-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fd1uScB1Lw7L0tmMm61CiJUQig+O/fFOX1QEzQjYCpIlTY0NPy/rLv17bkIIXP8W Zrj8kf6myY13dqgLl0QEow== /in/edgar/work/0000944209-00-001566/0000944209-00-001566.txt : 20001006 0000944209-00-001566.hdr.sgml : 20001006 ACCESSION NUMBER: 0000944209-00-001566 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 20001005 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MULTILINK TECHNOLOGY CORP CENTRAL INDEX KEY: 0001114068 STANDARD INDUSTRIAL CLASSIFICATION: [ ] IRS NUMBER: 954522566 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-47376 FILM NUMBER: 735320 BUSINESS ADDRESS: STREET 1: 300 ATRIUM DR STREET 2: 2ND FLR CITY: SOMERSET STATE: NJ ZIP: 08873 BUSINESS PHONE: 7325373700 MAIL ADDRESS: STREET 1: 300 ATRIUM DR CITY: SOMERSET STATE: NJ ZIP: 08873 S-1 1 0001.txt FORM S-1 As filed with the Securities and Exchange Commission on October 5, 2000 Registration No. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------- MULTILINK TECHNOLOGY CORPORATION (Name of issuer in its charter) ----------- California 3674 95-4522566 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification Number)
300 Atrium Drive, 2nd Floor Somerset, New Jersey 08873 (732) 537-3700 (Address and telephone number of principal executive offices and principal place of business) Richard N. Nottenburg President and Chief Executive Officer 300 Atrium Drive, 2nd Floor Somerset, New Jersey 08873 (732) 537-3700 (Name, address and telephone number of agent for service) ----------- Copies of all communications to be sent to: Mark J. Kelson, Esq. William J. Whelan III, Esq. Allen Matkins Leck Gamble & Mallory LLP Cravath, Swaine & Moore 1999 Avenue of the Stars, Suite 1800 Worldwide Plaza Los Angeles, California 90067 825 Eighth Avenue (310) 788-2400 New York, New York 10019 (212) 474-1000
----------- Approximate date of commencement of proposed sale to the 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, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] _____________ If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] _____________ If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Title of Each Class of Proposed Maximum Amount of Securities to be Registered Aggregate Offering Price(1) RegistrationFee - ------------------------------------------------------------------------------ Class A Common Stock, $0.0001 par value............................ $150,000,000 $39,600 - ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- (1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act. Includes proceeds from the sale of shares which the Underwriters have the option to purchase to cover over-allotments, if any. 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 Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell these securities and it is not soliciting an offer to buy these + +securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED , 2000 Shares [MULTILINK TECHNOLOGY CORPORATION LOGO] Class A Common Stock -------- Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price is expected to be between $ and $ per share. We will apply to list our Class A common stock on The Nasdaq Stock Market's National Market under the symbol "MLTC." The underwriters have an option to purchase a maximum of additional shares to cover over-allotments of shares. Investing in our Class A common stock involves risks. See "Risk Factors" on page 5.
Underwriting Proceeds Price to Discounts and to Public Commissions Multilink ---------- ------------- ---------- Per Share.................................. $ $ $ Total...................................... $ $ $
Delivery of the shares of Class A common stock will be made on or about , 2000. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Credit Suisse First Boston Salomon Smith Barney Thomas Weisel Partners LLC The date of this prospectus is , 2000. [graphics of Multilink products] ------------ TABLE OF CONTENTS
Page ---- Prospectus Summary....................................................... 1 Risk Factors............................................................. 5 Special Note Regarding Forward- Looking Statements...................................................... 17 Use of Proceeds.......................................................... 18 Dividend Policy.......................................................... 18 Capitalization........................................................... 19 Dilution................................................................. 20 Selected Consolidated Financial Data..................................... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 23 Business................................................................. 30 Management............................................................... 43
Page ---- Certain Transactions....................................................... 54 Principal Shareholders..................................................... 56 Description of Capital Stock............................................... 58 Shares Eligible for Future Sale............................................ 59 U.S. Federal Tax Considerations for Non-U.S. Holders....................... 62 Underwriting............................................................... 65 Notice to Canadian residents............................................... 68 Legal Matters.............................................................. 69 Experts.................................................................... 69 Additional Information..................................................... 69 Index to consolidated Financial Statements................................................................ F-1
------------ You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document. Dealer Prospectus Delivery Obligation Until , 2000 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions. PROSPECTUS SUMMARY This summary highlights information that we present more fully elsewhere in this prospectus. You should read the entire prospectus carefully. Multilink Technology Corporation We design, develop and market high-bandwidth, advanced integrated circuits, modules and higher-level assemblies that enable next generation optical networking systems. We seek to be first to develop innovative components that allow communications equipment manufacturers to rapidly build and deliver high performance fiber optic systems more quickly and with more functionality and greater performance than their competitors. We outsource semiconductor fabrication and focus our efforts on the design, development and marketing of our products. We work closely with our customers to design and deliver integrated product solutions utilizing our semiconductor, circuit design and systems level expertise. Our current products address the markets for DWDM, or dense wavelength division multiplexing, and SONET/SDH, or Synchronous Optical Network/Synchronous Digital Hierarchy, optical transport equipment operating at the fastest commercially available speeds of OC-192, or 10 gigabits per second. We are in the early stages of developing products designed to address future systems that may operate at speeds of OC-768, or 40 gigabits per second. We sell our products to leading and emerging communications equipment manufacturers that develop high-speed optical networking systems. Our customers include Alcatel, Ciena, Cisco, JDS Uniphase, Lucent, ONI, Optimight, Qtera (recently acquired by Nortel), Sycamore and TyCom. As communications equipment manufacturers develop optical networking systems that enable higher transmission speeds and deploy DWDM technology to increase bandwidth, they must integrate a greater number of complex components that generate, manipulate, transmit and receive electrical and optical signals. These components include integrated circuits, modules and higher-level assemblies and are becoming increasingly important for the manufacture of optical networking systems. The need for communications equipment manufacturers to focus on their core competencies and meet critical time-to-market requirements, along with the complexities associated with the design and development of state-of-the-art components, have caused these manufacturers to increasingly rely upon sophisticated component suppliers. We believe that we provide our customers with several key benefits, including the following: Sophisticated Products Developed Utilizing Systems Level Expertise. We provide sophisticated products that meet the requirements of next generation optical networking systems. Our system architects and design engineers have a thorough understanding of high-bandwidth optical networking systems, which enables us to anticipate and develop cost-effective next generation component solutions for our customers. Our products incorporate unique circuit designs that enable specific system level functions. High-Speed Products that Meet Next Generation Optical Transmission Requirements. We have an in-depth understanding of high-performance semiconductor and advanced process technologies. Understanding these technologies enables us to design high-speed analog, digital and mixed-signal integrated circuits and modules that operate at speeds of 10 gigabits per second or higher. We design our products utilizing the optimal process technology for a particular function or product, such as Gallium Arsenide, or GaAs, Complementary Metal Oxide Semiconductor, or CMOS, and Silicon Germanium, or SiGe. We believe that this flexibility is unique and allows us to provide optimal solutions to our customers, resulting in the rapid introduction of high-speed, next generation optical networking systems. High Level of Component Integration. Our high level of component integration reduces the cost and complexity of our customers' optical networking systems. When we are working with a customer that is 1 developing and validating a new system that incorporates an important new function not commercially available from other sources, we first provide a module-based component composed of multiple discrete integrated circuits. The module is designed as an integrated package that can be seamlessly placed into a system, providing immediate functionality. As the system transitions to high volume production, we collaborate with the customer to increase our solution's level of component integration, moving from a module-based solution to a multi- chip or single-chip solution. Faster Time-to-Market. Time-to-market has become an important competitive factor for communications equipment manufacturers. Through our systems level and process technology expertise and our integration capabilities, we develop sophisticated products that enable our customers to meet their time-to-market requirements. Our objective is to become the leading global supplier of high value component solutions for optical networking systems. Key elements of our strategy include: .leveraging core competencies to rapidly introduce products that enable next generation optical systems; .expanding our customer relationships and the breadth of our customer base; .maintaining and extending our technology leadership; .pursuing strategic acquisitions and strategic relationships; and .expanding to the edge of the optical transport network. We were incorporated in July 1994. Our principal executive offices are located at 300 Atrium Drive, 2nd Floor, Somerset, New Jersey 08873, and our telephone number is (732) 537-3700. The address of our website is www.mltc.com. Information on our website does not constitute a part of this prospectus. We have applied for trademark protection for our "MLTC" mark. This prospectus contains product names, trade names and trademarks of our company and other entities. 2 The Offering Class A common stock offered....................... shares Common stock to be outstanding after this offering: Class A common stock........................ shares Class B common stock........................ 28,000,000 shares ---------- Total................................... shares ========== Voting rights...................................... Holders of Class A common stock are entitled to one vote per share on all matters submitted to a vote of our shareholders. Holders of Class B common stock are entitled to ten votes per share on all matters submitted to a vote of our shareholders. Other rights....................................... Except as to voting and conversion rights, each class of common stock has the same rights. Each share of Class B common stock is convertible at the option of the holder into one share of Class A common stock and will, in general, automatically convert into one share of Class A common stock upon the sale or other transfer to any person or entity other than a person or entity that owns or controls an entity that owns Class B common stock. Use of proceeds.................................... For general corporate purposes, including working capital and potential acquisitions. Proposed Nasdaq National Market symbol............. MLTC
The number of shares of our common stock to be outstanding after this offering is based on 57,116,400 shares outstanding as of September 30, 2000 and excludes: . 33,378,450 shares of Class A common stock issuable upon exercise of outstanding stock options at a weighted average exercise price of $1.03 per share; . 13,621,550 shares of Class A common stock reserved for future issuance under our stock option plans; . 5,813,716 shares of Class A common stock issuable upon exercise of outstanding warrants with a weighted average exercise price of $3.53 per share; and . 1,500,000 additional shares of Class A common stock reserved for future issuance under our 2000 Employee Stock Purchase Plan. ------------ Except as otherwise indicated, the information in this prospectus reflects: . the automatic conversion of our outstanding preferred stock into Class A common stock upon the completion of this offering; and . no exercise of the underwriters' over-allotment option. 3 Summary Consolidated Financial Data (in thousands, except per share data)
Six Months Ended Year Ended December 31, June 30, ---------------------------------------------- ---------------- 1995 1996 1997 1998 1999 1999 2000 ----------- ------- ------- ------- ------- ------- -------- (unaudited) (unaudited) Statement of Operations Data: Total revenues.......... $ 25 $ 1,010 $ 1,541 $ 3,852 $20,395 $ 6,906 $ 28,667 Gross profit............ 25 281 363 2,005 13,647 4,672 17,808 Total operating expenses............... -- 480 1,106 3,303 13,660 4,105 22,171 Operating income (loss) ....................... 25 (199) (743) (1,298) (13) 567 (4,363) Net income (loss)....... $ 21 $ (186) $ (805) $(1,488) $ 25 $ 453 $ (4,682)* ====== ======= ======= ======= ======= ======= ======== Dividend related to warrant issuance....... -- -- -- -- -- -- (6,375) ------ ------- ------- ------- ------- ------- -------- Net income (loss) attributable to common shareholders........... $ 21 $ (186) $ (805) $(1,488) $ (23) $ 453 $(11,105) ====== ======= ======= ======= ======= ======= ======== Net income (loss) per share: Basic................. $ -- $ (0.01) $ (0.03) $ (0.05) $ -- $ 0.02 $ (0.37) ====== ======= ======= ======= ======= ======= ======== Diluted............... $ -- $ (0.01) $ (0.03) $ (0.05) $ -- $ 0.01 $ (0.37) ====== ======= ======= ======= ======= ======= ======== Weighted average shares: Basic................. -- 30,000 30,000 30,000 30,000 30,000 30,000 ====== ======= ======= ======= ======= ======= ======== Diluted............... -- 30,000 30,000 30,000 30,000 37,598 30,000 ====== ======= ======= ======= ======= ======= ======== Pro forma net income (loss) per share: Basic and diluted..... $ -- $ (0.22) ======= ======== Weighted average shares............... 39,520 51,335 ======= ========
*The net loss for the six months ended June 30, 2000 includes non-cash charges of $2.2 million related to deferred stock compensation and $6.5 million related to warrant issuances. See note 2 of notes to consolidated financial statements for an explanation of the determination of the number of shares used in computing net income (loss) per share data.
