Law
or (iv) for any transaction from which the director derived an improper
personal benefit.
The Company's Amended and Restated Bylaws provide that the Company shall
indemnify its directors, officers, employees and agents to the fullest extent
permitted by law. The Company believes that the indemnification under its
Amended and Restated Bylaws covers at least negligence and gross negligence on
the part of indemnified parties.
The Company has entered into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Company's
Amended and Restated Bylaws. These agreements, among other things, indemnify
the Company's directors and officers for certain expenses (including attorney
fees), judgments, fines and settlement amounts incurred by any such person in
any action or proceeding, including any action by or in the right of the
Company, arising out of such person's services as a director or officer of the
company, any subsidiary of the Company or any other company or enterprise to
which the person provides services at the request of the Company. The Company
believes that these provisions and agreements are necessary to attract and
retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnifications
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding the
compensation of the Company's Chief Executive Officer and each of the other
four most highly compensated executive officers (collectively, the "Named
Executive Officers") whose annual compensation (salary and bonus) for services
rendered in all capacities to the Company exceeded $100,000 for the fiscal
year ended September 30, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(1) SALARY BONUS(2) OPTIONS(#) COMPENSATION(3)
- ------------------------------ ---------- ---------- ------------ ---------------
<S> <C> <C> <C> <C>
Geoff Tate.................. $ 215,000 $ 32,789 -- $2,656
President and Chief
Executive Officer
Gary Harmon................. 154,425 28,189 6,500 1,684
Vice President, Finance and
Chief Financial Officer
David Mooring............... 149,705 53,424 11,500 2,047
Vice President, Business
Development
Allen Roberts............... 178,266 26,235 15,500 2,409
Vice President, Engineering
Subodh Toprani.............. 165,000 24,721 10,500 2,331
Vice President, Marketing
</TABLE>
- --------
(1) For current positions of the individuals named, see "Management--Executive
Officers, Directors and Key Personnel."
(2) Earned for services during year.
(3) Consists of group term life insurance premiums paid by the Company.
47
<PAGE>
OPTION GRANTS IN FISCAL 1996
The following table sets forth certain information regarding stock options
granted to each of the Named Executive Officers for the fiscal year ended
September 30, 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(1) VALUE AT ASSUMED
------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR(3) PER SHARE(4) DATE 5% 10%
---- ---------- -------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Geoff Tate.............. -- -- -- -- -- --
Gary Harmon............. 6,500 2.39% $3.00 12/4/05 $ 12,263 $ 31,078
David Mooring........... 11,500 4.22 3.00 12/4/05 21,697 54,984
Allen Roberts........... 15,500 5.69 3.00 12/4/05 29,244 74,109
Subodh Toprani.......... 10,500 3.85 3.00 12/4/05 19,810 50,203
</TABLE>
- --------
(1) Each of the options listed in the table was granted on December 4, 1995
and is immediately exercisable. The shares purchasable thereunder are
subject to repurchase by the Company at the original exercise price paid
per share upon the optionee's cessation of service prior to vesting in
such shares. The repurchase right lapses and the optionee vests in the
shares subject to, or issued upon exercise of, the options in monthly
installments over the year beginning October 1, 1999.
(2) Potential realizable value is based on the assumption that the Common
Stock of the Company appreciates at the annual rate shown (compounded
annually) from the date of grant until the expiration of the ten year
term. These numbers are calculated based on Securities and Exchange
Commission requirements and do not reflect the Company's estimate of
future stock price growth.
(3) The Company granted options to purchase 272,500 shares of Common Stock to
employees during fiscal 1996.
(4) Options were granted at an exercise price equal to the fair market value
of the Company's Common Stock, as determined by the Board of Directors.
On November 13, 1996, the Company granted the following options at exercise
prices of $5.00 per share to the following Named Executive Officers: David
Mooring, 20,000 shares; Allen Roberts, 20,000 shares; Gary Harmon, 10,000
shares; Subodh Toprani, 10,000 shares; Geoff Tate, 75,000 shares.
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<PAGE>
AGGREGATE OPTION EXERCISES IN FISCAL 1996 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on each exercise of stock options
during the year ended September 30, 1996 and the year-end number and value of
exercisable and unexercisable options:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT 9/30/96(1) AT 9/30/96(2)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Geoff Tate.............. -- -- 497,955 213,334 $2,402,657 $981,336
Gary Harmon............. -- -- 45,000 45,500 213,750 187,750
David Mooring........... -- -- 75,208 101,292 351,257 404,043
Allen Roberts........... 50,000 $193,500 269,738 135,762 1,293,576 546,424
Subodh Toprani.......... -- -- -- 70,500 -- 288,000
</TABLE>
- --------
(1) Although each option is immediately exercisable for all the option shares,
any shares purchased under the option are subject to repurchase by the
Company, at the exercise price paid per share, in the event the optionee
ceases to provide services to the Company prior to vesting in those
shares. Accordingly, the table reflects such option shares as to which the
repurchase right has lapsed under the "exercisable" column and such option
shares subject to the repurchase right under the "unexercisable" column.
(2) Based on the fair market value of the Company's Common Stock at September
30, 1996 ($5.00 per share as determined by the Board of Directors) less
the exercise price payable for such shares.
STOCK PLANS
1990 Stock Plan
The Company's 1990 Stock Plan (the "1990 Stock Plan") provides for the grant
to employees of incentive stock options and the grant of nonstatutory stock
options to employees and consultants of the Company. Stock Purchase Rights
("SPRs") may also be granted under the 1990 Stock Plan. As of March 31, 1997,
an aggregate of 6,875,000 shares of Common Stock has been reserved for
issuance under the 1990 Stock Plan, 4,352,178 shares had been issued upon the
exercise of stock options under the 1990 Plan, and options to purchase an
aggregate of 2,174,470 shares of Common Stock were outstanding under the 1990
Stock Plan. Subsequent to March 31, 1997, the Board of Directors granted
options to purchase 83,500 shares of Common Stock under the 1990 Stock Plan.
No SPRs have been granted under the 1990 Stock Plan. The Board of Directors
has determined that no further options or SPRs will be granted under the 1990
Stock Plan after this offering. Any shares underlying options granted under
the 1990 Stock Plan that expire or are cancelled, or any unvested shares that
are repurchased by the Company under the 1990 Stock Plan, will not be
reissued.
The 1990 Stock Plan may be administered by the Board of Directors or a
committee designated by the Board (the "1990 Stock Plan Administrator").
Options and SPRs granted under the 1990 Stock Plan are not generally
transferable by the optionee except by will or by the laws of descent and
distribution and are exercisable during the life of the optionee only by the
optionee. Options granted under the 1990 Stock Plan must be exercised within
90 days of the end of the optionee's status as an employee or consultant to
the Company, or within twelve months after such optionee's death or
disability, but in no event later than the expiration of the option term. The
exercise price of all options and SPRs granted under the 1990 Stock Plan was
determined by the 1990 Stock Plan Administrator. With respect to any
participant who owns stock possessing more than ten percent of the voting
power of all classes of the Company's outstanding capital stock (a "10%
Stockholder"), the exercise price of any option granted must equal at least
110% of the fair market value on the grant date. The exercise price of
incentive stock options for all other employees shall be no less than 100% of
the fair market value per share on the date of the grant. The exercise price
of nonstatutory stock options must equal at least 85% of the fair market value
on the grant date. The maximum term of an option granted under the 1990 Stock
Plan may not exceed ten years from the date of grant (five years in the case
of an incentive stock option granted to a
49
<PAGE>
10% Stockholder). The 1990 Stock Plan Administrator determines the vesting
schedule of all options granted under the 1990 Stock Plan. The 1990 Stock Plan
requires the Board to determine the times and conditions at which options can
be exercised, and the option agreements under the 1990 Stock Plan generally
allow for early exercise of all options granted under such plan if the
optionee executes a Restricted Stock Purchase Agreement upon such early
exercise.
1997 Stock Plan
The Company's 1997 Stock Plan (the "1997 Stock Plan") was adopted by the
Board of Directors in February 1997 and approved by the stockholders in March
1997. The 1997 Stock Plan provides for the grant of incentive stock options to
employees (including officers and employee directors) and for the grant of
nonstatutory stock options and SPRs to employees, directors and consultants. A
total of 1,000,000 shares of Common Stock has been reserved for issuance under
the 1997 Stock Plan, plus an annual increase as of the first day of each
fiscal year during the term of the 1997 Stock Plan equal to the lesser of (i)
the number of shares needed to restore the maximum aggregate number of shares
which may be optioned and sold under the 1997 Stock Plan to 1,000,000 shares,
(ii) four percent (4%) of the outstanding shares on such date or (iii) a
lesser amount determined by the Board. Prior to this offering, there were no
options or SPRs outstanding under the 1997 Stock Plan.
The 1997 Stock Plan may be administered by the Board of Directors or a
committee designated by the Board (the "Administrator"). Options and SPRs
granted under the 1997 Stock Plan are not generally transferable by the
optionee except by will or by the laws of descent and distribution, and are
exercisable during the lifetime of the optionee only by such optionee. Options
granted under the 1997 Stock Plan must be exercised within three months of the
end of the optionee's status as an employee, director or consultant of the
Company, or within twelve months after such optionee's death or disability,
but in no event later than the expiration of the option term. The exercise
price of all incentive and nonstatutory stock options granted under the 1997
Stock Plan shall be determined by the Administrator. With respect to any
participant who owns stock possessing more than ten percent of the voting
power of all classes of the Company's outstanding capital stock (a "10%
Stockholder"), the exercise price of any incentive stock option granted must
equal at least 110% of the fair market value on the grant date. The exercise
price of incentive stock options and nonstatutory stock options for all other
employees shall be no less than 100% of the fair market value per share on the
date of the grant. The maximum term of an option granted under the 1997 Stock
Plan may not exceed ten years from the date of grant (five years in the case
of an incentive stock option granted to a 10% Stockholder). In the case of
SPRs, unless the Administrator determines otherwise, the Company shall have a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
disability). Such repurchase option lapses at a rate determined by the
Administrator. The purchase price for shares repurchased by the Company shall
be the original price paid by the purchaser and may be paid by cancellation of
any indebtedness of the purchaser to the Company. In the event of a merger or
sale of substantially all of the assets of the Company, the acquiring or
successor corporation must either assume the outstanding options and SPRs
under the 1997 Stock Plan or substitute equivalent options or SPRs to purchase
shares of the acquiring or successor corporation (or a parent or subsidiary of
the acquiring or successor corporation). If an employee is involuntarily
terminated by the acquiring or successor corporation within twelve months of
the merger or asset sale (other than for cause), or if such acquiring or
successor corporation refuses to substitute or assume outstanding options or
SPRs, the employee's options and SPRs fully vest and become immediately
exercisable.
The 1997 Stock Plan also provides for an automatic grant of an option to
purchase 10,000 shares of Common Stock (the "First Option") to each non-
employee director who becomes a non-employee director after the effective date
of the 1997 Stock Plan provided that an employee director who becomes a non-
employee director is not eligible for the First Option. In addition, each non-
employee director shall automatically be granted an option to purchase 5,000
shares (a "Subsequent Option") on October 1 of each year provided he or she is
then a non-employee director and, provided further, that on such date he or
she has served on the Board for at least six months. First Options and each
Subsequent Option shall have a term of ten years. One-eighth of the shares
subject to the First Option and each of the Subsequent Options shall vest on
the date six months after the grant of the option, and an additional 1/48 of
the shares subject to the option shall become exercisable each
50
<PAGE>
month thereafter, provided that the optionee continues to serve as a non-
employee director through and on such dates. The exercise price of the First
Option and each Subsequent Option shall be 100% of the fair market value per
share of the Company's Common Stock on the date of the grant of the option.
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "Stock Purchase Plan")
was adopted by the Board of Directors in February 1997 and approved by the
stockholders in March 1997. The Company has reserved a total of 400,000 shares
of Common Stock for issuance under the Stock Purchase Plan, plus an annual
increase as of the last day of each fiscal year during the term of the Stock
Purchase Plan equal to the lesser of (i) the number of shares needed to
restore the maximum aggregate number of shares which may be optioned and sold
under the Stock Purchase Plan to 400,000 shares, (ii) one percent (1%) of the
outstanding shares on such date or (iii) a lesser amount determined by the
Board. The Stock Purchase Plan, which is intended to qualify under Section 423
of the Internal Revenue Code of 1986, as amended (the "Code"), permits
eligible employees of the Company to purchase shares of Common Stock through
payroll deductions of up to fifteen percent of their compensation, up to a
maximum of $25,000 worth of Common Stock (valued at the date of grant) in each
calendar year. The Stock Purchase Plan will be implemented by consecutive
overlapping 24-month offering periods (each an "Offering Period"). The initial
Offering Period will begin on the effective date of this offering and will end
on the last trading day in the period ending April 30, 1999. All employees who
work at least twenty hours per week and more than five months per calendar
year are eligible to participate in the Stock Purchase Plan.
The price of Common Stock purchased under the Stock Purchase Plan will be
85% of the lower of the fair market value of the Common Stock on the first day
of each Offering Period or the date of purchase. Employees may withdraw from
the Stock Purchase Plan at any time during an Offering Period, and the balance
of the payroll deductions will be returned to the employee. Participation in
the Stock Purchase Plan ends automatically upon termination of employment with
the Company. Rights granted under the Stock Purchase Plan are not transferable
by a participant other than by will, the laws of descent and distribution or
as otherwise provided under the Stock Purchase Plan.
The Stock Purchase Plan will be administered by the Board of Directors or by
a committee appointed by the Board. The Board may amend or modify the Stock
Purchase Plan at any time. The Stock Purchase Plan will terminate ten years
after the effective date of its adoption, unless sooner terminated by the
Board.
401(k) Plan
As of January 1, 1991, the Company adopted a tax-qualified employee savings
and retirement plan (the "401(k) Plan") covering the Company's employees.
Pursuant to the 401(k) Plan, eligible employees may elect to reduce their
current compensation by up to the lesser of 20% of their annual compensation
or the statutorily prescribed annual limit ($9,500 in calendar years 1996 and
1997) and have the amount of such reduction contributed to the 401(k) Plan.
Although the Company does not currently match contributions by employees, the
401(k) Plan allows for matching contributions to be made by the Company in an
amount determined by the Company. The trustees under the 401(k) Plan, at the
direction of each participant, invest the assets of the 401(k) Plan in
designated investment options. The 401(k) Plan is intended to qualify under
Section 401 of the Code, so that contributions to the 401(k) Plan, and income
earned on the 401(k) Plan contributions, are not taxable until withdrawn, and
so that the contributions by the Company will be deductible when made.
51
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND 5% SECURITY HOLDERS
Founders' Stock Repurchases. Founders of the Company received an aggregate
of 2,182,653 shares of Common Stock upon incorporation of the Company. These
shares were subject to the Company's assignable right of repurchase under a
Stock Restriction Agreement. During fiscal 1994, the Company amended the Stock
Restriction Agreement. In accordance with the amendment, the Company
repurchased 165,000 shares of its Common Stock at a price of $0.04 per share,
and the Company's right of repurchase with respect to the remaining shares
expired. During fiscal 1995, the Company repurchased an additional 88,000
shares of Common Stock from founders at a price of $0.04 per share.
Rambus Partners. Under an agreement signed in March 1990, the Company
secured certain patent rights and technology from its founders. The Company
committed, under this agreement, to pay to the founders up to a total of 24%
of amounts received from any licensing of the patent rights and technology to
third parties. Subsequently, the founders assigned their rights to receive
payments to Rambus Partners, an entity wholly owned by the founders. In
September 1992, the Company acquired Rambus Partners in exchange for 978,260
shares of the Company's Common Stock. In addition the Company assumed option
obligations for a total of 146,739 shares of the Company's Common Stock. In
September 1992, the Company also entered into agreements to pay certain cash
amounts to the founders. The total amounts paid to the founders under these
agreements were approximately $244,000 in each of the fiscal years 1994, 1995
and 1996 and in the first half of fiscal 1997. See Note 9 of Notes to
Consolidated Financial Statements.
Series C Financing. On December 23, 1993, in connection with the Company's
Series C Preferred Stock financing, the Company sold in the aggregate
1,249,998 shares of Series C Preferred Stock at a price per share of $3.00 to
the following investors which are, or which are affiliated with, directors of
the Company or entities that own more than 5% of the Company's securities,
each of which purchased the aggregate number of shares indicated:
<TABLE>
<CAPTION>
% OF
SHAREHOLDER: SHARES SERIES AGGREGATE
- ------------ ------- ------ ---------
<S> <C> <C> <C>
MPAE V Management Co.
(Bruce Dunlevie)...................................... 322,628 25.8% $967,884
WHD/LGM Partners
(William Davidow)..................................... 322,628 25.8% 967,884
Kleiner, Perkins, Caufield & Byers V................... 322,628 25.8% 967,884
Integral Capital Management, L.P. ..................... 141,057 11.3% 423,171
Dominion Income Management Corp........................ 141,057 11.3% 423,171
</TABLE>
Series D Financing. On February 24, 1995, in connection with the Company's
Series D Preferred Stock financing, the Company sold 1,411,765 shares of
Series D Preferred Stock to Goldman, Sachs & Co. at a price per share of $4.25
or an aggregate of $6.0 million. Goldman Sachs currently owns more than 5% of
the Company's securities.
Simultaneously with the consummation of this offering, all shares of
Preferred Stock will be converted into shares of Common Stock. Holders of
Preferred Stock are entitled to certain registration rights with respect to
the Common Stock issued or issuable upon conversion thereof. See "Description
of Capital Stock--Registration Rights." The Company believes that the shares
issued in these transactions were sold at the then fair market value and that
the terms of these transactions were no less favorable than the Company could
have obtained from unaffiliated third parties.
Loans to Officers. In February 1997, in connection with the exercise of
options to purchase shares of the Company's Common Stock by Geoff Tate, David
Mooring and Ed Larsen, the Company provided full recourse
52
<PAGE>
loans to such executive officers in the aggregate principal amounts of
$160,000, $198,250 and $200,000, respectively. The loans bear interest at an
annual rate of 12.0%, are evidenced by promissory notes and are secured by a
pledge of an aggregate of 400,000, 114,000 and 40,000 shares, respectively.
Principal and all accrued interest on the loans are due in September 1998.
Chromatic Research Inc. In February 1994, the Company licensed its interface
technology to Chromatic Research, Inc. ("Chromatic") a multimedia processor
design company. Under the terms of the license, Rambus received 626,053 shares
of Chromatic Series B Preferred Stock (representing 5% of the then outstanding
shares of Chromatic) and continuing royalties. Chromatic was formed in May
1993 (then called Xenon Microsystems Corporation) by, among others, Dr.
Farmwald who continues to serve as a director of, and consultant to, Chromatic
through the date hereof. Investors in Chromatic include affiliates of Mohr,
Davidow Ventures, Merrill, Pickard, Anderson & Eyre and Kleiner, Perkins,
Caufield & Byers. In connection with these investments in Chromatic, Dr.
Davidow and Mr. Dunlevie joined and continue to sit on the Board of Directors
of Chromatic. See Note 13 of Notes to Consolidated Financial Statements.
Purchase of Rambus Series A Preferred Stock from Intel Corporation. In 1990,
the Company entered into an agreement with Intel Corporation, under which it
issued 562,004 shares of Series A Preferred Stock to Intel. The shares issued
were subject to Rambus' assignable right to repurchase the shares, under
certain circumstances, at the original price paid by Intel. In fiscal 1995,
this right of repurchase was sold by the Company to entities affiliated with
Kleiner, Perkins, Caufield & Byers, Mohr, Davidow Ventures, Merrill, Pickard,
Andersen & Eyre, Integral Capital Partners and Dominion Income Management
Corp. for an aggregate of $936,012. These entities then exercised the right
and purchased the Rambus Series A Preferred Stock from Intel.
The Company believes that all related-party transactions described above
were on terms no less favorable than could have been otherwise obtained from
unrelated third parties. All future transactions between the Company and its
executive officers, directors and principal stockholders will be approved by a
majority of the independent and disinterested members of the Board of
Directors and will be on terms no less favorable than could be obtained from
unrelated third parties. In addition, the Board of Directors has voted that
any loans or guarantees in the future by the Company for its executive
officers, directors or principal stockholders will be approved by a majority
of the independent and disinterested members of the Board on the basis that
such loans or guarantees will be made only for bona fide business purposes.
1996 TRANSACTIONS WITH INTEL CORPORATION
In November 1996, the Company entered into a new license agreement with
Intel Corporation ("Intel") under which Rambus granted to Intel a worldwide,
nonexclusive license to manufacture and sell Rambus ICs (the "Intel
Contract"). Under the Intel Contract, Intel has agreed to use its reasonable
best efforts to design, develop, mass produce, market and sell a commercially
attractive PC main memory control chipset which implements certain Rambus
interface specifications. Under the Intel Contract, Intel granted to Rambus a
worldwide, royalty-free, sublicensable right to certain Intel intellectual
property for use in the implementation of the Rambus interface technology.
Under certain circumstances, the Intel Contract imposes an effective limit
of 2% on the royalty rate which the Company will receive from sales of RDRAMs
by its licensees. Because this effective limit is not triggered with respect
to a given licensee unless the licensee is shipping relatively high volumes of
RDRAMs, the Company believes that such provision will not have a material
adverse effect on its business or financial condition.
The Intel Contract grants to Intel certain rights to make a competing offer
if Rambus commences negotiations with any third party to enter into a
transaction (i) after which such third party would beneficially own more than
50% of the voting power of Rambus, (ii) in which Rambus would be a party to a
merger with such third party and Rambus would not be the surviving corporation
or (iii) Rambus would transfer all or substantially all of its business and
assets to the third party. The Intel Contract does not require that Rambus
53
<PAGE>
accept any such competing offer from Intel. However, should Rambus complete
such a transaction with a third party after receiving from Intel a bona fide
offer including money and other consideration at least equal to the money and
other consideration included in the third party offer, and on other terms and
conditions at least as favorable as those included in the third party offer,
then certain of Intel's royalty obligations would cease, the Company would be
obligated to refund to Intel certain previously paid royalties, and the
license of Rambus technology to Intel under the Intel Contract would become
fully paid, irrevocable and would survive any termination of the Intel
Contract. This provision of the Intel Contract may significantly discourage
future acquisition attempts, even where such acquisitions might be in the best
interest of Rambus stockholders. This provision of the Intel Contract will
terminate if Intel fails to maintain a specified level of shipments of Rambus
compatible ICs after a specified date.
The Intel Contract terminates upon the last to expire of the Rambus patents
licensed to Intel. The Intel Contract is subject to early termination (i) by
Intel at any time upon written notice to Rambus or (ii) by Rambus upon certain
breaches, defaults, or failures by Intel to achieve certain milestones or
provide certain support for Rambus technology.
In connection with the Intel Contract, Rambus granted to Intel a warrant for
the purchase of up to 1,000,000 shares of Rambus Common Stock at an exercise
price of $10.00 per share. Such warrant vests and becomes exercisable by Intel
only if more than 20% of the main memory chipsets shipped by Intel in each of
two consecutive calendar quarters implement certain Rambus interface
specifications, which will result in a charge to the statement of operations
at the time of achievement of the milestones based on the fair value of the
warrant. The warrant expires on January 7, 2005; provided, however, that if
the vesting condition described above has not been satisfied by December 31,
2000, then the warrant will expire on December 31, 2000. Rambus granted to
Intel certain registration rights with respect to the shares of Common Stock
purchasable upon exercise of the warrant.
Intel may designate a representative to observe meetings of the Rambus Board
of Directors at such time as 20% of the main memory chipsets shipped by Intel
during two consecutive quarters implement certain Rambus interface
specifications. Following exercise of the warrant, for so long as Intel
continues to hold at least 500,000 shares of the Company's Common Stock, Intel
may nominate a representative to the Rambus Board of Directors and the Company
must include such nominee among management's nominees to the stockholders and
must solicit stockholder votes in favor of such nominee to the same extent
that it solicits stockholder votes in favor of management's other nominees.
Intel's right to maintain a Board observer or Board member will exist during a
calendar quarter only if more than 20% of the main memory chipsets shipped by
Intel during each of the two immediately preceding calendar quarters
implemented certain Rambus interface specifications. The Rambus Board of
Directors may exclude the Intel representative from a Board meeting for
certain reasons, including discussion of transactions or potential
transactions between the Company and Intel or an affiliate or competitor of
Intel, or if in the Board's reasonable good faith judgment, such attendance
would be harmful to the Company.
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock of the Company as of March 31, 1997 and
as adjusted to reflect the sale of the shares offered by this Prospectus
(assuming no exercise of the Underwriter's over-allotment option), by (i) all
persons known to the Company to be the beneficial owners of more than 5% of
the Company's Common Stock, (ii) Named Executive Officers, (iii) each of the
Company's directors and (iv) all directors and executive officers as a group.
The following table has been prepared in accordance with Rule 13d-3 of the
Securities Exchange Act of 1934 and discloses all securities beneficially
owned by the named persons as of March 31, 1997, plus all securities which
such persons have a right to acquire through the exercise of options or other
rights within 60 days of March 31, 1997. Certain individuals in the table
below have the right to acquire additional shares after such a 60-day period,
as indicated in the footnotes to the table.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES BENEFICIALLY
NUMBER OF OWNED(1)
SHARES ----------------------
BENEFICIALLY BEFORE AFTER
NAME OR GROUP OF BENEFICIAL OWNERS OWNED(1) OFFERING OFFERING
---------------------------------- ------------ -------- ---------
<S> <C> <C> <C>
MPAE V Management Co.(2)................ 2,491,516 13.3% 11.6%
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94025
WHD/LGM Partners (3).................... 2,491,516 13.3 11.6
3000 Sand Hill Road, Building 1 Suite
240
Menlo Park, CA 94025
Kleiner Perkins Caufield & Byers V(4)... 2,391,516 12.8 11.1
2750 Sand Hill Road
Menlo Park, CA 94025
The Goldman Sachs Group, L.P.(5)........ 1,411,765 7.5 6.6
85 Broad Street, 19th Floor
New York, NY 10004
Dominion Income Management Corp. ....... 1,045,598 5.6 4.9
15302 25th Drive, S.E.
Mill Creek, WA 98102
Integral Capital Management, L.P.(6).... 958,543 5.1 4.5
2750 Sand Hill Road
Menlo Park, CA 94025
Geoff Tate(7)........................... 1,236,289 6.6 5.7
Gary Harmon(8).......................... 160,500 0.9 0.7
David Mooring(9)........................ 306,500 1.6 1.4
Allen Roberts(10)....................... 475,500 2.5 2.2
Subodh Toprani(11)...................... 195,500 1.0 0.9
William Davidow(12)..................... 2,551,516 13.6 11.9
Bruce Dunlevie(13)...................... 2,534,516 13.5 11.8
P. Michael Farmwald..................... 1,831,548 9.8 8.5
Charles A. Geschke(14).................. 60,000 0.3 0.3
Mark Horowitz........................... 1,068,365 5.7 5.0
All directors and executive officers as
a group (11 persons)(15)............... 10,470,234 54.6 47.7
</TABLE>
- --------
(1) Number of shares beneficially owned and percentage of shares beneficially
owned are based on: (i) 18,703,651 shares outstanding as of March 31,
1997; and (ii) after this offering, 21,453,651 shares outstanding. Unless
otherwise indicated below, the persons and entities named in the table
have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws
55
<PAGE>
where applicable. All shares subject to options are currently exercisable
and are deemed to be outstanding and to be beneficially owned by the
person holding such options for the purpose of computing the percentage
ownership of such person, but are not deemed to be outstanding and to be
beneficially owned for the purpose of computing the percentage ownership
of any other person.
(2) Represents 2,491,516 shares held of record by Merrill, Pickard, Anderson
& Eyre V, L.P. Bruce W. Dunlevie, a director of the Company, is a general
manager of MPAE V Management Co. which is a general partner of Merrill,
Pickard, Anderson & Eyre V, L.P. and is deemed to have voting and
investment power with respect to such shares. See footnote 13 below.
(3) Represents 2,491,516 shares held of record by Mohr, Davidow Ventures II.
William Davidow, a director of the Company, is a general partner of
WHD/LGM Partners which is a general partner of Mohr, Davidow Ventures II
and is deemed to have voting and investment power with respect to such
shares. See footnote 12 below.
(4) Represents 2,314,016 shares and 77,500 shares held of record by Kleiner,
Perkins, Caufield & Byers V and Kleiner, Perkins, Caufield & Byers
Zaibatsu Fund I, respectively. KPCB V Associates, a California limited
partnership, is deemed to have voting and investment power with respect
to such shares. The general partners of KPCB V Associates are Frank J.
Caufield, Brook H. Byers, L. John Doerr, E. Floyd Kvamme, James P. Lally
and Vinod Khosla. No person affiliated with the Company is affiliated
with KPCB V Associates.