As of June 30, 2000 ----------------------------- (unaudited) Pro Forma Actual Pro Forma As Adjusted ------- --------- ----------- Balance Sheet Data: Cash and cash equivalents........................ $52,358 $ $ Working capital.................................. 53,776 Total assets..................................... 69,405 Lease obligations--net of current portion........ 1,287 Redeemable convertible preferred stock........... 55,026 Total shareholders' equity....................... 3,236
The pro forma balance sheet data above reflect the automatic conversion of our outstanding preferred stock into Class A common stock upon the completion of this offering. The pro forma as adjusted balance sheet data gives effect to our receipt of the net proceeds from the sale of shares of Class A common stock in this offering at an assumed initial public offering price of $ per share (the midpoint of the range on the cover of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses. 4 RISK FACTORS This offering and any investment in our Class A common stock involves a high degree of risk. You should carefully consider the risks described below and all other information in this prospectus before deciding whether to purchase our Class A common stock. Risks Relating to Our Business Our quarterly revenues and operating results have fluctuated in the past and may continue to fluctuate because of a number of factors, any one of which could adversely affect our stock price. Our quarterly revenues and operating results have fluctuated in the past and may continue to fluctuate significantly from quarter to quarter in the future. It is possible that in future periods our revenues and operating results could fall below the expectations of securities analysts or investors, which could cause the market price of our Class A common stock to decline. Some of the factors that affect our quarterly revenues and operating results, but which are difficult to control or predict are: . the reduction, rescheduling or cancellation of orders by any of our customers or prospective customers; . fluctuations in manufacturing yields and inventory levels; . the availability of external foundry capacity, purchased parts and raw materials; . our ability to introduce new products and technologies on a timely basis; . the announcement or introduction of new products and technologies by our competitors; . competitive pressures on selling prices; . the amounts and timing of costs associated with warranties and product returns; . the amounts and timing of investments in research and development; . market acceptance of our products and of our customers' products; . the ability of our customers to obtain components from their other suppliers; . costs associated with acquisitions and the integration of acquired operations; . general communications and semiconductor industry conditions; and . general economic conditions. A few customers account for a majority of our sales, and the loss of one or more key customers could significantly reduce our revenues and any profits. Historically, a relatively small number of customers has accounted for a majority of our revenues. For example, our three largest customers accounted for approximately 84% of our revenues for the six months ended June 30, 2000 and 74% of our revenues in 1999. Our top three customers for the six months ended June 30, 2000 were Lucent, Cisco and Alcatel, representing approximately 50%, 18% and 16% of our revenues, respectively. Our top three customers in 1999 were Lucent, Alcatel and TyCom, representing approximately 36%, 20% and 18% of our revenues, respectively. We anticipate that relatively few customers will continue to account for a significant portion of our revenues. A reduction, delay or cancellation of orders from one or more significant customers or the loss of one or more key customers in any period could significantly reduce our revenues and any profits. 5 We have incurred net losses in the past and may incur net losses in the future. We incurred net losses of $0.8 million in 1997 and $1.5 million in 1998. We had net income of $24,540 in 1999. We had net losses of $4.7 million for the six months ended June 30, 2000. We expect to continue to incur amortization of deferred stock compensation and to increase our expenses for research and development in the next few years. Consequently, our ability to achieve and maintain profitability would be materially affected if we fail to significantly increase our revenues. Failure to effectively manage our anticipated growth and expansion could place a significant strain on our limited personnel and other resources and could adversely affect our business and operating results. We have grown rapidly in the last year and expect to continue to grow in future periods. Our current organizational structure and systems are not adequate for our expected growth plans. To manage expanded operations effectively, we must continue to improve our operational, financial and management systems and successfully hire, train, motivate and manage our employees. We also plan to expand our general administration capabilities to address the increased reporting and other administrative demands that will result from our becoming a public company. In addition, the expansion of our manufacturing requirements and our ability to outsource our manufacturing needs in the future will require significant additional management, technical and administrative resources. We cannot be certain that we will be able to effectively manage our growth. Our future success depends on the continued service of our engineering, technical and key management personnel and our ability to identify, hire and retain additional engineering, technical and key management personnel. There is intense competition for qualified personnel in our industry, particularly for engineers and senior level management. Loss of the services of, or failure to recruit, engineers or other technical and key management personnel could be significantly detrimental to our product and process development programs and adversely affect our business and operating results. We may not be able to continue to attract and retain engineers or other qualified personnel necessary for the development of our products and business or to replace engineers or other qualified personnel who may leave us in the future. Our anticipated growth is expected to place increased demands on our resources and likely will require the addition of new management personnel. Our future success depends in part on the continued service of our key executives. Our success depends in part upon the continued service of our executive officers, particularly Dr. Richard N. Nottenburg, our President, Chief Executive Officer and Co-Chairman of the Board, and Dr. Jens Albers, our Executive Vice President and Co-Chairman of the Board. Neither Dr. Nottenburg nor Dr. Albers has an employment or non-competition agreement with us. The loss of either of these key individuals would be detrimental to our ongoing operations and prospects. Several of our key personnel are relatively new and must be integrated into our organization. Several of our key personnel have recently joined us, including Eric M. Pillmore, our Chief Financial Officer, who joined us in July 2000. Therefore, there has been little or no opportunity to evaluate the effectiveness of our executive management team as a combined unit. Our future performance will depend in part on our ability to successfully integrate our newly hired executive officers and key personnel into our management team, and our ability to develop an effective working relationship among management. We sell substantially all of our products based on individual purchase orders, and we cannot predict the size or timing of our orders. We sell substantially all of our products based on individual purchase orders, rather than long-term contracts. As a result, our customers generally can cancel or reschedule orders on short notice and are not 6 obligated to purchase a specified quantity of any product. We cannot assure you that our existing customers will continue to place orders with us, that orders by existing customers will be repeated at current or historical levels or that we will be able to obtain orders from new customers. We cannot predict the size, timing or terms of incoming purchase orders; therefore, decreases in the number or size of orders or the development of customer orders with new terms may adversely affect our business and operating results. Because we do not have substantial noncancellable backlog, we typically plan our production and inventory levels based on internal forecasts of customer demand that are highly unpredictable and can fluctuate substantially. In anticipation of long lead times to obtain certain inventory and materials, we order materials in advance of anticipated customer sales. This advance ordering might result in excess inventory levels or unanticipated inventory write-downs if our customers cancel orders or change the specifications for their orders. If we are unable to plan inventory and production levels effectively, our business and operating results could be materially harmed. We will lose significant customer sales and may not be successful if customers and prospective customers do not qualify our products to be designed into their systems. Because our products must function as part of a larger system or network, our customers often undertake extensive qualification processes prior to placing large product orders. Once communications equipment manufacturers decide to use a particular supplier's products or components, they incorporate those products or components into their system design, which are known as a design-wins. Suppliers who fail to achieve design-wins are unlikely to make sales to those customers for particular projects until at least the adoption of future redesigned systems. Even then, many companies may be reluctant to incorporate entirely new products into their new system designs, as this could involve significant additional redesign efforts. If we fail to achieve design- wins we will lose the opportunity for significant sales to those customers for a lengthy period of time. Although a design-win increases the likelihood that our products will be incorporated into the systems of our customers or prospective customers, it does not obligate that customer or prospective customer to purchase specified quantities of our products. Our products are incorporated into sophisticated systems, and defects may be discovered only after full deployment, which could seriously harm our business. Our products are complex and are designed to be deployed in large quantities across sophisticated networks. Because of the nature of our products, they can only be fully tested when completely deployed in large networks with high amounts of traffic. Our customers may discover errors or defects in our products, or our products may not operate as expected, after they have been fully deployed. If our products have defects or do not operate as expected, we could experience: . loss of, or delay in, revenues and loss of market share; . loss of existing customers; . failure to attract new customers or achieve market acceptance for our products; . diversion of development resources; . increased service and warranty costs; . legal actions by our customers; . increased insurance costs; and . damage to our reputation and customer relationships. The occurrence of any of these problems could seriously harm our business and result in decreased revenues and increased operating expenses. Defects, integration issues or other performance problems in our 7 products could result in financial or other damages to our customers or could negatively affect market acceptance for our products. The markets in which we compete are highly competitive and failure to compete effectively could harm our business. The markets in which we compete are highly competitive. Our ability to compete successfully in our markets depends on a number of factors, including: . product time-to-market; . product performance; . product price; . product quality; . product reliability; . success in designing and subcontracting the manufacture of new products that implement new technologies; . market acceptance of our competitors' products; . efficiency of production; . expansion of production of our products for particular systems manufacturers; and . customer support and reputation. We compete primarily against Applied Micro Circuits, Conexant, Giga (recently acquired by Intel), Infineon, JDS Uniphase, Lucent (microelectronics division), Maxim, Nortel (microelectronics division), NTT Electronics, Philips, PMC-Sierra and Vitesse. Many of our competitors operate their own fabrication facilities and have longer operating histories and a greater presence in key markets, greater name recognition, access to larger customer bases and significantly greater financial, sales and marketing, distribution, technical and other resources. As a result, our competitors may be able to adapt more quickly to new or emerging technologies, changes in customer requirements or devote greater resources to the promotion and sale of their products. In addition, our competitors may develop technologies that more effectively address the transmission of digital information through existing analog infrastructures at a lower cost, thereby rendering our products obsolete. Our competitors that have large market capitalizations or cash reserves are also better positioned than we are to acquire other companies, thereby obtaining new technologies or products. Any of these acquisitions could give our competitors a strategic advantage that could adversely affect our business, financial condition and results of operations. Current and potential competitors have established or may establish financial or strategic relationships among themselves or with existing or potential customers, resellers or other third parties. Accordingly, it is possible that new competitors or alliances forged by competitors could emerge and rapidly acquire significant market share. We must incur substantial research and development expenses. In order to remain competitive, we must continue to make substantial investments in research and development to develop new and enhanced products. We cannot assure you that we will have sufficient resources to invest in the development of new and enhanced technologies and competitive products. Our failure to continue to make sufficient investments in research and development programs could significantly reduce our revenue growth and harm our business. Additionally, our products have a short life cycle; therefore, we have limited time to capitalize upon our research and development investments and generate revenues. We cannot 8 assure you that our research and development investments will result in revenues in excess of our expenses, if at all, or will result in any commercially accepted products. We incur research and development expenses in advance of obtaining access to the required technology, and as a result, these investments may not result in the production of any marketable products. We often incur substantial research and development expenses for the development of products incorporating emerging process technologies. We make these substantial investments in the product design stage and prior to gaining access to these process technologies. Failure to gain access to these process technologies could prevent our products' development and commercialization and materially harm our business. We will compete with IBM for sales of products that we jointly develop. We have a joint development agreement with International Business Machines, or IBM, pursuant to which we jointly develop integrated circuits. Under this agreement, both parties can sell our jointly developed products to third parties. Because IBM is a larger company, with a longer operating history and substantially greater resources, it may be able to attract more customers, and we may not have the opportunity to sell the jointly developed products to those customers. We may need to make acquisitions in order to remain competitive in our market. Our business or the value of your investment could be adversely affected as a result of any potential acquisitions. To compete effectively, we may find it necessary to acquire additional businesses, products or technologies. If we identify an appropriate acquisition candidate, we may not be able to negotiate the terms of the acquisition successfully, finance the acquisition or effectively integrate the acquired business, products, technologies or personnel into our existing business and operations. Further, completing a potential acquisition and integrating an acquired business will cause significant diversions of management's time and resources. If we consummate one or more significant acquisitions in which the consideration consists of stock or other securities, the value of your investment in our company could be significantly diluted. If we were to proceed with one or more significant acquisitions in which the consideration included cash, we could be required to use a substantial portion of our available cash, including proceeds of this offering. In addition, we may be required to amortize significant amounts of goodwill and other intangible assets in connection with future acquisitions, which could significantly reduce our operating and net income. Our operating results are subject to fluctuations because of sales to foreign customers. International sales accounted for approximately 25% of our revenues for the six months ended June 30, 2000 and 16% of our revenues in 1999. International sales may increase in future periods and may account for an increasing portion of our revenues. As a result, an increasing portion of our revenues may be subject to certain risks associated with international sales, including: . changes in regulatory requirements; . increases in tariffs and other trade barriers; . timing and availability of export licenses; . political and economic instability; . difficulties in accounts receivable collections; . difficulties in staffing and managing foreign subsidiary and branch operations; . difficulties in managing distributors; . difficulties in obtaining governmental approvals for communications and other products; 9 . foreign currency exchange fluctuations; . the burden of complying with a wide variety of complex foreign laws and treaties; and . potentially adverse tax consequences. We are subject to the risks associated with the imposition of legislation and regulations relating to the import or export of high technology products. We cannot predict whether quotas, duties, taxes or other charges or restrictions upon the importation or exportation of our products will be implemented by the United States or other countries. Some of our customer purchase orders and agreements are governed by foreign laws, which may differ significantly from U.S. laws. Therefore, we may be limited in our ability to enforce our rights under these agreements and to collect damages, if awarded. Because sales of our products have been denominated to date primarily in U.S. dollars, increases in the value of the U.S. dollar could increase the price of our products so that they become more expensive to customers in the local currency of a particular country, leading to a reduction in sales and profitability in that country. Future international activity may result in increased foreign currency denominated sales. Gains and losses on the conversion to U.S. dollars of accounts receivable, accounts payable and other monetary assets and liabilities arising from international operations may contribute to fluctuations in our results of operations. If we become subject to unfair hiring claims we could incur substantial costs in defending ourselves or our management's attention could be diverted away from our operations. Companies in our industry often hire individuals formerly employed by their competitors. In such cases, these competitors frequently claim that the hiring company has engaged in unfair hiring practices. We have received claims of this kind in the past from our competitors, and we cannot assure you that we will not receive claims of this kind in the future or that those claims will not result in material litigation. We could incur substantial costs in defending ourselves or our employees against such claims, regardless of the merits of the claims. In addition, defending ourselves from such claims could divert the attention of our management away from our operations. Risks Relating to Manufacturing Our dependence on TRW and other third-party manufacturing and supply relationships could negatively impact the production of our products and significantly harm our business. We do not own or operate manufacturing facilities necessary for the production of most of our products. We rely on several outside foundries for the manufacture and assembly of most of our products, and we expect this to continue for the foreseeable future. Our mixed-signal products, which comprise a significant portion of our current revenues, are based predominantly on GaAs HBT wafers supplied by TRW. TRW is our sole supplier of these wafers. We have a wafer supply agreement with TRW, under which we do not have the contractual right to obtain all the GaAs HBT wafers we require for the current production for our mixed-signal products. Finding alternative sources for these wafers will result in substantial delays in production and additional costs. To date, we have no other wafer supply agreements with our other suppliers. Our dependence upon third parties that manufacture, assemble or package our products may result in: . lack of assured semiconductor wafer supply and reduced control over delivery schedules and quality; . the unavailability of, or delays in obtaining access to, key process technologies; . limited control over manufacturing yields and quality assurance; . inadequate capacity during periods of excess demand; . inadequate allocation of production capacity to meet our needs; 10 . increased costs of materials or manufacturing services; . difficulties selecting and integrating new subcontractors; . limited warranties on wafers or products supplied to us; . inability to take advantage of price reductions; and . misappropriation of our intellectual property. Any one of these factors could adversely affect our business. While we believe we have good relations with our outside foundries and suppliers, we cannot be certain that we will be able to maintain these favorable relations. Additionally, because there is a limited number of foundries and suppliers that can produce our products, establishing relationships and increasing production with new outside foundries takes a considerable amount of time. Thus, there is no readily available alternative source of supply for our production needs. A manufacturing disruption, such as a raw material shortage, experienced by TRW or any of our other outside foundries and suppliers could impact the production of some of our products for a substantial period of time. Our outside foundries' and suppliers' inability to increase their production capacity or to continue to allocate capacity to manufacture our components, could also limit our ability to grow our business. We may face production delays if the subcontractors we use to manufacture our wafers or products discontinue the manufacturing processes needed to meet our demands or fail to advance the process technologies needed to manufacture our products. Our wafer and product requirements represent a small portion of the total production of the third-party foundries that manufacture our products. As a result, we are subject to the risk that our external foundries may not continue to devote resources to the continued development and improvement of the process technologies on which the manufacturing of our products are based. This could increase our costs and harm our ability to deliver our products on time. Our operating results substantially depend on manufacturing output and yields, which may not meet expectations. Manufacturing semiconductors requires manufacturing tools that are unique to each product produced. If one of these unique manufacturing tools of our outside foundries was damaged or destroyed, then the ability of these foundries to manufacture the related product would be impaired and our business would suffer. In addition, our manufacturing yields decline whenever a substantial percentage of wafers must be rejected or significant portions of each wafer are nonfunctional. Such declines can be caused by many factors, including minute levels of contaminants in the manufacturing environment, design imperfections, defects in masks used to print circuits on a wafer and difficulties in the fabrication process. Many of these problems are difficult to diagnose, are time consuming and expensive to remedy and can result in shipment delays. Difficulties associated with adapting our technology and product design to the proprietary process technology and design rules of our outside foundries can lead to reduced yields. Since low yields may result from either design or process technology failures, yield problems may not be effectively determined or resolved until an actual product exists that can be analyzed and tested. As a result, yield problems may not be identified until well into the production process, and resolution of yield problems may require cooperation between ourselves and our manufacturers. In some cases this risk could be compounded by the offshore location of some of our manufacturers, increasing the effort and time required to identify, communicate and resolve manufacturing yield problems. Manufacturing defects that we do not discover during the manufacturing or testing process may lead to costly product recalls. Difficulties in diagnosing and solving the complicated problems of assembling these types of semiconductors could also reduce our yields. 11 If we are unable to commit to deliver sufficient quantities of our products to satisfy our customers' needs, it may be difficult for us to attract new orders and customers or we may lose current orders and customers. Our customers typically require that we commit to provide specified quantities of products over a given period of time. We may be unable to deliver sufficient quantities of our products for any of the following reasons: . our reliance on third-party manufacturers; . our limited infrastructure, including personnel and systems; . the limited availability of raw materials; and . competing customer demands. If we are unable to commit to deliver sufficient quantities of our products to satisfy a customer's anticipated needs, we may lose the order and the opportunity for significant sales to that customer and may be unable to attract new orders and customers. Our business depends on the continued availability of raw materials and advanced process technologies at reasonable prices. Highly specialized raw materials and advanced process technologies are needed for the production of our products. In some cases, there are only two or three suppliers of such materials and technologies in the world. We depend on the continued availability of these materials and technologies at reasonable prices. We may not be able to fulfill customer purchase requests if there is a substantial increase in the price for these materials or if our outside suppliers cannot provide adequate quantities of raw materials for the production of our products. This may result in decreased revenues and adversely affect our operating results. Risks Relating to Our Industry The markets we serve are subject to rapid technological change, and if we are unable to develop and introduce new products, our revenues could stop growing or could decline. The markets we serve frequently undergo transitions in which products rapidly incorporate new features and performance standards on an industry-wide basis. Products for communications applications, as well as for high-speed computing applications, are based on continually evolving industry standards. A significant portion of our revenues in recent periods has been, and is expected to continue to be, derived from sales of products based on existing transmission standards. However, our ability to compete in the future will depend on our ability to identify and ensure compliance with evolving industry standards. The emergence of new industry standards could render our products incompatible with products developed by major communications equipment manufacturers. If our products are unable to support the new features, the enhanced integration of functions or the performance levels required by communications equipment manufacturers in these markets, we would likely lose business from an existing or potential customer. Moreover, we would not have the opportunity to compete for new business until the next product transition occurs. As a result, we could be required to invest significant time and effort and to incur significant expense to redesign our products to ensure compliance with relevant standards. If our products are not in compliance with prevailing industry standards for a significant period of time, we could miss opportunities to achieve crucial design-wins. Moreover, to improve the cost-effectiveness and performance of our products, we may be required to transition one or more of our products to process technologies with smaller components, other materials or higher speeds. We may not be able to improve our process technologies and develop or otherwise gain access to new process technologies in a timely or cost-effective manner. 12 These risks may lead to increased costs or delay product delivery, which would harm our profitability and customer relationships. Consequently, our revenues could be significantly reduced for a substantial period if we fail to develop products with required features or performance standards, if we experience a delay as short as a few months in bringing a new product to market, or if our customers fail to achieve market acceptance of their products. We operate in the highly cyclical semiconductor industry. The semiconductor industry has experienced significant downturns, often in connection with, or in anticipation of, maturing product cycles (of both semiconductor companies' and their customers' products) and declines in general economic conditions. These downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices. Any future downturns could have a material adverse effect on the growth of our business and revenues. From time to time the semiconductor industry also has experienced periods of increased demand and production capacity constraints. We may experience substantial changes in future operating results due to general semiconductor industry conditions, general economic conditions and other factors. Slow growth in the build-out of the communications infrastructure and uncertainties in network service providers' purchasing programs, as well as consolidation in the network service provider industry, may adversely affect our future business and operating results. Our business prospects depend substantially on the continued build-out of the communications infrastructure. A number of network service providers have recently announced plans to curtail the level of their capital expenditures on their infrastructure build-out, which could significantly reduce the demand for our products by communications equipment manufacturers. In addition, network service providers typically purchase network equipment pursuant to multi-year purchasing programs that may increase or decrease annually as the providers adjust their capital equipment budgets and purchasing priorities. Network service providers' curtailment or termination of purchasing programs or decreases in capital budgets, particularly if significant and unanticipated by us and our communications equipment manufacturer customers, could materially and adversely affect our revenue and business prospects. Additionally, consolidation among network service providers may cause delays in the purchase of our products and a reexamination of strategic and purchasing decisions by these network service providers and our current and potential communications equipment manufacturer customers, which could harm our business and financial condition. Necessary licenses of third-party technology may not be available to us or may be prohibitively expensive, which could adversely affect our ability to produce and sell our products. From time to time we may be required to license technology from third parties to develop new products or product enhancements. We cannot assure you that third-party licenses will be available to us on commercially reasonable terms, if at all. Our inability to obtain any third-party license required to develop new products and product enhancements could require us to obtain substitute technology of lower quality or performance standards or at greater cost, if at all, any of which could seriously harm our ability to sell our products. We may not be able to protect our intellectual property adequately. Our intellectual property is critical to our ability to successfully design products for the optical networking systems market. We currently have no patents, and we cannot assure you that our pending patent application or any future applications will be approved. Further, we cannot assure you that any issued patents will provide us with competitive advantages or will not be challenged by third parties, or that if challenged, will be found to be valid or enforceable. Additionally, we cannot assure you that the patents of others will not have an adverse effect on our ability to do business. Furthermore, others may independently develop similar products or processes, duplicate our products or processes or design around any patents that may be issued to us. 13 We rely on the combination of maskwork protection under the Semiconductor Chip Protection Act of 1984, trademarks, copyrights, trade secrets, employee and third-party nondisclosure agreements and licensing arrangements to protect our intellectual property. Despite these efforts, we cannot be certain that others will not independently develop substantially equivalent intellectual property or otherwise gain access to our intellectual property, or disclose such intellectual property, or that we can meaningfully protect our intellectual property. We could be harmed by litigation involving patents and proprietary rights. The semiconductor industry is characterized by substantial litigation regarding patent and other intellectual property rights. We may be accused of infringing upon the intellectual property rights of third parties. Additionally, we have indemnification obligations to our customers with respect to intellectual property infringement claims by third parties. Such intellectual property infringement claims by third parties or indemnification claims by our customers could harm our business. Any litigation relating to the intellectual property rights of third parties, whether or not determined in our favor or settled by us, could be costly and could divert the efforts and attention of our management and technical personnel. In the event of any adverse ruling in any litigation, we could be required to: . pay substantial damages; . cease the manufacturing, use and sale of certain products; . discontinue the use of certain process technologies; and . obtain a license from the third-party claiming infringement, which might not be available on reasonable terms, if at all. The communications industry is subject to government regulations that could harm our business. The Federal Communications Commission, or FCC, has jurisdiction over the entire communications industry in the United States and, as a result, our products and our customers' products are subject to FCC rules and regulations. Current and future FCC rules and regulations affecting communications services, our products or our customers' businesses or products could negatively affect our business. In addition, international regulatory standards could impair our ability to develop products in the future. Delays caused by our compliance with regulatory requirements could result in postponements or cancellations of product orders, which would harm our business, results of operations and financial condition. Further, we cannot be certain that we will be successful in obtaining or maintaining any regulatory approvals that may, in the future, be required to operate our business. Risks Relating to this Offering Technology company stock prices are especially volatile, and this volatility may depress our stock price or lead to class action litigation. The stock market, and specifically the stock prices of technology companies, have been very volatile. The market price of our shares of Class A common stock may fluctuate significantly in response to a number of factors, beyond our control, including: . changes in financial estimates by securities analysts; . announcements by us, our customers or our competitors; . changes in market valuations of similar companies; . changes in accounting rules and regulations; and . future sales of our common stock by our existing shareholders. 14 As a result of this volatility, you may be unable to resell your shares at or above the offering price. Securities class action litigation has often been brought against companies that experience volatility in the market price of their securities. Litigation brought against us could result in substantial costs to us in defending against a lawsuit and management's attention could be diverted from our business. Our securities have no prior market, and our stock price may decline after the offering. Before this offering, there has not been a public market for our Class A common stock, and an active public market for our Class A common stock may not develop or be sustained after this offering. The initial public offering price will be determined by negotiations between representatives of the underwriters and us. After this offering, the market price of our Class A common stock may fall below the initial public offering price. If a significant number of shares become available for sale and are sold in a short period of time, the market price of our stock could decline. If our shareholders sell substantial amounts of our common stock in the public market following this offering, the market price of our Class A common stock could fall. Based on shares outstanding as of September 30, 2000, upon completion of this offering, we will have shares of common stock outstanding. Other than the shares of Class A common stock sold in this offering, approximately shares will immediately be eligible for sale in the public market. Our shareholders are subject to agreements with the underwriters that restrict their ability to transfer their stock for 180 days from the date of this prospectus, subject to certain exceptions. For a detailed description of these restrictions, please see "Underwriting." After these agreements expire, an additional shares will be eligible for sale in the public market. For a detailed discussion of the shares eligible for future sale, please see "Shares Eligible for Future Sale." In addition, under an Investors' Rights Agreement some of our current shareholders have "demand" and/or "piggyback" registration rights in connection with future offerings of our common stock. "Demand" rights enable shareholders to demand that their shares be registered and may require us to file a registration statement under the Securities Act at our expense. "Piggyback" rights require us to notify the shareholders of our stock if we propose to register any of our securities under the Securities Act, and grant such shareholders the right to include their shares in the registration statement. All of our shareholders who are parties to the Investors' Rights Agreement have agreed not to exercise their registration rights until 180 days following the date of this prospectus without the consent of Credit Suisse First Boston Corporation. We have broad discretion in our use of the offering proceeds, and the investment of these proceeds may not yield a favorable return. Our management has broad discretion over how the proceeds of this offering are used and could spend these proceeds in ways with which our shareholders may not agree. The proceeds may be invested in ways that do not yield favorable returns. As a new investor, you will experience immediate and substantial dilution in the value of the Class A common stock. The assumed initial offering price of $ per share is substantially higher than the current book value per share of our outstanding common stock. If you purchase shares of Class A common stock in this offering, you will incur immediate and substantial dilution of approximately $ per share in pro forma net tangible book value. If the holders of outstanding options and warrants exercise those options and warrants, you will incur further dilution. 15 Because existing shareholders own a large percentage of our voting shares, your voting power may be limited. We currently have 28,000,000 shares of Class B common stock outstanding, each of which entitles the holder to ten votes. Only Class A common stock will be sold in this offering. All of the Class B common stock is held by officers, directors or other persons or entities owning 5% or more of the outstanding shares of our common stock. Following consummation of this offering, it is anticipated that our executive officers, directors and their affiliates will beneficially own or control shares representing % of the voting power of our outstanding capital stock. Dr. Richard Nottenburg, as a result of his stock ownership and a voting trust agreement with Dr. Jens Albers, will alone control % of the outstanding voting power of our capital stock. In addition, persons and entities owning more than 5% of our outstanding shares of common stock will, in the aggregate, control % of the outstanding voting power of our capital stock. As a result, our directors and 5% shareholders acting together will have the ability to control all matters submitted to our shareholders for approval, including the election and removal of directors and the approval of any merger, consolidation or sale of all or substantially all of our assets. These shareholders may make decisions that are adverse to your interests. Our board of directors may issue, without shareholder approval, shares of preferred stock that have rights and preferences superior to those of our shares of common stock and that may prevent or delay a change of control. Our articles of incorporation provide that our board of directors may issue new shares of preferred stock without shareholder approval. Some of the rights and preferences of these shares of preferred stock would be superior to the rights and preferences of shares of our common stock. Accordingly, the issuance of new shares of preferred stock may adversely affect the rights of the holders of shares of our common stock. In addition, the issuance of new shares of preferred stock may prevent or delay a change of control of our company. We may need additional capital, which may not be available, and our ability to grow may be limited as a result. We may be required, or could elect, to seek additional funding at any time following this offering. We anticipate incurring significant expenses in connection with increased research and development activities, and we may engage in acquisitions. The hiring of additional personnel to support these functions, including the expansion of our sales and marketing organizations, will also require a significant commitment of resources. In addition, if the market for our products develops at a slower pace than anticipated, or if we fail to continue to expand our market share, we may continue to utilize significant amounts of capital. If cash from available sources is insufficient, or if cash is used for acquisitions or other unanticipated uses, we may need additional capital sooner than anticipated. In the event we are required, or elect, to raise additional funds, we may not be able to do so on favorable terms, if at all. 16 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements within the meaning of the federal securities laws that relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. These risks and other factors include those listed under "Risk Factors" and elsewhere in this prospectus. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or the negative of these terms or other comparable terminology. In addition, these forward-looking statements include, but are not limited to, statements regarding the following: . anticipated development and release of new products; . anticipated sources of future revenues; . the expansion of our foundry or other manufacturing relationships; . potential future acquisitions; . anticipated expenditures for research and development, sales and marketing and general and administrative expenses; and . the adequacy of our capital resources to fund our operations. These statements are only predictions. In evaluating these statements, you should specifically consider various factors, including the risks outlined under "Risk Factors." Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. 17 USE OF PROCEEDS We will receive net proceeds from this offering of approximately $ million, assuming an initial public offering price of $ per share and after deducting underwriting discounts and commissions and estimated offering expenses. If the underwriters exercise their over-allotment option in full, our net proceeds will be approximately $ million. The principal purposes of this offering are to obtain additional capital, to create a public market for our Class A common stock and to facilitate future access to public capital markets. As of the date of this prospectus, we have not allocated the net proceeds of this offering to specific uses. We expect to use the net proceeds primarily for general corporate purposes, including working capital. The amounts we actually expend for working capital and other purposes may vary significantly and will depend on a number of factors, including the amount of our future revenues and other factors described under "Risk Factors." We may also use a portion of the net proceeds to acquire products, technologies or businesses that are complementary to our current and future business and product lines. We currently have no commitments or agreements with respect to any acquisition. Pending use of the net proceeds of this offering, we intend to invest the net proceeds in interest-bearing, investment-grade securities. DIVIDEND POLICY We have never declared or paid any dividends on our capital stock. We currently expect to retain any future earnings to fund the development and growth of our business and do not anticipate paying any cash dividends for the foreseeable future. 18 CAPITALIZATION The following table sets forth our capitalization as of June 30, 2000: . on an actual basis; . on a pro forma basis to give effect to the automatic conversion of all outstanding shares of preferred stock into Class A common stock upon the completion of this offering; and . on a pro forma as adjusted basis to reflect our receipt of the net proceeds from the sale of shares of Class A common stock in this offering at an assumed initial public offering price of $ per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses.