(5) Represents stock owned by certain investment partnerships, of which
affiliates of The Goldman Sachs Group, L.P. ("GS Group") are the general
partner, managing general partner or investment manager. Includes
1,176,471 shares held of record by GS Capital Partners, L.P.; 57,471
shares held of record by Stone Street Fund 1994, L.P.; 60,175 shares held
of record by Bridge Street Fund 1994, L.P.; 55,356 shares held of record
by Stone Street Fund 1995, L.P.; and 62,292 shares held of record by
Bridge Street Fund 1995, L.P. The general partner of GS Capital Partners,
L.P. is GS Advisors, L.P., a Delaware limited partnership. The general
partner of GS Advisors, L.P. is GS Advisors, Inc., a Delaware
corporation. The general partner of Stone Street Fund 1994, L.P. and the
managing general partner of Bridge Street Fund 1994, L.P. is Stone Street
Funding Corp., a Delaware corporation. The general partner of Stone
Street Fund 1995, L.P. and the managing general partner of Bridge Street
Fund 1995, L.P. is Stone Street Value Corp., a Delaware corporation. GS
Group disclaims beneficial ownership of the shares owned by such
investment partnerships to the extent attributable to partnership
interests therein held by persons other than GS Group and its affiliates.
Each of such investment partnerships shares voting and investment power
with certain of its respective affiliates. No person affiliated with the
Company is affiliated with GS Group and its affiliates.
(6) Represents 945,251 shares and 13,292 shares held of record by Integral
Capital Partners, L.P. and Integral Capital Partners International, C.V.,
respectively. Integral Capital Management, L.P. is the sole general
partner of Integral Capital Partners, L.P. and Integral Capital Partners
International, C.V. and is deemed to have voting and investment power
with respect to such shares. Each of John Powell and Roger McNamee,
neither of which is an affiliate of the Company, is deemed to have voting
and investment power with respect to such shares.
(7) Includes 75,000 shares subject to options exercisable within 60 days of
March 31, 1997 of which no shares were vested as of April 9, 1997 and
75,000 shares were unvested and subject to a right of repurchase in favor
of the Company which lapses over time. Also includes 15,000 shares held
of record by Mr. Tate's wife, Colleen Thygesen Tate, as Trustee for their
children. At April 9, 1997, 173,334 shares held by Mr. Tate were subject
to a right of repurchase in favor of the Company which lapses over time.
(8) Includes 30,500 shares subject to options exercisable within 60 days of
March 31, 1997 of which no shares were vested as of April 9, 1997 and
30,500 shares were unvested and subject to a right of repurchase in favor
of the Company which lapses over time. Also includes 2,500 shares held of
record by Heather H. Harmon of which Mr. Harmon disclaims beneficial
ownership. At April 9, 1997, 44,167 shares held by Mr. Harmon were
subject to a right of repurchase in favor of the Company which lapses
over time.
56
<PAGE>
(9) At April 9, 1997, 112,750 shares held by Mr. Mooring were subject to a
right of repurchase in favor of the Company which lapses over time.
(10) Includes 200,500 shares subject to options exercisable within 60 days of
March 31, 1997 of which 70,312 shares were vested as of April 9, 1997 and
130,188 shares were unvested and subject to a right of repurchase in
favor of the Company which lapses over time.
(11) Includes 80,500 shares subject to options exercisable within 60 days of
March 31, 1997 of which 1,666 shares were vested as of April 9, 1997 and
78,834 shares were unvested and subject to a right of repurchase in favor
of the Company which lapses over time.
(12) Includes all shares held by entities affiliated with WHD/LGM Partners.
See footnote 3 above. Mr. Davidow, as a general partner of WHD/LGM
Partners, is deemed to have voting and investment power with respect to
such Shares. Also includes 50,000 shares held of record by The Chachagua
Partnership, a California Limited Partnership, of which Mr. Davidow is a
partner and is deemed to have voting and investment power with respect to
such shares. Also includes 10,000 shares subject to options exercisable
within 60 days of March 31, 1997, of which no shares were vested as of
April 9, 1997 and 10,000 were unvested and subject to a right of
repurchase in favor of the Company which lapses over time.
(13) Includes all shares held by entities affiliated with MPAE V Management
Co. See footnote 2 above. Mr. Dunlevie, as a general partner of MPAE V
Management Co., may be deemed to beneficially own such shares, but Mr.
Dunlevie disclaims beneficial ownership of all such shares except to the
extent of his pecuniary interest therein. Also includes (i) 35,000 shares
subject to options exerciseable within 60 days of March 31, 1997, of
which 25,000 shares were vested as of April 9, 1997 and 10,000 shares
were unvested and subject to a right of repurchase in favor of the
Company which lapses over time and (ii) 8,000 shares held of record by
Mr. Dunlevie as trustee for his children.
(14) Includes 25,000 shares held of record by The Geschke Family Trust Dated
9/25/87, and 35,000 shares subject to options exercisable within 60 days
of March 31, 1997 of which 6,770 shares were vested as of April 9, 1997
and 28,230 shares were unvested and subject to a right of repurchase in
favor of the Company which lapses over time.
(15) Includes 476,500 shares subject to options exercisable within 60 days of
March 31, 1997 of which 103,748 shares were vested as of April 9, 1997
and 372,752 shares were unvested and subject to a right of repurchase in
favor of the Company which lapses over time. At April 9, 1997, 364,418
shares held by such persons were subject to a right of repurchase in
favor of the Company which lapses over time.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 60,000,000 shares of
Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001
par value. The Company has designated 40,000 shares of its Preferred Stock as
Series E Participating Preferred Stock ("Series E Preferred") for issuance
pursuant to the exercise of rights ("Rights") under a rights agreement;
currently, no shares of Preferred Stock are outstanding.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Amended and
Restated Certificate of Incorporation which is included as an exhibit to the
Registration Statement of which this Prospectus is a part and by the
provisions of applicable law.
COMMON STOCK
As of March 31, 1997, there were 18,703,651 shares of Common Stock
outstanding that were held of record by approximately 182 stockholders. There
will be 21,453,651 shares of Common Stock outstanding (based on the number of
shares outstanding as of March 31, 1997, and assuming no exercise of the
Underwriters' over-allotment option) after giving effect to the sale of Common
Stock offered to the public hereby.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding shares of Preferred
Stock, the holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available for the payment of dividends. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, the holders
of Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities and liquidation preferences of any outstanding shares
of Preferred Stock. Holders of Common Stock have no preemptive rights or
rights to convert their Common Stock into any other securities. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and non-assessable, and the
shares of Common Stock to be issued upon completion of this offering will be
fully paid and non-assessable.
PREFERRED STOCK
Pursuant to the Company's Restated Certificate of Incorporation, the Board
of Directors has the authority, without further action by the stockholders, to
issue up to 5,000,000 shares of Preferred Stock (less 40,000 shares which have
been designated Series E Preferred Stock pursuant to the stockholder rights
agreement) in one or more series and to fix the designations, powers,
preferences and privileges, and relative participating, optional or special
rights and the qualifications, limitations or restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of redemption and
liquidation preferences, any or all of which may be greater than the rights of
the Common Stock. The Board of Directors, without stockholder approval, can
issue Preferred Stock with voting, conversion or other rights that could
adversely affect the voting power and other rights of holders of Common Stock.
Preferred Stock could thus be issued quickly with terms calculated to delay,
or prevent a change in control of the Company or make removal of management
more difficult. Additionally, the issuance of Preferred Stock may have the
effect of decreasing the market price of the Common Stock, and may adversely
affect the voting and the other rights of the holders of Common Stock. At
present, there are no shares of Preferred Stock outstanding and the Company
has no plans to issue any of the Preferred Stock, expect as described below.
Series E Preferred purchasable upon exercise of the Rights will not be
redeemable. Each share of Series E Preferred will be entitled to an aggregate
dividend of 1,000 times the dividend declared per share of Common Stock. In
the event of liquidation, the holders of the Series E Preferred will be
entitled to 1,000 times the amount paid per share of Common Stock plus an
amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment. Each share of Series E
Preferred will have 1,000 votes, voting together with the Common Stock. These
rights are protected by customary anti-dilution provisions.
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Because of the nature of the dividend, liquidation and voting rights of the
shares of Series E Preferred, the value of the one one-thousandth interest in
a share of Series E Preferred purchasable upon exercise of each Right should
approximate the value of one share of Common Stock. See "--Certain
Antitakeover Effects--Rights Plan."
REGISTRATION RIGHTS
Pursuant to an agreement between the Company and the holders (the "Holders")
of approximately 12,000,000 shares of Common Stock issuable upon conversion of
Preferred Stock or exercise of a warrant (the "Registrable Securities"), the
Holders are entitled to certain rights with respect to the registration of
such shares under the Securities Act. If the Company proposes to register any
of its securities under the Securities Act, either for its own account or for
the account of other security Holders exercising registration rights, such
Holders are entitled to notice of such registration and are entitled to
include shares of such Common Stock therein. Additionally, Holders of the
Registrable Securities are also entitled to certain demand registration rights
pursuant to which they may require the Company to file a registration
statement under the Securities Act at the Company's expense with respect to
their shares of Common Stock, and the Company is required to use its best
efforts to effect such registration. Further, the Holders of such Registrable
Securities may require the Company to file additional registration statements
on Form S-3 at the Company's expense. All of these registration rights are
subject to certain conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in such
registration and the right of the Company not to effect a requested
registration within nine months following an offering of the Company's
securities, including the offering made hereby.
TRANSFER AGENT AND REGISTRAR
Boston Equiserve has been appointed as the transfer agent and registrar for
the Company's Common Stock. Its telephone number for such purposes is (800)
730-6001.
CERTAIN ANTITAKEOVER EFFECTS
Certificate of Incorporation and Bylaws
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") provides that the Company's Board of Directors is classified
into two classes of directors. See "Management--Classified Board." The Amended
and Restated Certificate of Incorporation also provides that, upon the
completion of this offering, stockholders can take action only at a duly
called annual or special meeting of stockholders. Accordingly, stockholders of
the Company will not be able to take action by written consent in lieu of a
meeting. This provision may have the effect of deterring hostile takeovers or
delaying changes in control or management of the Company.
The Amended and Restated Bylaws of the Company (i) permit only a majority of
the Board of Directors to call a special meeting of the stockholders and (ii)
require prior notice of matters to be brought before meetings of the
stockholders.
Amendment
The Certificate provides that the affirmative vote of the holders of at
least two thirds of the shares entitled to vote, voting together as a single
class, is required to amend provisions of the Certificate relating to
stockholder action without a meeting and the calling of special meetings. The
Certificate further provides that the related Bylaws described above
(including the stockholder notice procedure) may be amended only by the
Company's Board or by the affirmative vote of the holders of at least two
thirds of the voting power of the outstanding shares entitled to vote.
These provisions of the Amended and Restated Certificate of Incorporation
and Amended and Restated Bylaws could discourage potential acquisition
proposals and could delay or prevent a change in control of the Company. Such
provisions also may have the effect of preventing changes in the management of
the Company. See "Risk Factors--Certain Antitakeover Provisions."
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Delaware Takeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such
stockholder became an interested stockholder, unless: (i) prior to such date,
the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding, for purposes of
determining the number of shares outstanding, those shares owned (x) by
persons who are directors and also officers and (y) by employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least two thirds of the outstanding voting stock which
is not owned by the interested stockholder. Prior to the offering made hereby,
each stockholder which is an interested stockholder of the Company became an
interested stockholder in a transaction approved by the Company's Board of
Directors. Therefore, Section 203 would not impose any restrictions on a
business combination between the Company and any of its existing interested
stockholders. However, the restrictions of Section 203 would apply to a
business combination between the Company and any of its other stockholders who
in the future becomes an interested stockholder in a transaction not aproved
by the Company's Board of Directors, unless the business combination involving
such stockholder is approved in advance by the Board of Directors.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation; (iii) subject to
certain exceptions, any transaction which results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; or (iv) the receipt by the interested stockholder of the benefit
of any loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation. In general, Section 203 defines an
interested stockholder as any entity or person who is (i) the owner of 15% or
more of the outstanding voting stock of the corporation or (ii) an affiliate
or associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the 3-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder; and the affiliates and
associates of such person.
Limitation of Director and Officer Liability
The Company's Amended and Restated Certificate of Incorporation and Bylaws
contain certain provisions relating to the limitation of liability and
indemnification of directors and officers. The Company's Amended and Restated
Certificate of Incorporation provides that directors of the Company may not be
held personally liable to the Company or its stockholders for a breach of
fiduciary duty, except for liability (i) for any breach of the director's duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of the law, (iii) under Section 174 of the Delaware General Corporation Law,
relating to prohibited dividends, distributions and repurchases or redemptions
of stock, or (iv) for any transaction from which the director derives an
improper benefit. In addition, the Company's Amended and Restated Certificate
of Incorporation and Bylaws provide that the Company shall indemnify its
directors and officers to the fullest extent authorized by Delaware law.
Rights Plan
On February 28, 1997, pursuant to a Preferred Shares Rights Agreement (the
"Rights Agreement") between the Company, and Boston Equiserve, as Rights Agent
(the "Rights Agent"), the Company's Board of Directors declared a dividend of
one Right to purchase one one-thousandth share of the Company's Series E
Preferred for
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each outstanding share of Common Stock. The dividend is payable on April 1,
1997 (the "Record Date") to stockholders of record as of the close of business
on that day. Each Right entitles the registered holder to purchase from the
Company one one-thousandth of a share of Series E Preferred at an exercise
price of $125.00 (the "Purchase Price"), subject to adjustment.
The Rights will not be exercisable until the Distribution Date (defined
below). Certificates for the Rights ("Rights Certificates") will not be sent
to stockholders and the Rights will attach to and trade only together with the
Common Stock. Accordingly, Common Stock certificates outstanding on the Record
Date will evidence the Rights related thereto, and Common Stock certificates
issued after the Record Date will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender or transfer of any certificates for
Common Stock outstanding as of the Record Date, even without notation or a
copy of the Summary of Rights being attached thereto, will also constitute the
transfer of the Rights associated with the Common Stock represented by such
certificate.
The Rights will separate from the Common Stock, Rights Certificates will be
issued and the Rights will become exercisable upon the earlier of: (i) 10 days
(or such later date as may be determined by a majority of the Board of
Directors, excluding directors affiliated with the Acquiring Person, as
defined below (the "Continuing Directors")) following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired, or obtained the right to acquire, beneficial ownership
of 15% or more of the outstanding shares of Common Stock; or (ii) 10 business
days (or such later date as may be determined by a majority of the Continuing
Directors) following the commencement of, or announcement of an intention to
make, a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of 15% or more of the
outstanding Common Stock. The earlier of such dates is referred to as the
"Distribution Date."
As soon as practicable following the Distribution Date, separate Rights
Certificates will be mailed to holders of record of the Common Shares as of
the close of business on the Distribution Date and such separate Rights
Certificates alone will evidence the Rights from and after the Distribution
Date. The Rights will expire on the earliest of (i) March 21, 2007 (the "Final
Expiration Date") or (ii) redemption or exchange of the Rights as described
below.
Following the Distribution Date, and until one of the further events
described below, holders of the Rights will be entitled to receive, upon
exercise and the payment of the Purchase Price, one one-thousandth of a share
of the Series E Preferred Stock.
Unless the Rights are earlier redeemed, in the event that an Acquiring
Person becomes the beneficial owner of 15% or more of the Company's Common
Stock then outstanding, then proper provision will be made so that each holder
of a Right which has not theretofore been exercised (other than Rights
beneficially owned by the Acquiring Person or any affiliate of the Acquiring
Person, which will thereafter be void) will thereafter have the right to
receive, upon exercise, shares of Common Stock having a value equal to two
times the Purchase Price. In the event that the Company does not have
sufficient Common Stock available for all Rights to be exercised, or the Board
decides that such action is necessary and not contrary to the interests of
Rights holders, the Company may instead substitute cash, assets or other
securities for the Common Stock for which the Rights would have been
exercisable.
Similarly, unless the Rights are earlier redeemed, in the event that, after
an Acquiring Person becomes the beneficial owner of 15% or more of the
Company's Common Stock then outstanding, (i) the Company is acquired in a
merger or other business combination transaction, or (ii) 50% or more of the
Company's consolidated assets or earning power are sold (other than in
transactions in the ordinary course of business), proper provision must be
made so that each holder of a Right which has not theretofore been exercised
(other than Rights beneficially owned by the Acquiring Person or any affiliate
of the Acquiring Person, which will thereafter be void) will thereafter have
the right to receive, upon exercise, shares of common stock of the acquiring
company having a value equal to two times the Purchase Price.
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At any time after the acquisition by an Acquiring Person of beneficial
ownership of 15% or more of the Company's outstanding shares of Common Stock
and prior to the acquisition by any person or entity of beneficial ownership
of 50% or more of the Company's outstanding shares of Common Stock, the Board
of Directors of the Company may exchange the Rights (other than Rights owned
by the Acquiring Person), in whole or in part, at an exchange ratio of one
Common Share per Right.
At any time on or prior to the close of business on the earlier of (i) the
10th day following the acquisition by an Acquiring Person of beneficial
ownership of 15% or more of the Company's Common Stock or such later date as
may be determined by a majority of the Continuing Directors and publicly
announced by the Company, or (ii) the Final Expiration Date of the Rights, the
Company may redeem the Rights in whole, but not in part, at a price of $0.001
per Right.
The Purchase Price payable, the number of Rights, and the number of Series E
Preferred or Common Stock or other securities or property issuable upon
exercise of the Rights are subject to adjustment from time to time in
connection with dilutive issuances by the Company as set forth in the Rights
Agreement. With certain exceptions, no adjustment in the Purchase Price will
be required until cumulative adjustments require an adjustment of at least 1%
in such Purchase Price.
No fractional portion less than integral multiples of one share of Common
Stock or one one-thousandth of a share of Series E Preferred will be issued
upon exercise of a Right and in lieu thereof, an adjustment in cash will be
made based on the market price of the security to be so issued on the last
trading date prior to the date of exercise.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company (other than any rights resulting from such
holder's ownership of Common Stock), including, without limitation, the right
to vote or to receive dividends.
The provisions of the Rights Agreement may be supplemented or amended by the
Board of Directors in any manner prior to the close of business on the date
the Rights separate from the Common Stock and become exercisable. After such
date, the provisions of the Rights Agreement may be amended by the Board in
order to cure any ambiguity, defect or inconsistency, to make changes which do
not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or to shorten or lengthen any time period
under the Rights Agreement; provided, however, that no amendment to adjust the
time period governing redemption shall be made at such time as the Rights are
not redeemable.
Series E Preferred purchasable upon exercise of the Rights will not be
redeemable. Each share of Series E Preferred will be entitled to an aggregate
dividend of 1,000 times the dividend declared per Common Share. In the event
of liquidation, the holders of the Series E Preferred will be entitled to
1,000 times the amount paid per share of Common Stock plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment. Each share of Series E Preferred will
have 1,000 votes, voting together with the Common Stock. These rights are
protected by customary anti-dilution provisions.
Because of the nature of the dividend, liquidation and voting rights of the
shares of Series E Preferred, the value of the one one-thousandth interest in
a share of Series E Preferred purchasable upon exercise of each Right should
approximate the value of one share of Common Stock.
The Rights approved by the Board are designed to protect and maximize the
value of the outstanding equity interests in the Company in the event of an
unsolicited attempt by an acquiror to take over the Company, in a manner or on
terms not approved by the Board of Directors. Takeover attempts frequently
include coercive tactics to deprive the Company's Board of Directors and its
stockholders of any real opportunity to determine the destiny of the Company.
The Rights have been declared by the Board in order to deter such tactics,
including a gradual accumulation of shares in the open market of a 15% or
greater position to be followed by a merger or a partial or two-tier tender
offer that does not treat all stockholders equally. These tactics unfairly
pressure
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stockholders, squeeze them out of their investment without giving them any
real choice and deprive them of the full value of their shares.
The Rights are not intended to prevent a takeover of the Company and will
not do so. The Rights may be redeemed by the Company at $0.001 per Right
within ten days (or such later date as may be determined by a majority of the
Continuing Directors) after the accumulation of 15% or more of the Company's
shares by a single acquiror or group. Accordingly, the Rights should not
interfere with any merger or business combination approved by the Board of
Directors.
Issuance of the Rights does not in any way weaken the financial strength of
the Company or interfere with its business plans. The issuance of the Rights
themselves has no dilutive effect, will not affect reported earnings per
share, should not be taxable to the Company or to its stockholders and will
not change the way in which the Company's shares are presently traded. The
Company's Board of Directors believes that the Rights represent a sound and
reasonable means of addressing the complex issues of corporate policy created
by the current takeover environment.
However, the Rights may have the effect of rendering more difficult or
discouraging an acquisition of the Company deemed undesirable by the Board of
Directors. The Rights may cause substantial dilution to a person or group that
attempts to acquire the Company on terms or in a manner not approved by the
Company's Board of Directors, except pursuant to an offer conditioned upon the
negation, purchase or redemption of the Rights.
Intel Agreement
The Intel Contract grants to Intel certain rights to make a competing offer
if Rambus commences negotiations with any third party to enter into a
transaction (i) after which such third party would beneficially own more than
50% of the voting power of Rambus, (ii) in which Rambus would be a party to a
merger with such third party and Rambus would not be the surviving corporation
or (iii) Rambus would transfer all or substantially all of its business and
assets to the third party. The Intel Contract does not require that Rambus
accept any such competing offer from Intel. However, should Rambus complete
such a transaction with a third party after receiving from Intel a bona fide
offer including money and other consideration at least equal to the money and
other consideration included in the third party offer, and on other terms and
conditions at least as favorable as those included in the third party offer,
then certain of Intel's royalty obligations would cease, the Company would be
obligated to refund to Intel certain previously paid royalties, and the
license of Rambus technology to Intel under the Intel Contract would become
fully paid, irrevocable and would survive any termination of the Intel
Contract. This provision of the Intel Contract may significantly discourage
future acquisition attempts, even where such acquisitions might be in the best
interest of Rambus stockholders. This provision of the Intel Contract will
terminate if Intel fails to maintain a specified level of shipments of Rambus
compatible ICs after a specified date. See "Certain Transactions--1996
Transactions with Intel Corporation."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices from time to
time. Furthermore, since only a limited number of shares will be available for
sale shortly after this offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of this offering the Company will have outstanding an
aggregate of 21,453,651 shares of Common Stock (based upon shares outstanding
at March 31, 1997), assuming no exercise of the Underwriters' over-allotment
option and no exercise of outstanding options. Of these shares, all of the
shares sold in this offering will be freely tradeable without restriction or
further registration under the Securities Act, unless such shares are
purchased by "affiliates" of the Company as that term is defined in Rule 144
under the Securities Act (the "Affiliates"). The remaining 18,703,651 shares
of Common Stock held by existing stockholders are "restricted securities" as
that term is defined in Rule 144 under the Securities Act ("Restricted
Shares"). Restricted Shares may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act, which rules are
summarized below. As a result of the contractual restrictions described below
and the provisions of Rules 144, 144(k) and 701, the Restricted Shares will be
available for sale in the public market as follows: (i) no shares will be
eligible for immediate sale on the date of this Prospectus; and (ii)
18,703,651 shares will be eligible for sale upon expiration of the lock-up
agreements 180 days after the date of this Prospectus.
All officers, directors, stockholders and option holders of the Company have
agreed not to offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly (or enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of), any shares of Common Stock or any securities convertible into
or exercisable or exchangeable for shares of Common Stock, for a period of 180
days after the date of this Prospectus, without the prior written consent of
Morgan Stanley & Co. Incorporated.
In general, under Rule 144 as it will be in effect upon the completion of
the offering, beginning 90 days after the date of this Prospectus, a person
(or persons whose shares are aggregated) who has beneficially owned Restricted
Shares for at least one year (including the holding period of any prior owner
except an Affiliate) would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of: (i) one percent of the
number of shares of Common Stock then outstanding (which will equal
approximately 214,536 shares immediately after this offering); or (ii) the
average weekly trading volume of the Common Stock on the Nasdaq National
Market during the four calendar weeks preceding the filing of a notice on Form
144 with respect to such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an Affiliate of the Company at
any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years (including the holding
period of any prior owner except an Affiliate), is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144; therefore, unless otherwise
restricted, "144(k) shares" may therefore be sold immediately upon the
completion of this offering. In general, under Rule 701 of the Securities Act
as currently in effect, any employee, consultant or advisor of the Company who
purchases shares from the Company in connection with a compensatory stock or
option plan or other written agreement is eligible to resell such shares 90
days after the effective date of this offering in reliance on Rule 144, but
without compliance with certain restrictions, including the holding period,
contained in Rule 144.
Upon completion of this offering, the holders of 12,296,822 shares of Common
Stock issuable upon conversion of Preferred Stock or exercise of a warrant, or
their transferees, will be entitled to certain rights with respect to the
registration of such shares under the Securities Act. See "Description of
Capital Stock--
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Registration Rights." Registration of such shares under the Securities Act
would result in such shares becoming freely tradeable without restriction
under the Securities Act (except for shares purchases by affiliates)
immediately upon the effectiveness of such registration.
The Company intends to file a registration statement under the Securities
Act covering shares of Common Stock reserved for issuance under the Company's
1997 Stock Plan and Stock Purchase Plan and shares subject to outstanding
options under the 1990 Plan. See "Management--Stock Plans." Such registration
statement is expected to be filed and become effective as soon as practicable
after the effective date of this offering. Accordingly, shares registered
under such registration statement will, subject to Rule 144 volume limitations
applicable to Affiliates, be available for sale in the open market, unless
such shares are subject to vesting restrictions with the Company or the lock-
up agreements described above. As of March 31, 1997, options to purchase
2,174,470 shares of Common Stock were issued and outstanding under the 1990
Plan, and no options to purchase shares had been granted under the Company's
1997 Plan and 1997 Stock Purchase Plan. Subsequent to March 31, 1997 the Board
of Directors granted options to purchase an additional 83,500 shares of Common
Stock at a weighted average exercise price of $8.00 per share under the 1990
Plan. See "Management--Director Compensation" and "--Stock Plans."
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UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof, the Underwriters named below (the
"Underwriters"), for whom Morgan Stanley & Co. Incorporated, Hambrecht & Quist
LLC and Robertson, Stephens & Company LLC are serving as Representatives (the
"Representatives"), have severally agreed to purchase, and the Company has
agreed to sell to them severally the respective number of shares of Common
Stock set forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated..................................
Hambrecht & Quist LLC..............................................
Robertson, Stephens & Company LLC..................................
---------
Total............................................................ 2,750,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and
pay for all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any are taken.
The Underwriters initially propose to offer part of the shares of Common
Stock offered hereby directly to the public at the initial public offering
price set forth on the cover page hereof and part to certain dealers at a
price which represents a concession not in excess of $ per share under the
initial public offering price. The Underwriters may allow, and such dealers
may re-allow, a concession not in excess of $ per share to other
Underwriters or to certain other dealers.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an additional 412,500 shares of Common Stock at
the initial public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. The Underwriters may exercise such
option to purchase solely for the purpose of covering over-allotments, if any,
incurred in the sale of the shares of Common Stock offered hereby. To the
extent such option is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage
of such additional shares as the number set forth next to such Underwriter's
name in the preceding table bears to the total number of shares of Common
Stock offered hereby.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales in excess of five percent of the number of shares of
Common Stock offered hereby to accounts over which they exercise discretionary
authority.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
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See "Shares Eligible for Future Sale" for a description of certain
arrangements by which all officers, directors, stockholders and option holders
of the Company have agreed not to sell or otherwise dispose of Common Stock or
convertible securities of the Company for up to 180 days after the date of
this Prospectus without the prior consent of Morgan Stanley & Co.
Incorporated. The Company has agreed in the Underwriting Agreement that it
will not, directly or indirectly, without the prior written consent of Morgan
Stanley & Co. Incorporated, offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of
any shares of Common Stock or any securities convertible into or exchangeable
for Common Stock, for a period of 180 days after the date of this Prospectus,
except under certain circumstances.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the Common Stock in the offering, if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
Morgan Stanley Group Inc., which is associated with Morgan Stanley & Co.
Inc., is a limited partner of the general partner of Integral Capital
Partners, L.P. and Integral Capital Partners, C.V., which in the aggregate
will own 1,045,599 shares, or 4.5% of the outstanding capital stock of the
Company, upon the closing of the offering. Morgan Stanley & Co. Inc. disclaims
beneficial ownership of the shares held by Integral Capital Partners, L.P. and
Integral Capital Partners, C.V., except to the extent of any pecuniary
interest therein.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Common Stock
of the Company. The initial public offering price will be determined by
negotiations between the Company and the Representatives. Among the factors
considered in determining the initial public offering price will be the future
prospects of the Company and its industry in general, sales, earnings and
certain other financial and operating information of the Company in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies
engaged in activities similar to those of the Company. The estimated initial
public offering price range set forth on the cover page of this Preliminary
Prospectus is subject to change as a result of market conditions and other
factors.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650
Page Mill Road, Palo Alto, California 94304. Certain legal matters in
connection with the offering will be passed upon for the Underwriters by
Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California 94306.