As of June 30, 2000 -------------------------------- Pro Forma Actual Pro Forma As Adjusted -------- --------- ----------- (in thousands, except share data) Cash and cash equivalents...................... $ 52,358 $ 52,358 $ ======== ======== === Lease obligations, net of current portion...... $ 1,287 $ 1,287 $ -------- -------- --- Redeemable convertible preferred stock: Series A, $0.0001 par value; 9,000,000 shares authorized, 1,711,640 shares issued and outstanding, actual; no shares authorized, issued and outstanding pro forma and pro forma as adjusted........................... 15,026 -- Series B, $0.0001 par value; 1,000,000 shares authorized, issued and outstanding, actual; no shares authorized, issued and outstanding pro forma and pro forma as adjusted......... 40,000 -- Shareholders' equity: Common stock, $.0001 par value: Class A; 200,000,000 shares authorized, 2,000,000 shares issued and outstanding, actual; 200,000,000 shares authorized, 29,116,400 shares issued and outstanding pro forma; 200,000,000 shares authorized, shares issued and outstanding pro forma as adjusted................................. -- 3 Class B; 100,000,000 shares authorized, 28,000,000 shares issued and outstanding, actual, pro forma and pro forma as adjusted.................................... 3 3 Additional paid-in-capital................... 25,785 80,808 Deferred stock compensation.................. (9,052) (9,052) Accumulated deficit.......................... (13,500) (13,500) Accumulated other comprehensive income....... 1 1 -------- -------- --- Total shareholders' equity................. 3,236 58,265 -------- -------- --- Total capitalization................... $111,908 $111,908 $ ======== ======== ===
The share information above excludes the following as of September 30, 2000: . 33,378,450 shares of Class A common stock issuable upon exercise of outstanding stock options at a weighted average exercise price of $1.03 per share; . 13,621,550 shares of Class A common stock reserved for future issuance under our stock option plans; . 5,813,716 shares of Class A common stock issuable upon exercise of outstanding warrants with a weighted average exercise price of $3.53 per share; and . 1,500,000 additional shares of Class A common stock reserved for future issuance under our 2000 Employee Stock Purchase Plan. 19 DILUTION If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our Class A common stock and the pro forma as adjusted net tangible book value per share of our Class A common stock after this offering. Our pro forma net tangible book value as of June 30, 2000 was $ , or $ per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the pro forma number of shares of common stock outstanding after giving effect to the automatic conversion of all of our outstanding shares of preferred stock into shares of Class A common stock. After giving effect to our sale of shares of Class A common stock in this offering at an assumed initial public offering price of $ per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value as of June 30, 2000 would have been $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing shareholders and an immediate dilution of $ per share to new investors of Class A common stock in this offering. The following table illustrates this per share dilution: Assumed initial public offering price............................ $ Pro forma net tangible book value at June 30, 2000............. $ Increase attributable to new investors......................... --- Pro forma as adjusted net tangible book value after this offering........................................................ ----- Dilution to new investors........................................ $ =====
The following table shows on a pro forma basis, as of September 30, 2000, the number of shares of stock purchased from us, the total consideration paid to us and the average price per share paid by the existing shareholders and by new investors, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, at an assumed initial public offering price of $ per share.
Shares Total Purchased Consideration -------------- -------------- Average Price Number Percent Amount Percent Per Share ------ ------- ------ ------- ------------- Existing shareholders............ % $ % $ New investors.................... ---- --- ---- --- Total.......................... 100% 100% ==== === ==== ===
The above table and calculations exclude: . 33,378,450 shares of Class A common stock issuable upon exercise of outstanding stock options at a weighted average exercise price of $1.03 per share; . 13,621,550 shares of Class A common stock reserved for future issuance under our stock option plans; . 5,813,716 shares of Class A common stock issuable upon exercise of outstanding warrants with a weighted average exercise price of $3.53 per share; and . 1,500,000 additional shares of Class A common stock reserved for future issuance under our 2000 Employee Stock Purchase Plan. New investors will suffer additional dilution upon exercise of any outstanding options or warrants. 20 SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data) You should read the selected consolidated financial data in conjunction with our financial statements and related notes included in this prospectus as well as the section of the prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." The statement of operations data for the years ended December 31, 1997, 1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999 are derived from, and qualified by reference to, our audited consolidated financial statements included in this prospectus. The statement of operations data for the years ended, and the balance sheet data as of December 31, 1996 and 1997 are derived from, and qualified by reference to, our audited consolidated financial statements, which are not included in this prospectus. The statement of operations data for the year ended December 31, 1995 and the balance sheet data as of December 31, 1995 are unaudited. The statement of operations data for the six months ended June 30, 1999 and 2000 and the balance sheet data as of June 30, 2000 are unaudited. In the opinion of management, all necessary adjustments, consisting only of normal recurring adjustments, have been included to present fairly the unaudited interim results when read in conjunction with the audited financial statements and notes thereto appearing in this prospectus. Historical results are not necessarily indicative of results that may be expected for any future period.
Six Months Ended Year Ended December 31, June 30, ------------------------------------------------ ----------------- 1995 1996 1997 1998 1999 1999 2000 ----------- -------- -------- -------- -------- -------- -------- (unaudited) (unaudited) Statement of Operations Data: Revenues: Product................ $-- $ -- $ 94 $ 2,126 $19,383 $5,960 $ 28,667 Development............ 25 1,010 1,447 1,726 1,012 946 -- --- ------ ------ ------- ------- ------ -------- Total revenues....... 25 1,010 1,541 3,852 20,395 6,906 28,667 Cost of revenues........ -- 729 1,178 1,847 6,748 2,234 10,859 --- ------ ------ ------- ------- ------ -------- Gross profit............ 25 281 363 2,005 13,647 4,672 17,808 --- ------ ------ ------- ------- ------ -------- Operating expenses: Research and development, excluding deferred stock compensation.......... -- 279 650 2,219 8,779 2,584 8,934 Sales and marketing, excluding deferred stock compensation.... -- 94 190 349 2,292 795 2,514 General and administrative, excluding deferred stock compensation.... -- 107 266 391 1,767 664 2,029 Deferred stock compensation.......... -- -- -- 344 822 62 2,238 Warrant issuances...... -- -- -- -- -- -- 6,456 --- ------ ------ ------- ------- ------ -------- Total operating expenses............ -- 480 1,106 3,303 13,660 4,105 22,171 --- ------ ------ ------- ------- ------ -------- Operating income (loss)................. 25 (199) (743) (1,298) (13) 567 (4,363) Other income and (expenses)............. -- 13 (61) (189) 57 (114) 128 --- ------ ------ ------- ------- ------ -------- Income (loss) before provision for income taxes.................. 25 (186) (804) (1,487) 44 453 (4,235) Provision for income taxes.................. 4 -- 1 1 19 -- 447 --- ------ ------ ------- ------- ------ -------- Net income (loss)....... $21 $ (186) $ (805) $(1,488) $ 25 $ 453 $ (4,682)* === ====== ====== ======= ======= ====== ======== Accretion of redeemable convertible preferred stock to redemption value.................. -- -- -- -- (48) -- (48) Dividend related to warrant issuance....... -- -- -- -- -- -- (6,375) Net income (loss) attributable to common shareholders........... $21 $ (186) $ (805) $(1,488) $ (23) $ 453 $(11,105) === ====== ====== ======= ======= ====== ======== Net income (loss) per share: Basic.................. $-- $(0.01) $(0.03) $ (0.05) $ -- $ 0.02 $ (0.37) === ====== ====== ======= ======= ====== ======== Diluted................ $-- $(0.01) $(0.03) $ (0.05) $ -- $ 0.01 $ (0.37) === ====== ====== ======= ======= ====== ======== Weighted average shares: Basic.................. -- 30,000 30,000 30,000 30,000 30,000 30,000 === ====== ====== ======= ======= ====== ======== Diluted................ -- 30,000 30,000 30,000 30,000 37,598 30,000 === ====== ====== ======= ======= ====== ======== Pro forma net income (loss) per share: Basic and diluted...... $ -- $ (0.22) ======= ======== Weighted average shares................ 39,520 51,335 ======= ========
*The net loss for the six months ended June 30, 2000 includes non-cash charges of $2.2 million related to deferred stock compensation and $6.5 million related to warrant issuances. See note 2 of notes to consolidated financial statements for an explanation of the determination of the number of shares used in computing net income (loss) per share data. 21
Six Months Ended Year Ended December 31, June 30, ----------------------------------------------- ----------------- 1995 1996 1997 1998 1999 1999 2000 ----------- -------- -------- -------- -------- -------- -------- (unaudited) (unaudited) Deferred Stock Compensation: Cost of revenues........ $ -- $ -- $ -- $ -- $ 19 $-- $ 159 Research and development............ -- -- -- 344 216 59 793 Sales and marketing..... -- -- -- -- 31 3 89 General and administrative......... -- -- -- -- 556 -- 1,197 ---- ---- ---- ---- ---- --- ------ Total................ $ -- $ -- $ -- $344 $822 $62 $2,238 ==== ==== ==== ==== ==== === ======
As of December 31, ------------------------------------------ As of June 30, 1995 1996 1997 1998 1999 2000 ----------- ----- ----- ------- ------- -------------- (unaudited) (unaudited) Balance Sheet Data: Cash and cash equivalents............ $21 $ 281 $ 273 $ 303 $ 8,997 $ 52,358 Working capital (deficit).............. 21 (287) (90) (34) 15,108 53,776 Total assets............ 21 783 793 1,747 22,644 69,405 Long-term obligations, net of current......... -- 3 926 2,189 3,926 1,287 Redeemable convertible preferred stock........ -- -- -- -- 14,978 55,026 Total shareholders' equity (deficit)....... 21 (161) (856) (1,995) (714) 3,236