EXPERTS
The consolidated financial statements and schedule of the Company at
September 30, 1995 and 1996 and for each of the three years in the period
ended September 30, 1996 appearing in this Prospectus and Registration
Statement have been audited by Coopers & Lybrand L.L.P., independent auditors,
as set forth in their report thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
67
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. Certain
items are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed therewith. Statements contained in this
Prospectus as to the contents of any contract or any other document referred
to are not necessarily complete, and, in each instance, reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. A copy of the Registration Statement, and the exhibits and
schedules thereto, may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part of the Registration Statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov.
68
<PAGE>
RAMBUS INC.
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Deficit........................... F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Rambus Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Rambus Inc.
and Subsidiary as of September 30, 1995 and 1996, and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
three years in the period ended September 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Rambus Inc.
and Subsidiary as of September 30, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 1996 in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
San Jose, California
November 1, 1996, except for Note 17
for which the date is
March 31, 1997.
F-2
<PAGE>
RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
(NOTE 16)
SEPTEMBER 30, MARCH
------------------ MARCH 31, 31,
1995 1996 1997 1997
-------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 977 $ 742 $ 1,210
Marketable securities................ 13,173 7,812 9,282
Accounts receivable.................. 1,206 718 7,330
Prepaids and other current assets.... 840 873 1,357
-------- -------- --------
Total current assets............... 16,196 10,145 19,179
Property and equipment, net............ 1,598 2,340 3,144
Investment............................. -- -- 1,129
Other assets........................... 513 383 391
-------- -------- --------
Total assets....................... $ 18,307 $ 12,868 $ 23,843
======== ======== ========
LIABILITIES
Current liabilities:
Accounts and taxes payable, accrued
payroll and other liabilities....... $ 1,113 $ 1,237 $ 1,844
Current portion of:
Capital lease obligations........... 929 753 551
Deferred revenue.................... 9,721 13,082 17,910
-------- -------- --------
Total current liabilities.......... 11,763 15,072 20,305
Capital lease obligations, less current
portion............................... 687 544 296
Deferred revenue, less current
portion............................... 13,793 9,396 14,307
-------- -------- --------
Total liabilities.................. 26,243 25,012 34,908
-------- -------- --------
Commitments (Note 9)
STOCKHOLDERS' DEFICIT
Convertible preferred stock, $.001 par
value:
Authorized: 11,336,096 shares;
Issued and outstanding: 11,296,822
shares at September 30, 1995 and
1996 and March 31, 1997 and no
shares pro forma.................... 11 11 11
(Liquidation value: $19,894 at
September 30, 1995 and 1996 and
March 31, 1997 and none pro forma)
Common stock, $.001 par value:
Authorized: 22,500,000 shares;
Issued and outstanding: 5,561,082
shares at September 30, 1995,
5,758,749 shares at September 30,
1996, 7,406,829 shares at March 31,
1997 and 18,703,651 shares pro
forma............................... 6 6 7 $ 18
Additional paid-in capital............. 22,095 22,330 23,809 23,809
Stockholders' notes receivable......... -- -- (733) (733)
Accumulated deficit.................... (30,077) (34,492) (34,104) (34,104)
Cumulative translation adjustment...... 29 1 (55) (55)
-------- -------- -------- --------
Total stockholders' deficit........ (7,936) (12,144) (11,065) $(11,065)
-------- -------- -------- ========
Total liabilities and
stockholders' deficit........... $ 18,307 $ 12,868 $ 23,843
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------- ------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Contract revenues........... $ 5,000 $ 7,364 $ 11,205 $ 5,072 $ 8,467
Royalties................... -- -- 65 -- 2,958
-------- -------- -------- -------- --------
Total revenues.......... 5,000 7,364 11,270 5,072 11,425
-------- -------- -------- -------- --------
Costs and expenses:
Cost of contract
revenues................. 3,844 5,236 4,821 2,301 2,396
Research and development.. 3,067 3,117 5,218 2,413 4,368
Sales and marketing....... 2,569 3,376 4,052 1,781 2,867
General and
administrative........... 1,717 1,688 1,747 833 1,278
-------- -------- -------- -------- --------
11,197 13,417 15,838 7,328 10,909
-------- -------- -------- -------- --------
Operating income
(loss)................. (6,197) (6,053) (4,568) (2,256) 516
Interest and other income,
net........................ 215 619 737 359 262
Interest expense............ (296) (297) (298) (155) (137)
-------- -------- -------- -------- --------
Income (loss) before
income taxes........... (6,278) (5,731) (4,129) (2,052) 641
Provision for income taxes.. 351 1,289 286 183 253
-------- -------- -------- -------- --------
Net income (loss)....... $ (6,629) $ (7,020) $ (4,415) $ (2,235) $ 388
======== ======== ======== ======== ========
Net income (loss) per
share...................... $ (1.29) $ (1.24) $ (0.73) $ (0.37) $ 0.02
======== ======== ======== ======== ========
Number of shares used in per
share calculations......... 5,124 5,665 6,088 6,047 20,083
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
AND FOR THE SIX MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCKHOLDERS' CUMULATIVE
----------------- -------------- PAID-IN NOTES ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT ADJUSTMENT TOTAL
--------- ------- ------ ------ ---------- ------------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30,
1993................... 7,697 $ 8 4,067 $ 4 $ 8,049 $ -- $(16,427) $ 15 $ (8,351)
Issuance of common
stock upon exercise of
options............... -- -- 1,248 1 226 -- -- -- 227
Repurchase of common
stock for cash........ -- -- (165) -- (6) -- -- -- (6)
Issuance of Series B
preferred stock....... 467 -- -- -- 999 -- -- -- 999
Issuance of Series C
preferred stock, net
of issuance costs of
$7.................... 1,250 1 -- -- 3,742 -- -- -- 3,743
Foreign currency
translation
adjustments........... -- -- -- -- -- -- -- 12 12
Net loss............... -- -- -- -- -- -- (6,630) -- (6,630)
--------- ------ ----- --- ------- ----- -------- ---- --------
Balances, September 30,
1994................... 9,414 9 5,150 5 13,010 -- (23,057) 27 (10,006)
Issuance of common
stock upon exercise of
options............... -- -- 499 1 189 -- -- -- 190
Issuance of Series D
preferred stock, net
of issuance costs of
$35................... 1,883 2 -- -- 7,963 -- -- -- 7,965
Repurchase of common
stock for cash........ -- -- (88) -- (3) -- -- -- (3)
Sale of Series A
preferred stock
purchase rights....... -- -- -- -- 936 -- -- -- 936
Foreign currency
translation
adjustments........... -- -- -- -- -- -- -- 2 2
Net loss............... -- -- -- -- -- -- (7,020) -- (7,020)
--------- ------ ----- --- ------- ----- -------- ---- --------
Balances, September 30,
1995................... 11,297 11 5,561 6 22,095 -- (30,077) 29 (7,936)
Issuance of common
stock upon exercise of
options............... -- -- 212 -- 239 -- -- -- 239
Repurchase of common
stock for cash........ -- -- (14) -- (4) -- -- -- (4)
Foreign currency
translation
adjustments........... -- -- -- -- -- -- -- (28) (28)
Net loss............... -- -- -- -- -- -- (4,415) -- (4,415)
--------- ------ ----- --- ------- ----- -------- ---- --------
Balances, September 30,
1996................... 11,297 11 5,759 6 22,330 -- (34,492) 1 (12,144)
Issuance of common
stock upon exercise of
options............... -- -- 1,648 1 1,479 (733) -- -- 747
Foreign currency
translation
adjustments........... -- -- -- -- -- -- -- (56) (56)
Net income............. -- -- -- -- -- -- 388 -- 388
--------- ------ ----- --- ------- ----- -------- ---- --------
Balances, March 31, 1997
(unaudited)............ 11,297 $ 11 7,407 $ 7 $23,809 $(733) $(34,104) $(55) $(11,065)
========= ====== ===== === ======= ===== ======== ==== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------- -----------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)........... $ (6,629) $ (7,020) $ (4,415) $(2,235) $ 388
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization............. 1,670 1,552 1,194 570 820
Other..................... (37) 36 82 38 29
Change in operating assets
and liabilities:
Accounts receivable..... 895 (1,096) 488 117 (6,612)
Prepaids and other
current assets......... 409 (226) (33) (283) (484)
Other assets............ 225 191 130 18 (8)
Accounts and taxes
payable, accrued
payroll and other
liabilities............ (325) (243) 54 83 568
Deferred revenue........ 1,990 8,096 (1,036) 1,748 8,539
-------- -------- -------- ------- --------
Net cash provided by
(used in) operating
activities........... (1,802) 1,290 (3,536) 56 3,240
-------- -------- -------- ------- --------
Cash flows from investing
activities:
Purchase of property and
equipment.................. (450) (1,227) (1,952) (998) (1,553)
Proceeds from sale of
property and equipment..... 350 516 467 147 --
Purchases of marketable
securities................. (12,501) (27,611) (20,050) (12,692) (11,735)
Maturities of marketable
securities................. 9,000 17,939 25,410 13,229 10,265
-------- -------- -------- ------- --------
Net cash provided by
(used in) investing
activities........... (3,601) (10,383) 3,875 (314) (3,023)
-------- -------- -------- ------- --------
Cash flows from financing
activities:
Issuance of Series B
preferred stock............ 1,000 -- -- -- --
Issuance of Series C
preferred stock............ 3,743 -- -- -- --
Issuance of Series D
preferred stock............ -- 7,965 -- -- --
Sale of convertible
preferred stock purchase
rights..................... -- 936 -- -- --
Issuance of common stock.... 227 189 239 98 747
Repurchase of common stock.. (6) (3) (4) -- --
Proceeds from bank loans.... -- -- -- -- 794
Principal payments on bank
loans...................... -- -- -- -- (794)
Principal payments on
capital lease obligations.. (486) (565) (781) (318) (440)
-------- -------- -------- ------- --------
Net cash provided by
(used in) financing
activities........... 4,478 8,522 (546) (220) 307
-------- -------- -------- ------- --------
Foreign currency translation
adjustment................... 12 2 (28) (16) (56)
-------- -------- -------- ------- --------
Net (decrease) increase in
cash and cash equivalents.... (913) (569) (235) (494) 468
Cash and cash equivalents at
beginning of period.......... 2,459 1,546 977 977 742
-------- -------- -------- ------- --------
Cash and cash equivalents at
end of period................ $ 1,546 $ 977 $ 742 $ 483 $ 1,210
======== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF THE COMPANY:
Rambus Inc. and Subsidiary (the Company) designs, develops, licenses and
markets high-speed chip-to-chip interface technology to enhance the
performance and cost-effectiveness of consumer electronics, computer systems
and other electronic systems. The Company licenses semiconductor companies to
manufacture and sell memory and logic ICs incorporating Rambus interface
technology and markets its solution to systems vendors to encourage them to
design Rambus interface technology into their products. The Company's
technology cost-effectively increases the data transfer rate, or memory
bandwidth, allowing semiconductor memory devices to keep pace with faster
generations of processors and controllers and thus supports the accelerating
data transfer requirements of multimedia and other high-bandwidth
applications.
The Company was incorporated on March 9, 1990 in California. In March 1997,
the Company was reincorporated in Delaware. Note 17 sets out the details of
the reincorporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Financial Statement Presentation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Rambus K.K., located in Tokyo,
Japan. All intercompany accounts and transactions have been eliminated in the
accompanying consolidated financial statements. Identifiable assets and
revenues of the subsidiary are not significant.
Certain reclassifications have been made to the fiscal 1994 financial
statement amounts to conform to the fiscal 1995 and 1996 presentation. The
reclassifications have no effect on previously reported net loss,
stockholders' deficit, total assets or total liabilities.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition:
The Company has entered into nonexclusive technology agreements with
semiconductor licensees. These agreements provide a license to use the
Company's proprietary technology and to receive engineering implementation
services, customer support, and enhancements.
A new licensee receives an implementation package from the Company which
contains all the information needed to develop a Rambus chip in the licensee's
process. An implementation package includes a specification, a generalized
circuit layout database ("software") for the particular version of the chip
which the licensee intends to develop, test parameters ("software") and, for
memory chips, a core interface specification. Many licensees have contracted
to have Rambus provide the specific engineering implementation services
required to optimize the generalized circuit layout for the licensee's
manufacturing process. The contracts also provide for the right to receive
ongoing customer support which includes technical advice on chip
specifications, enhancements, debugging and testing.
The Company recognizes revenue consistent with Statement of Position 91-1,
Software Revenue Recognition ("SOP"). This SOP applies to all entities that
earn revenue on products containing software.
F-7
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED):
The contract fees for the services provided under these agreements are
comprised of license fees, engineering service fees and nonrefundable, prepaid
royalties. The contract fees are bundled together as the Company does not
provide or price these services separately. Accordingly, the revenues from
such contract fees are recognized ratably over the period during which the
post-contract customer support is expected to be provided independent of the
payment schedules under the contract, including milestones. This period
represents the development phase for a specific product as well as the
estimated life of that product during which the product is supported.
Historically the product life has been less than the contract life, however
the Company defers 5% of the contract fees to meet any insignificant
obligations arising under those contracts subsequent to product life. At
September 30, 1995 and 1996, and March 31, 1997, the amounts included in
deferred revenue to meet these obligations were $2.0 million, $2.5 million and
$3.4 million, respectively.
Part of these contract fees may be due upon the achievement of certain
milestones, such as provision of certain deliverables by the Company or
production of chips by the licensee. The remaining fees are due on pre-
determined dates and include significant up-front fees.
The Company recognizes royalties upon notification of sale by its licensees.
The terms of the royalty agreements generally require licensees to give
notification to the Company and to pay royalties within 60 days of the end of
the quarter during which the sales take place.
Research and Development:
Costs incurred in research and development are expensed as incurred.
Software development costs are capitalized beginning when a product's
technological feasibility has been established and ending when a product is
available for general release to customers. The Company has not capitalized
any software development costs since such costs have not been significant.
Income Taxes:
The Company accounts for income taxes under the liability method whereby
deferred tax asset or liability account balances are calculated at the balance
sheet date using current laws and rates in effect. Research and development
credits are accounted for using the flow-through method.
Computation of Historical Net Income (Loss) Per Share and Pro Forma Net
Income (Loss) Per Share:
Historical net income (loss) per share is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the period. Dilutive common equivalent shares consist of the
incremental common shares issuable upon conversion of convertible preferred
stock (using the "if converted" method) and stock options and warrants (using
the treasury stock method) as if converted for all periods.
The Company has computed common and common equivalent shares in determining
the number of shares used in calculating net income (loss) per share for all
periods presented pursuant to the Securities and Exchange Commission Staff
Accounting Bulletin (SAB) No. 83. SAB 83 requires the Company to include all
common shares and all common share equivalents issued during the 12 month
period preceding the filing date of an initial public offering in its
calculation of the number of shares used to determine net income (loss) per
share as if the shares had been outstanding for all periods presented.
Pro forma net income (loss) per share for the year ended September 30, 1996
and the six months ended March 31, 1997 assumes the common shares issuable
upon conversion of the outstanding convertible preferred stock have been
outstanding during such periods.
F-8
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED):
Pro forma net income (loss) per share is as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
1996 1997
------------- -----------
<S> <C> <C>
Net income (loss)................................ $(4,415) $ 388
======= ======
Pro forma net income (loss) per share............ $ (0.25) $ 0.02
======= ======
Pro forma number of shares used in per share
calculation..................................... 17,385 20,083
======= ======
</TABLE>
Cash and Cash Equivalents:
Cash equivalents are highly liquid investments with original or remaining
maturities of three months or less at the date of purchase. Cash equivalents
present risk of changes in value because of interest rate changes. The Company
maintains its cash balances with high quality financial institutions and has
not experienced any material losses relating to any investment instruments.
Marketable Securities:
Available-for-sale securities are carried at fair value, based on quoted
market prices, with the unrealized gains or losses, net of tax, reported in
stockholders' deficit. The amortized cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity, both of which
are included in interest income. Realized gains and losses are recorded on the
specific identification method.
Fair Value of Financial Instruments:
The amounts reported for cash equivalents, receivables and other financial
instruments are considered to approximate fair values based upon comparable
market information available at the respective balance sheet dates.
Property and Equipment:
Property and equipment are stated at cost and depreciated on a straight-line
basis over estimated useful lives of three to five years. Leasehold
improvements and property under capital leases are amortized on a straight-
line basis over the shorter of their estimated useful lives or the terms of
the leases. Upon disposal, assets and related accumulated depreciation are
removed from the accounts and the related gain or loss is included in results
from operations.
Foreign Currency Translation:
The functional currency for the Company's foreign operation in Japan is the
Japanese yen. The translation from the Japanese yen to U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using the weighted
average exchange rate during the period. Adjustments resulting from such
translation are reflected as a separate component of stockholders' deficit.
Gains or losses resulting from foreign currency transactions are included in
the results of operations.
F-9
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED):
Unaudited Interim Financial Information:
The accompanying interim consolidated balance sheet as of March 31, 1997 and
the consolidated statements of operations and cash flows for the six months
ended March 31, 1996 and 1997 together with the related notes are unaudited
but include all adjustments, consisting of only normal recurring adjustments,
which the Company considers necessary to present fairly, in all material
aspects, the consolidated financial position, the results of operations and
cash flows for the period ended March 31, 1996 and 1997. Results for the six
months ended March 31, 1996 and 1997 are not necessarily indicative of results
for an entire year.
New Pronouncements:
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," which requires the Company to review
the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. SFAS 121
will become effective for the Company's 1997 fiscal year. The Company does not
expect SFAS 121 to have a material impact on the Company's financial condition
or results of operations.
Statement of Financial Accounting Standards No. 123 (SFAS 123) "Accounting
for Stock-Based Compensation," encourages, but does not require, companies to
record compensation cost for stock-based compensation plans at fair value. The
Company has chosen to continue to account for employee stock options
using the intrinsic value method prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees." Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee must pay
to acquire the stock. The Company will provide pro forma disclosures for the
effect of this statement for the 1997 fiscal year.
3. BUSINESS RISKS AND CREDIT CONCENTRATION:
The Company operates in the intensely competitive semiconductor industry
which has been characterized by price erosion, rapid technological change,
short product life cycles, cyclical market patterns and heightened foreign and
domestic competition. Significant technological changes in the industry could
affect operating results adversely.
The Company markets and sells its technology to a narrow base of customers
and generally does not require collateral. At March 31, 1997, three customers
accounted for 48%, 16% and 14% of accounts receivable, respectively. At
September 30, 1996, three customers accounted for 59%, 21% and 17% of accounts
receivable. At September 30, 1995, three customers accounted for 42%, 41% and
17% of accounts receivable.
As of March 31, 1996 and 1997, the Company's cash and cash equivalents are
deposited with principally one financial institution in the form of demand
deposits and money market accounts.
Financial instruments that potentially subject the Company to concentrations
of credit risk comprise principally cash and cash equivalents, available-for-
sale securities and trade accounts receivable. The Company invests its excess
cash primarily in commercial paper, U.S. government agency and treasury notes
that mature within one year.
F-10
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. MARKETABLE SECURITIES:
All marketable securities are classified as available-for-sale and are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- MARCH 31,
1995 1996 1997
------- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
United States government debt securities...... $ 4,344 $2,442 $ --
U.S. treasury bills........................... 3,366 -- --
Commercial paper.............................. 5,463 5,370 9,282
------- ------ ------
$13,173 $7,812 $9,282
======= ====== ======
</TABLE>
All marketable securities classified as current have scheduled maturities of
less than one year. At September 30, 1995 and 1996, and March 31, 1997, the
cost of marketable securities represents the fair value of the securities, and
there are no unrealized holding gains or losses.
5. PROPERTY AND EQUIPMENT:
Property and equipment, net is comprised of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- MARCH 31,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment......................... $ 2,962 $ 3,684 $ 4,609
Computer software.......................... 1,977 2,771 3,357
Furniture and fixtures..................... 546 818 858
Leasehold improvements..................... 170 272 274
------- ------- -------
5,655 7,545 9,098
Less accumulated depreciation and
amortization.............................. (4,057) (5,205) (5,954)
------- ------- -------
$ 1,598 $ 2,340 $ 3,144
======= ======= =======
</TABLE>
Depreciation and amortization expense was approximately $1,295,000,
$1,288,000, $1,148,000, $570,000 and $749,000 in the years ended September 30,
1994, 1995 and 1996 and the six months ended March 31, 1996 and 1997,
respectively.
Property and equipment acquired under capital leases included above is
comprised of (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- MARCH 31,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment........................... $ 2,514 $ 2,302 $ 1,640
Furniture and fixtures....................... 460 403 355
------- ------- -------
2,974 2,705 1,995
Less accumulated amortization................ (2,164) (1,989) (1,511)
------- ------- -------
$ 810 $ 716 $ 484
======= ======= =======
</TABLE>
F-11
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INVESTMENT:
In December 1996, the Company licensed technology to Monolithic System
Technology, Inc. (MoSys) in exchange for a cash payment of $50,000 and 184,617
shares of MoSys common stock valued at $1,200,000, based on the latest round
of equity financing. These shares represented a 1% equity interest in MoSys at
the time of issuance. The license fee of $1,250,000 was initially recorded as
deferred revenue and is being recognized as revenue in accordance with the
Company's revenue recognition policy.
7. ACCOUNTS AND TAXES PAYABLE, ACCRUED PAYROLL AND OTHER LIABILITIES:
Accounts and taxes payable, accrued payroll and other liabilities consist of
the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------- MARCH 31,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable................................. $ 110 $ 228 $ 382
Taxes payable.................................... 82 84 334
Accrued payroll and related accruals............. 231 338 608
Other liabilities................................ 690 587 520
------ ------ ------
$1,113 $1,237 $1,844
====== ====== ======
</TABLE>
8. CAPITAL LEASE OBLIGATIONS:
The Company has leased equipment under capital lease obligations maturing
through fiscal year 1999. The lease agreements require the Company to maintain
liability and property insurance.
At September 30, 1996, future minimum annual payments due under the capital
lease obligations are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR:
------------
<S> <C>
1997............................................................ $ 913
1998............................................................ 458
1999............................................................ 153
------
Minimum lease payments.......................................... 1,524
Less amount representing interest............................... (227)
------
Total minimum payments.......................................... 1,297
Less amount due in one year..................................... (753)
------
Long term amount due after one year............................. $ 544
======
</TABLE>
F-12
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. LEASE COMMITMENTS AND COMMITMENTS TO THE COMPANY'S FOUNDERS:
The Company leases its office facilities under an operating lease agreement
that expires February 28, 2005. Under the terms of this lease, the Company is
also responsible for taxes, insurance and utilities. As of September 30, 1996,
aggregate future minimum payments under this lease are (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR:
------------
<S> <C>
1997............................................................ $ 645
1998............................................................ 660
1999............................................................ 682
2000............................................................ 698
2001............................................................ 720
Thereafter...................................................... 2,589
------
Total minimum lease payments.................................... $5,994
======
</TABLE>
Rent expense was approximately $320,000, $581,000, $736,000, $369,000 and
$394,000 for the years ended September 30, 1994, 1995 and 1996 and for the six
months ended March 31, 1996 and 1997, respectively.
Rambus Partners
Under an agreement signed in March 1990, the Company secured certain patent
rights and technology from its founders. The Company committed, under this
agreement, to pay to the founders up to a total of 24% of amounts received
from any licensing of the patent rights and technology to third parties.
Subsequently, the founders assigned their rights to receive payments to Rambus
Partners, an entity wholly owned by the founders. In September 1992, the
Company acquired Rambus Partners in exchange for 978,260 shares of the
Company's common stock. In addition the Company assumed option obligations for
a total of 146,739 shares of the Company's common stock. The Company accounted
for this acquisition as a purchase transaction. The purchase price was
$431,000.
In September 1992, the Company also entered into agreements to pay certain
cash amounts to the founders. The total amounts paid to the founders under
these agreements were approximately $244,000 in each of the fiscal years 1994,
1995 and 1996. Included in the accompanying balance sheets under the caption
other current liabilities are amounts payable to the founders of approximately
$463,000 at September 30, 1995, $244,000 at September 30, 1996 and none at
March 31, 1997. The associated deferred amounts to the founders totaling
$679,000, $456,000 and $344,000 at September 30, 1995 and 1996 and March 31,
1997, respectively, include $223,000 classified in other current assets for
each period with the remaining balance classified in other assets.
10. STOCKHOLDERS' DEFICIT:
Convertible Preferred Stock:
Holders of Series A, B, C and D preferred stock are entitled to preferential
noncumulative dividends generally at a rate not to exceed $0.032, $0.1712,
$0.24 and $0.34 per share, respectively, if and when declared by the Board of
Directors. No dividends have been declared as of September 30, 1996. The
holders of Series A, B, C and D shares have liquidation preferences of $0.40,
$2.14, $3.00 and $4.25 per share, respectively, plus an amount equal to all
declared but unpaid dividends. Preferred stockholders are entitled to one vote
for each share of common stock into which the preferred stock is convertible.
Additionally, preferred stockholders are entitled to elect two directors.
F-13
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. STOCKHOLDERS' DEFICIT--(CONTINUED):
At the option of the holder, each share of preferred stock is convertible on
a one-for-one basis (subject to certain adjustments) into common stock. The
shares will automatically convert into common stock concurrent with the
closing of an underwritten public offering of common stock under the
Securities Act of 1933, as amended, with minimum proceeds of $7,500,000 and a
minimum price per share of $4.25 (subject to certain adjustments).
In 1990, the Company entered into an agreement with Intel Corporation, under
which it issued shares of Series A Preferred Stock to Intel. The shares issued
were subject to Rambus' assignable right to repurchase the shares, under
certain circumstances, at the original price paid by Intel. In 1995, this
right of repurchase was sold by the Company to entities affiliated with
Kleiner, Perkins, Caufield & Byers, Mohr, Davidow Ventures, Merrill, Pickard,
Anderson & Eyre, Integral Capital Partners and Dominion Income Management
Corp. for an aggregate of $936,012. These entities then exercised the right
and purchased the Rambus Series A Preferred Stock from Intel. The proceeds to
the Company are included in additional paid-in capital in the accompanying
balance sheet.
At September 30, 1996 and March 31, 1997, convertible preferred stock
consists of the following (in thousands):
<TABLE>
<CAPTION>
COMMON
STOCK
SHARES RESERVED
SHARES ISSUED AND PROCEEDS FOR LIQUIDATION
SERIES AUTHORIZED OUTSTANDING (NET) CONVERSION VALUE
------ ---------- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
A.................. 5,400 5,361 $ 3,678 5,361 $ 2,144
B ................. 2,804 2,804 5,977 2,804 6,000
C ................. 1,250 1,250 3,743 1,250 3,750
D.................. 1,882 1,882 7,965 1,882 8,000
------ ------ ------- ------ -------
11,336 11,297 $21,363 11,297 $19,894
====== ====== ======= ====== =======
</TABLE>
Common Stock:
Founders of the Company received an aggregate of 2,182,653 shares of common
stock upon incorporation of the Company in exchange for the assignment of
patent rights and technology. These shares were subject to the Company's right
of repurchase under a Stock Restriction Agreement. During fiscal 1994, the
Company amended the Stock Restriction Agreement. In accordance with the
amendment, the Company repurchased 165,000 shares of its common stock at $0.04
per share and the Company's right of repurchase with respect to the remaining
shares expired. During fiscal 1995, the Company repurchased an additional
88,000 shares of common stock from founders at a price of $0.04 per share.
As of September 30, 1996, a total of 261,283 common shares held by employees
were subject to repurchase.
In September 1996, the Company's Board of Directors, subject to stockholder
approval, increased the number of authorized shares of common stock to
22,500,000.
Stock Option Plan:
In March 1990, the Company adopted the 1990 Stock Option Plan under which
2,657,143 shares of common stock were reserved for issuance. Incentive stock
options may be granted with exercise prices of no less than fair market value,
and nonqualified stock options may be granted with exercise prices of no less
than 85% of the fair market value of the common stock on the grant date, as
determined by the Board of Directors. Grants to employees of the Company who
are also directors of the Company may not exceed 800,000 shares of common
F-14
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. STOCKHOLDERS' DEFICIT--(CONTINUED):
stock. The options generally vest over a four-year period but may be exercised
immediately subject to repurchase by the Company for those options that are
not vested. Vesting periods are determined by the Board of Directors at the
date of grant.
During 1992 and 1994, the 1990 Stock Option Plan was amended to authorize
the granting of options which shall vest within one year from the date that
certain options previously granted to the optionee (as defined in the Plan)
have vested in full. Pursuant to requirements imposed by the California
Department of Corporations, these options may be granted only to those
employees whose annual compensation exceeds $60,000 per year. The total number
of shares reserved for these options is 950,000.
At September 30, 1996 and March 31, 1997, the total number of shares
reserved for the 1990 Stock Option Plan, excluding those previously exercised
under the Plan, is 4,170,902 and 2,522,822, respectively.
A summary of options granted under the plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES -----------------------
AVAILABLE NUMBER OF PRICE
FOR GRANT SHARES PER SHARE
---------- ---------- -----------
<S> <C> <C> <C>
Outstanding at September 30, 1993......... 665,807 2,606,689 $0.04-$0.25
Shares reserved........................... 967,857 -- --
Options granted........................... (1,063,700) 1,063,700 $0.25-$1.00
Options canceled.......................... 64,637 (64,637) $0.25
Options exercised......................... -- (1,247,995) $0.04-$0.40
---------- ----------
Outstanding at September 30, 1994......... 634,601 2,357,757 $0.04-$1.00
Shares reserved........................... 875,000 -- --
Options granted........................... (1,204,900) 1,204,900 $1.00-$3.00
Options canceled.......................... 37,513 (37,513) $0.25-$1.00
Options exercised......................... -- (498,789) $0.13-$1.00
---------- ----------
Outstanding at September 30, 1995......... 342,214 3,026,355 $0.04-$3.00
Shares reserved........................... 1,000,000 -- --
Options granted........................... (347,500) 347,500 $3.00-$5.00
Options canceled.......................... 70,738 (70,738) $0.25-$3.00
Options exercised......................... -- (197,667) $0.04-$4.00
---------- ----------
Outstanding at September 30, 1996......... 1,065,452 3,105,450 $0.04-$5.00
Options granted........................... (717,100) 717,100 $5.00-$8.00
Options exercised......................... -- (1,648,080) $0.04-$7.00
---------- ----------
Outstanding at March 31, 1997
(unaudited).............................. 348,352 2,174,470 $0.13-$8.00
========== ==========
</TABLE>
At September 30, 1996 and March 31, 1997, options for the purchase of
1,385,519 and 548,783 shares, respectively, were exercisable without
repurchase from the Company.
11. EMPLOYEE BENEFIT PLANS:
The Company has a 401(k) Profit Sharing Plan (the "Plan") qualified under
Section 401(k) of the Internal Revenue Code of 1986. Each eligible employee
may elect to contribute up to 20% of the employee's annual compensation to the
Plan. The Company, at the discretion of its Board of Directors, may match
employee contributions to the Plan but has not done so for the years ended
September 30, 1994, 1995 and 1996.
F-15
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES:
The provision for income taxes comprises (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1994 1995 1996
----------------- --------
<S> <C> <C> <C>
Foreign withholding tax:
Current........................................ $ 350 $ 1,235 $ 270
Federal:
Current........................................ -- 40 --
State:
Current........................................ 1 14 16
------- --------- -------
$ 351 $ 1,289 $ 286
======= ========= =======
</TABLE>
The Company's effective tax rate on pretax income differs from the U.S.
federal statutory regular tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Benefit at U.S. federal
statutory rate......... (34.0)% (34.0)% (34.0)%
Tax losses not currently
benefited.............. 34.0 34.0 34.0
Foreign withholding
tax.................... 5.6 21.6 6.5
Other................... -- 0.9 0.4
-------- -------- --------
5.6% 22.5% 6.9%
======== ======== ========
</TABLE>
At September 30, 1996, the Company has the following tax carryforwards which
expire as follows (in thousands):
<TABLE>
<CAPTION>
FEDERAL EXPIRES CALIFORNIA EXPIRES
------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net operating loss................. $8,900 2008-2009 $3,500 1998-2000
Foreign tax credits................ 2,440 1997-2001 -- --
Research and development credits... 562 2010 306 2010
</TABLE>
The utilization of the Company's tax carryforwards may be subject to certain
limitations in the case of an ownership change of the Company, as defined by
the tax laws.
F-16
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES--(CONTINUED):
The components of the net deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Deferred revenue..................................... $ 8,909 $ 9,206
Deferred compensation................................ 185 98
Depreciation and amortization expense................ 345 174
Other liabilities and reserves....................... 590 220
Foreign tax credits.................................. 2,531 2,440
Research and development credits..................... 840 868
Net operating loss................................... 1,500 3,361
-------- --------
Total deferred tax asset........................... 14,900 16,367
Deferred tax liability:
Deferred royalty cost................................ (474) (296)
Valuation allowance.................................... (14,426) (16,071)
-------- --------
Net deferred tax asset............................. $ -- $ --
======== ========
</TABLE>
The Company has established a full valuation allowance against its deferred
tax assets due to the uncertainty surrounding the realization of such assets.
Management periodically evaluates the recoverability of the deferred tax
assets and recognizes the tax benefit only as reassessment demonstrates they
are realizable. At such time, if it is determined that it is more likely than
not that the deferred tax assets are realizable, the valuation allowance will
be reduced.
13. RELATED PARTY TRANSACTIONS:
Chromatic Research Inc. In February 1994, the Company licensed its interface
technology to Chromatic Research, Inc. ("Chromatic") a multimedia processor
design company. Under the terms of the license, Rambus received 626,053 shares
of Chromatic Series B Preferred Stock (representing 5% of the then outstanding
shares of Chromatic) and continuing royalties. Chromatic was formed in May
1993 (then called Xenon Microsystems Corporation) by, among others, Dr.
Farmwald who continues to serve as a director of, and consultant to, Chromatic
through the date hereof. Investors in Chromatic include affiliates of Mohr,
Davidow Ventures, Merrill, Pickard, Anderson & Eyre and Kleiner, Perkins,
Caufield & Byers. In connection with these investments in Chromatic, Dr.
Davidow and Mr. Dunlevie joined and continue to sit on the Board of Directors
of Chromatic. The initial valuation of the Chromatic stock, approximately
$626,000, has been fully written down by the Company. Revenue recognized as
license fees under this agreement was $69,000, $119,000 and $119,000 in the
years ended September 30, 1994, 1995 and 1996, respectively, and $59,000 for
the six months ended March 31, 1997. As of September 30, 1996 and March 31,
1997, the remaining balance of approximately $319,000 and $259,000,
respectively, is included in deferred revenue.
F-17
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. BUSINESS SEGMENTS, EXPORTS AND MAJOR CUSTOMERS:
The Company operates in a single industry segment.
Six customers accounted for 16%, 12%, 15%, 12%, 14% and 13% of revenues in
the year ended September 30, 1995 and six customers accounted for 14%, 15%,
11%, 11%, 13% and 12% of revenues in the year ended September 30, 1996. Four
customers accounted for 12%, 16%, 10% and 38% of revenues in the year ended
September 30, 1994. Six customers accounted for 13%, 12%, 14%, 11%, 13% and
20% of revenues and two customers accounted for 11% and 32% of revenues for
the six months ended March 31, 1996 and 1997, respectively.
The Company sells its technology to customers in the Far East and North
America. The net income and loss for all periods presented are derived
primarily from the Company's North American operations, which generates sales
to the following geographic region (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 31, MARCH 31,
------------------------ ----------------
1994 1995 1996 1996 1997
------------------------ ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Far East......................... $ 4,499 $ 6,619 $ 9,692 $ 4,562 $ 9,509
North America.................... 501 745 1,578 510 1,916
------- ------- -------- ------- --------
$ 5,000 $ 7,364 $ 11,270 $ 5,072 $ 11,425
======= ======= ======== ======= ========
</TABLE>
15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the periods for taxes and interest are indicated below (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------------------------
1994 1995 1996 1996 1997
----------------- ---------------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Taxes.......................... $351 $ 1,266 $286 $183 $529
Interest....................... $296 $ 297 $298 $155 $137
</TABLE>
Supplemental schedule of noncash investing and financing activities:
The Company had no material noncash investing or financing activities in the
year ended September 30, 1996. Noncash investing and financing activities are
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
SEPTEMBER 30, ENDED
------------- MARCH 31,
1994 1995 1997
------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Acquisition of property equipment under capital
lease obligations............................... $ 158 $39 --
License of technology in exchange for common
stock........................................... $ 626 -- $1,200
Issuance of stockholders' notes receivable....... $ -- -- $ 733
</TABLE>
F-18
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
16. PRO FORMA:
Upon the closing of an initial public offering of the Company's common stock
that meets the criteria set out in Note 10, all the convertible preferred
stock outstanding will convert into an aggregate of 11,296,822 shares of
common stock. At March 31, 1997, the unaudited pro forma stockholders' deficit
is adjusted for the conversion of the convertible preferred stock outstanding
at March 31, 1997 and is disclosed on the face of the consolidated balance
sheets.
17. SUBSEQUENT EVENTS:
On October 16, 1996, the Company entered into a loan and security agreement
with Silicon Valley Bank to borrow up to $1,000,000 to finance equipment and
tenant improvements. This agreement was canceled by the Company in March 1997.
In November 1996, the Company entered into an agreement with Intel
Corporation for the development of high speed semiconductor memory interface
technology. As part of this agreement, the Company issued a warrant on January
7, 1997 to purchase 1,000,000 shares of common stock of the Company at a
purchase price of $10.00 per share. This warrant will become exercisable only
upon the achievement of certain specified performance milestones, resulting in
a charge to the statement of operations at the time of achievement of these
milestones based on the fair value of the warrant.
The reincorporation of the Company in Delaware occurred in March 1997. Under
the new Certificate of Incorporation in Delaware, the Company is authorized to
issue 60,000,000 shares of common stock and 16,336,096 shares of preferred
stock at $0.001 par value.
On February 28, 1997, the Board of Directors authorized management of the
Company to file a Registration Statement with the Securities and Exchange
Commission relating to a public offering of the Company's Common Stock. The
Board also approved the termination of the 1990 Stock Plan upon the completion
of the initial public offering, the adoption of a 1997 Employee Stock Purchase
Plan, and the adoption of a 1997 Stock Plan (see description below).
Additionally, the Board approved certain amendments to the Company's
Certificate of Incorporation and Bylaws (including the establishment of a
classified Board). The Board approved the creation of new Compensation
Committee, an Audit Committee and a Stock Option Committee. Finally, the Board
approved the establishment of a Stockholder Rights Plan pursuant to which each
holder of the Company's common stock shall receive a right to purchase one-
thousandth of a share of Series E Preferred Stock for $125 per right, subject
to a number of conditions. Such rights are subject to adjustment in the event
of a takeover or commencement of a tender offer not approved by the Board of
Directors.
The 1997 Employee Stock Purchase Plan authorizes the granting of stock
purchase rights to eligible employees during two-year offering periods with
exercise dates approximately every six months. The Company has reserved
400,000 shares of common stock for issuance under the plan. The first offering
period for the plan will commence on the effective date of this offering and
will end on the last trading day in the period ending April 30, 1999. Shares
are purchased through employees' payroll deductions at purchase prices equal
to 85% of the lesser of the fair market value of the Company's common stock at
either the first day of each offering period or the date of purchase.
F-19
<PAGE>
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. SUBSEQUENT EVENTS--(CONTINUED) :
The 1997 Stock Plan authorizes the issuance of incentive stock options and
nonstatutory stock options to employees and nonstatutory stock options to
directors, employees or paid consultants of the Company. The Company has
reserved 1,000,000 shares of common stock for issuance under the plan. The
plan expires ten years after adoption, and the Board of Directors or a
committee designated by the Board of Directors has the authority to determine
to whom options will be granted, the number of shares, the vesting period and
the exercise price (which generally cannot be less than 100% of the fair
market value at the date of grant for incentive stock options). The options
are exercisable at times and in increments as specified by the Board of
Directors, and expire not more than ten years from date of grant.
In February and March 1997, the Company issued loans to certain key
personnel in connection with the exercise of options to purchase shares of the
Company's common stock. The loans bear interest at an annual rate of 12.0%,
are evidenced by promissory notes, and are secured by a pledge of the
underlying shares of common stock. Principal and accrued interest on the loans
are due in September 1998. The aggregate principal balance outstanding at
March 31, 1997 is approximately $733,000.
F-20
<PAGE>
[LOGO OF RAMBUS]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the Common Stock being registered hereby. All
amounts are estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE
PAID BY
REGISTRANT
------------
<S> <C>
SEC Registration Fee......................................... $10,455
NASD Filing Fee.............................................. 3,950
Nasdaq National Market Application Fee....................... 50,000
Printing..................................................... 300,000
Legal Fees and Expenses...................................... 400,000
Accounting Fees and Expenses................................. 200,000
Blue Sky Fees and Expenses................................... 10,000
Transfer Agent and Registrar Fees............................ 5,000
Miscellaneous................................................ 120,595
----------
Total.................................................... $1,100,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law Code authorizes a court
to award, or a corporation's Board of Directors to grant, indemnity to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article X of the Registrant's Amended and
Restated Certificate of Incorporation and Article VI of the Registrant's
Bylaws provide for mandatory indemnifications of its directors and officers
and permissible indemnifications of employees and offer agents to the maximum
extent permitted by the Delaware General Corporation Law. In addition, the
Registrant has entered into Indemnification Agreements with its officers and
directors. Reference is also made to Section of the Underwriting Agreement,
which provides for the indemnification of officers, directors and controlling
persons of the Registrant against certain liabilities and Section of the
Rights Agreement, which provides for the cross indemnification of certain of
the Registrant's stockholders and the Registrant, its officers and directors
against certain liabilities under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years prior to the effective date of this Registration
Statement, the Registrant has issued and sold the following unregistered
securities:
1. During the period from February 28, 1994 through March 31, 1997, the
Registrant granted options to purchase an aggregate of 2,875,000 shares
of Common Stock to directors, employees and consultants pursuant to the
Registrant's 1990 Option Plan in reliance on Rule 701 promulgated under
the Securities Act.
2. On February 24, 1995, the Registrant issued and sold 1,882,353 shares of
Series D Preferred Stock in a private placement to one accredited
individual and to one institutional investor for an aggregate
consideration of $8,000,000.25 in cash. Sales of Series D Preferred
Stock were made in reliance on the exemption from registration provided
by Section 4(2) of the Securities Act.
3. On January 7, 1997, the Registrant issued a warrant to purchase up to
1,000,000 shares of Common Stock at an exercise price of $10.00 per
share to Intel Corporation in connection with the development and
licensing arrangement entered into between the two companies in November
1996. The warrant expires, if not earlier exercised, no later than
January 7, 2005.
II-1
<PAGE>
ITEM 16. EXHIBITS
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1+ Form of Underwriting Agreement (draft dated April 7, 1997).
3.1 Amended and Restated Certificate of Incorporation of Registrant
filed April 7, 1997.
3.2+ Certificate of Designation of Rights, Preferences and Privileges of
Series E Participating Preferred Stock of Registrant.
3.3(1) Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed upon the closing of the Offering made under
the Registration Statement.
3.4+ Amended and Restated Bylaws of Registrant dated February 28, 1997.
4.1 Form of Registrant's Common Stock Certificate.
4.2+ Amended and Restated Information and Registration Rights Agreement,
dated as of January 7, 1997, between Registrant and the parties
indicated therein.
4.3+ Form of Preferred Shares Rights Agreement dated April 1, 1997.
4.4+ Common Stock Purchase Warrant dated January 7, 1997.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1+ Form of Indemnification Agreement entered into by Registrant with
each of its directors and executive officers.
10.2(2) Semiconductor Technology License Agreement, dated as of July 4,
1991, between Registrant and NEC Corporation, including supplements
and amendments thereto.
10.3(2) Semiconductor Technology License Agreement, dated as of December 9,
1994, between Registrant and Goldstar Electron Co., Ltd, including
supplements and amendments thereto.
10.4(2) Semiconductor Technology License Agreement, dated as of November 15,
1996, between Registrant and Intel Corporation.
10.5+ 1990 Stock Plan, as amended, and related forms of agreements.
10.6+ 1997 Stock Plan and related forms of agreements.
10.7+ 1997 Employee Stock Purchase Plan and related forms of agreements.
10.8 Standard Office Lease, dated as of March 10, 1991, between
Registrant and South Bay/Latham.
10.9 Form of Promissory Note between the Registrant and certain executive
officers.
11.1+ Statement of computation of Net Loss Per Share and As Adjusted Net
Loss Per Share.
21.1+ Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P., Independent Auditors.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
24.1+ Power of Attorney (See page II-5).
27.1+ Financial Data Schedule.
</TABLE>
- --------
(1) To be supplied by Amendment.
(2) Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
+ Previously filed.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of this prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing, as specified in the Underwriting Agreement, certificates in
such denomination and registered in such names as required by the Underwriters
to permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MOUNTAIN VIEW, STATE OF
CALIFORNIA, ON APRIL 22, 1997.
Rambus Inc.
By: /s/ Gary Harmon
----------------------------------
GARY HARMON
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES STATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Geoffrey Tate* President, Chief April 22, 1997
- ------------------------------------- Executive Officer
GEOFFREY TATE* and Director
(principal
executive officer)
/s/ Gary Harmon Vice President, April 22, 1997
- ------------------------------------- Finance and Chief
GARY HARMON Financial Officer
(principal
financial and
accounting officer)
William Davidow* Chairman of the April 22, 1997
- ------------------------------------- Board
WILLIAM DAVIDOW
Bruce Dunlevie* Director April 22, 1997
- -------------------------------------
BRUCE DUNLEVIE
P. Michael Farmwald* Director April 22, 1997
- -------------------------------------
P. MICHAEL FARMWALD
Charles Geschke* Director April 22, 1997
- -------------------------------------
CHARLES GESCHKE
Mark Horowitz* Director April 22, 1997
- -------------------------------------
MARK HOROWITZ
*By: /s/ Gary Harmon
----------------------------------
GARY HARMON
Attorney-in-fact
</TABLE>
II-4
<PAGE>
RAMBUS INC. AND SUBSIDIARY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
VALUATION ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED BALANCE
AT TO COSTS CHARGED AT END
BEGINNING AND TO OTHER OF
FOR THE YEAR ENDED: OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------- --------- --------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
------- ------ ---- ---- -------
September 30, 1994.............. -- -- -- -- --
======= ====== ==== ==== =======
September 30, 1995.............. -- -- -- -- --
======= ====== ==== ==== =======
September 30, 1996.............. -- -- -- -- --
======= ====== ==== ==== =======
VALUATION ALLOWANCE FOR DEFERRED TAX ASSET
<CAPTION>
ADDITIONS
BALANCE CHARGED BALANCE
AT TO COSTS CHARGED AT END
BEGINNING AND TO OTHER OF
FOR THE YEAR ENDED: OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------- --------- --------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
------- ------ ---- ---- -------
September 30, 1994.............. $ 7,476 $3,326 -- -- $10,802
======= ====== ==== ==== =======
September 30, 1995.............. $10,802 $3,624 -- -- $14,426
======= ====== ==== ==== =======
September 30, 1996.............. $14,426 $1,645 -- -- $16,071
======= ====== ==== ==== =======
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
------- ----------------------- ------------
<C> <S> <C>
1.1+ Form of Underwriting Agreement (draft dated April 7,
1997).
3.1 Amended and Restated Certificate of Incorporation of
Registrant filed April 7, 1997.
3.2+ Certificate of Designation of Rights, Preferences and
Privileges of Series E Participating Preferred Stock
of Registrant.
3.3(1) Form of Amended and Restated Certificate of
Incorporation of Registrant to be filed upon the
closing of the Offering made under the Registration
Statement.
3.4+ Amended and Restated Bylaws of Registrant dated
February 28, 1997.
4.1 Form of Registrant's Common Stock Certificate.
4.2+ Amended and Restated Information and Registration
Rights Agreement, dated as of January 7, 1997, between
Registrant and the parties indicated therein.
4.3+ Form of Preferred Shares Rights Agreement dated April
1, 1997.
4.4+ Common Stock Purchase Warrant dated January 7, 1997.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation.
10.1+ Form of Indemnification Agreement entered into by
Registrant with each of its directors and executive
officers.
10.2(2) Semiconductor Technology License Agreement, dated as of
July 4, 1991, between Registrant and NEC Corporation,
including supplements and amendments thereto.
10.3(2) Semiconductor Technology License Agreement, dated as of
December 9, 1994, between Registrant and Goldstar
Electron Co., Ltd, including supplements and
amendments thereto.
10.4(2) Semiconductor Technology License Agreement, dated as of
November 15, 1996, between Registrant and Intel
Corporation.
10.5+ 1990 Stock Plan, as amended, and related forms of
agreements.
10.6+ 1997 Stock Plan and related forms of agreements.
10.7+ 1997 Employee Stock Purchase Plan and related forms of
agreements.
10.8 Standard Office Lease, dated as of March 10, 1991,
between Registrant and South Bay/Latham.
10.9 Form of Promissory Note between the Registrant and
certain executive officers.
11.1+ Statement of computation of Net Loss Per Share and As
Adjusted Net Loss Per Share.
21.1+ Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P., Independent
Auditors.
23.2 Consent of Wilson Sonsini Goodrich & Rosati,
Professional Corporation (included in Exhibit 5.1).
24.1+ Power of Attorney (See page II-5).
27.1+ Financial Data Schedule.
</TABLE>
- --------
(1) To be supplied by Amendment.
(2) Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
+ Previously filed.
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
-------------------------------------
OF
--
RAMBUS INC.
-----------
Rambus Inc., a corporation organized and existing under the laws of the
State of Delaware, hereby certifies as follows:
A. The name of the Corporation is Rambus Inc. The Corporation was
originally incorporated under the same name and the original Certificate of
Incorporation of the Corporation was filed with the Delaware Secretary of State
on February 3, 1997.
B. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation restates and
amends the provisions of the Certificate of Incorporation of this Corporation.
C. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
I. The name of the corporation (the "Corporation") is:
Rambus Inc.
II. The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
III. The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
IV. This Corporation is authorized to issue two classes of stock to be
designated, respectively, Common Stock and Preferred Stock. The total number of
shares of Common Stock this Corporation is authorized to issue is 60,000,000,
$0.001 par value, and the total number of shares of Preferred Stock this
Corporation is authorized to issue is 16,336,096, $0.001 par value. Of the
Preferred Stock, 5,400,000 shares shall be designated Series A Preferred Stock
("Series A Preferred"), 2,803,743 shares shall be designated Series B Preferred
Stock ("Series B Preferred"), 1,250,000 shares shall be designated Series C
Preferred Stock ("Series C Preferred"), 1,882,353 shares shall be designated
Series D Preferred Stock ("Series D Preferred"), and 5,000,000 shares shall be
undesignated.
The Preferred Stock may be issued from time to time in one or more series
pursuant to a resolution or resolutions providing for such issue duly adopted by
the Board of Directors (authority to do so being hereby expressly vested in the
Board). The Board of Directors is further authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
<PAGE>
wholly unissued series of Preferred Stock and to fix the number of shares of any
series of Preferred Stock and the designation of any such series of Preferred
Stock. The Board of Directors, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting any series, may increase or decrease (but not below the
number of shares in any such series then outstanding) the number of shares of
any series subsequent to the issue of shares of that series.
The Corporation shall from time to time in accordance with the laws of the
State of Delaware increase the authorized amount of its Common Stock if at any
time the number of shares of Common Stock remaining unissued and available for
issuance shall not be sufficient to permit conversion of the Preferred Stock.
The relative rights, preferences, privileges and restrictions granted to or
imposed on the respective classes of the shares of capital stock or the holders
thereof are as follows:
A. Dividend Rights
---------------
The holders of the Preferred Stock shall be entitled to receive, out
of any funds legally available therefor, dividends on each outstanding share of
Preferred Stock, payable in preference and priority to any payment of any
dividend on any shares of Common Stock, of the Corporation, when and as declared
by the Board of Directors. Such dividends on the Preferred Stock shall not
exceed an annual rate of $.032 per share for the Series A Preferred Stock,
$.1712 per share for the Series B Preferred Stock, $.24 for the Series C
Preferred Stock, and $.34 per share for the Series D Preferred Stock, unless a
dividend is paid at a higher rate (determined on an as-if-converted basis) on
any other outstanding shares of the Corporation, in which event the dividends on
the Preferred Stock shall be paid at such greater rate (determined on an as-if-
converted basis). The right to such dividends on the Preferred Stock shall not
be cumulative, and no right shall accrue to holders of Preferred Stock by reason
of the fact that dividends on such shares are not declared or paid in any prior
year. Dividends, if paid, or if declared and set apart for payment, must be
paid on, or declared and set apart for payment on all outstanding Preferred
Stock contemporaneously. No shares of Common Stock shall receive any dividend
at a rate which is greater than the rate at which dividends are simultaneously
paid in respect of the Preferred Stock (based on the number of shares of Common
Stock into which the Preferred Stock is convertible on the date of dividend).
Dividends shall be paid by forwarding a check, postage pre-paid, to the
address of each holder (or, in the case of joint holders, to the address of any
such holder) of Preferred Stock as shown on the books of the Corporation, or to
such other address as such holder specifies for such purpose by written notice
to the Corporation. The forwarding of such check shall satisfy all obligations
of the Corporation with respect to such dividends, unless such check is not paid
upon timely presentation.
B. Liquidation Rights
------------------
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or not, the holders of Preferred Stock shall be
entitled to receive, before any amount shall be
-2-
<PAGE>
paid to holders of Common Stock, an amount per share equal to $.40 for the
Series A Preferred Stock, $2.14 for the Series B Preferred Stock, $3.00 for the
Series C Preferred Stock, and $4.25 for the Series D Preferred Stock (as
adjusted for stock splits, combinations or similar events and hereafter referred
to as "Original Issue Price"), plus all declared and unpaid dividends, if any.
If, upon the occurrence of a liquidation, dissolution or winding up, the assets
and surplus funds distributed among the holders of Preferred Stock shall be
insufficient to permit the payment to such holders of the full preferential
amount, then the entire assets and surplus funds of the Corporation legally
available for distribution shall be distributed ratably among the holders of
Preferred Stock based upon the total preferential amount each holder would be
entitled to receive if sufficient funds were available to pay the full
preferential amounts. If, upon the occurrence of a liquidation, dissolution or
winding up, after the payment to the holders of Preferred Stock of the
preferential amount, assets or surplus funds remain in the Corporation, the
holders of Common Stock and Preferred Stock shall be entitled to receive ratably
all such remaining assets and surplus funds in the same manner as if all shares
of the Preferred Stock had been converted into Common Stock.
For purposes of this Section B, a liquidation, dissolution or winding up of
the Corporation shall be deemed to be occasioned by, and to include, the
Corporation's sale of all or substantially all of its assets or the acquisition
of this Corporation by another entity by means of merger or consolidation
resulting in the exchange of the outstanding shares of this Corporation for
securities or consideration issued, or caused to be issued, by the acquiring
corporation or its subsidiary, unless the shareholders of the Corporation hold
at least 50% of the voting power of the surviving corporation in such a
transaction. No later than 20 days before any event that, pursuant to Section
F(5), permits a holder of Preferred Stock to have each share of Preferred Stock
held by such holder treated for all purposes as if it had been converted into
Common Stock (for purposes of this Section B, a "Merger or Sale of the
Corporation"), the Corporation shall deliver a notice to each holder of
Preferred Stock setting forth the principal terms of such Merger or Sale of the
Corporation. Such notice shall be deemed delivered upon personal delivery or
five days after deposit in the United States mail, by registered or certified
mail, addressed to a party at its address as shown on the stock records of the
Corporation. Such notice shall include a description of the amounts that would
be paid to holders of Preferred Stock under this Section B and of the
consideration that such holders would receive if they exercised their rights
under Section F(5) to have shares of Preferred Stock treated as if they had been
converted into Common Stock. No later than ten days after delivery of the
notice, each holder of Preferred Stock may deliver an election to the
Corporation notifying the Corporation that the holder desires that such holder's
shares of Preferred Stock be treated, pursuant to Section F, upon the closing of
the Merger or Sale of the Corporation as if they had been converted into shares
of Common Stock and, if no such notice is delivered, such holder shall receive
such amounts as are provided for under this Section B.
Each holder of an outstanding share of Preferred Stock shall be deemed to
have consented, for purposes of Section 502, 503 and 506 of the California
Corporation Code, to distributions made by the Corporation in connection with
the repurchase at cost (or such other price as may be agreed to by the
Corporation's Board of Directors) of shares of Common Stock issued to or held by
officers, directors or employees of, or consultants to, the Corporation or its
subsidiaries upon termination of their employment or services pursuant to
agreements (whether now existing or hereafter entered into) providing for the
right of said repurchase between the Corporation and such persons.
-3-
<PAGE>
C. Nonredeemable
-------------
The shares of Common Stock and the shares of Preferred Stock are
nonredeemable.
D. Voting Rights
-------------
1. Vote Other than for Directors. The holders of Preferred Stock
-----------------------------
and the holders of Common Stock shall be entitled to notice of any shareholders'
meeting and, except as otherwise required by law and Section 7 hereof, to vote
upon any matter submitted to the shareholders for a vote, other than the
election of directors, as follows: (i) the holders of Preferred Stock shall
have one vote for each full share of Common Stock into which their respective
shares of Preferred Stock are convertible on the record date for the vote and
(ii) the holders of Common Stock shall have one vote per share of Common Stock.