22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our consolidated financial statements included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward- looking statements as a result of various factors including those set forth under "Risk Factors" and elsewhere in this prospectus. Overview We design, develop and market high-bandwidth, advanced integrated circuits, modules and higher-level assemblies that enable next generation optical networking systems. We outsource substantially all of our semiconductor fabrication and focus our efforts on the design, development and marketing of our products. From our inception on July 26, 1994 through December 31, 1996, our operations consisted primarily of start-up activities, including development of our initial products. During 1996, we began generating development revenues through technology development contracts with several of our customers. In July 1997, we began shipping our first product for customer evaluation. During the first quarter of 1998, we recognized our first significant product revenues and further invested in research and development, sales and marketing, operations and our general and administrative infrastructure. For the six months ended June 30, 2000, we shipped our products to 23 customers. To date, we have generated a substantial portion of our revenues from a limited number of customers. Our top three customers for the six months ended June 30, 2000 were Lucent, Cisco and Alcatel, representing approximately 50%, 18% and 16% of our revenues, respectively. Our top three customers in 1999 were Lucent, Alcatel and TyCom, representing approximately 36%, 20% and 18% of our revenues, respectively. We expect that in future periods our customer base will become less concentrated both generally and within our top three customers. We have focused our initial sales and marketing efforts on North American and European communications equipment manufacturers. For the six months ended June 30, 2000, we derived 75% of our total revenues from communications equipment manufacturers in North America compared with 84% in 1999. We currently sell through our direct sales force in North America and Europe, and through selected independent manufacturing representatives in North America and independent sales representatives in France, Israel, China and Korea. International revenues are denominated primarily in U.S. dollars, which reduces our exposure to foreign currency risks. We expect international revenues to increase as a percentage of total revenues, driven primarily by increased sales to customers in Europe and Asia. Revenues. We recognize product revenues at the time of shipment. Allowances are provided for estimated returns at the time of sale. Our customers are not obligated by long-term contracts to purchase our products and can generally cancel or reschedule orders on short notice. We historically derived our development revenues from technology development contracts. Under these contracts, we received payments from customers for designing and developing products for use in their optical networking equipment. We recognize development revenues using the percentage-of-completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract. We recognized no development revenues for the six months ended June 30, 2000, and do not expect to recognize any significant development revenues in the future. Cost of Revenues. Cost of revenues consist of component and materials cost, direct labor, manufacturing, overhead costs and estimated warranty costs. We outsource substantially all of the fabrication and assembly, and a portion of the testing, of our products. Accordingly, a significant portion of our cost of revenues consist of payments to our third-party manufacturers. As revenues increase, we believe favorable trends should occur in manufacturing costs due to our ability to absorb overhead costs over higher volumes. 23 Research and Development. Research and development expenses consist primarily of salaries and related personnel costs, equipment, material, and third-party costs and fees related to the development and prototyping of our products, depreciation associated with engineering and design software costs. We expense our research and development costs as they are incurred, except for engineering and design software, which are capitalized and depreciated over the life of the software. Research and development is key to our future success, and we intend to significantly increase our research and development expenses in future periods in absolute dollar amounts. Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions and related expenses for personnel engaged in sales, marketing, customer service and application engineering support functions and costs associated with trade shows. We expect that sales and marketing expenses will increase in future periods in absolute dollar amounts as we hire additional sales and marketing personnel, initiate additional marketing programs, establish sales offices in additional domestic and international locations and expand our customer service and support organizations. General and Administrative. General and administrative expenses consist primarily of salaries and related expenses for executive, finance, accounting, facilities, information services, human resources, recruiting, professional fees and other corporate expenses. We expect general and administrative expenses to increase in absolute dollar amounts as we add personnel and incur additional costs related to the growth of our business and our operation as a public company. Deferred Stock Compensation. In connection with the granting of stock options to our employees, officers and directors, we recorded deferred stock compensation of $6.0 million for the six months ended June 30, 2000, $6.0 million in 1999 and $0.5 million in 1998. Deferred stock compensation represents the difference between the grant price and the fair value of the common stock underlying options granted during these periods. Deferred stock compensation is presented as a reduction of shareholders' equity. We are amortizing our deferred stock compensation using the graded vesting method, in accordance with FASB Interpretation No. 28, over the vesting period of each respective option, generally four years. Based on our balance of deferred stock compensation as of June 30, 2000, we estimate our amortization of deferred stock compensation for each of the periods below to be as follows:
Year Ending December 31, Amount ------------------------ -------------- (in thousands) 2000 (including $2.2 million of amortization during the six months ended June 30, 2000)............................... $ 5,041 2001....................................................... 3,502 2002....................................................... 1,839 2003....................................................... 802 2004....................................................... 105 ------- Total.................................................... $11,289 =======
Results of Operations Six Months Ended June 30, 2000 and 1999 Revenues. Revenues increased to $28.7 million for the six months ended June 30, 2000, compared with $6.9 million for the six months ended June 30, 1999. The increase was due to higher unit volume shipments of integrated circuits, modules and higher-level assemblies to existing and new customers and the introduction of new products. We recognized no development revenues for the six months ended June 30, 2000, compared to $0.9 million of development revenues for the six months ended June 30, 1999. 24 Gross Profit. Cost of revenues increased to $10.9 million for the six months ended June 30, 2000, compared with $2.2 million for the six months ended June 30, 1999. Gross profit as a percentage of revenues, or gross margin, declined to 62% in the six months ended June 30, 2000 compared with 68% in the six months ended June 30, 1999. The decline was due primarily to lower selling prices for some of our integrated circuit products. Research and Development. Research and development expenses increased to $8.9 million for the six months ended June 30, 2000, compared with $2.6 million for the six months ended June 30, 1999. The increase was due primarily to the addition of engineering personnel and increased costs for engineering and design software. Research and development expenses as a percentage of revenues decreased for the six months ended June 30, 2000 to 31%, compared with 37% for the six months ended June 30, 1999. The decrease was attributable to a higher growth in revenues. Sales and Marketing. Sales and marketing expenses increased to $2.5 million for the six months ended June 30, 2000, compared with $0.8 million for the six months ended June 30, 1999. The increase was due primarily to the addition of sales and marketing personnel. Sales and marketing expenses as a percentage of revenues were 9% for the six months ended June 30, 2000, compared with 12% for the six months ended June 30, 1999. The decrease was a result of higher growth in revenues. General and Administrative. General and administrative expenses increased to $2.0 million for the six months ended June 30, 2000, compared with $0.7 million for the six months ended June 30, 1999. The increase was due primarily to the addition of personnel and the associated payroll and related costs within the areas of finance, human resources and business development. General and administrative expenses as a percentage of revenues was 7% for the six months ended June 30, 2000, compared with 10% for the six months ended June 30, 1999. The decrease was a result of higher growth in revenues. Deferred Stock Compensation. Amortization of deferred stock compensation increased to $2.2 million for the six months ended June 30, 2000, compared with $61,896 for the six months ended June 30, 1999, due to a greater number of option grants to new and existing employees. Warrant Issuances. We incurred non-cash charges of $6.5 million related to warrant issuances during the six months ended June 30, 2000. These charges represented the fair values of a warrant issued to a third party in conjunction with a development agreement and a warrant issued to outside counsel for past services. These warrants are fully exercisable and non-forfeitable. We have expensed the value of these warrants because there is no third party performance required with respect to the warrants, and the activities underlying the development agreement relate to research and development efforts for which we cannot determine the benefit, if any, which may result. Years Ended December 31, 1999 and 1998 Revenues. Revenues increased to $20.4 million in 1999, compared with $3.9 million in 1998. The increase was due to increases in shipments of integrated circuits, modules and higher-level assemblies to existing and new customers and the introduction of new products. Development revenues declined to $1.0 million in 1999, compared with $1.7 million in 1998. Gross Profit. Cost of revenues increased to $6.7 million in 1999, compared with $1.8 million in 1998. Gross margin increased to 67% in 1999, compared with 52% in 1998. The increase in gross margin in 1999 was due to increased sales of higher margin products relative to revenues associated with lower margin development contracts in 1998. Research and Development. Research and development expenses increased to $8.8 million in 1999, compared with $2.2 million in 1998. The increase was due primarily to the addition of engineering personnel and increased costs for engineering and design software. Research and development expenses as a percentage 25 of revenues decreased in 1999 to 43%, compared with 58% in 1998, due primarily to higher growth in revenues during this period. Sales and Marketing. Sales and marketing expenses increased to $2.3 million in 1999, compared with $0.3 million in 1998. The increase was due primarily to the addition of personnel and related costs in the areas of sales, application engineering and marketing activities. General and Administrative. General and administrative expenses increased to $1.8 million in 1999 compared with $0.4 million in 1998. The increase was due primarily to the addition of human resources and administrative personnel and the relocation of our headquarters facility to Somerset, New Jersey. Deferred Stock Compensation. Amortization of deferred stock compensation increased to $0.8 million in 1999 from $0.3 million in 1998 due to a greater number of option grants made to new and existing employees. Years Ended December 31, 1998 and 1997 Revenues. Revenues increased to $3.9 million in 1998, compared with $1.5 million in 1997. The increase was due to increases in development revenues and shipments of our initial products. In 1998 and 1997, a significant percentage of our revenues was derived from technology development contracts. Gross Profit. Cost of revenues increased to $1.8 million in 1998, compared with $1.2 million in 1997. Gross margin increased to 52% in 1998, compared with 24% in 1997. The increase in gross margin in 1998 was due to an increased proportion of product revenues as compared to development revenues. Research and Development. Research and development expenses increased to $2.2 million in 1998, compared with $0.7 million in 1997. The increase was due primarily to the addition of engineering personnel and increased costs for engineering and design software. Sales and Marketing. Sales and marketing expenses increased to $0.3 million in 1998, compared with $0.2 million in 1997. General and Administrative. General and administrative expenses increased to $0.4 million in 1998, compared with $0.3 million in 1997. Deferred Stock Compensation. Amortization of deferred stock compensation was $0.3 million in 1998. No amortization of deferred stock compensation was recorded during 1997. 26 Quarterly Results of Operations The following table sets forth for the periods presented certain data from our consolidated statement of operations. The consolidated statement of operations data have been derived from our unaudited quarterly consolidated financial statements. In the opinion of management, these statements have been prepared on substantially the same basis as the audited consolidated financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods presented. This information should be read in conjunction with the consolidated financial information and notes thereto included elsewhere in this prospectus.