2. Voting for Directors. If, at any time, less than 4,000,000
--------------------
shares of Preferred Stock remain outstanding, then all directors shall be
elected by the holders of the Preferred Stock and by holders of the Common
Stock, voting together as a class in the manner provided in Section D(1). If,
at any time, 4,000,000 or more shares of Preferred Stock are outstanding, then
the holders of shares of Preferred Stock voting as a class shall be entitled to
elect two directors, the holders of shares of Common Stock voting as a class
shall be entitled to elect two directors, and the remaining director or
directors shall be elected by the affirmative vote of the holders of the
Preferred Stock and the Common Stock, voting together as a class in the manner
provided in Section D(1). In the case of any vacancy in the office of a
director elected by a specified group of shareholders, a successor shall be
elected to hold office for the unexpired term of such director by the
affirmative vote of a majority of the shares of such specified group given at a
special meeting of such shareholders duly called or by an action by written
consent for that purpose. Subject to Section 303 of the California Corporations
Code, any director who shall have been elected by a specified group of
shareholders may be removed during the aforesaid term of office, either for or
without cause, by, and only by, the affirmative vote of the holders of a
majority of the shares of such specified group, given at a special meeting of
such shareholders duly called or by an action by written consent for that
purpose, and any such vacancy thereby created may be filled by the vote of the
holders of a majority of the shares of such specified group represented at such
meeting or in such consent.
E. Certain Taxes
-------------
The Corporation shall pay any and all issuance and other taxes
(excluding any federal or state income taxes) that may be payable in respect of
any issuance or delivery of shares of Common Stock on conversion of Preferred
Stock. The Corporation shall not, however, be required to pay any tax that may
be payable in respect of any transfer involved in the issuance and delivery of
shares of Common Stock in a name other than that in which the shares of
Preferred Stock to which such issuance relates were registered, and no such
issuance or delivery shall be made unless and until the person requesting such
issuance has paid to the Corporation the amount of any such tax, or it is
established to the satisfaction of the Corporation that such tax has been paid.
F. Conversion to Common Stock
--------------------------
-4-
<PAGE>
The Preferred Stock shall be convertible into Common Stock of the
Corporation as follows:
1. Definitions. For purposes of this Section F the following
-----------
definitions shall apply:
(a) "Issuance Date" with respect to any series of Preferred Stock
-------------
shall mean the first date on which the Corporation issues any shares of any such
series of Preferred Stock.
(b) "Conversion Price" shall mean the price, determined pursuant to
----------------
this Section F, at which shares of Common Stock shall be deliverable upon
conversion of Preferred Stock.
(c) "Current Conversion Price" shall mean the Conversion Price
------------------------
immediately before the occurrence of any event, which, pursuant to Section F(3),
causes an adjustment to the Conver sion Price.
(d) "Convertible Securities" shall mean any indebtedness or shares of
----------------------
stock convertible into or exchangeable for Common Stock, including Preferred
Stock.
(e) "Options" shall mean any rights, warrants or options to subscribe
-------
for or purchase Common Stock or Convertible Securities.
(f) "Common Stock Outstanding" shall mean the aggregate of all Common
------------------------
Stock outstanding and all Common Stock issuable upon exercise of all outstanding
Options and conversion of all outstanding Convertible Securities.
(g) "Distribution" shall have the meaning of the term "distribution to
------------
its shareholders" set forth in Section 166 of the California Corporations Code
as in effect on the date of filing of these Amended and Restated Articles of
Incorporation.
(h) "Common Stock Equivalents" shall mean Convertible Securities and
------------------------
rights entitling the holder thereof to receive directly, or indirectly,
additional shares of Common Stock without the payment of any consideration by
such holder for such additional shares of Common Stock or Common Stock
Equivalents.
2. Right to Convert; Initial Conversion Price. Each holder of the
------------------------------------------
Preferred Stock may, at any time, convert any or all of such Preferred Stock
into fully-paid and non-assessable shares of Common Stock at the Conversion
Price. Each share of Preferred Stock shall be convertible into the number of
shares of Common Stock that results from dividing the Conversion Price in effect
for such Preferred Stock at the time of conversion into $.40 for each share of
Series A Preferred Stock being converted, $2.14 for each share of Series B
Preferred Stock being converted, $3.00 for each share of Series C Preferred
Stock being converted, and $4.25 for each share of Series D Preferred Stock
being converted; the Conversion Price of the Preferred Stock shall initially be
$.40 per share of Common Stock for the Series A Preferred Stock, $2.14 per share
of Common Stock for the Series B Preferred Stock, $3.00 per share of Common
Stock for the Series C Preferred Stock, and $4.25 per share of Common
-5-
<PAGE>
Stock for the Series D Preferred Stock. Each initial Conversion Price shall be
subject to adjustment from time to time in certain instances as hereinafter
provided. No adjustments with respect to conversion shall be made on account of
any dividends that may be declared but unpaid on the Preferred Stock surrendered
for conversion, but no dividends shall thereafter be paid on the Common Stock
unless such unpaid dividends have first been paid to the holders entitled to
payment at the time of conversion of the Preferred Stock.
Before any holder of Preferred Stock shall be entitled to convert the same
into Common Stock, he shall surrender the certificate or certificates therefor,
duly endorsed, to the office of the Corporation or any transfer agent for such
Preferred Stock and shall given written notice to the Corporation at such office
that he elects to convert the same. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Preferred Stock, or to his nominee or nominees, certificates for the number of
full shares of Common Stock to which he shall be entitled, together with cash in
lieu of any fraction of a share as hereinafter provided, and, if less than all
of the shares of Preferred Stock represented by such certificate are converted,
a certificate representing the shares of Preferred Stock not converted. Such
conversion shall be deemed to have been made as of the date of such surrender of
the certificate for the Preferred Stock to be converted, and the person or
persons entitled to receive the Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such Common Stock
on such date. If the conversion is in connection with an offer of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock
issuable upon such conversion of the Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing of such
sale of securities.
3. Adjustments to Conversion Price. Subject to Section F(3)(h), the
-------------------------------
Conversion Price in effect from time to time for each series of Preferred Stock
shall be subject to adjustment in certain cases as follows:
(a) Issuance of Securities. In case the Corporation shall at any time
----------------------
after the Issuance Date of any series of Preferred Stock issue or sell any
Common Stock for a consideration per share less than the Current Conversion
Price for such series of Preferred Stock, then, and thereafter successively upon
each such issuance or sale, the Current Conversion Price of such series of
Preferred Stock shall simultaneously with such issuance or sale be adjusted to a
Conversion Price (calculated to the nearest cent) determined by dividing
(i) an amount equal to (i) the total number of shares of
Common Stock Outstanding when the Current Conversion Price for
Preferred Stock became effective multiplied by the Current Conversion
Price for Preferred Stock, plus (ii) the aggregate of the amount of
all consideration, if any, received by the Corporation for the
issuance or sale of Common Stock since the Current Conversion Price
for Preferred Stock became effective, by
-6-
<PAGE>
(ii) the total number of shares of Common Stock Outstanding
immediately after such issuance or sale;
provided, however, that the Conversion Price shall at no time exceed $.40 for
the Series A Preferred Stock or $2.14 for the Series B Preferred Stock or $3.00
for the Series C Preferred Stock or $4.25 for the Series D Preferred Stock (as
adjusted for stock splits, combinations and similar events).
For the purposes of this subsection F(3)(a), the following
provisions shall also be applicable:
(ii Cash Consideration. In case of the issuance or sale of
------------------
additional Common Stock for cash, the consideration received by
the Corporation therefor shall be deemed to be the amount of cash
received by the Corporation for such shares (or, if such shares
are offered by the Corporation for subscription, the subscription
price, or, if such shares are sold to underwriters or dealers for
public offering without a subscription offering, the initial
public offering price), without deducting therefrom any
compensation or discount paid or allowed to underwriters or
dealers or others performing similar services or for any expenses
incurred in connection therewith.
(iv) Non-Cash Consideration. In case of the issuance
----------------------
(otherwise than upon conversion or exchange of Convertible
Securities) or sale of additional Common Stock, Options or
Convertible Securities for a consideration other than cash or a
consideration a part of which shall be other than cash, the fair
value of such consideration as determined by the Board of
Directors of the Corporation in the good faith exercise of its
business judgment, irrespective of the accounting treatment
thereof, shall be deemed to be the value, for purposes of this
Section F, of the consideration other than cash received by the
Corporation for such securities.
(v) Options and Convertible Securities. In case the
----------------------------------
Corporation shall in any manner issue or grant any Options or any
Convertible Securities, the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such
Convertible Securities at the time such Convertible Securities
first become convertible or exchangeable shall (as of the date of
issue or grant of such Options or, in the case of the issue or
sale of Convertible Securities other than where the same are
issuable upon the exercise of Options, as of the date of such
issue or sale) be deemed to be issued and to be outstanding for
the purpose of this Section F(3)(a) and to have been issued for
the sum of the amount (if any) paid for such Options or
Convertible Securities and the amount (if any) payable upon the
exercise of such Options or upon conversion or exchange of such
Convertible Securities at the time such Convertible Securities
first become convertible or exchangeable; provided that, subject
to the provisions of Section F(3)(b), no
-7-
<PAGE>
further adjustment of the Conversion Price shall be made upon the
actual issuance of any such Common Stock or Convertible
Securities or upon the conversion or exchange of any such
Convertible Securities.
(b) Change in Option Price or Conversion Rate. In the event that the
-----------------------------------------
purchase price provided for in any Option referred to in subsection
F(3)(a)(iii), or the rate at which any Convertible Securities referred to in
subsection F(3)(a)(iii) are convertible into or exchangeable for shares of
Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution), the Current Conversion Price
in effect at the time of such event shall forthwith be readjusted to the
Conversion Price that would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold. In the event that the purchase price
provided for in any such Option referred to in subsection F(3)(a)(iii), or the
additional consideration (if any) payable upon the conversion or exchange of any
Convertible Securities referred to in subsection F(3)(a)(iii), or the rate at
which any Convertible Securities referred to in subsection F(3)(a)(iii) are
convertible into or exchangeable for shares of Common Stock, shall be reduced at
any time under or by reason of provisions with respect thereto designed to
protect against dilution, then in case of the delivery of shares of Common Stock
upon the exercise of any such Option or upon conversion or exchange of any such
Convertible Security, the Current Conversion Price then in effect hereunder
shall, upon issuance of such shares of Common Stock, be adjusted to such amount
as would have obtained had such Option or Convertible Security never been issued
and had adjustments been made only upon the issuance of the shares of Common
Stock delivered as aforesaid and for the consideration actually received for
such Option or Convertible Security and the Common Stock.
(c) Termination of Option or Conversion Rights. In the event of the
------------------------------------------
termination or expiration of any right to purchase Common Stock under any Option
or of any right to convert or exchange Convertible Securities, the Current
Conversion Price shall, upon such termination, be changed to the Conversion
Price that would have been in effect at the time of such expiration or
termination had such Option or Convertible Security, to the extent outstanding
immediately prior to such expiration or termination, never been issued, and the
shares of Common Stock issuable thereunder shall no longer be deemed to be
Common Stock Outstanding.
(d) Stock Splits, Dividends, Distributions and Combinations. In the
-------------------------------------------------------
event the Corporation should at any time or from time to time after the Issuance
Date fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other Distribution payable in additional
shares of Common Stock or Common Stock Equivalents, then, following such record
date (or the date of such dividend, Distribution, split or subdivision if no
record date is fixed), the Conversion Price of Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of Preferred Stock shall be increased in proportion to
such increase in the number of outstanding shares of Common Stock (including for
this purpose, Common Stock Equivalents) determined in accordance with Section
F(3)(f) If the number of shares of Common Stock outstanding at any time after
the Issuance Date is decreased by a combination of the outstanding shares of
Common Stock, then, following the record date of such combination, the
Conversion Price for Preferred Stock
-8-
<PAGE>
shall be appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of Preferred Stock shall be decreased in
proportion to such decrease in the number of outstanding shares of Common Stock.
(e) Other Dividends. In the event this Corporation shall declare a
---------------
Distribution payable in securities of other persons, evidences of indebtedness
issued by this Corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection F(3)(a)(iii), then, in each
such case for the purpose of this Section F(3)(e), the holders of Preferred
Stock shall be entitled to a proportionate share of any such Distribution as
though they were the holders of the number of shares of Common Stock of the
Corporation into which their shares of Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common Stock of the
Corporation entitled to receive such Distribution.
(f) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or a sale of assets transaction provided for elsewhere in
the Section F) provision shall be made so that the holders of Preferred Stock
shall thereafter be entitled to receive upon conversion of shares of Preferred
Stock the number of shares of stock or other securities or property of the
Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section F with respect to the rights of the holders of Preferred Stock
after the recapitalization to the end that the provisions of this Section F
(including adjustment of the Conversion Price then in effect and the number of
shares purchasable upon conversion of shares of Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
(g) Successive Changes. The above provisions of this Section F shall
------------------
similarly apply to successive issuances, sales, dividends or other
Distributions, subdivisions and combinations on or of the Common Stock after the
Issuance Date.
(h) Other Events Altering Conversion Price. Upon the occurrence of
--------------------------------------
any event not specifically denominated in this Section F as reducing the
Conversion Price that, in the reasonable exercise of the business judgment of
the Board of Directors of the Corporation requires, on equitable principles, the
reduction of the Conversion Price, the Conversion Price will be equitably
reduced.
(i) No Impairment. The Corporation will not, by amendment of these
-------------
Amended and Restated Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section F and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of Preferred Stock against impairment.
(j) Miscellaneous Conversion Price Matters. The Corporation shall at
--------------------------------------
all times reserve and keep available out of its authorized but unissued Common
Stock the full number of shares
-9-
<PAGE>
of Common Stock deliverable upon conversion of all the then outstanding
Preferred Stock and shall, at its own expense, take all such action and obtain
all such permits and orders as may be necessary to enable the Corporation
lawfully to issue such Common Stock upon the conversion of such Preferred Stock.
(k) Excluded Events. Notwithstanding anything in this Section F to
---------------
the contrary, the Conversion Price shall not be adjusted by virtue of (i) the
conversion of shares of Preferred Stock into shares of Common Stock, (ii) the
repurchase of shares from the Corporation's employees, consultants, advisors,
officers or directors at such person's cost (or at such other price as may be
agreed to by the Corporation's Board of Directors), (iii) the issuance of, prior
to the Series C Preferred Stock Issuance Date, 20,000 shares to Stanford
University and 10,000 shares to the University of Illinois without
consideration, (iv) the issuance of 1,125,000 shares of Common Stock (or options
therefor) in connection with the merger of Rambus Partners, Inc. with and into
Rambus Inc. prior to the Series C Preferred Stock Issuance Date, (v) the
issuance and sale of, or the grant of options to purchase, an aggregate, net of
returns to the option plan, of not more than 5,000,000 shares of Common Stock to
employees, consultants, advisors, officers or directors of the Corporation and
its subsidiaries (including shares issued or sold pursuant to the exercise of
any stock option or purchase pursuant to a grant under the Corporation's stock
option plan or stock purchase plan, even though granted by the Corporation prior
to the date of the filing of these Amended and Restated Articles of
Incorporation) at a price which is less than the Conversion Price at the time of
such issuance or sale (all as determined in accordance with this Section F) as
may be approved by the Board of Directors, none of such shares shall be included
in any manner in the computation from time to time of the Conversion Price under
subsection F(3)(a) or in Common Stock outstanding for purposes of such
computation.
(l) No Fractional Shares. No fractional shares shall be issued upon
--------------------
conversion of shares of Preferred Stock and cash shall be paid in lieu of any
fractional shares. Whether or not cash is due in lieu of fractional shares upon
such conversion shall be determined on the basis of the total number of shares
of Preferred Stock the holder is at the time converting into Common Stock and
the number of shares of Common Stock issuable upon such aggregate conversion.
(m) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price of Preferred Stock pursuant
to this Section F, the Corporation, at its expense upon request by any holder of
Preferred Stock, shall compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the Current
Conversion Price at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of Preferred Stock.
4. Automatic Conversion. Immediately prior to the closing of an
--------------------
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Corporation (or selling shareholders, if
any) at a per share public offering price of not less than the Original Issue
Price of the Series D
-10-
<PAGE>
Preferred Stock (equitably adjusted for any stock split, combination or similar
event) and an aggregate public offering price greater than $7,500,000, each
share of Preferred Stock shall automatically be converted into shares of Common
Stock at the Conversion Price for Preferred Stock then in effect. On and after
said conversion date, notwithstanding that any certificates for the shares of
Preferred Stock shall not have been surrendered for conversion, the shares of
Preferred Stock evidenced thereby shall be deemed to be no longer outstanding,
and all rights with respect thereto shall forthwith cease and termi nate, except
only the rights of the holder (i) to receive the shares of Common Stock to which
he shall be entitled upon conversion thereof, (ii) to receive the amount of cash
payable in respect of any fractional share of Common Stock to which he shall be
entitled, and (iii) to receive payment of dividends declared but unpaid on
Preferred Stock prior to such conversion date. In the event that any holder of
Preferred Stock presents such holder's certificate therefor for surrender to the
Corporation or its transfer agent upon such conversion, a certificate for the
number of shares of Common Stock into which the shares of Preferred Stock
surrendered were convertible on such conversion date promptly will be issued and
delivered to such holder.
5. Merger; Sale of Corporation. In the event, after the Issuance
---------------------------
Date, of any proposed consolidation of the Corporation with, or merger of the
Corporation with or into another corporation (other than a consolidation or
merger in which the Corporation is the continuing corporation and which does not
result in any reclassification of, or change in, the outstanding shares of
Common Stock), or in case of any proposed sale or transfer to another
corporation of all or substantially all of the assets of the Corporation, any
holder of Preferred Stock may, by delivery of election pursuant to Section B
above, elect to have each share of Preferred Stock held by such holder treated
for all purposes as if it had been converted into Common Stock on the earlier of
(i) the record date, if any, for voting by holders of Common Stock on such event
and (ii) the date of such event.
G. Covenants. In addition to any other rights provided by law, so long
---------
as any shares of Preferred Stock shall be outstanding, the Corporation shall
not, without first obtaining the affirmative vote or written consent of the
holders of not less than a majority of the outstanding shares of Preferred Stock
voting separately as a class:
1. amend or repeal any provision of, or add any provision to, the
Corporation's articles of incorporation or by-laws if such action would alter or
change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, the Preferred Stock, or increase or decrease the
number of shares of Preferred Stock authorized hereby;
2. authorize or issue shares of any class or series of stock not
authorized herein having any preference or priority as to dividends or assets
superior to or on a parity with any such preference or priority of Preferred
Stock; authorize or issue shares of stock of any class or series of any bonds,
debentures, notes or other obligations convertible into or exchangeable for, or
having option rights to purchase, any shares of stock of this Corporation having
any preference or priority as to dividends or assets superior to or on a parity
with any such preference or priority of Preferred Stock (other than the issuance
of Shares Subject to Call under the Series B Preferred Stock Purchase
Agreement);
-11-
<PAGE>
3. reclassify any class or series or any Common Stock into shares
having any preference or priority as to dividends or assets superior to or on a
parity with any such preference or priority of Preferred Stock;
4. apply any of its assets to the redemption, retirement, purchase
or acquisition, directly or indirectly, through subsidiaries (as defined in
Section 425 of the Internal Revenue Code of 1986 (the "Code") or otherwise, of
any shares of any class or series of Common Stock, except from employees,
consultants, advisors, officers and directors of, and persons performing
services for, this Corporation or its subsidiaries on terms approved by the
Board of Directors upon termination of employment or association;
5. do any act or thing which would result in taxation of the holders
of shares of the Preferred Stock under Section 305 of the Code (or any
comparable provision of the Code as hereafter from time to time amended); or
6. (i) sell, convey or otherwise dispose of all or substantially all
of its property or business, or (ii) merge into or consolidate with any other
corporation (other than a wholly owned subsidiary corporation) or effect any
other transaction or series of related transactions disposing or more than 50%
of the voting power of the Corporation.
H. Status of Converted or Redeemed Stock. In the event any shares of
-------------------------------------
Preferred shall be redeemed or converted, the shares so converted or redeemed
shall be canceled and shall not have the status of authorized but unissued
shares of Preferred and shall not be issuable by the corporation and the
Certificate of Incorporation of this corporation shall be amended to effect the
corresponding reduction in the corporation's capital stock.
V. The name and mailing address of the incorporator are as follows:
J. Michael Arrington
c/o Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
VI. The Corporation is to have perpetual existence.
VII Elections of directors need not be by written ballot unless a
stockholder demands election by written ballot at the meeting and before voting
begins or unless the Bylaws of the Corporation shall so provide.
VII The number of directors which constitute the whole Board of Directors
of the Corporation shall be designated in the Bylaws of the Corporation. The
directors shall be divided into two classes with the term of office of the first
class (Class I) to expire at the annual meeting of stockholders in 1998; the
term of office of the second class (Class II) to expire at the annual meeting of
stockholders held in 1999;
-12-
<PAGE>
and thereafter for each such term to expire at each second succeeding annual
meeting of stockholders after such election.
IX. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation.
X. (a) To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, a director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach fiduciary duty as a director.
(b) The Corporation shall indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or served at any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor to the Corporation.
(c) Neither any amendment nor repeal of this Article X, nor the
adoption of any provision of this Corporation's Certificate of Incorporation
inconsistent with this Article X, shall eliminate or reduce the effect of this
Article X, in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article X, would accrue or arise,
prior to such amendment, repeal or adoption of an inconsistent provision.
XI. Following the effectiveness of the registration of any class of
securities of the Corporation pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, no action shall be taken by the stockholders
of the Corporation except at an annual or special meeting of the stockholders
called in accordance with the Bylaws and no action shall be taken by the
stockholders by written consent. The affirmative vote of sixty-six and two-
thirds percent (66 2/3%) of the then issued and outstanding voting securities of
the Corporation, voting together as a single class, shall be required for the
amendment, repeal or modification of the provisions of Article VIII or Article
XI of this Restated Certificate of Incorporation or Sections 2.3 (Special
Meeting), 2.11 (Stockholder Action by Written Consent without a Meeting) or 2.15
(Advance Notice of Stockholder Nominees and Stockholder Business) of the
Corporation's Bylaws.
XII. Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws of the Corporation may provide. The books of the
Corporation may be kept (subject to any provision contained in the statutes)
outside of the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the Bylaws of the Corporation.
-13-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Gary Harmon, its Secretary, this 7th day of April, 1997.
/s/ GARY HARMON
------------------------------------
Gary Harmon, Secretary
-14-
<PAGE>
EXHIBIT 4.1
<TABLE>
<S>
[LOGO OF RAMBUS]
<C> <C> <C>
THIS CERTIFICATE IS TRANSFERABLE IN INCORPORATED UNDER THE LAWS OF THE STATE OF SEE REVERSE FPR CERTAIN DEFINITIONS
THE CITY OF BOSTON, MA OR NEW YORK, NY DELAWARE AND A STATEMENT AS TO RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS, IF ANY
This Certifies that CUSIP 750917 10 6
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE PER SHARE, OF
RAMBUS INC.
transferable on the books of the Corporation by the holder hereof in person or by duly authorized Attorney upon surrender of this
certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated
VICE PRESIDENT, FINANCE [SEAL OF RAMBUS] PRESIDENT AND
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
</TABLE>
COUNTERSIGNED AND REGISTERED:
THE FIRST NATIONAL BANK OF BOSTON
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN RIGHTS
AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN THE COMPANY AND THE FIRST NATIONAL
BANK OF BOSTON AS THE RIGHTS AGENT, DATED AS OF APRIL 1, 1997, (THE RIGHTS
AGREEMENT), THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND
A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS
WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY
THIS CERTIFICATE. THE COMPANY WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY
OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER RECEIPT OF A WRITTEN REQUEST
THEREFOR. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON OR
ANY AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS
AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY
SUBSEQUENT HOLDER, MAY BECOME NULL AND VOID.
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge at
the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S>
<C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
---------------- -----------------
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act
in common ----------------------------------------
(State)
UNIF TRF MIN ACT - Custodian (until age )
----------- -------------
under Uniform Transfers
---------------------
(Minor)
to Minors Act
-------------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
--------------------------
X
------------------------------------------
X
------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
---------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
WILSON SONSINI GOODRICH & ROSATI
650 Page Mill Road
Palo Alto, California 94304
phone 415/493-9300
fax 415/493-6811
RAMBUS, INC.
2465 Latham Street
Mountain View, California 94040
Re: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you with
the Securities and Exchange Commission on March 6, 1997 (Registration No. 333-
22885), as amended (the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, of up to 2,750,000
shares of your Common Stock, par value $0.001 per share (the "Shares"). The
Shares include an over-allotment option granted to the underwriters of the
offering to purchase up to 412,500 additional shares of Common Stock. We
understand that the Shares are to be sold to the underwriters of the offering
for resale to the public as described in the Registration Statement. As your
legal counsel, we have examined the proceedings taken, and are familiar with the
proceedings proposed to be taken, by you in connection with the sale and
issuance of the Shares.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, including the proceedings being taken in order to permit such
transaction to be carried out in accordance with applicable state securities
laws, the Shares, when issued and sold in the manner described in the
Registration Statement and in accordance with the resolutions adopted by the
Board of Directors of the Company, will be legally and validly issued, fully
paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/Wilson Sonsini Goodrich & Rosati
<PAGE>
EXHIBIT 10.8
STANDARD OFFICE LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Lease Provisions ("Basic Lease Provisions").
-------------------------------------------------
1.1 Parties: This Lease, dated, for reference purposes only, March
-------
10, 1991, is made by and between South Bay/Latham, a California Limited
Partnership (herein called "Lessor") and Rambus Inc., a California corporation
doing business under the name of Rambus (herein called "Lessee").
1.2 Premises: Suite Number(s) 300, 3rd floor, consisting of
--------
approximately 14,725 square feet, more or less, as defined in paragraph 2 and as
shown on Exhibit "A" hereto (the "Premises").
1.3 Building: Commonly described as being located at 2465 Latham
--------
Street, in the City of Mountain View, Country of Santa Clara, State of
California, as more particularly described in Exhibit A hereto, and as defined
in paragraph 2.
1.4 Use: General office, subject to paragraph 6.
---
1.5 Term: Three (3) years commencing July 1, 1991 ("Commencement
----
Date") and ending June 30, 1994, as defined in paragraph 3.
1.6 Base Rent: (See Paragraph 50) per month, payable on the 1st day
---------
of each month, per paragraph 4.1.
1.7 Base Rent Increase: On (see Paragraph 50) the monthly Base Rent
------------------
payable under paragraph 1.6 above shall be adjusted as provided in paragraph 4.3
below.
1.8 Rent Paid Upon Execution: Twenty-Five Thousand Seven Hundred
------------------------
Sixty-Nine & 00/100 Dollars for the first month ($25,769.00).
1.9 Security Deposit: Twenty Six Thousand Five Hundred Five Dollars
----------------
($26,505.00).
1.10 Lessee's Share of Operating Expense Increase: 33.9% as defined
--------------------------------------------
in paragraph 4.2.
2. Premises, Parking and Common Areas.
----------------------------------
2.1 Premises: The Premises are a portion of a building, herein
--------
sometimes referred to as the "Building" identified in paragraph 1.3 of the Basic
Lease Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and
<PAGE>
improvements thereon or thereunder, are herein collectively referred to as the
"Office Building Project." Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, the real property referred to in the Basic Lease Provisions, paragraph
1.2, as the "Premises," including rights to the Common Areas as hereinafter
specified.
2.2 Vehicle Parking: So long as Lessee is not in default, and
---------------
subject to the rules and regulations attached hereto, and as established by
Lessor from time to time, Lessee shall be entitled to use 50 parking spaces in
the Office Building Project. See paragraph 60
2.2.1 If Lessee commits, permits or allows any of the
prohibited activities described in the Lease or the rules then in effect, then
Lessor shall have the right, without notice, in addition to such other rights
and remedies that it may have, to remove or tow away the vehicles involved and
charge the cost to Lessee, which cost shall be immediately payable upon demand
by Lessor.
2.3 Common Areas--Definition. The term "Common Areas" is defined as
------------------------
all areas and facilities outside the Premises and within the exterior boundary
line of the Office Building Project that are provided and designated by the
Lessor from time to time for the general non-exclusive use of Lessor, Lessee and
of other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
parkways, ramps, driveways, landscaped areas and decorative walls.
2.4 Common Areas--Rules and Regulations. Lessee agrees to abide by
-----------------------------------
and conform to the rules and regulations attached hereto as Exhibit B with
respect to the Office Building Project and Common Areas, and to cause its
employees, suppliers, shippers, customers, and invitees to so abide and conform.