Three-Months Ended ---------------------------------------------------------------- March 31, June 30, September 30, December 31, March 31, June 30, 1999 1999 1999 1999 2000 2000 --------- -------- ------------- ------------ --------- -------- (in thousands) Revenues: Product................ $2,406 $3,555 $5,322 $8,100 $12,347 $16,320 Development............ 323 623 66 -- -- -- ------ ------ ------ ------ ------- ------- Total revenues........ 2,729 4,178 5,388 8,100 12,347 16,320 Cost of revenues........ 747 1,487 1,771 2,743 4,817 6,042 ------ ------ ------ ------ ------- ------- Gross profit............ 1,982 2,691 3,617 5,357 7,530 10,278 Operating expenses: Research and development, excluding deferred stock compensation.......... 793 1,792 2,288 3,906 3,848 5,086 Sales and marketing, excluding deferred stock compensation.... 325 470 602 895 1,186 1,328 General and administrative, excluding deferred stock compensation.... 207 457 509 594 1,145 884 Deferred stock compensation.......... 26 36 57 704 836 1,402 Warrant issuances...... -- -- -- -- 81 6,375 ------ ------ ------ ------ ------- ------- Total operating expenses............. 1,351 2,755 3,456 6,099 7,096 15,075 ------ ------ ------ ------ ------- ------- Operating income (loss)................. 631 (64) 161 (742) 434 (4,797) Other income and expenses............... (42) (72) 181 (9) (63) 191 ------ ------ ------ ------ ------- ------- Income (loss) before provision for income taxes.................. 589 (136) 342 (751) 371 (4,607) Provision for income taxes.................. -- -- -- 19 -- 447 ====== ====== ====== ====== ======= ======= Net income (loss)....... $ 589 $ (136) $ 342 $ (770) $ 371 $(5,054) ====== ====== ====== ====== ======= =======
Liquidity and Capital Resources We have funded our operations primarily through private sales of preferred stock. We also secured additional financing through capital leases for some of our equipment needs. We generated positive cash flow from operations for the six months ended June 30, 2000. As of June 30, 2000, we had cash and cash equivalents of $52.4 million. Cash used for operations increased to $5.8 million in 1999 from $0.9 million in 1998. This increase was due primarily to higher accounts receivable and inventory balances. Cash provided from operations increased to $8.2 million for the six months ended June 30, 2000 compared with $0.6 million for the six months ended 27 June 30, 1999. This was due to an increase in accounts payable and accrued expenses and a reduction in accounts receivable, partially offset by an increase in inventory. Cash generated from financing activities increased to $15.2 million in 1999 from $1.0 million in 1998. This increase was due primarily to the sale of $15.2 million of Series A preferred stock in June 1999. Cash generated from financing activities also increased to $37.3 million for the six months ended June 30, 2000 compared with $14.9 million for the six months ended June 30, 1999. This increase was due primarily to the sale of $40.0 million of Series B preferred stock in March through May 2000, offset by our repayment of $2.4 million of principal and interest under a promissory note. Cash and cash equivalents increased to $9.0 million on December 31, 1999 from $0.3 million on December 31, 1998. This increase was due primarily to the sale of the Series A preferred shares during June 1999. Cash and cash equivalents, increased to $52.4 million on June 30, 2000 from $9.0 million on December 31, 1999 due primarily to the sale of the Series B preferred shares during March through May 2000. We are obligated to make payments of approximately $5.3 million over the lease periods of our operating leases, with $1.2 million due in 2001. We believe the net proceeds of this offering, together with our current cash and cash equivalents will be sufficient to meet our capital and operating requirements at least through the next 12 months, although we could be required, or could elect, to seek additional funding prior to that time. Recently Issued Accounting Pronouncements In June 1998, June 1999 and June 2000, the Financial Accounting Standards Board, or the FASB, issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" and SFAS No. 138, "Accounting for Derivative Instruments and Hedging Activities--An Amendment of SFAS No. 133." SFAS No. 133, as amended, requires the recognition of all derivatives as either assets or liabilities in the balance sheet and the measurement of those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the planned use of the derivative and the resulting designation. We are required to implement SFAS No. 133, as amended, in the first quarter of 2001. We have not determined the effects, if any, adoption of SFAS No. 133, as amended, will have on our consolidated financial statements. In December 1999, the SEC issued Staff Accounting Bulletin No. 101, or SAB 101, "Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. We have incorporated the impact of SAB 101 into our financial position and results of operations. In March 2000, the FASB issued Interpretation No. 44, or FIN 44, "Accounting for Certain Transactions Involving Stock Compensation--an interpretation of APB Opinion No. 25". FIN 44 clarifies the application of Accounting Practice Board Opinion No. 25, "Accounting for Stock Issued to Employee," or APB 25. FIN 44 clarifies the following: the definition of an employee, the criteria for determining whether a plan qualifies as a non-compensatory plan, the accounting consequences of various modifications to the terms of previously fixed stock options or awards and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occur after either December 15, 1998, or January 12, 2000. We do not expect the adoption of FIN 44 to have a material impact on our financial position or results of operations. 28 Qualitative and Quantitative Disclosures About Market Risk Foreign Currency Risk We develop and market our products in North America and Europe. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. As our sales are currently primarily made or denominated in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets. Although a substantial portion of our revenues is realized in U.S. dollars, we receive revenues and incur expenses in currencies other than U.S. dollars. Fluctuations in the exchange rates between the U.S. dollar and other currencies may have a material effect on our results of operations. We do not currently engage in currency hedging activities. Although we have not experienced significant foreign exchange rate losses to date, we may in the future, especially to the extent that we do not engage in hedging. The economic impact of currency exchange rate movements on our operating results is complex because such changes are often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, may cause us to adjust our financing and operating strategies. Consequently, isolating the effect of changes in currency does not incorporate these other important economic factors. Interest Rate Risk Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly because the majority of our investments are in short-term instruments. Due to the short-term nature of our investments, we believe that there is no material risk exposure. Therefore, no quantitative tabular disclosures have been included. 29 BUSINESS Overview We design, develop and market high-bandwidth, advanced integrated circuits, modules and higher-level assemblies that enable next generation optical networking systems. We seek to be first to develop innovative products with system functions that allow communications equipment manufacturers to rapidly build and deliver high performance fiber optic systems ahead of their competitors. We work closely with our customers to design and deliver integrated product solutions utilizing our semiconductor, circuit design and systems level expertise. Our current products address the markets for DWDM and SONET/SDH optical networking equipment operating at the fastest commercially available speeds of OC-192, or 10 gigabits per second. We are in the early stages of developing products that are designed to address future systems that may operate at speeds of OC-768, or 40 gigabits per second. We sell our products to leading and emerging communications equipment manufacturers that develop high-speed optical networking systems. Our customers include Alcatel, Ciena, Cisco, JDS Uniphase, Lucent, ONI, Optimight, Qtera (recently acquired by Nortel), Sycamore and TyCom. Industry Background Dramatic Increase in the Volume of Communications Traffic The volume of data traffic across communications networks has grown rapidly over the past decade. This growth has been driven by the increased use of data- intensive applications such as electronic commerce, Internet access, e-mail, streaming audio and video, remote access and other new applications. This data traffic is also expected to accelerate in the coming years. RHK, Inc., a leading market research and consulting firm, estimates that data traffic across communications networks will increase from 350,000 terabytes per month in 1999 to more than 16 million terabytes per month in 2003. Ten terabytes is the equivalent of all of the information contained in the Library of Congress. This dramatic increase in data traffic and the deployment of bandwidth-intensive applications and services has placed a significant burden on the traditional communications infrastructure, resulting in network congestion, decreased reliability and an inability to scale network capacity effectively. Development of Fiber Optic Networks Much of the public network's infrastructure was originally designed to transmit voice communications utilizing copper wire as the primary transmission medium. This copper wire-based infrastructure is ill-suited for high-speed data transmission due to bandwidth limitations and high maintenance and administration costs. The inadequacy of the legacy public network infrastructure is particularly acute in the backbone, or core portion of the network. The core is the portion of the network characterized by long distance transmissions at high-speeds, or bit rates. Communications service providers are upgrading their network architectures by increasing bandwidth and switching capabilities for high-speed data and voice transmissions and are replacing conventional copper wire technology with fiber optic technology. Fiber optics offers substantially greater capacity than copper wire and is less error-prone and, as a result has become the transmission medium of choice for both incumbent and emerging service providers. SONET and SDH are the standards, or protocols, for the transmission of communications traffic over optical fiber. SONET and SDH facilitate high data integrity and improve network reliability at the higher transmission rates demanded in newly developed optical networking systems. Innovations in Optical Networking Systems The increased demand for bandwidth is driving communications equipment manufacturers to incorporate technologies that increase the capacity of optical networking systems. The two primary approaches for increasing capacity are higher transmission speeds and higher channel density. The majority of new optical networking systems deployed by service providers addressing the network core operate at 10 gigabits per 30 second, or Gb/s. We believe future network deployments will incorporate systems that operate at 40 Gb/s or faster when the technology becomes commercially available. DWDM is a technology development that increases the capacity of existing fiber optic networks by combining multiple light beams of information, each at a different wavelength, or channel, onto a single strand of optical fiber. Higher transmission speeds and increased deployments of DWDM technology have significantly increased the complexity of optical networking systems. In addition, we believe that next generation optical networks will add substantial functionality and innovations to the optical transport layer to further optimize available capacity. Components for Optical Networking Systems As communications equipment manufacturers develop systems that enable higher transmission speeds and deploy DWDM technology to increase bandwidth, they must integrate a greater number of complex components that generate, manipulate, transmit and receive electrical and optical signals. These components include integrated circuits, modules and higher-level assemblies and are becoming increasingly important for the manufacture of optical networking systems. These components are viewed as critical to communications equipment manufacturers seeking competitive advantages. The need for communications equipment manufacturers to focus on their core competencies and meet aggressive time-to- market demands for new optical networking systems, along with the complexities associated with the design and development of state-of-the-art components, have caused communications equipment manufacturers to increasingly rely upon sophisticated component suppliers. Requirements for Supplying Components in Optical Networking Systems To meet the performance and functionality requirements of optical networking systems, communications equipment manufacturers are seeking suppliers that can deliver increasingly sophisticated component solutions. These component suppliers must provide each of the following: Systems Level Expertise. Component suppliers must understand the performance, functionality and integration requirements of the system into which their components are incorporated. Without this critical systems knowledge, a component supplier will have difficulty meeting the time-to-market and functionality requirements of the communications equipment manufacturers, thereby resulting in costly delays and missed revenue opportunities. Advanced Technologies and Processes that Enable High-Speed Transmission. Building high-speed integrated circuits requires access to specialized process technologies and advanced circuit design approaches. The vast majority of the semiconductor industry employs a CMOS transistor built on silicon material. Because of demanding performance requirements, alternatives to CMOS have emerged in the communications industry. Specifically, GaAs and SiGe have emerged as semiconductor technologies that are effective in addressing high-speed optical communications requirements. Component suppliers are also exploring other semiconductor technologies, such as Indium Phosphide, or InP, to address the requirements of future, higher speed communications systems. Each of these processes poses significant challenges and has distinct characteristics that require extensive knowledge and expertise. Communications equipment manufacturers are looking for component suppliers that have the necessary expertise to use the optimal processes in order to provide next generation optical systems solutions for their customers. Highly Integrated Product Solutions. In order to rapidly and cost effectively introduce new products and simplify the design and manufacture of optical networking systems, communications equipment manufacturers seek component suppliers that can provide highly integrated solutions. These integrated solutions are modules or higher-level assemblies that combine numerous discrete components into a package or board to be sold as a single product, which eliminates the time and expense associated with sourcing and integrating components from multiple suppliers. As systems are manufactured in greater volumes, communications equipment manufacturers require that modules and higher-level assemblies be integrated further into multi-chip or single- chip solutions. This integration provides for faster and more efficient production, reduced part count and 31 smaller design for placement into the network equipment, significantly reducing manufacturing costs for communications equipment manufacturers. The Multilink Solution We design, develop and market high-bandwidth, advanced integrated circuits, modules and higher-level assemblies that enable next generation optical networking systems. Our integrated circuits and modules consist primarily of application specific standard products, or ASSPs, which are highly technical standardized products designed for use by several customers. These ASSPs can also be designed into custom made higher-level assemblies for insertion into a specific customer system. When appropriate, we also develop customer-specific components for strategic customers. We are able to offer our customers proprietary design skills, an in-depth understanding of high-speed process technologies and a thorough understanding of next generation optical networking system requirements. By offering highly integrated products, our customers are able to concentrate their efforts on their core competencies and introduce optical networking systems to the market in a shorter time and with more functionality and greater performance than their competitors. We believe we provide our customers with several key benefits, including the following: Sophisticated Products Developed Utilizing Systems Level Expertise We provide sophisticated products that meet the functionality requirements of next generation optical networking equipment. Our systems architects and design engineers have a thorough understanding of high-bandwidth fiber optic networking systems applications. This systems level expertise enables us to anticipate and develop cost-effective next generation component solutions for our customers. Our products incorporate unique circuit designs that enable specific systems level functions, such as detecting transmission errors. For example, our MTC-1224 CDR DMUX exhibits superior loss of signal characteristics that reduce error rates and increase systems efficiency. Alternative solutions in the market require a more costly and complex design to achieve the same performance and quality standards. High-Speed Products that Meet Next Generation Optical Transmission Requirements We have an in-depth understanding of high-performance semiconductor and advanced process technologies. Understanding these technologies enables us to design high-speed analog, digital and mixed-signal integrated circuits and modules that operate at speeds of 10 Gb/s or higher. We design our products utilizing the optimal process technology, such as GaAs, CMOS, and SiGe for a particular function or product. We are also exploring the use of other technologies for developing higher speed components. We believe this flexibility is unique and allows us to provide optimal solutions to our customers, resulting in the rapid introduction of high-speed, next generation systems. For example, with our MTC-1215 MUX, we were the first supplier to design and manufacture a SiGe component for use in a 12.3 Gb/s fiber optic transmitter for ultra long-haul transmission systems. This product provides significantly reduced power consumption and improved performance over competing products. High Level of Component Integration Our highly integrated mixed-signal integrated circuits and modules offer innovative functions that allow our customers to be first-to-market with high performance fiber optic systems. When we are working with a customer that is developing and validating a new system that incorporates an important new function not commercially available from other sources, we first provide a module-based component composed of multiple discrete integrated circuits. The module is designed as an integrated package that can be seamlessly placed into a system providing immediate functionality. As the system transitions to high volume production, we collaborate with our customers to increase our solution's level of component integration and functionality, moving from a module-based solution to a multi-chip or single-chip solution. This higher-level of component integration reduces the cost and complexity of our customers' systems and enables them to meet their time to 32 market requirements. For example, we have developed a complete three component solution for the physical layer of an optical transmitter, including a multiplexer, a limiting amplifier and a modulator driver. We have further reduced the component count to two, by integrating the limiting amplifier into the modulator driver. This new modulator driver, the MTC 5525, achieves superior performance, while integrating numerous discrete components into a highly integrated low part-count chip set. Faster Time-to-Market Competition among network service providers to incorporate the latest technology into their networks is shortening the cycle for new product introductions, with each successive generation of communications equipment being adopted more quickly than the last. As a result, time-to-market has become a differentiating, competitive factor for communications equipment manufacturers. Through our systems level and process technology expertise and our integration capability, we develop sophisticated products that enable our customers to meet their critical time-to-market requirements. The Multilink Strategy Our goal is to become the leading global supplier of high value component solutions for optical networking systems. Key elements of our strategy include: Leveraging Core Competencies to Rapidly Introduce Products that Enable Next Generation Optical Systems We have developed substantial competencies in mixed-signal circuit and module design and advanced semiconductor process technologies. Many of our engineers have worked for leading communications equipment manufacturers and are experienced in the development of communications systems. We intend to continue providing sophisticated products that meet the requirements of next generation optical networking systems. We will continue to capitalize on our design competencies and our integration capabilities to provide our customers with new modules and higher-level assemblies so they can quickly and cost- effectively introduce new systems with greater functionality. We will continue to develop new products using leading-edge technologies that allow us to transition these modules and higher-level assemblies into highly integrated, multi-chip or single-chip solutions, enabling us to address our customers' higher volume production requirements. Expanding our Customer Relationships and the Breadth of Our Customer Base We intend to further strengthen our existing customer relationships and expand our customer base by continuing to target leading edge communications equipment manufacturers, anticipating their needs through a collaborative design and development process and providing ongoing, in-depth customer support. We participate early in the design process of our customers' products and aid in the design of their future systems architecture. Our application engineers and marketing personnel work closely with our customers to define and implement the appropriate solution and to provide continuous support. This extensive customer interaction allows us to further develop our systems expertise and to expand the functionality of our products in our customers' optical networking systems, providing us with a strategic advantage over our competitors. Maintaining and Extending Technology Leadership We have established a reputation as a technology leader in the design and development of components for next generation optical networking systems. We intend to maintain and extend our technological advantage by further investing in research and development, focusing on high bit rate component solutions and vigorously recruiting and retaining talented engineers. We will also continue to work closely with our foundry partners to drive the development of future generation process technologies. 33 Pursuing Strategic Acquisitions and Strategic Relationships We intend to pursue strategic acquisitions that provide us with complementary products and technologies and highly qualified engineering personnel. We also intend to continue to establish strategic relationships to expand our technology leadership and secure access to advanced process technologies. For example, we have entered into a semiconductor development and a joint development agreement with IBM and a wafer supply agreement with TRW. We believe that establishing strategic relationships with companies with products or technologies that we deem complementary to our current and future offerings will enable us to more effectively penetrate new and existing market segments and offer our customers additional high value solutions. Expanding to the Edge of the Optical Transport Network We focus on solutions for optical networking systems in the innovative and high-growth network core market. Our products are particularly well-suited for long-haul, ultra long-haul and high channel count DWDM systems. We will continue to build on our expertise in DWDM and long-haul applications for the core of the network and leverage this expertise to address emerging metropolitan or regional optical networking systems. We have started to expand our addressable market to the network edge as systems operating at OC-192 are beginning to be deployed in this portion of the network. The edge of the network is that portion of the network that aggregates different types of data traffic, such as internet protocol, asynchronous transfer mode and SONET/SDH, for transport over the network core. Customers During the six months ended June 30, 2000, we shipped our products to 23 customers. We sell our integrated circuits, modules and higher-level assemblies to leading and emerging communications equipment manufacturers that develop high-speed optical transport systems. The following is a representative list of our customers: Alcatel ONI Ciena Optimight Cisco Qtera (recently acquired by Nortel) JDS Uniphase Sycamore Lucent TyCom
Lucent, Alcatel, and TyCom accounted for approximately 36%, 20% and 18% of our revenues for the year ended December 31, 1999. Lucent, Cisco and Alcatel accounted for approximately 50%, 18% and 16% of our revenues for the six months ended June 30, 2000. Products We design and develop advanced products targeted for use in high bandwidth optical networking systems. These products consist of integrated circuits, modules and higher-level assemblies that generate, manipulate, transmit and receive electrical and optical signals. Our products focus on three segments of optical networking systems: the physical media dependent layer, or PMD, the physical layer and the datalink layer. Collectively, the products within these segments connect data processing devices to optical fiber and constitute an integral part of optical networking systems. 34 The following is a diagram that shows the different functions required for fiber optic transmission systems: [GRAPH APPEARS HERE] PMD layer devices perform the conversion between electrical and optical signals and can be categorized as either transmitters or receivers. Transmitters convert voice and data transmissions carried as electrical signals into optical signals for transmission over optical fiber, while receivers convert optical signals into electrical signals. Transmitters are composed of an electrical to optical, or E/O, converter, which converts electrical signals to optical pulses, and a driver, which amplifies and conditions signals for use by the E/O converter. E/O converters are composed of a light source, or laser, and an external modulator, which creates individual pulses of light, or optical signals. Receivers consist of a semiconductor device that converts an optical signal into electrical pulses, an optical-to-electrical, or O/E, converter, and a transimpedance amplifier, or TIA, which amplifies these electrical pulses. The physical layer is composed of mixed-signal devices, which include both digital and analog circuits and can be categorized as either multiplexers or demultiplexers. Multiplexers combine multiple slower signals into a single high-speed signal, while demultiplexers perform the reverse function. Datalink layer devices connect the physical layer to networking equipment. Datalink devices have three primary functions: framing, mapping and forward error correction, or FEC. In framing and mapping, which generally occur simultaneously, data is placed in formatted frames, prior to being transmitted over fiber, to make the data recognizable at the receiving end of the transmission. In forward error correction, data is placed in special frames that can be used to correct errors that occur during transmission. Our Physical Layer Products We have broad experience in the production of physical layer products. We have designed our multiplexers with exceptionally low jitter, which is a type of noise in optical channels, directly improving signal quality and transmission distance. We have designed our demultiplexers with highly sensitive signal processing that eliminates the need for additional components to perform the same function. Our demultiplexers are highly insensitive to jitter, allowing for longer optical transmission distances. We are currently broadening our portfolio of multiplexers and demultiplexers to include product offerings that incorporate greater functionality, higher-levels of integration, lower power consumption and tighter integration with our datalink layer components. We are currently involved in the early stage development of products that will operate at speeds of 40 Gb/s. 35 Our physical layer products can incorporate the following functions: . Clock Multiplier Unit, or CMU, converts the clock at the input of the multiplexers into the higher speed clock needed at the output. Clocks synchronize the movement of data throughout communications systems; . Input Phase Locked Loop, or IPLL, synchronizes the transfer of data from Datalink devices into a multiplexer; . Loss of Signal, or LOS, is an alarm that SONET/SDH systems need to analyze potential system faults; and . Clock and Data Recovery, or CDR, extracts data from the noisy signals received from optical systems. The following table describes our physical layer products:
Model Features and Benefits Stage Multiplexers - ------------------------------------------------------------------------------- MTC1203 . incorporates a CMU Shipping . low jitter . operates at 9.9 Gb/s - ------------------------------------------------------------------------------- MTC1207A/B Same as MTC 1203 plus Shipping . lower power consumption . potentially reduces component count of transmitters . operates at 9.9 or up to 10.7 Gb/s - ------------------------------------------------------------------------------- MTC1215 . low power flexible device for proprietary Shipping transport systems . operates from 8.0 to 13.0 Gb/s - ------------------------------------------------------------------------------- MTC1223A/B/D Same as MTC 1207 plus Sampling . simpler integration with datalink layer devices in Q4-2000 due to IPLL . lower cost packaging . operates at 9.9, 10.7 or 12.3 Gb/s - ------------------------------------------------------------------------------- MTC1233S Same as MTC 1223 plus Sampling . lower power consumption in 2001 . multifrequency operation reduces customer inventory stocking units . operates at 9.9 or 10.7 Gb/s Model Features and Benefits Stage Demultiplexers - ------------------------------------------------------------------------------- MTC1204 . integrated CDR Shipping . very high sensitivity to reduce customer component count . incorporates a LOS . operates at 9.9 Gb/s - ------------------------------------------------------------------------------- MTC1224A/B/D Same as MTC 1204 plus Shipping . 4x improvement in sensitivity . input signal processing for special signal from DWDM systems . lower cost packaging . operates at 9.9, 10.7 or 12.3 Gb/s - ------------------------------------------------------------------------------- MTC1210 . flexible device for proprietary transport Shipping systems . operates from 8.0 to 13.0 Gb/s - ------------------------------------------------------------------------------- MTC1234S Same as MTC 1224 plus Sampling . lower power consumption in 2001 . multifrequency operation reduces customer inventory stocking units . operates at 9.9 and 10.7 Gb/s
36
Model Features and Benefits Stage Clock and Data Recovery - ------------------------------------------------------------------------------------------- MTC5585 . filter-based CDR module with high jitter Shipping tolerance . operates at 9.9 Gb/s - ------------------------------------------------------------------------------------------- MTC5589 Same as MTC5585 except operating at 10.6 Gb/s Shipping - ------------------------------------------------------------------------------------------- MTC5585D Same as MTC5585 except operating at 12.25 Shipping Gb/s - ------------------------------------------------------------------------------------------- MTC5590 CDR that extracts the signal timing from Shipping incoming data
Our PMD Products There are two primary types of modulators: crystal-based modulators, which offer optimal performance for long-haul systems but consume significant power and cannot be integrated with lasers; and semiconductor-based modulators, which use less power and can feature on-chip integration with lasers. We currently produce two drivers for crystal-based modulators. These products have been designed to improve signal quality and system efficiency. We are investing in development of future versions of these drivers, integrating more functions and improving performance. The following table describes our PMD products:
Model Features and Benefits Stage Crystal-Based Modulator Drivers - ------------------------------------------------------------------------------------------- MTC5515 . designed for use in JDS Uniphase systems Shipping . easy system integration . operates at 10 Gb/s - ------------------------------------------------------------------------------------------- MTC5525 . higher output voltage ensures better system Currently performance Sampling . higher sensitivity allows operations with competitive multiplexers . special input circuitry allows easier system integration . built in level control eases use in high- channel count DWDM systems . operates at 10 Gb/s - ------------------------------------------------------------------------------------------- MTC5526 Same as MTC 5525 plus Sampling . lowest power consumption with these in 2001 features . operates at 10 Gb/s
Datalink Products We are currently investing in the development of numerous datalink layer products, including FEC devices and Framer/Mappers that integrate the framing and mapping functions. In FEC, we have invested heavily in algorithm, architecture and product development for both standards-based FEC and advanced FEC. FEC allows communications equipment manufacturers to increase the number of DWDM optical channels in a fiber strand and/or to increase the length of the fiber transmission system. In addition, FEC devices can be designed to support new optical networking standards. We expect to begin sampling our first FEC device for 10 Gb/s systems during 2001. Future FEC products will address higher performance and/or higher bit rates. Framer/Mappers in development include advanced products for 10 Gb/s and 40 Gb/s systems. 37 Technology One of our primary competitive advantages is our technological expertise. Our engineers have expertise in DWDM and SONET/SDH systems, mixed-signal architecture and design, digital integrated circuit architecture and high-speed module and higher-level assembly. We also have access to advanced integrated circuit technologies and processes. Together, these capabilities have enabled us to provide our customers with highly integrated and multifunctional products. Systems Level Knowledge. Our key engineers have extensive systems level expertise and are intimately familiar with the requirements of and challenges faced by our customers. We apply our systems level expertise by collaborating with our customers in the early design phase of systems development. We also have a fiber optic test facility that simulates real-world conditions to verify that our products meet the stringent demands of optical networking systems. Mixed-Signal Circuit Design. Our team of mixed-signal engineers and architects has developed numerous analog and mixed-signal integrated circuits for the communications industry and has extensive expertise working with advanced high-speed process technologies. Our team has an in-depth understanding of the physics of these process technologies and the ability to develop and extend existing process models that allow high first-pass success rates in new leading-edge process technologies. Digital Circuit Design. The requirements for developing digital integrated circuits for the high-speed optical networking systems are very demanding and require a number of dedicated skills. Our engineers have the expertise and experience to define and develop complex architectures, often based on advanced algorithms. We believe that this expertise enables our digital integrated circuits design engineers to develop superior integrated circuits for advanced networking functions such as FEC. We have recruited a dedicated engineering team that applies advanced process technologies, design methodologies and tools in order to develop and verify highly complex integrated circuits that operate at very high-speeds. Module and Higher-Level Assembly Integration. We have extensive experience integrating components into high-speed higher-level assemblies. At speeds such as OC-192, the complexity of circuit boards increases significantly, thereby requiring greater skill and precision in design and fabrication. This skill and precision necessitates specialized expertise in microwave circuit and systems design, fiber optic systems knowledge and package technologies. Our team includes senior level engineers with expertise in each of these necessary areas. Process Technology. We have access to and expertise in leading-edge process technologies for high-speed integrated circuits development. We have established long-term relationships with suppliers that provide access to leading technologies. These advanced process technologies include Gallium Arsenide Heterojunction Bipolar Transistor, or GaAs HBT, High-Electron Mobility Transistor, or HEMT, SiGe HBT and fine-geometry CMOS. We design our products using the best process technology to meet the price and performance requirements of our customers. Strategic Relationships We have established strategic relationships with both TRW and IBM. In June 1997, we entered into a supply agreement with TRW, pursuant to which TRW supplies us with a minimum number of processed GaAs wafers annually for a fixed price per wafer. During May 2000, we entered into a series of agreements with IBM. Our semiconductor development agreement with IBM provides us with certain models and design kits for use in the fabrication process to develop new integrated circuits. Under our joint development agreement with IBM, pursuant to which we licensed to IBM and IBM licensed to us, certain technology, we jointly develop integrated circuits. We are both permitted to sell the jointly created products to third parties, subject to a fixed royalty fee payable to the other party. 