Lessor or such other person(s) as Lessor may appoint shall have the exclusive
control and management of the Common Areas and shall have the right, from time
to time, to modify, amend and enforce said rules and regulations. Lessor shall
not be responsible to Lessee for the non-compliance with said rules and
regulations by other lessees, their agents, employees and invitees of the Office
Building Project.
2.5 Common Areas--Changes. Lessor shall have the right, in Lessor's
---------------------
sole discretion, from time to time: See paragraph 60
(a) To make changes to the Building interior and exterior and
Common Areas, including, without limitation, changes in the location, size,
shape, number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
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<PAGE>
egress, direction of traffic, decorative walls, landscaped areas and walkways,
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;
(c) To designate other land and improvements outside the
boundaries of the Office Building Project to be a part of the Common Areas,
provided that such other land and improvements have a reasonable and functional
relationship to the Office Building Project;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Office Building Project
as Lessor may, in the exercise of sound business judgment deem to be
appropriate.
3. Term. See paragraph 55
----
3.1 Term. The term and Commencement Date of this Lease shall be as
----
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay in Possession. Notwithstanding said Commencement Date, if
-------------------
for any reason Lessor cannot deliver possession of the Premises to Lessee on
said date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Lessee hereunder or extent the term hereof; but, in such
case, Lessee shall not be obligated to pay rent or perform any other obligation
of Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee, Lessee may, at Lessee's option, by notice in writing to
Lesser within ten (10) days thereafter, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; and, as to Lessor's
obligations, Lessor shall return any money previously deposited by Lessee (less
any offsets due Lessor for Non-standard Improvements); and provided further,
that if such written notice by Lessee is not received by Lessor within said ten
(10) day period, Lessee's right to cancel this Lease hereunder shall terminate
and be of no further force or effect.
3.2.1 Possession Tendered--Defined. Possession of the Premises
----------------------------
shall be deemed tendered to Lessee ("Tender of Possession") when (1) the
improvements to be provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for use in the
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Premises, (3) Lessee has reasonable access to the Premises, (4) ten (10) days
shall have expired following advance written notice to Lessee of the occurrence
of the matters described in (1), (2) and (3), above of this paragraph 3.2.1, and
(5) Lessor has obtained all required approvals and permits for legal occupancy.
3.2.2 Delays Caused by Lessee. There shall be no abatement of
-----------------------
rent, and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be deemed
extended to the extent of any delays caused by acts or omissions of Lessee,
Lessee's agents, employees and contractors.
3.3 Early Possession. Subject to paragraph 53, if Lessee occupies
----------------
the Premises prior to said Commencement Date, such occupancy shall be subject to
all provisions of this Lease, such occupancy shall not change the termination
date, and Lessee shall pay rent for such occupancy.
3.4 Uncertain Commencement. In the event commencement of the Lease
----------------------
term is defined as the completion of the improvements, Lessee and Lessor shall
execute an amendment to this Lease establishing the date of Tender of Possession
(as defined in paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. Rent.
----
4.1 Base Rent. Subject to adjustment as hereinafter provided in
---------
paragraph 4.3, and except as may be otherwise expressly provided in this Lease,
Lessee shall pay to Lessor the Base Rent for the Premises set forth in
paragraph 1.6 of the Basic Lease Provisions, without offset or deduction. Lessee
shall pay Lessor upon execution hereof the advance Base Rent described in
paragraph 1.6 of the Basic Lease Provisions. Rent for any period during the term
hereof which is for less than one month shall be prorated based upon the actual
number of days of the calendar month involved. Rent shall be payable in lawful
money of the United States to Lessor at the address stated herein or to such
other persons or at such other places as Lessor may designate in writing.
4.2 Operating Expense Increases. Lessee shall pay to Lessor during
---------------------------
the term hereof. In addition to the Base Rent, Lessee's Shares, as hereinafter
defined, of the amount by which all Operating Expenses, as hereinafter defined,
for each Comparison Year exceeds the amount of all Operating Expenses for the
Base Year, such excess being hereinafter referred to as the "Operating Expense
Increase," in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as
the percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of the
Premises by the total approximate square footage of the rentable space contained
in the Office Building Project. It is understood and agreed that the square
footage figures set forth in the Basic Lease Provisions are approximations which
Lessor and Lessee agree are reasonable and shall not be subject to revision
except in
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<PAGE>
connection with actual change in the size of the Premises or a change in the
space available for lease in the Office Building Project.
(b) "Base Year" is defined as the first year of the Lease term.
See paragraph 58.
(c) "Comparison Year" is defined as each calendar year during
the term of this Lease subsequent to the Base Year; provided, however, Lessee
shall have no obligation to pay a share of the Operating Expense Increase
applicable to the first twelve (12) months of the Lease Term (other than such as
are mandated by a governmental authority, as to which government mandated
expenses Lessee shall pay Lessee's Share, notwithstanding they occur during the
first twelve (12) months). Lessee's Share of the Operating Expense Increase for
the first and last Comparison Years of the Lease Term shall be prorated
according to that portion of such Comparison Year as to which Lessee is
responsible for a share of such increase.
(d) "Operating Expenses" is defined, for purposes of this
Lease, to include all costs, if any, incurred by Lessor in the exercise of its
reasonable discretion, for: See paragraph 57, paragraph 62
(i) The operation, repair, maintenance, and
replacement, in neat, clean, safe, good order and condition, of the Office
Building Project, including but not limited to, the following:
(aa) The Common Areas, including their surfaces,
coverings, decorative items, carpets, drapes and window coverings, and including
parking areas, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, stairways, parkways, driveways, landscaped areas, striping, bumpers,
irrigation systems, Common Area lighting facilities, building exteriors and
roofs, fences and gates;
(bb) All heating, air conditioning, plumbing,
electrical systems, life safety equipment, telecommunication and other equipment
used in common by, or for the benefit of, lessees or occupants of the Office
Building Project, including elevators and escalators, tenant directories, fire
detection systems including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and
property insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by
Lessor under paragraph 10.1 hereof;
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<PAGE>
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and
costs, materials, suppliers and tools, used in maintaining and/or cleaning the
Office Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by
any governmental agency and any repairs or removals necessitated thereby
amortized over its useful life according to Federal income tax regulations or
guidelines for depreciation hereof (including interest on the unamortized
balance as is then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a
useful life for depreciation purposes according to Federal income tax guidelines
of five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of
replacements of equipment or improvements that have a useful life for Federal
income tax purposes in excess of five (5) years unless it is of the type
described in paragraph 4.2(d)(viii), in which case their cost shall be included
as above provided.
(f) Operating Expenses shall not include any expenses paid by
any lessee directly to third parties, or as to which Lessor is otherwise
reimbursed by any third party, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense Increase shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time in advance of Lessee's
Share of the Operating Expense Increase for any Comparison Year, and the same
shall be payable monthly or quarterly, as Lessor shall designate, during each
Comparison Year of the Lease term, on the same day as the Base Rent is due
hereunder. In the event that Lessee pays Lessor's estimate of Lessee's Share of
Operation Expense Increase as aforesaid, Lessor shall deliver to Lessee within
sixty (60) days after the expiration of each Comparison Year a reasonably
detailed statement showing Lessee's Share of the actual Operating Expense
Increase incurred during such year if Lessee's payments under this
paragraph 4.2(g) during said Comparison Year exceed Lessee's Share as indicated
on said statement. Lessee shall be entitled to credit the amount of such
overpayment against Lessee's Share of Operating Expense Increase next falling
due. If Lessee's payments under this paragraph during said Comparison Year were
less than Lessee's Share as indicated on said statement, Lessee shall pay to
Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement. Lessor and Lessee shall forthwith adjust
between them by cash payment any balance determined to exist with respect to
that portion of the last Comparison Year for which Lessee is responsible as to
Operating Expense Increases, notwithstanding that the Lease term may have
terminated before the end of such Comparison Year.
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<PAGE>
5. Security Deposit. Lessee shall deposit with Lessor upon execution
----------------
hereof the security deposit set forth in paragraph 1.9 of the Basic Lease
Provisions as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all of any portion of said deposit for the payment of any rent
or other charge in default for the payment of any other sum to which Lessor may
become obligated by reason of Lessee's default, or to compensate Lessor for any
loss or damage which lessor may suffer thereby. If Lessor so uses or applies all
or any portion of said deposit, Lessee shall within ten (10) days after written
demand therefor deposit cash with Lessor in an amount sufficient to restore said
deposit to the full amount then required of Lessee. Lessor shall not be required
to keep said security deposit separate from its general accounts if Lessee
performs all of Lessee's obligations hereunder, said deposit, or so much thereof
as has not heretofore been applied by Lessor, shall be returned, without payment
of interest or other increment for its use, to Lessee (or at Lessor's option, to
the last assignee, if any, of Lessee's interest hereunder) at the expiration of
the term hereof, and after Lessee has vacated the Premises. No trust
relationship is created herein between Lessor and Lessee with respect to said
Security Deposit.
6. Use.
---
6.1 Use. The Premises shall be used and occupied only for the
---
purpose set forth in paragraph 1.4 of the Basic Lease Provisions or any other
use which is reasonably comparable to that use and for no other purpose.
6.2 Compliance with Law.
-------------------
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
alterations or improvements made by Lessee or the use for which Lessee will
occupy the Premises, does not violate any covenants or restrictions of record,
or any applicable building code, regulation or ordinance in effect on such Lease
term Commencement Date. In the event it is determined that this warranty has
been violated, then it shall be the obligation of the Lessor, after written
notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any
such violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in effect
or which may hereafter come into effect, whether or not they reflect a change in
policy from that now existing, during the term or any part of the term hereof,
relating to any manner to the Premises and the occupation and use by Lessee of
the Premises. Lessee shall conduct its business in a lawful manner and shall not
use or permit the use of the Premises or the Common Areas in any manner that
will tend to create waste or a nuisance or shall tend to disturb other occupants
of the Office Building Project.
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<PAGE>
6.3 Condition of Premises.
---------------------
(a) Lessor shall deliver the Premises to Lessee in a clean
condition on the Lease Commencement Date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, and heating system in the Premises shall be in good operating
condition. In the event that it is determined that this warranty has been
violated, then it shall be the obligation of Lessor, after receipt of written
notice from Lessee setting forth with specificity the nature of the violation,
to promptly, at Lessor's sole cost, rectify such violation.
(b) Subject to paragraph 53 and except as otherwise provided in
this Lease, Lessee hereby accepts the Premises and the Office Building Project
in their condition existing as of the Lease Commencement Date or the date that
Lessee takes possession of the Premises, whichever is earlier, subject to all
applicable zoning, municipal, county and state laws, ordinances and regulations
governing and regulating the use of the Premises, and any easements, covenants
or restrictions of record, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that it has satisfied itself by its own independent investigation
that the Premises are suitable for its intended use, and that neither Lessor nor
Lessor's agent or agents has made any representation or warranty as to the
present or future suitability of the Premises, Common Areas, or Office Building
Project for the conduct of Lessee's business.
7. Maintenance, Repairs, Alterations and Common Area Services.
----------------------------------------------------------
7.1 Lessor's Obligations. Lessor shall keep the Office Building
--------------------
Project, including the Premises, interior walls, roof, and common areas, and the
equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9.5, there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Premises in good order, condition and repair.
7.2 Lessee's Obligations.
--------------------
(a) Notwithstanding Lessor's obligations to keep the Premises
in good condition and repair, Lessee shall be responsible for payment of the
cost thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may,
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<PAGE>
at its option, upon reasonable notice, elect to have Lessee perform any
particular such maintenance or repairs the cost of which is otherwise Lessee's
responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices by
Lessee. Lessee shall repair any damage to the Premises occasioned by the
installation or removal of Lessee's trade fixtures, alterations, furnishings and
equipment. Except as otherwise stated in this Lease, Lessee shall leave the air
lines, power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall paneling, ceilings
and plumbing on the Premises and in good operating condition.
7.3 Alterations and Additions. See paragraph 56
-------------------------
(a) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions, Utility Installations or repairs
in, on or about the Premises, or the Office Building Project. As used in this
paragraph 7.3 the term "Utility Installation" shall mean carpeting, window and
wall coverings, power panels, electrical distribution systems, lighting
fixtures, air conditioning, plumbing and telephone and telecommunication wiring
and equipment. At the expiration of the term, Lessor may require the removal of
any or all of said alterations, improvements, additions or Utility
Installations, and the restoration of the Premises and the Office Building
Project to their prior condition, at Lessee's expense. Should Lessor permit
Lessee to make its own alternations, improvements, additions or Utility
Installations, Lessee shall use only such contractor as has been expressly
approved by Lessor, and Lessor may require Lessee to provide Lessor, at Lessee's
sole cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without prior approval of Lessor, or use a contractor not
expressly approved by Lessor, Lessor may, at any time during the terms of this
Lease, require that Lessee remove any part or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Office Building Project that
Lessee shall desire to make shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent to Lessee's making
such alteration, improvement, addition or Utility Installation, the consent
shall be deemed conditioned upon Lessee acquiring a permit to do so from the
applicable governmental agencies, furnishing a copy thereof to Lessor prior to
the commencement of the work, and compliance by Lessee with all conditions of
said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or
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<PAGE>
may be secured by any mechanic's or materialmen's lien against the Premises, the
Building or the Office Building Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days'
notice prior to the commencement of any work in the Premises by Lessee, and
Lessor shall have the right to post notices of non-responsibility in or on the
Premises or the Building as provided by law. If Lessee shall, in good faith,
contest the validity of any such lien, claim or demand, then Lessee shall, at
its sole expense defend itself and Lessor against the same and shall pay and
satisfy any such adverse judgement that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises, the Building or the
Office Building Project, upon the condition that if Lessor shall require Lessee
shall furnish to lessor a surety bond satisfactory to Lessor in an amount equal
to such contested lien claim or demand indemnifying Lessor against liability for
the same and holding the Premise, the Building and the Office Building Project
free from the effect to such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's reasonable attorneys' fees and costs in participating in
such action if Lessor shall decide it is to Lessor's best interest to do so.
(e) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including but
not limited to, floor coverings, panelings, doors, drapes, built-ins, moldings,
sound attenuation, and lighting and telephone or communication systems, conduit,
wiring and outlets, shall be made and done in a good and workmanlike manner and
of good and sufficient quality and materials and shall be the property of Lessor
and remain upon and be surrendered with the Premises at the expiration of the
Lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a).
Provided Lessee is not in default, notwithstanding the provisions of this
paragraph 7.3(e), Lessee's personal property and equipment, other than that
which is affixed to the Premises so that it cannot be removed without material
damage to the Premises or the Building, and other than Utility Installations,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
7.4 Utility Additions. Lessor reserves the right to install new or
-----------------
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonably interfere with Lessee's use of
the Premises.
8. Insurance; Indemnity. See paragraph 57, paragraph 59.
--------------------
8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense,
----------------------------
obtain and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard form
with Board Form General Liability
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<PAGE>
Endorsement (GLO404), or equivalent, in an amount of not less than $1,000,000
per occurrence of bodily injury and property damage combined or in a greater
amount as reasonably determined by Lessor and shall insure Lessee with Lessor as
an additional insured against liability arising out of the use, occupancy or
maintenance of the Premises. Compliance with the above requirement shall not,
however, limit the liability of Lessee hereunder.
8.2 Liability Insurance - Lessor. Lessor shall, at Lessee's expense,
----------------------------
obtain and keep in force during the term of this Lease a policy of Combined
Single Limit Bodily Injury and Broad Form Property Damage Insurance, plus
coverage against such other risks Lessor deems advisable from time to time,
insuring Lessor, but not Lessee, against liability arising out of the ownership,
use, occupancy or maintenance of the Office Building Project in an amount not
less than $5,000,000.00 per occurrence.
8.3 Property Insurance - Lessee. Lessee shall, at Lessee's expense,
---------------------------
obtain and keep in force during the term of this Lease for the benefit of
Lessee, replacement cost fire and extended coverage insurance, with vandalism
and malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 Property Insurance--Lessor. Lessor shall obtain and keep in
--------------------------
force during the term of this Lease a policy or policies of insurance covering
loss or damage to the Office Building Project improvements, but not Lessee's
personal property, fixtures, equipment or tenant improvements, in the amount of
the full replacement cost thereof, as the same may exist from time to time,
utilizing insurance Services Office standard form, or equivalent providing
protection against all perils included within the classification of firm,
extended coverage, vandalism, malicious mischief, plate glass, and such other
perils as Lessor deems advisable or may be required by a lender having a Line on
the Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor which insurance shall so cover
all Operating Expenses for said period. Lessee will not be named in any such
policies carried by Lessor and shall have no right to any proceeds therefrom.
The policies required by these paragraph 8.2 and 8.4 shall contain such
deductibles as Lessor or the aforesaid lender may determine. In the event that
the Premises shall suffer an insured loss as defined in paragraph 9.1(f) hereof,
the deductible amounts under the applicable insurance policies shall be deemed
an Operating Expense. Lessee shall not do or permit to be done anything which
shall invalidate the insurance policies carried by Lessor. Lessee shall pay the
entirety of any increase in the property insurance premium for the Office
Building Project over what it was immediately prior to the commencement of the
term of this lease if the increase is specified by Lessor's insurance carrier as
being caused by the nature of Lessee's occupancy or any act or omission of
Lessee.
8.5 Insurance Policies. Lessee shall deliver to lessor copies of
------------------
liability insurance policies required under paragraph 8.1 or certificates
evidencing the existence and amounts of such insurance within seven (7) days
after the Commencement Date of this Lease. No such policy shall
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<PAGE>
be cancellable or subject to reduction of coverage or other modification except
after thirty (30) days prior written notice to Lessor. Lessee shall, at least
thirty (30) days prior to the expiration of such policies, furnish Lessor with
renewals thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
---------------------
relieve the other and waive their entire right of recovery against the other for
direct or consequential loss or damage arising out of or incident to the perils
actually or required by the Lease to be covered by property insurance carried by
such party, whether due to negligence of Lessor or Lessee or their agents,
employees, contractors and/or invitees. If necessary all property insurance
policies required under this Lease shall be endorsed to so provide.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor and
---------
its agents, Lessor's master or ground lessor, partners and lenders, from and
against any and all claims for damage to the person or property of anyone or any
entity arising from Lessee's use of the Office Building Project, or from the
conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims,
costs and expenses arising from any breach of default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees or invitees, and from and against all costs, attorney's
fees, expenses and liability incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case an action or proceeding be brought against Lessor by reason
of any such matter, Lessee upon notice from Lessor shall defend the same at
Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense. Lessor need not have first paid on such
claim in order to be so indemnified. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Office Building Project arising from
any cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that
----------------------------------
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or another person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or of other equipment fixtures or
appurtenances applicable thereto, and regardless of whether the cause of such
damage or injury or the means of repairing the same is inaccessible, Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee, occupant or user of the
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Office Building Project, nor from the failure of Lessor to enforce the
provisions of any other lease of any other lessee of the Office Building
Project.
8.9 No Representation of Adequate Coverage. Lessor makes no
--------------------------------------
representation that the limits or forms of coverage of insurance specified in
this paragraph 8 are adequate to cover Lessee's property or obligations under
this Lease.
9. Damage or Destruction. See paragraph 63
---------------------
9.1 Definitions.
-----------
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is less than fifty percent (50%) of the then Replacement
Cost of the building.
(c) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent (50%) or more of the then Replacement
Cost of the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall
mean if the Office Building Project Buildings are damaged or destroyed to the
extent that the cost of repair is fifty percent (50%) or more of the then
Replacement Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8. The fact that an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary
to be spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee expense.
9.2 Premises Damage; Premises Building Partial Damage.
-------------------------------------------------
(a) Insured Loss. Subject to the provisions of paragraphs 9.4
------------
and 9.5, if at any time during the term of this Lease there is damage which is
an Insured Loss and which falls into the classification of either Premises
Damage or Premises Building Partial Damage then Lessor shall,
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<PAGE>
as soon as reasonably possible and to the extent the required material and labor
are readily available through usual commercial channels, at Lessor's expense
repair such damage (but not Lessee's fixtures, equipment or tenant improvements
originally paid for by Lessee) to its condition existing at the time of the
damage, and this Lease shall continue in full force and effect.
(b) Uninsured Loss. Subject to the provisions of paragraphs 9.4
--------------
and 9.5, if at any time during the terms of this Lease there is damage which is
not an Insured Loss and which falls within the classification of Premises Damage
or Premises Building Partial Damage, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
which damage prevents Lessee from making any substantial use of the Premises,
Lessor may at Lessor's option either (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence of
such damage, in which event this Lease shall terminate as of the date of the
occurrence of such damage.
9.3 Premises Building Total Destruction; Office Building Project
------------------------------------------------------------
Total Destruction. Subject to the provision of paragraph 9.4 and 9.5, if at any
- -----------------
time during the terms of this Lease there is damage, whether or not it is an
Insured Loss, which falls into the classification of either (i) Premises
Building Total Destruction, or (ii) Office Building Project Total Destruction,
then Lessor may at Lessor's either (i) repair such damage or destruction as soon
as reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) given written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 Damage Near End of Term.
-----------------------
(a) Subject to paragraph 9.4(b), if at any time during the last
twelve (12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee
has an option to extent or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than twenty (20) days after the
occurrence of an Insured Loss falling within the classification of Premises
Damage during the last twelve (12) months of the term of this Lease. If Lessee
duly exercises such option during said twenty (20) day period, Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease
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<PAGE>
shall continue in full force and effect. If Lessee fails to exercise such option
during said twenty (20) day period, then Lessor may at Lessor's option terminate
and cancel this Lease as of the expiration of said twenty (20) day period by
giving written notice to Lessee of Lessor's election to do so within ten (10)
days after the expiration of said twenty (20) days period notwithstanding any
term or provision in the grant of option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
------------------------------------
(a) In the event Lessor repairs or restores the Building or
Premises pursuant to the provisions of this paragraph 9, and any part of the
Premises are not usable (including loss of use due to loss of access or
essential services), the rent payable hereunder (including Lessee's Share of
Operating Expense Increase) for the period during which such damage, repair or
restoration continues shall be abated, provided (1) the damage was not the
result of the negligence of Lessee, and (2) such abatement shall only be to the
extent the operation and profitability of Lessee's business as operated from the
Premises is adversely affected. Except for said abatement of rent, if any,
Lessee shall have not claim against Lessor for any damage suffered by reason of
any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises or the Building under the provisions of this Paragraph 9 and shall not
commence such repair or restoration within ninety (90) days after such
occurrence, or if Lessor shall not complete the restoration and repair within
six (6) months after such occurrence, Lessee may at Lessee's option cancel and
terminate this lease by giving Lessor written notice of Lessee's election to do
so at any time prior to the commencement or completion, respectively, of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with
any such restoration and repair, including but not limited to the approval
and/or execution of plans and specifications required.
9.6 Termination--Advance Payments. Upon termination of this Lease
-----------------------------
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute
------
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
-------------------
10.1 Payment of Taxes. Lessor shall pay the real property tax, as
----------------
defined in paragraph 10.3., applicable to the Office Building Project subject to
reimbursement by Lessee of
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<PAGE>
Lessee's Share of such taxes in accordance with the provisions of paragraph 4.2,
except as otherwise provided in paragraph 10.2.
10.2 Additional Improvements. Lessee shall not be responsible for
-----------------------
paying any increase in real property tax specified in the tax assessor's records
and work sheets as being caused by additional improvement placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax." As used herein, the term
--------------------------------
"real property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, level or tax (other than inheritance,
personal income or estate taxes) imposed on the Office Building Project or any
portion thereof by any authority having the direct or indirect power to tax,
including any city, county, state or federal government, or any school,
agricultural, sanitary, fire, street, drainage or other improvement district
thereof, as against any legal or equitable interest of Lessor in the Office
Building Project or any portion thereof, as against Lessor's right to rent or
other income therefrom, as against Lessor's business of leasing the Office
Building Project. The term "real property tax" shall also include any tax, fee,
levy, assessment or charge (i) in substitution of, partially or totally, any
tax, fee, levy, assessment or charge hereinabove included within the definition
of "real property tax," or (ii) the nature of which has hereinbefore included
within the definition of "real property tax," or (iii) which is imposed for a
service or right not charged prior to June 1, 1978, or, if previously charged,
has been increased since June 1, 1978, or (iv) which is imposed as a result of a
change in ownership, as defined by applicable local statutes for property tax
purposes, of the Office Building Project or which is added to a tax or charge
hereinbefore included within the definition of real property tax by reason of
such change of ownership, or (v) which is imposed by reason of this transaction,
any modifications or changes hereto, or any transfer hereof.
10.4 Joint Assessment. If the improvements or property, the taxes for
----------------
which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion to that tax shall be equitable determined
by Lessor from the respect valuations assigned in the assessor's work sheets or
such other information (which may including the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 Personal Property Taxes.
-----------------------
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere.
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<PAGE>
(b) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay to Lessor the taxes attributable
to Lessee within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property.
11. Utilities.
---------
11.1 Services Provided by Lessor. Lessor shall provide heating,
---------------------------
ventilation, air conditioning, and janitorial services as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tube and ballasts for standard overhead fixtures.
11.2 Services Exclusive to Lessee. Lessee shall pay for all water,
----------------------------
gas, heat, light power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises. Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
11.3 Hours of Services. Said services and utilities and services
-----------------
required at other times shall be subject to advance request and reimbursement by
Lessee to Lessor of the cost thereof. Accepted business hours are 7:00 am to
6:00 pm, Monday through Friday.
11.4 Excess Usage by Lessee. Lessee shall not make connection to the
----------------------
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 Interruptions. There shall be no abatement of rent and Lessor
-------------
shall not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. Assignment and Subletting.
-------------------------
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
-------------------------
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such
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<PAGE>
consent shall be void, and shall constitute a material default and breach of
this Lease without the need for notice to Lessee under paragraph 13.1.
"Transfer" within the meaning of this paragraph 12 shall include the transfer or
transfers aggregating: (a) if Lessee is a corporation, more than fifty percent
(50%) of the voting stock of such corporation (unless such stock is publicly
traded), or (b) if Lessee is a partnership, more than twenty-five percent (25%)
of the profit and loss participation in such partnership.
12.2 Lessee Affiliate. Notwithstanding the provisions of
----------------
paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any portion
thereof, without Lessor consent, to any corporation which controls, is
controlled by or is under common control with Lessee, or to any corporation
resulting from the merger or consolidation with Lessee, or to any person or
entity which acquires all the assets of Lessee as a going concern of the
business that is being conducted on the Premises, all of which are referred to
as "Lessee Affiliate;" provided that before such assignment shall be effective,
(a) said assignee shall assume, in full, the obligations of Lessee under this
Lease and (b) Lessor shall be given written notice of such assignment and
assumption. Any such assignment shall not, in any way, affect or limit the
liability of Lessee under the terms of this Lease.
12.3 Terms and Conditions Applicable to Assignment and Subletting.
------------------------------------------------------------
(a) Regardless of Lessor's consent, no assignment or subletting
shall release Lessee of Lessee's obligations hereunder or alter the primary
liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expense Increase, and to perform all other
obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of rent, shall constitute a waiver
or estoppel of Lessor's right to exercise its remedies for the breach of any of
the terms or conditions of this paragraph 12 or this lease.
(d) If Lessee's obligations under this Lease have been
guaranteed by third parties, then an assignment or sublease, and Lessor's
consent thereto shall not be effective unless said guarantors give their written
consent to such sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent
and such action shall not relieve such persons from liability under this Lease
or said sublease;
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<PAGE>
however, such persons shall not be responsible to the extent any such amendment
or modification enlarges or increase the obligations of the Lessee or sublessee
under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or any one else responsible for
the performance of this Lease, including the sublease, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by the Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of
the Premises by Lessee shall not constitute an acknowledgment that no default
then exists under this Lease of the obligations to be performed by Lessee nor
shall such consent be deemed a waiver of any then existing default, except as
may be otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement
relied upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent null
and void.
12.4 Additional Terms and Conditions Applicable to Subletting.
--------------------------------------------------------
Regardless of Lessor's consent, the following terms and conditions shall apply
to any subletting by Lessee of all or any part of the Premises and shall be
deemed included in all subleases under this Lease whether or not expressly
incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease heretofore
or hereafter made by Lessee, and Lessor may collect such rent and income and
apply same toward Lessee's obligations under this Lease; provided, however, that
until a default shall occur (and after the expiration of any applicable cure
period) in the performance of Lessee's obligations under this Lease, Lessee may
receive, collect and enjoy the rents accruing under such sublease. Lessor shall
not, by reason of this or any other assignment of such sublease to Lessor nor by
reason of the collection of the rents from a sublease, be deemed liable to the
sublessee for any failure of lessee to perform and comply with any of Lessee's
obligations to such sublessee under such sublease. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice from
Lessor stating that a default exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor the rents due and to become due under the
sublease Lessee agrees that such sublessee shall have the right to rely upon any
such statement and request from Lessor, and that such sublessee shall pay such
rents to Lessor without any obligation or right to inquire as to whether such
default exists and notwithstanding any notice from or claim from Lessee to the
contrary, Lessee shall have no right or claim against said sublessee for any
such rents so paid by said sublease to Lessor.
(b) No sublease entered into by Lessee shall be effective
unless and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublease as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublease shall, by reason
of
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<PAGE>
entering into a sublease under this Lease, be deemed, for the benefit of
Lessor, to have assumed and agreed to conform and comply with each and every
obligation herein to be performed by Lessee other than such obligations as are
contrary to or inconsistent with provisions contained in a sublease to which
Lessor has expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease. Lessor at its option and without any obligation to
do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease, provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(d) No sublease shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has
consented, Lessor agrees to deliver a copy of any notice of default by Lessee to
the sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 Lessor's Expenses. In the event Lessee shall assign or sublet
-----------------
the Premises or request the consent of Lessor to any assignment or subletting or
if Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 Conditions to Consent. Lessor reserves the right to condition
---------------------
any approval to assign or sublet upon Lessor's determination that (a) the
proposed assignee or sublessee shall conduct a business on the Premises of a
quality substantially equal to that of Lessee's and consistent with the general
character of the other occupants of the Office Building Project and not in
violation of any exclusives or rights then held by other tenants, and (b) the
proposed assignee or sublessee be, in Lessor's reasonable judgement, financially
capable of complying with the terms of such assignment or subletting.
13. Default; Remedies.
-----------------
13.1 Default. The occurrence of any one or more of the following
-------
events shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee.
Vacation of the Premises shall include the failure to occupy the Premises fora
continuous period of sixty (60) days or more, whether or not the rent is paid.
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<PAGE>
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraph 73(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material
defaults without the necessity of any notice by Lessor to Lessee thereof.
(c) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(d) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee other than those referenced in subparagraphs (b) and (c) above, where
such failure shall continue for a period of thirty (30) days after written
notice thereof from Lessor to Lessee, provided, however, that if the nature of
Lessee's noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then Lessee shall not be deemed to be in default if
Lessee commenced such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. To the extent permitted by laws,
such thirty (30) days notice shall constitute the sole and exclusive notice
required to be given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or
general assignment for the benefit of creditors; (ii) Lessee becoming a "debtor"
as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within sixty
(60) days; (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located in the Premises or of Lessee's
interest in this Lease, whether possession is not restored to Lessee within
thirty (30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given
to Lessor by Lessee, or its successor in interest or by any guarantor of
Lessee's obligation hereunder, was materially false.
13.2 Remedies. In the event of any material default or breach of this
--------
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default:
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(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of relating, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and any real estate commission actually paid, the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee provides could be reasonably
avoided, that portion of the leasing commission paid by Lessor pursuant to
paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor
-----------------
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation,
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and thereafter
diligently pursues the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
------------
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expense increase or
other sums due hereunder will cause Lessor to incur costs not contemplated by
this Lease, the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to, processing and accounting charges,
and late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any installment
of Base Rent, Operating Expense increase, or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee with five (5) days after written
notice that such amount shall be due then. Lessee shall pay to Lessor a late
charge equal to 6% of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payment by Lessee. Acceptance of such late charge by
Lessor shall in no event constitute a waiver
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<PAGE>
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion thereof or the Office
------------
Building Project are taken under the power of eminent domain, or sold under the
threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first occurs;
provided that if so much of the Premises or the Office Building Project are
taken by such condemnation as would substantially and adversely affect the
operation and profitability of Lessee's business conducted from the Premises,
Lessee shall have the option, to be exercised only in writing within thirty (30)
days after Lessor shall have given Lessee written notice of such taking (or in
the absence of such notice, within thirty (30) days after the condemning
authority shall have taken possession), to terminate this Lease as of the date
the condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent and Lessee's Share of Operating Expense increase shall be reduced in the
proportion that the floor area of the Premises taken bears to the total floor
area of the Premises. Common Areas taken shall be excluded from the Common Areas
usable by Lessee and no reduction of rent shall occur with respect thereto or by
reason thereof. Lessor shall have the option in its sole discretion to terminate
this Lease as of the taking of possession by the condemning authority, by giving
written notice to Lessee of such election within thirty (30) days after receipt
of notice of a taking by condemnation of the Premises or the Office Building
Project. Any award for the taking of all or any part of the Premises or the
Office Building Project under the power of eminent domain or any payment made
under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose the cost
of such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by reason
of such condemnation, Lessor shall to the extent of severance damages received
by Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount in
excess of such severance damages required to complete such repair.
15. [DELETED]
16. Estoppel Certificate.
--------------------
(a) Each party (as "responding party") shall at any time upon not
less than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are
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<PAGE>
paid in advance, if any, and (ii) acknowledging that there are not, to the
responding party's knowledge, any uncured defaults on the part of the requesting
party, or specifying such defaults if any are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Office Building Project or of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be presented by the requesting party,
(ii) there are no uncured defaults in the requesting party's performance, and
(iii) if Lessor is the requesting party, not more than one month's rent has been
paid in advance.
(c) If Lessee desires to finance, refinance, or sell the Office
Building Project, or any part thereof, Lessee hereby agrees to deliver to any
lender or purchaser designated by Lessor such financial statements of Lessee as
may be reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only
------------------
the owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. Severability. The invalidity of any provision of this Lease as
------------
determined by a court of competent jurisdiction shall in no way affect the
validity of any other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided,
--------------------------------
any amount due to Lessor not paid within ten (10) days after written notice that
such amount is due shall bear interest at the maximum rate then allowable by law
or judgments from the date due. Payment of such interest shall not excuse or
cure any default by Lessee under this Lease; provided, however, that interest
shall not be payable on late charges incurred by Lessee nor on any amounts upon
which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the
---------------
obligations to be performed under this Lease.
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<PAGE>
21. Additional Rent. All monetary obligations of Lessee to Lessor under
---------------
the terms of this Lease, including but not limited to Lessee's Share of
Operating Expense increase and any other expenses payable by Lessee hereunder
shall be deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
---------------------------------------------
agreement of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Office Building Project and Lessee acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of this
Lease.
23. Notices. Any notice required or permitted to be given hereunder shall
-------
be in writing and may be given by personal delivery or by certified or
registered mail, and shall be deemed sufficiently given if delivered or
addressed to Lessee or to Lessor at the address noted below or adjacent to the
signature of the respective parties, as the case may be. Mailed notices shall be
deemed given upon actual receipt at the address required, or forty-eight hours
following deposit in the mail, postage prepaid, whichever first occurs. Either
party may by notice to the other specify a different address for notice purposes
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
24. Waivers. No waiver by Lessor or Lessee of any provision hereof shall
-------
be deemed a waiver of any other provision hereof or of any subsequent breach by
Lessee or Lessor of the same or any other provision. Lessor's consent to, or
approval of, any act shall not be deemed to render unnecessary the obtaining of
Lessor's consent to or approval of any subsequent act by Lessee. The acceptance
of rent hereunder by Lessor shall not be a waiver of any preceding breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted, regardless of Lessor's knowledge of such preceding
breach at the time of acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
---------
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession
------------
of the Premises or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month to month upon all the provisions of
this Lease pertaining to the obligations of Lessee, except that the rent payable
shall be one hundred fifty percent (150%) of the rent payable
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<PAGE>
immediately preceding the termination date of this Lease, and all Options, if
any, granted under the terms of this Lease shall be deemed terminated and be of
no further effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
-------------------
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by
------------------------
Lessee shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof
-----------------------------
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17 this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
30. Subordination.
-------------
(a) This Lease, and any Option or right of first refusal granted
hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage,
deed of trust, or any other hypothecation or security now or hereafter placed
upon the Office Building Project and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Lessee's right to quiet possession of the Premises shall not be disturbed if
Lessee is not in default and so long as Lessee shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease and any Options granted hereby prior the lien of
its mortgage, deed of trust or ground lease, and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
mortgage, deed of trust or ground lease, whether this Lease or such Options are
dated prior or subsequent to the date of said mortgage, deed of trust or ground
lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option. Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
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<PAGE>
31. Attorneys' Fees.
---------------
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the same
or a separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorneys' fees reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all
other costs and expenses incurred in the preparation and service of notice of
default and consultations in connection therewith, whether or not a legal
transaction is subsequently commenced in connection with such default.
32. Lessor's Access. See paragraph 64
---------------
32.1 Lessor and Lessor's agents shall have the right to enter the
Premises at reasonable times for the purposes of inspecting the same, performing
any services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be
without abatement of rent, nor shall Lessor have any liability to Lessee for the
same.
32.3 Lessor shall have the right to retain keys to the Premises and
to unlock all doors in or upon the Premises other than to files, vaults and
safes; and in the case of emergency to enter the Premises by any reasonably
appropriate means, and any such entry shall not be deemed a forceable or
unlawful entry or detainer of the Premises or an eviction. Lessee waives any
charges for damages or injuries or interference with Lessee's property or
business in connection therewith.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
--------
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall
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<PAGE>
not be obligated to exercise any standard of reasonableness in determining
whether to grant such consent. The holding of any auction on the Premises or
Common Areas in violation of this paragraph shall constitute a material default
of this Lease.
34. Signs. Lessee shall not place any sign upon the Premises or the Office
-----
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project. See
paragraph 65
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
------
mutual cancellation thereof, or a termination by Lessor, shall not work merger,
and shall, at the option of Lessor, terminate all or any existing subtenancies
or may, at the option of Lessor, operate as an assignment to Lessor of any or
all of such subtenancies.
36. Consents. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
--------
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall be not unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
---------
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and
----------------
observing and performing all of the covenants, conditions and provisions of
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
39. Options.
-------
39.1 Definitions. As used in this paragraph the word "Option" has the
-----------
following meaning: (1) the right or option to extend the term of this Lease to
renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
----------------
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, the Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease or to an assignee or sublessee permitted by paragraph 12. The
Options, if any, herein granted to Lessee are not assignable separate and apart
from this Lease, nor may any Option be separated from this Lease in any manner,
either by reservation or otherwise.
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<PAGE>
39.3 Multiple Options. In the event that Lessee has any multiple
----------------
options to extend or renew this Lease a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
----------------------------
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the day after written notice of a monetary obligation to Lessor is
due from Lessee and unpaid and continuing until the obligation is paid, or (iii)
in the event that Lessor has given to Lessee three or more notices of default
under paragraph 13.1(c), or paragraph 13.1(d), whether or not the defaults are
cured, during the 1 month period of time immediately prior to the time that
Lessee attempts to exercise the subject Option, (iv) if Lessee is in default of
any of the terms, covenants or conditions of this Lease and Lessee is not
diligently prosecuting the cure of such default.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
duty and timely exercise of the Option, if after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due, or
(ii) Lessee fails to commence to cure a default specified in paragraph 13.1(d)
within thirty (30) days after the date that Lessor gives notice to Lessee of
such default and/or Lessee fails thereafter to diligently prosecute said cure to
completion, or (iii) Lessor gives to Lessee three or more notices of default
under paragraph 13.1(c), or paragraph 13.1(d), whether or not the defaults are
cured, or (iv) if Lessee is otherwise in default of any of the terms, covenants
and conditions of this Lease.
40. Security Measures--Lessor's Reservations.
----------------------------------------
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
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<PAGE>
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90 days
prior written notice;
(b) To, at Lessee's expense, provide and install Building
standard graphics on the door of the Premises and such portions of the Common
Areas as Lessor shall reasonably deem appropriate;
(c) To place such signs, notices or displays as Lessor
reasonably deems necessary or advisable upon the roof, exterior of the buildings
of the Office Building Project or on pole signs in the Common Areas;
(d) To place such signs, notices or displays as Lessor
reasonably deems necessary or advisable upon the roof, exterior of the buildings
on the Office Building Project or on pole signs in the Common Areas.
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the
Building or the Office Building Project or their name(s) in connection with
Lessee's business without Lessor's consent which shall not be unreasonably
withheld;
(b) Suffer or permit anyone, except in emergency, to go upon
the roof of the Building.
41. Enhancements.
------------
41.1 Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessors.
42. Performance Under Protest. If at any time a dispute shall arise as to
-------------------------
any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the
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<PAGE>
right on the part of said party to institute suit for recovery of such sum if it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof, said party shall be entitled to recover
such sum or so much thereof as if it was not legally required to pay under the
provisions of this Lease.
43. Authority. If Lessee is a corporation, trust, or general or limited
---------
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions, Exhibits or
--------
Addenda of this Lease and the typewritten or handwritten provisions, if any,
shall be controlled by the typewritten or handwritten provisions.
45. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
--------
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. Lender Modification. Lessee agrees to make such reasonable
-------------------
modifications to this Lease as may be reasonably required by an institutional
lender in connection with the obtaining of normal financing or refinancing of
the Office Building Project so long as such modifications do not increase
Lessee's obligations under this Lease.
47. Multiple Partners. If more than one person or entity is named as
-----------------
either Lessor or Lessee herein, except as otherwise expressly provided herein,
the obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. Work Letter. This Lease is supplemented by that certain Work Letter
-----------
of even date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. Attachments. Attached hereto are the following documents which
-----------
constitute a part of this Lease:
Paragraphs 50-66 shall be made a part hereof as well as Exhibits A,
B, C, D & E.
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<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION
IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE
REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION RELATING THERETO. THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES
OF THIS LEASE.
LESSOR LESSEE
SOUTH BAY/LATHAM, RAMBUS, INC.,
a California Limited Partnership a California corporation
________________________________ _________________________________
By: ____________________________ By: _____________________________
Its ________________________ Its _________________________
By ____________________________ By _____________________________
Its ________________________ Its _________________________
Executed at ____________________ Executed at _____________________
on _____________________________ on ______________________________
Address ________________________ Address _________________________
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<PAGE>
50. The rental schedule shall be as follows:
<TABLE>
<CAPTION>
Term Rent Per Month
--------------------------------------------
<S> <C>
Months 1-12 $25,769.00
--------------------------------------------
Months 13-24 $26,505.00
--------------------------------------------
Months 25-36 $27,241.00*
--------------------------------------------
</TABLE>
* If Rambus Inc. were to vacate the Premises at any time during months 25-36,
then Lessee's rent shall be reduced from $27,241.00 per month to $25,769 per
month for the period of time Rambus Inc. has vacated the Premises.
51. Option to Extend.
----------------
a. Provided that Lessee has not committed an uncured Event of
Default under this Lease at the time of exercise of this Option, Lessee shall
have one (1) option to extend the term of this Lease (the "Option") for a period
of two (2) years. Said Option shall be exercised only by written notice
delivered to Lessor no later than one hundred eighty (180) days prior to the
expiration date of the then existing term of this Lease. In all respects, the
terms, covenants and conditions of this Lease shall remain unchanged during the
Option Term, except that the Monthly Installment of rent payable during the
Option Term, shall be increased in accordance with the provisions of
subparagraph 51b below, and except that there shall be no further Option to
extend the term of this Lease at the end of the Option term.
b. The Monthly Installment of rent payable during each Option Tem
shall be ninety five percent (95%) of the Fair Market Rental for the Premises
as of the first day of each Option Term.
Notwithstanding the preceding, if the Fair Market Rental of the
Premises as of the first day of the Option Term if less than the rental paid
during the last month of the original Lease term, Base Rent shall be one hundred
percent (100%) of the Fair Market Rental of the Premises as of the first day of
the Option Term.
c. Determination of Fair Market Rental. Promptly following the
exercise of the Option, the parties shall meet and endeavor to agree upon the
Fair Market Rental of the Premises as of the first day of the Option Term. In
determining the Fair Market Rental for the Premises, the Premises shall be
compared only to buildings of a similar quality and size and with similar
improvements and amenities in the Mountain View area shall be considered. Any
alternations made at the expense of Tenant shall not be considered in
determining the Fair Market Rental for the Premises. If, within fifteen (15)
days after exercise of the Option, the parties cannot agree upon the Fair Market
Rental for the Premises as of the first day of the Option Term, the parties
shall submit the matter to binding appraisal in accordance with the following
procedures.
d. Appraisal. Within thirty (30) days after the exercise of the
Option, the parties shall either (a) jointly appoint an appraiser for this
purpose or (b) failing this joint action, separately
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designate a disinterested appraiser. No person shall be appointed to designated
an appraiser unless they have at least five (5) years experience in appraising
major commercial properties in the Mountain View area and is a member of a
recognized society of real estate appraisers. If, within thirty (30) days after
their appointment, the two appraisers reach agreement on the Fair Market Rental
for the Premises as of the first day of the Option Term in question, that value
shall be binding and conclusive upon the parties. If the two appraisers thus
appointed cannot reach agreement on the question presented thirty (30) days
after their appointment, then the appraisers thus appointed shall appoint a
third disinterested appraiser having like qualifications. If within thirty (30)
days after the appointment of the third appraiser, a majority of the appraisers
agree on the Fair Market Rental of the Premises as of the first day of the
Option Term, that value shall be binding and conclusive upon the parties. If
within thirty (30) days after the appointment of the third appraiser a majority
of the appraisers cannot reach agreement on the question presented, then the
three appraisers shall submit their independent appraisal to the parties, and
the appraisal farthest from the median of the three appraisals shall be
disregarded and the mean average of the remaining two appraisals shall be deemed
to be the Fair Market Rental of the Premises as of the first day of the Option
Term and shall be binding and conclusive upon the parties. Each party shall pay
the fees and expenses of the appraiser appointed by it and shall share equally
the fees and expenses of the third appraiser. If the two appraisers appointed by
the parties cannot agree on the appointment of the third appraiser, they or
either of them shall give notice of such failure to agree to the parties and if
the parties fail to agree upon the selection of such third appraiser within ten
(10) days after the appraisers appointed by the parties give such notice, then
either of the parties, upon notice to the other party, may request such
appointment by the American Arbitration Association, or on its failure, refusal
or inability to act, may apply for such appointment to the presiding judge of
the Superior Court of the Santa Clara County, State of California.
52. Right of Second Refusal on Additional Space.
-------------------------------------------
a. At any time on or after the Commencement Date of the term of
this Lease, as determined under Paragraph 3 hereof, Lessor receives a written
offer from a third party to lease any space in the subject building, Lessor
shall notify Lessee in writing of the terms on which Lessor is willing to lease
the subject premises. To the extent the third party offer does not contain all
of the terms or address all of the issues found in standard office lease, the
applicable terms and provisions of this Lease shall apply.
b. Lessee shall have five (5) business days to accept the terms and
conditions as written by Lessor and to agree in writing to lease the subject
premises. If Lessor has not received a written response to lease the subject
premises from Lessee within five (5) business days of Lessee's receipt of an
offer from Lessor, then it shall be deemed that Lessee is waiving its right to
lease the subject space, and Lessor will be free to lease to any third party, on
the same terms and conditions as were originally offered to Lessee, and provided
that the transaction with the third party is consummated within no more than
sixty (60) days following the initial offer to Lessee. In the event Lessor
offers such space on terms other than those originally offered to Lessee and/or
a binding Lease is not consummated within sixty (60) days from the date of the
initial notice to Lessee, Lessor shall reoffer the subject space to Lessee.
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<PAGE>
This "Right of Second Refusal" shall not apply to extensions of
leases for tenants who are in occupancy of the building and whose Leases mature
before the expiration of the term of this Lease, and is subordinate to any First
Rights of Refusal any Lessee's may have on space in the subject building as of
the Commencement Date.
53. Tenant Improvements. Lessor shall, at Lessor's cost, construct
-------------------
certain interior improvements (the "Improvements") in the Premises prior to the
commencement of the term of this Lease in accordance with the Approved Plans to
be developed as provided in Paragraph A below, subject to the following terms
and conditions:
a. Prior to March 22, 1991, Lessee shall deliver to Lessor its
desired floor plan, layout, and general requirements (the "Preliminary Plans")
in sufficient detail in order to permit Lessor to prepare working drawings for
the interior improvements to be constructed within the Premises. Within fifteen
(15) days following receipt of the Preliminary Plans from Lessee, Lessor shall
cause to be prepared and submitted to Lessee, working drawings for the
construction of the Improvements. Lessee shall have five (5) days following
receipt of such working drawings within which it may accept and approve the
working drawings or submit to Lessor a written request for changes. If Lessee
does not deliver any requested changes to the working drawings within that
period, Lessee shall be deemed to have approved the working drawings as
submitted by Lessor. Five (5) days following receipt of Lessee's request for
changes, the parties shall agree on final plans and specifications, which
approval shall not be unreasonably withheld. Within two (2) days of Lessor and
Lessee agreeing upon the final plans and specifications for the Improvements, a
representative of each shall sign the same, and when signed, said plans and
specifications shall become a part of this Lease as though fully set forth
herein (the "Approved Plans"). Promptly following agreement on the Approved
Plans and issuance of the required building permits, Lessor shall commence and
diligently prosecute to completion the construction of the Improvements in
accordance with the Approved Plans.
b. When the final floor plan and specifications for the subject
space have been agreed upon they will be attached as Exhibit A to this Lease.
Lessor agrees to improve the subject space in accordance with Exhibit A as so
attached.
c. Lessee shall have no right to order extra work or change orders
with respect to the construction of the Improvements without the prior written
consent of Lessor which consent shall not be unreasonably withheld or delayed.
All extra work or change orders requested by Lessee shall be made in writing and
shall be effective and become part of the Approved Plans only when approved in
writing by Lessor. In the event a change order requested by Lessee causes an
increase in the costs of constructing the Improvements as reasonably determined
by Lessor's contractor, Lessee shall pay to Lessor in cash prior to commencement
of construction of the change order the reasonable amount of said cost.
d. All of the initial Improvements whether paid for by the Lessor or
Lessee, shall be deemed to be part of the realty and shall be the property of
Lessor. All investment tax credits and energy tax credits which are available by
reason of the construction of the Improvements shall be divided
-35-
<PAGE>
between Lessor and Lessee in the same proportion as the cost of constructing the
Improvements are divided between the Lessor and Lessee.
e. Lessee shall have no right to enter the Premises during the
course of construction without the consent of Lessor, which consent shall not be
unreasonably withheld except that Lessee shall have the right to so enter the
Premises during construction for the purpose of installing its systems
furniture, cabling and other communications networks and any other work which
Lessee desires to complete prior to the Commencement Date so long as Lessee does
not interfere with Lessor's construction work or timing. Lessee and Lessor shall
cooperate with each other in order to coordinate the scheduling of such work by
Lessee.
f. Within five (5) days after Lesse enters into possession of the
Premises, Lessee shall walk through and inspect the Improvement with Lessor.
After such inspection has been completed, Lessee shall sign Lessor's acceptance
agreement in the form attached hereto as "Exhibit E" which shall state that
Lessee has fully inspected the Improvements, has found them to be satisfactory,
and has found that all Improvements required to be constructed by Lessor
pursuant hereto have been completed in accordance with the Approved Plans, all
except for punch list items or defects noted in the acceptance agreement form
executed by Lessee or items not ascertainable at the time of walk-through. Upon
completion of the punch list, Lessor shall commence and diligently prosecute to
completion the correction of any defects in construction which Lessor is
obligated to construct.
g. If subsequent to the approval of the Approved Plans improvements
which are required for the issuance of a Certificate of Occupancy by the City of
Mountain View are determined to have been inadvertently omitted from Exhibit A,
then Lessor shall provide said improvements at Lessor's cost.
Lessor will not be responsible for providing any improvements which
are not listed in Exhibit A but which are required for a Certificate of
Occupancy if the need for the additional improvements is caused by a change in
Rambus' daily operations from that stated in paragraph 1.4 of this Lease.
h. As used herein, the term "cost of constructing the Improvements"
shall include all architectural and engineering fees and costs, building permit
fees and taxes and other governmental fees and taxes required for the
construction and occupancy of the Improvements, and all of Lessor's contractors'
and subcontractors' prices for constructing the Improvements. Lessor's
contractor's price for constructing the Improvements shall include the cost of a
Job Superintendent plus a fee of eight and one-half percent (8.5%) of all
subcontractor prices.
i. Any improvements or personal property which has been installed or
affixed to the building at Lessee's sole cost may be removed by Lessee at the
end of its Lease term as long as Lessee repairs any damage to the building or
improvements caused by the removal of such improvements.
-36-
<PAGE>
j. The Improvements will be constructed in a good and workmanlike
manner, in compliance with all regulations and ordinances, and in conformance
with the plans and specifications and will be free of defects for a period of at
least one year following substantial completion. Lessor will repair any such
defects.
54. Lease Buyout. Lessee shall have the right to terminate this Lease
------------
at the beginning of the twenty fifth (25th) month of this Lease term subject to
the following requirements.
a. Lessee must notify Lessor in writing no later than One Hundred
Eighty (180) days prior to the expiration of the twenty fourth (24th) month of
this Lease term that it elects to terminate this Lease at the beginning of the
third (3rd) year of this Lease term.
b. Lessee must pay to Lessor an early termination fee in the amount
of One Hundred Fifty Thousand Dollars ($150,000.00) upon giving written notice
of its election to terminate its Lease term early.
55. Commencement Date: Notwithstanding anything to the contrary in the
-----------------
Lease, if the Commencement Date has not occurred for any reason other than
delays caused by Lessee on or before July 1, 1991, then in addition to Lessee's
other rights or remedies, at Lessee's election, the date Lessee is otherwise
obliged to commence payment of rent shall be delayed by one day for each day
that the Commencement Date is delayed beyond July 1, 1991 (i.e. Lessee shall be
entitled to one day of free rent for each day of delay).
56. Alterations: Notwithstanding anything to the contrary in the Lease:
-----------
A. Nonstructural. Lessee may construct nonstructural alterations,
-------------
additions and improvements in the Premises without Lessor's prior approval, if
(i) the cost of such work does not exceed Ten Thousand Dollars ($10,000),
(ii) Lessee complies with all applicable laws and (iii) Lessee obtains all
governmental permits required prior to commencing work.
B. Lien Waiver. Lessor shall have no lien or other interest
-----------
whatsoever in any trade fixtures and personal property of Lessee ("Lessee's
Property"), or any portion thereof or interest therein located in the Premises
or elsewhere, and Lessor hereby waives all such liens and interests. Within ten
(10) days following Lessee's request, Lessor shall execute documents in form
reasonably acceptable to Lessee to evidence Lessor's waiver of any right, title,
lien or interest in Lessee's Property located in the Premises.
57. Expenses. Notwithstanding anything to the contrary in the Lease, in
--------
no event shall Lessee have any obligation to perform or to pay directly, or to
reimburse Lessor for, all or any portion of the following repairs, maintenance,
improvements, replacements, premiums, claims, losses, fees, charges, costs and
expenses (collectively, "Costs"):
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<PAGE>
A. Losses Caused By Others: Costs occasioned by the act, omission
-----------------------
or violation of Law by Lessor, any other occupant of the Building, or their
respective agents, employees or contractors.
B. Capital Improvements: Costs relating to repairs, alterations,
--------------------
improvements, equipment and tools which would properly be capitalized under
generally accepted accounting principles, except to the extent that Lessee's
share of such Cost during any twelve-month period of the Lease is equitably
determined based on Lessee's usage and amortized over the useful life of the
capital item in question.
C. Reimbursable Expenses: Costs for which Lessor has a right of
---------------------
reimbursement from others.
D. Construction Defects: Costs to correct any construction defect
--------------------
in the Premises or the Building or to comply with any CC&R's, underwriter's
requirement, regulation, ordinance or law applicable to the Premises or the
Building on the Commencement Date.
E. Utilities or Services: Costs (i) arising from the disproportion
---------------------
use of any utility or service supplied by Lessor to any other occupant of the
Building, or (ii) associated with utilities and services of a type not provided
to Lessee.
F. Interior Improvements: The cost of any renovation, improvement,
---------------------
painting or redecorating of any portion of the Building not made available for
Lessee's use.
G. Leasing Expenses: Fees, commissions, attorneys' fees, Costs or
----------------
other disbursements incurred in connection with negotiations or disputes with
any other occupant of the Building and Costs arising from the violation by
Lessor or any occupant of the Building (other than Lessee) of the terms and
conditions of any lease or other agreement.
H. Reserves: Depreciation, amortization or other expense reserves.
--------
I. Mortgages: Interest, charges and fees incurred on debt,
---------
payments on mortgages and rent under ground leases.
J. Concessions and Parking: Costs incurred in connection with the
-----------------------
operation of any parking or commercial concession within the Building.
K. Promotion: Advertising or promotional Costs.
---------
L. Capital Leases: Lease payments and Costs for capital machinery
--------------
and equipment, such as air conditioners, elevators, and the like.
M. Art: Costs of sculptures, fountains, paintings and other art
---
objects.
-38-
<PAGE>
N. Insurance: Insurance Costs for coverage not customarily paid by
---------
tenants of similar projects in the vicinity of the Premises, increases in
insurance Costs caused by the activities of another occupant of the Building,
co-insurance payments, insurance deductibles for all insurance other than
earthquake insurance not customarily paid by tenants of similar projects in the
vicinity of the Premises and in no event greater than Twenty-Five Thousand
Dollars ($25,000) per occurrence, and earthquake insurance deductibles in excess
of Twenty-Five Thousand Dollars ($25,000) per occurrence, provided, however, any
additional earthquake insurance deductible up to ten percent (10%) of the
replacement cost of the Premises shall be amortised over the useful life of the
Building and Lessee shall pay such amortization until rent is adjusted to Fair
Market Rental.
O. Hazardous Materials: Costs incurred to investigate the presence
-------------------
of any material which is now or hereinafter regulated by any governmental
authority or which poses a hazard to the environment or human life ("Hazardous
Material"), Costs to respond to any claim of Hazardous Material contamination or
damage, Costs to remove any Hazardous Material from the Building and any
judgments or other Costs incurred in connection with any Hazardous Material
exposure or releases, except to the extent caused by the use of the Hazardous
Material in question by Lessee.
P. Management: Profit or compensation retained by Lessor or its
----------
affiliates for management and administration of the Building in excess of the
management fee which would be charged by a professional management services for
operation of comparable projects in the vicinity.
58. Computation of Base Amount: Notwithstanding anything to the contrary
--------------------------
in the Lease: Lessee shall have no obligation to reimburse Lessor for any
Operating Expense during the first year of the Lease term and thereafter, Lessee
shall have no obligation to reimburse Lessor for any Operating Expense of a type
not also included in Base Year Operating Expense. If the Base Year Operating
Expenses are not based on 12 months actual operation of the Building at full
capacity, Base Year Operating Expenses shall be adjusted to reflect a fully
leased Building.
59. Indemnity: Notwithstanding anything to the contrary in the Lease:
---------
A. Negligence or Misconduct. Lessee shall neither release Lessor
------------------------
from, nor indemnify Lessor with respect to: (i) the negligence or willful
misconduct of Lessor, the other occupants of the Building, or their respective
agents, employees, contractors or invitee; or (ii) a breach of Lessor's
obligations or representations under this Lease.
B. Lessor's Indemnification. Lessor shall indemnify and hold
------------------------
harmless Lessee from all damages, liabilities, claims, judgments, actions,
attorneys' fees, consultants' fees, cost and expenses arising from the
negligence or willful misconduct of Lessor or its employees, agents, contractors
or invitee, or the breach of Lessor's obligations or representations under this
Lease.
60. Common Areas: Notwithstanding anything to the contrary in the Lease,
------------
if Lessor is permitted to alter any Common Area of the Premises, such
alteration shall not unreasonably interfere with Lessee's use of the Premises or
Lessee's parking rights unless such alteration is required by law.
-39-
<PAGE>
Unless required by applicable law, Lessee shall not be required to comply with
any new rule or regulation, if the same unreasonably interferes with Lessee's
use of the Premises or Lessee's parking rights. Lessor shall in no event
oversubscribe parking. Lessor shall provide all bicycle parking reasonably
requested by Lessee.
61. Approvals: Unless specifically set forth to the contrary in the
---------
Lease, whenever the Lease requires an approval, consent, designation,
determination or judgment by either Lessor or Lessee, such approval, consent,
designation, determination or judgment (including, without limiting the
generality of the foregoing, those required in connection with assignment and
subletting) shall not be unreasonably withheld or delayed and in exercising any
right or remedy hereunder, each party shall at all times act reasonably and in
good faith.
62. Reasonable Expenditures: Notwithstanding anything to the contrary in
-----------------------
the Lease, any expenditure by a party permitted or required under the Lease,
for which such party is entitled to demand and does demand reimbursement from
the other party, shall be limited to the fair market value of the goods and
services involved, shall be reasonably incurred, and shall be substantiated by
documentary evidence available for inspection and review by the other party or
its representative during normal business hours.
63. Damage or Destruction: Notwithstanding anything to the contrary in
---------------------
the Lease:
A. Uninsured Casualty. In the case of damage which is not
------------------
required to be covered by insurance, Lessor shall not have the right to
terminate the Lease if more than twelve (12) months remain on the Lease term
(after the exercise of any extension option of Lessee) and (i) if repair or
restoration would take fewer than sixty (60) days or would cost less than two
percent (2%) of the replacement cost of the Building, or (ii) if Lessee agrees
to pay the cost of repair in excess of two percent (2%) of the replacement cost.
B. Lessee's Right to Terminate. Lessor shall notify Lessee within
---------------------------
thirty (30) days following any damage to or destruction of the Premises (or the
Building if such damage or destruction interferes with Lessee's use of the
Premises) the length of time Lessor reasonably estimates to be necessary for
repair or restoration. Lessee shall have the right to terminate the Lease within
fifteen (15) days following receipt of such notice if restoration or repair of
the Premises or Building will take more than one hundred eighty (180) days.
C. Construction Standard. If the Lease is not terminated by
---------------------
Lessor or Lessee, Lessor shall restore the Building and all tenant improvements
installed by Lessor to the condition in which they existed immediately prior to
the destructive event.
64. Lessor's Entry of Premises: Notwithstanding anything to the contrary
--------------------------
in the Lease: Lessor and Lessor's agents, except in the case of emergency,
shall provide Lessee with twenty-four (24) hours' notice prior to entry of the
Premises. Such entry by Lessor and Lessor's agents shall not impair
-40-
<PAGE>
Lessee's operations more than reasonably necessary. During any such entry,
Lessor and Lessor's agents shall at all times be accompanied by Lessee.
65. Signs: Notwithstanding anything to the contrary in the Lease,
-----
Lessor shall use reasonable efforts to obtain the maximum signage allowed by the
City of Mountain View. Subject to Lessor's reasonable approval, Lessee shall be
entitled to a monument sign and signage on the exterior of the third floor of
the Building if allowed by the City of Mountain View. The cost of such signage
shall be allocated between Lessor and Lessee as follows: (i) Lessor shall pay
the cost of installing the monument sign and (ii) Lessee shall pay the cost of
its lettering on the monument sign and the cost of any permitted signage on the
exterior of the third floor of the Building.
66. After Hours Use of the Premises: Lessee and its invitees shall have
-------------------------------
access to the Premises seven days per week and twenty-four hours a day. Lessee
shall also have the right to services and utilities at all hours. During non-
business hours, Lessee shall pay the cost of HVAC services used by Lessee at
Lessor's actual cost but in no event in excess of $25.00/hour for the HVAC
service for the entire Premises.
-41-
<PAGE>
EXHIBIT A
STANDARD OFFICE LEASE
FLOOR PLAN
Latham Interior Specs
Floors
- ------
Office Areas: Carpet 30 oz cut pile direct glue down with 2-1/2" rubber
base
Tile Areas: 12"x 12" vinyl composition tile 1/8" thick, "Armstrong"
Standard Excelon
Window Coverings: Mini blinds at exterior windows only
Walls: 5/8" Gypsum board - one layer each side with skip trowel
texture and one coat latex paint
Cubicles: By tenant
Doors: 3% x 7% solid core prefinished B-3 wood veneer with Schlage'
Levon lever type hardware
Ceiling: 2x4 T-Bar 15/16" exposed grid at 9'-0" A.F.F. - white with
2x4 lay in square edge acoustical panels - white
Lighting: 2x4 recessed fluorescent light fixtures
Electrical: (2) 110V outlets and 1 phone jack (ring & string only) at
each office, cubicles to be serviced by power poles.
Emergency exit signs
Mechanical: HVAC as required by title 24
Fire Sprinkler: Recessed sprinkler heads, Space surface mount with white
cups to match T-Bar ceiling, surface mount fire extinguishers
as required by code
Restrooms
- ---------
Floors: 2"x2" ceramic tile
<PAGE>
Walls: 5/8" Gypsum board 8'0" high with stippled texture and one
coat primer and one coat semi-gloss enamel paint
Wainscot: 2"x2" ceramic tile up 4'0" high all walls
Partitions: Floor mounted with baked enamel finish
Doors: 3% x 7% degree solid core prefinished B-3 with push pull
plates to match other door hardware, lever type hardware
where required
-2-
<PAGE>
EXHIBIT B
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
Dated: _____________________
By and Between South Bay/Latham and Rambus Inc.
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common
Areas, including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in
good faith judges to be a threat to the safety, reputation, or property of the
Office Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within the Office
Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles or other vehicles into areas
not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks
or bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of
the premises or Office Building Project.
9. Lessee shall not suffer or permit any thing in or around the
Premises or Building that causes excessive vibration or floor loading in any
part of the Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or
out of the building only with the Lessor's knowledge and consent, and subject to
such reasonable limitations, techniques and timing, as may be designated by
Lessor. Lessee shall be responsible for any damage to the Office Building
Project arising from any such activity.
<PAGE>
11. [DELETED]
12. Lessor reserves the right to close and lock the Building on
Saturdays, Sundays and legal holidays, and on other days between the hours of
7 P.M. and 7 A.M. of the following day. If Lessee uses the Premises during such
periods, Lessee shall be responsible for securely locking any doors it may have
opened for entry.
13. Lessee shall return all keys at the termination of its tenancy and
shall be responsible for the cost of replacing any keys that are lost.
14. [DELETED]
15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. [DELETED]
17. Lessee shall not use any method of heating or air conditioning other
than as provided by Lessor.
18. [DELETED]
19. [DELETED]
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessee reserves the right to waive any one of these rules or
regulations, and/or as to any particular Lessee, and any such waiver shall not
constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep
its Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer
than full size, passenger automobiles herein called "Permitted Size Vehicles."
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles."
-2-
<PAGE>
2. [DELETED]
3. [DELETED]
4. [DELETED]
5. Lessor reserves the right and to reasonably allocate them between
compact and standard size spaces, as long as the same complies with applicable
laws, ordinances and regulations.
6. Users of the parking area will obey all posted signs and park only
in the areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. [DELETED]
9. The maintenance, washing, waxing or cleaning of vehicles in the
parking structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees,
agents and invitees comply with the applicable parking rules, regulations, laws
and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such
other reasonable and non-discriminatory rules and regulations as it may deem
necessary for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a
license only and no bailment is intended or shall be created hereby.
-3-
<PAGE>
EXHIBIT "C"
-----------
LEASE ESTOPPEL CERTIFICATE
Landlord: SOUTH BAY/LATHAM, a California general partnership
Tenant: ___________________________
___________________________
Premises: ___________________________
___________________________
Area: ___________________ Lease Date: _________________
The undersigned Lessor and Lessee of the above-referenced lease (the "Lease")
hereby ratify the Lease and certify to Lender as mortgagee of the Real Property
of which the premises demised under the Lease (the "Premises") is a part, as of
the date set forth at the end hereof by the respective parties and based on the
actual knowledge of each party, as follows:
1. That the term of the Lease commenced on ____________________ and
shall expire on ___________________, and the Lessee is in full and complete
possession of the Premises and has commenced full occupancy and use of the
Premises, such possession having been delivered by the original Lessor and
having been accepted by Lessee.
2. Beginning on ____________________, monthly rent installments of
________________ shall commence to accrue and shall be due and payable in
advance on the first day of every month beginning on such date and continuing
throughout the remainder of the lease term.
3. That no advance rental or other payment has been made in connection
with the Lease, there is no "free rent" or other connection under the Lease
except as described in Paragraph 2 and any sums due under the Lease have been
paid to and including __________________________.
4. That a security deposit in the amount of ____________________ is
being held by Lessor.
5. That all obligations and conditions under said Lease to be performed
to date by Lessor or Lessee have been satisfied, free of defenses and set-offs
including all construction work in the Premises.
6. That the Lease is a valid lease and in full force and effect and
represents the entire agreement between the parties; that there is no existing
default on the part of the Lessor or the Lessee
<PAGE>
in any of the terms and conditions thereof and no event has occurred which,
with the passing of time or giving of notice or both, would constitute an event
of default; and that said Lease has not been amended, modified, supplemented,
extended, renewed or assigned in any way.
7. That Lessor has not rebated, reduced or waived any amounts due from
Lessee under the Lease, either orally or in writing, nor has Lessor provided
financing for, made loans or advances to, or invested in, the business of
Lessee.
8. That, to the best of Lessee's knowledge, there is no apparent or
likely contamination of the Real Property of the Premises by Hazardous
Materials, and Lessee does not use, nor has Lessee disposed of, Hazardous
Materials in violation of Environmental Laws on the Real Property or the
Premises.
9. That there are no actions, voluntary or involuntary, pending against
the Lessee under the bankruptcy laws of the United States or any state thereof.
10. That this certification is made knowing that Lender is relying upon
the representations herein made.
LESSEE: RAMBUS INC., a California corporation
By: ____________________________ Date: ____________________
Name: __________________________
Its: ___________________________
By: ____________________________ Date: ____________________
Name: __________________________
Its: ___________________________
LANDLORD: SOUTH BAY/LATHAM, a California limited partnership
By: ____________________________ Date: ____________________
James D. Mair
Its: Managing General Partner
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EXHIBIT "D"
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Following is a list of any hazardous materials or toxic substances which
Lessee shall be storing in or outside of Premises or utilizing in its business
including quantities and concentrations thereof. It is understood that it is
Lessee's responsibility to contact the City Fire Department and adhere to its
rules and regulations regarding storage and use of said substance.
LIST
----
If none, please write NONE and sign.
NONE
TENANT:
RAMBUS INC., a California Corporation
_____________________________________
_____________________________________
Dated: 3/22/91
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EXHIBIT "E"
Date: ________________________
To: ________________________
Re: Premises located at _________________________________________ THE
UNDERSIGNED, as Lessee under that certain Lease Agreement made effective
on ______________, 199__, between the undersigned and __________________,
Lessor, hereby certifies that the following is true:
a. Subject to Paragraph 53(j) of the Lease, all work of improvement
required to be constructed and completed by Lessor has been satisfactorily
completed and such work and the Premises are accepted in their existing
condition as satisfactory and in full compliance with all requirements under the
Lease, all except for completion or correction of items shown on the attached
"punch list."
b. The undersigned is in full and complete possession of the Premises.
c. The "Commencement Date," as defined in the Lease is ______________,
19___, and the initial term of the Lease will expire on ______________, 19___,
unless sooner terminated as provided in the Lease.
d. The Lease is in full force and effect and has not been amended,
modified or superseded.
e. The undersigned has received no notice of any sale, transfer, pledge,
or assignment of the Lease or of the rentals by Lessor.
f. The undersigned has not advanced any amount to or on behalf of
Lessor under the Lease, for which advance the undersigned has not been
reimbursed.
g. The undersigned holds no claim against Lessor which might be set-off
against accruing rent.
By: ___________________________
Title: ________________________
Date: _________________________
By: ___________________________
Title: ________________________
Date: _________________________
<PAGE>
FIRST AMENDMENT TO LEASE
This Amendment is made as of January 12, 1994 pursuant to the Lease made
as of the 10th day of March 1991 by and between South Bay/Latham, a California
limited partnership (hereinafter referred to as "Lessor"), and Rambus Inc., a
California corporation (hereinafter referred to as "Lessee"). The Premises are
known as 2465 Latham Street, Suite 300, Mountain View, California.
Lessor and Lessee hereby agree to change the terms and conditions of this
Lease as follows:
1) The Term of the Lease shall be extended for an additional two (2)
years and will mature on June 30, 1996.
2) The Base Monthly Rent for the period beginning July 1, 1994 and
ending June 30, 1996 shall be Twenty Seven Thousand Two Hundred Forty-One and
25/100 Dollars ($27,241.25) per month.
3) Tenant shall have one, two year option to extend its Lease Term as
per paragraph 51 of the Lease. This option must be exercised on or before
December 31, 1995. There shall be no further Option to extend the term of this
Lease at the end of the Option term.
4) Paragraphs 53, 54 and 55 shall be deleted in its entirety.
5) All other terms and conditions shall remain unamended and in full
force and effect.
SOUTH BAY/LATHAM, a California RAMBUS INC., a California corporation
limited partnership
By: __________________________ By: _____________________________
Its: _________________________ Its: ____________________________
Dated: _______________________ Dated: __________________________
<PAGE>
SECOND AMENDMENT TO LEASE
This Second Amendment is made as of December 1, 1994 pursuant to the
Lease dated March 30, 1991 (for referenced purposes only) and First Amendment
dated January 12, 1994, (collectively referred to as the "Lease"), between South
Bay/Latham, a California limited partnership (hereinafter referred to as
"Lessor") and Rambus Inc., a California corporation (hereinafter referred to as
"Lessee") for Premises located at 2465 Latham Street, Mountain View, California.
Lessor and Lessee hereby agree to change the terms and conditions of the
Lease as follows:
1) The Premises shall be expanded to include the second floor of the
Building for a total of 31,438 square feet, effective upon full execution of
this Second Amendment and removal of the contingencies herein.
2) The Term shall be extended for ten (10) years, commencing March 1,
1995.
3) Paragraph 1.10 shall be revised to reflect Lessee's Share of
Operating Expense Increase shall be 74.1% effective March 1, 1995. "Base Year"
as defined in Paragraph 4.2(b) of the Lease shall remain the same.
4) Paragraph 2.2 shall be revised to reflect that effective
January 1, 1995, Lessee shall be entitled to 105 non-exclusive parking spaces.
5) Base Rent Schedule of the extended Term shall be:
3/l/95 - 12/31/95 $54,163/mo. F.S.
1/l/96 - 2/28/97 $51,873/mo. F.S.
3/l/97 - 2/28/99 $55,017/mo. F.S.
3/l/99 - 2/28/01 $58,160/mo. F.S.
3/1/01 - 2/28/03 $61,304/mo. F.S.
3/l/03 - 2/28/05 $64,448/mo. F.S.
6) Upon removal of the contingencies herein, Lessee shall pay Lessor
the sum of $25,368.00 to increase its Security Deposit from $26,505.00 to
$51,873.00.
7) Paragraph 12 of General Rules (Exhibit "B"), shall be eliminated,
and Paragraph 66 of the Lease shall be revised to read:
After Hours Use of the Premises: Lessee and its invitees shall have
-------------------------------
access to the Premises seven days per week and twenty-four hours a
day. Lessee shall also have the right to services and utilities at
all hours. During non-business hours (7:00 p.m. to 7:00 a.m.) and
Saturdays and Sundays, Lessee shall pay the cost of all HVAC
services and PG&E costs used by Lessee at Lessor's actual cost.
8) Lessee accepts the Premises in an "as-is" condition. Lessor shall
provide Lessee with a $5,000.00 tenant improvement allowance upon Lessee's
completion of its tenant improvements and final
<PAGE>
inspections/approvals by the City of Mountain View. Such improvements to be
constructed pursuant to Paragraph 7.3 of the Lease.
9) Option to Extend:
Lessee is hereby granted one (1) option to extend the term
of this Lease for one (1), five (5) year period (the "Option Term"),
such extension to be on the same terms and conditions as the
initial term except for the Base Rent, which shall be
determined as provided below. It shall be a condition precedent
to the exercise of the option that Lessee shall not be in
default under this Lease at the time it exercises the option.
If Lessee elects to exercise the option, Lessee shall exercise
said option only by written notice, delivered to Lessor at
least one hundred eighty (180) days prior to the expiration of
the Extended Term of this lease. There shall be no further
options to extend the term of this Lease at the end of the
Option Term.
The monthly installment of rent payable during the Option Term
shall be the Fair Market Rental for the Premises as of the first
day of the First Option Term.
Promptly following the exercise of the Option, the parties shall meet
and endeavor to agree upon the Fair Market Rental for the Premises.
The Premises shall be compared only to buildings in the Mountain
View area of a similar quality and size. If, within thirty (30) days
after the exercise of the Option, the parties cannot agree upon the
Fair Market Rental for the Premises as of the first day of the
Option Term, the parties shall submit the matter to binding
appraisal in accordance with the following procedures:
Within sixty (60) days after exercise of the Option, the parties shall
either (1) jointly appoint an appraiser for this purpose or (b)
failing this joint action, separately designate a disinterested
appraiser. No person shall be appointed or designated an appraiser
unless they have at least five (5) years experience in appraising
major commercial properties in Santa Clara County and is a member of a
recognized society of real estate appraisers. If, within thirty (30)
days after their appointment, the two appraisers reach agreement of
the Fair Market Rental for the Premises as of the first day of the
Option Term in question, that value shall be binding and conclusive
upon the parties. If the two appraisers thus appointed cannot reach
agreement on the question presented within thirty (30) days after
their appointment then the appraisers thus appointed shall appoint a
third disinterested appraiser having like qualifications. If within
thirty (30) days after the appointment of the third appraiser, a
majority of the appraisers agree on the Fair Market Rental of the
Premises as of the first day of Option Term, that value shall be
binding and conclusive upon the parties. If within thirty (30) days
after the appointment of the third appraiser, a majority of the
appraisers cannot reach agreement on the question presented, then the
three appraisers shall each submit their independent appraisal to the
parties, and the appraisal farthest from the median of the three
appraisals shall be disregarded and the average of the remaining two
appraisals shall be deemed to be the Fair Market Rental for the
Premises as of the first day of the Option Term and shall be binding
and conclusive upon the parties. Each party shall pay the fees and
expenses of the appraiser appointed by it and shall share equally the
fees and expense of the third appraiser. If the two appraisers
appointed by the parties cannot agree on the appointment of the third
appraiser, they or
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<PAGE>
either of them shall give notice of such failure to
agree to the parties and if the parties fail to agree upon the
selection of such third appraiser within ten (10) days after the
appraisers appointed by the parties give such notice, then either of
the parties, upon notice to the other party, may request such
appointment by the American Arbitration Association, or on its
failure, refusal or inability to act, may apply such appointment to
the presiding judge of the Superior Court of the County of Santa Clara
County, State of California.
10) Paragraph 52 of the Lease shall be deleted in its entirety.
11) First Right to Lease:
In the event this lease is still in full force and effect and provided
Lessee is not in default under the terms and conditions of said Lease,
Lessor hereby grants to Lessee a First Right to Lease ("First Right")
to lease the entire first floor, consisting of approximately 10,994
square feet (the "First Floor Space"). Within five (5) business days
after receiving notification from Lessor that the First Floor Space is
available for lease, Lessee may respond by delivering written notice
to Lessor of Lessee's proposed terms and conditions for the lease of
the First Floor space. If Lessor and Lessee fail to agree upon such
terms and conditions within five (5) business days after Lessor's
receipt of said notice, or should Lessee not deliver and Lessor not
receive said notice, it will be deemed by both parties that Lessee
forgoes its First Right to Lease at that time.
Lessee shall be offered a First Right anytime during the Term that
Lessor is offering the First Floor Space for lease.
In addition to the above, Lessor shall use its best effects to notify
Lessee when it is entering lease negotiations with a prospective
lessee for the First Floor Space, and Lessee may at any time submit to
Lessor, for its consideration, an offer to lease same.
12) Lessor shall at Lessor's sole cost, shall install a lobby sign to
read "Rambus Inc. - 2nd Floor," and shall install "Rambus, Inc." on top of
monument sign.
Contingencies:
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Nondisturbance Agreement:
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Tenant's obligations hereunder and the effectiveness of this Amendment
shall be conditioned upon Landlord obtaining from the holder(s) of any deed(s)
of trust or mortgage currently encumbering the Property, concurrently with
Landlord's execution and delivery of this Amendment, a subordination,
nondisturbance and attornment agreement executed by Landlord and such holder in
form and substance acceptable to Tenant. The Lease shall remain superior to any
new mortgage or deed of trust unless and until the new mortgagee or deed of
trust holder executes a subordination, non-disturbance and attornment agreement
in substantially the same form or other form required by any refinancing lender.
Lease Amendment:
- ---------------
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<PAGE>
This lease is contingent upon Lessor and General Magic entering into an
amendment to their lease, reducing General Magic's premises to Suite 100 only.
SOUTH BAY/LATHAM, RAMBUS INC.,
a California limited partnership a California corporation
By: ____________________________ By: ________________________________
Its: General Partner Its: V.P.
Dated: 1/4/95 Dated: 1/4/95
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<PAGE>
THIRD AMENDMENT TO LEASE
This Third Amendment to that certain Lease dated March 10, 1991 and
later amended by First Amendment dated January 12, 1994 and Second Amendment
dated December 1, 1994, by and between SOUTH BAY/LATHAM, a California limited
partnership ("Lessor"), and RAMBUS, INC., a California corporation ("Lessee"),
for Premises located at 2465 Latham Street, Mountain View, California 94040,
whereby both Lessee and Lessor agree, effective March 23, 1995, as follows:
1. Lessee has requested the right to install a 5 Ton Carrier Chiller
Unit ("Chiller Unit") on the roof of the Premises.
2. Lessor and Lessee have agreed to amend the Lease to provide for such
5 Ton Carrier Chiller Unit in accordance with the terms and conditions of this
Amendment.
3. Unless otherwise indicated, all capitalized terms shall have the
meaning set forth in the Lease.
4. Lessor hereby grants to Lessee for the term of the Lease, as it may be
extended, the right, at Lessee's cost, to install, maintain, operate, replace,
repair and remove (collectively "Construct" or the "Construction") together with
all cable, wiring, conduits and related equipment, (collectively, Chiller Unit),
on the roof ("Roof") of the Premises.
5. Lessee agrees to indemnify and hold Lessor harmless from any claim
resulting from property damage or personal injury arising in connection with the
Construction and not covered by the insurance required to be carried by Lessee
under the Lease. Lessee agrees to carry insurance to cover such liability and
property damage. In no event, however, shall Lessee be liable for consequential
damages or for any damage to the Roof or Premises or injury caused by any person
or entity other than Lessee, its agents, employees or contractors.
6. Lessee is obligated to pay to Lessor all the utility costs to
operate the Chiller Unit. Lessee to pay the costs (NTE $400.00) to hook the
Chiller Unit up to the monitoring equipment so usage can be billed at actual
cost.
7. Lessor shall allow Lessee, at Lessee's cost, to hook up the Chiller
Unit to the Premises' electrical system.
8. All roof penetrations to be sealed by Royal Roofing in accordance
with Lessor's specifications and Lessee shall be responsible for any damage
caused to the Roof now and in the future as a result of the installation of the
"Chiller Unit."
<PAGE>
9. The Chiller Unit shall be the property of the Lessor and remain upon
and be surrendered with the Premises at the expiration or earlier termination of
the Lease.
10. Lessee shall repair any damage caused to the Roof in connection with
any such necessary moving or removal of the Chiller Unit.
11. Lessee and its agents, employees and contractors shall have
reasonable access to the Roof to carry out the Construction.
12. Except as otherwise provided herein, the Lease shall remain in full
force and effect.
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<PAGE>
The parties hereto have entered into this Amendment effective as of the
date first above written.
LESSOR: LESSEE:
SOUTH BAY/LATHAM, RAMBUS, INC.,
a California limited partnership a California corporation
By: ____________________________ By: ________________________________
James E. Mair
Its: General Partner Its: V.P.
Date: 3/27/95 Dated: 3/27/95
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<PAGE>
EXHIBIT 10.9
PROMISSORY NOTE
[DATE]
$
------------
For value received, the undersigned promises to pay to Rambus Inc., a
Delaware corporation (the "Company"), or order, at its principal office the
principal sum of $ with interest thereof at the rate of (12%) per
---------
annum, compounded annually, on the unpaid balance of the principal sum. Said
principal shall be due on the earlier to occur of September 30, , thirty
----
(30) days after termination other than for death or disability, or one year
after termination for death or disability. Said interest shall be paid when the
principal sum is repaid in full.
Should the undersigned fail to make full payment of principal or interest
for a period of 10 days or more after the due date thereof, the whole unpaid
balance on this Note of principal and interest shall become immediately due at
the option of the holder of this Note.
This Note is subject to the terms of a Exercise Notice and Restricted Stock
Agreement, dated as of . This Note is secured by a pledge of the
-----------
shares of Rambus Inc. Common Stock that were exercised with the principal
- ------
sum received from this Note.
The holder of this Note shall have full recourse against the undersigned
personally for failure to pay the Notes as and when due.
The principal is payable in lawful money of the United States of America.
The privilege is reserved to prepay any portion of the Note at any time.
If the undersigned shall default in the payment of amounts hereunder when
due, the holder of this Note shall be entitled to payment by the undersigned of
all costs of collection, including, without limitation, reasonable attorneys'
fees and costs incurred in connection with such collection efforts, whether or
not suit on this Note is filed. The maker waives presentment for payment,
protest, notice of protest and notice of non-payment of this Note. This Note
shall be governed by the laws of the State of California as they apply to
contracts entered into and wholly to be performed within such sate.
Name: Social Security #:
---------------------------- --------------------
Print Name:
----------------------------
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 333-22885) of our report dated November 1, 1996, except for Note 17 for
which the date is March 31, 1997, on our audits of the consolidated financial
statements and financial statement schedule of Rambus Inc. and Subsidiary as
of September 30, 1995 and 1996 and for the years ended September 30, 1994,
1995 and 1996. We also consent to the reference to our firm under the caption
"Experts."
Coopers & Lybrand L.L.P.
San Jose, California
April 24, 1997