38 Sales, Marketing and Customer Support Sales We target leading and emerging communications equipment manufacturers that develop high-speed optical transport networking systems. We manage the sales process by interacting with our customers at multiple layers of our organization. Our initial contact with a potential customer generally begins with either direct contact by our management or sales force or through third- party manufacturers' or independent sales representatives. Our strategic account managers and marketing personnel manage the customer relationship throughout the pre- and post-sales process. As needed, systems engineering personnel from our research and development group have detailed technical interactions with our customers during product definition. Our application engineers assist the customer in designing the solution into the customer's systems. Close interaction further enables us to establish strategic customer programs or relationships. We sell our products through our direct sales force and through manufacturers' or independent sales representatives working under the direction of our strategic account managers. As of September 30, 2000, our direct sales force consisted of seven direct sales professionals, managers and administrative personnel located at our headquarters in Somerset, New Jersey and in Bochum, Germany. We expect to open additional sales offices and to increase our direct sales force worldwide. Marketing We market our products extensively in North America and Europe to establish our visibility as a leading supplier of high value components for optical networking systems. In addition, our marketing personnel support sales and customer systems design activities through technical marketing and applications engineering. As of September 30, 2000, our marketing staff included 18 marketing professionals, applications engineers and administrative personnel. Our marketing activities include: . seminar programs, trade shows, guest speaker invitations and technical conferences; . public relations activities and customer events; . advertising, technical articles in industry publications and marketing collateral materials; and . communication on the Internet. Customer Service and Support Our customer support activities are primarily managed by our applications engineering group consisting of both field applications engineers and internal applications experts. This group supports customers during their design activities to facilitate our customers' success, and can perform experiments to validate customers' design ideas including insertion into our fiber optic test facility. Our philosophy is to provide comprehensive customer support to facilitate the design of our complex products into our customers' systems. Our applications engineering group is also the initial point of contact for our customers should they experience any problems with a product after purchase. Operations and Manufacturing We outsource the fabrication and assembly of most of our semiconductor devices. We have in-house semiconductor testing capabilities that allow us to develop and perform testing for low and medium volume production. We expect to gradually outsource our testing from our in-house capabilities to outside vendors for higher volume production. As a fabless semiconductor company, we are able to concentrate our resources on the design, development and marketing of our products. 39 Wafer Manufacturing We outsource substantially all of our semiconductor fabrication to several of the world's leading foundries for high bit-rate technologies including TRW, IBM, United Monolithic Semiconductors and TriQuint Semiconductor. Our mixed- signal products, which comprise a significant portion of our current revenues, are based predominantly on GaAs HBT wafers supplied by TRW. TRW is our sole supplier of these wafers. Our manufacturing strategy is to qualify and utilize leading process technology for the fabrication of high bit-rate semiconductor devices and to utilize our foundries for a variety of different semiconductor technologies. There are certain risks associated with our dependence upon external foundries, including reduced control over delivery schedules, quality assurance, manufacturing yields and costs, the potential lack of adequate capacity during periods of excess demand, limited warranties on wafers or products supplied to us, increases in the prices and potential misappropriation of our intellectual property. Under our supply agreement with TRW, we do not have the contractual right to obtain all the GaAs HBT wafers we require for the current production of our mixed-signal products. Finding alternative sources for these wafers will result in substantial delays in production and additional costs. We do not have long-term wafer supply agreements with any other outside foundries that guarantee wafer or product quantities, prices or delivery lead times. Packaging, Assembly, and Testing The primary vendors for the packaging, assembly and testing of our integrated circuit products are ASAT in Nancy, France and Elmo Semiconductor, a division of Kimbell Electronics. The primary outsource vendor for the assembly and testing of our driver module products is QuinStar. We operate in-house module manufacturing facilities that allow rapid prototyping and development of new products and also serve to complement our outsource module manufacturing partners. We have in-house module and integrated circuits testing facilities in California, New Jersey and Germany. We maintain comprehensive review and inspection of our outsourcing facilities to ensure compliance with our quality standards for manufacturing assembly and test. Our manufacturing processes and outsource vendors utilize stringent quality controls, including incoming material inspection, in-process testing, and final test. Research and Development We have assembled a team of experienced engineers and technologists with significant experience in their fields of expertise. As of September 30, 2000, we had 100 employees dedicated to research and development, of whom 65 hold advanced degrees, including 16 PhDs. We have an additional 40 engineering employees dedicated to marketing, application engineering and business development of whom 21 hold advanced degrees, including 3 PhDs. These employees are involved in advancing our core technologies and applying these core technologies to product development and activities in our targeted markets. We believe that the achievement of higher-levels of integration, functionality and performance and the introduction of new products in our target markets is essential. As a result, we have made and will continue to make substantial investments in research and development. Our research and development expense for the six months ended June 30, 2000 was approximately $8.9 million. Our research and development expenses for 1999, 1998 and 1997 were approximately $8.8 million, $2.2 million and $0.7 million, respectively. Competition We compete with component suppliers for optical networking systems. We believe that the principal factors of competition for these markets are: . product time-to-market; . product performance; . product price; . product quality; 40 . product reliability; . success in designing and subcontracting the manufacture of new products that implement new technologies; . market acceptance of competitors' products; . efficiency of production; . expansion of production of our products for particular systems manufacturers; and . customer support and reputation. We believe we compete favorably with respect to each of these factors. We compete with a number of major domestic and international suppliers. We compete primarily against Applied Micro Circuits, Conexant, Giga (recently acquired by Intel), Infineon, JDS Uniphase, Lucent (microelectronics division), Maxim, Nortel (microelectronics division), NTT Electronics, Philips, PMC-Sierra and Vitesse. In certain circumstances, most notably with respect to ASICs supplied to Lucent and Nortel, our customers or potential customers have internal integrated circuit and/or manufacturing capabilities. In addition, suppliers may begin to offer product solutions increasingly including both electronic and optical components. This creates the potential that suppliers of optical components, which are currently complementary to suppliers of electronic components, may become competitors as they broaden their product portfolio with electronic components, or vice versa. Companies with existing capabilities or products in both areas may benefit from significant competitive advantages. Intellectual Property We rely on a combination of copyright, patent, trademark, trade secret and other intellectual property laws, nondisclosure agreements and other protective measures to protect our proprietary rights. We also utilize unpatented proprietary know-how and trade secrets and employ various methods to protect such intellectual property. To date, we have one U.S. patent application pending. Although we employ a variety of intellectual property in the development and manufacturing of our products, we believe that none of such intellectual property is individually critical to our current operations. However, taken as a whole, we believe our intellectual property rights are significant and that the loss of all or a substantial portion of such rights could have a material adverse effect on our results of operations. There can be no assurance that our intellectual property protection measures will be sufficient to prevent misappropriation of our technology. In addition, the laws of many foreign countries do not protect our intellectual properties to the same extent as the laws of the United States. From time to time, we may desire or be required to renew or to obtain licenses from others in order to further develop and market commercially viable products effectively. There can be no assurance that any necessary licenses will be available on reasonable terms. Employees As of September 30, 2000, we had a total of 232 employees, including 25 in sales and marketing and application engineering, 76 in manufacturing, purchasing and quality, 100 in research and development and 31 in general and administrative functions. Of these employees, approximately 178 were located in the United States, 36 were located in Europe and 18 were located in Israel. None of our employees is represented by a collective bargaining agreement, nor have we experienced any work stoppage. We consider our relations with our employees to be good. Facilities Our corporate headquarters facility, of approximately 12,663 square feet, is located in Somerset, New Jersey. We lease our corporate headquarters facility pursuant to a sublease agreement that expires in April 41 2007. We also lease our principal design facility, consisting of approximately 21,000 square feet, in Somerset, New Jersey, pursuant to a lease agreement that expires in December 2004. We lease approximately 9,677 square feet of office space in Santa Monica, California on a month-to-month basis, pursuant to a lease agreement that expired in September 2000. We also lease approximately 3,214 square feet of laboratory and office space in Carson, California on a month-to-month basis pursuant to the terms of a lease that expired in August 2000. In addition, we have lease agreements for an approximately 479 square meter facility in Bochum, Germany, which expires in September 2005, an approximately 529 square meter facility in Munich, Germany, which expires in July 2005, an approximately 36 square meters facility in Kaunas, Lithuania, which is month- to-month, an approximately 50 square meter facility in Vilnius, Lithuania, which is month-to-month and an approximately 612 square meter facility in Israel, which expires in May 2003. Legal Proceedings We are not currently a party to any material pending legal proceedings. 42 MANAGEMENT Executive Officers and Directors The following table sets forth certain information regarding our executive officers and directors as of September 30, 2000:
Name Age Position - ---- --- -------- Richard N. Nottenburg... 46 President, Chief Executive Officer and Co-Chairman Jens Albers ............ 37 Executive Vice President and Co-Chairman Eric M. Pillmore........ 47 Senior Vice President, Chief Financial Officer and Secretary G. Bradford Jones....... 45 Director(1)(2) John Walecka ........... 41 Director(1)(2) Stephen R. Forrest ..... 50 Director(1)(2)
- --------------------- (1) Member of the Audit Committee of the Board of Directors (2) Member of the Compensation Committee of the Board of Directors Richard N. Nottenburg. Dr. Nottenburg is one of our founders and has been our President since our inception in 1994. He also serves as our Chief Executive Officer and Co-Chairman of the Board. Dr. Nottenburg has over 20 years of experience in the design and development of high bit-rate electronics. He is an internationally recognized expert in advanced integrated circuit technologies and in the design of fiber-optic communications integrated circuits. Dr. Nottenburg was an associate professor of electrical engineering at the University of Southern California from 1991 to 1999. From 1984 to 1991, Dr. Nottenburg worked at AT&T Bell Labs (now Lucent Technologies, Inc.) and Bell Communications Research. In 1990, Dr. Nottenburg became a Distinguished Member of the technical staff of AT&T Bell Labs. He received his doctoral degree in electrical engineering from the Swiss Federal Institute of Technology. Jens Albers. Dr. Albers is one of our founders. He also serves as our Executive Vice President and Co-Chairman of the Board. He founded our foreign subsidiaries and previously worked as our Vice President for Business Development and Vice President for European Operations and Strategic Planning. From 1993 to 1995, Dr. Albers was a consultant, and, in 1994 and 1995, served as a Managing Director for Micram Microelectronic GmbH, Bochum, Germany. From 1988 to 1997, Dr. Albers worked in the Department for Semiconductor Devices and Circuits at Ruhr-University in Bochum, Germany. Dr. Albers has extensive design and development experience in fiber-optic communication integrated circuits. He received his doctoral degree in electrical engineering from Ruhr-University, Bochum, Germany. Eric M. Pillmore. Mr. Pillmore has been our Senior Vice President and Chief Financial Officer since July 2000. From April 2000 to May 2000, he was Chief Financial Officer and Vice President Finance and Administration for McData Corporation. From January 2000 to April 2000, he was Senior Vice President, Finance and Director, Broadband Communications Sector of Motorola Corporation, the successor by acquisition to General Instrument Corporation, or GI. From March 1996 to January 2000, Mr. Pillmore worked for GI, ultimately holding the position of Senior Vice President, Finance and Chief Financial Officer. From March 1996 to November 1996, Mr. Pillmore was Vice President, Finance of GI. From January 1994 to February 1996, he was Manager, Finance of the Plastics Americas Division of General Electric Company. He was Manager, Finance of GE Medical Systems Asia, Ltd. from March 1992 to January 1994 and Director, Finance of GE/Yokogawa Medical Systems, Ltd. from June 1991 to February 1994. G. Bradford Jones. Mr. Jones has been one of our directors since June 1999. Mr. Jones is a founding partner of Redpoint Ventures, formed in October 1999, and a general partner with Brentwood Venture Capital, a firm he joined in 1981. Mr. Jones also currently serves on the board of directors of Digital Island, Stamps.com, 43 Interpore International, Onyx Acceptance Corporation, Trading Edge, and several other privately held companies. Mr. Jones received his B.S. in chemistry from Harvard University, his masters degree in physics from Harvard University and his J.D. and M.B.A. from Stanford University. John Walecka. Mr. Walecka has served as one of our directors since June 1999. Mr. Walecka is a founding partner of Redpoint Ventures, formed in October 1999, and a general partner with Brentwood Venture Capital, a firm he joined in 1984. Mr. Walecka also currently serves as a member of the board of directors of Rhythms NetConnections, Inc., Netro Corporation, Vitria Technology, Inc., and several privately held companies. Mr. Walecka received a B.S. and an M.S. in engineering from Stanford University and an M.B.A. from the Stanford Graduate School of Business. Stephen R. Forrest. Dr. Forrest has served as one of our directors since June 1999. Dr. Forrest has been a professor of electrical engineering at Princeton University since 1992 and has served as the Chairman of Princeton's Department of Electrical Engineering since 1997. From 1992 to 1997, Dr. Forrest served as the Director of the Center for Photonics and Optolectronic Materials at Princeton University, and from 1989 to 1992, he served as the Director of the National Center for Integrated Photonic Technology. From 1985 to 1992, Dr. Forrest was professor of electrical engineering at the University of Southern California. Dr. Forrest is the author of approximately 280 papers published in professional journals and holds approximately 50 patents in the areas of organic thin film materials and devices and semiconductor photonic materials and devices. Dr. Forrest received his masters and doctoral degrees in physics from the University of Michigan. Board of Directors Our board of directors consists of five members. Each director holds office until his or her successor is duly elected and qualified. Committees Our board of directors has an audit committee and a compensation committee. Audit Committee. The audit committee makes recommendations to the board of directors regarding the selection of independent accountants, reviews the results and scope of audit and other services provided by our independent accountants and reviews and evaluates the audit and control functions. The audit committee currently consists of Mr. Walecka, Mr. Jones and Dr. Forrest. Compensation Committee. The compensation committee reviews and makes recommendations regarding our stock plans and makes decisions concerning salaries and incentive compensation for our executive officers. The compensation committee currently consists of Dr. Forrest, Mr. Jones and Mr. Walecka. Compensation Committee Interlocks and Insider Participation Our board of directors established the compensation committee in September 2000. Prior to establishing the compensation committee, our board of directors as a whole performed the functions delegated to the compensation committee, including participating in deliberations concerning executive officer compensation. During the last fiscal year, no member of our board of directors or compensation committee served as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee. Director Compensation Our directors are reimbursed for expenses incurred in connection with attending board and committee meetings but are not otherwise compensated for their services as board members. Effective upon the closing of this offering, non-employee board members will receive a series of option grants over their period of board service. Each individual who first becomes a non-employee board member at any time on or after the effective 44 date of this offering will receive a non-statutory option grant for 50,000 shares of Class A common stock on the date such individual joins the board, provided such individual has not been in our prior employ. In addition, on the date of each annual stockholders meeting held after the effective date of this offering, each non-employee board member who is to continue to serve as a non- employee board member (including the individuals who are currently serving as non-employee board members) will automatically be granted a non-statutory option to purchase 10,000 shares of Class A common stock, provided such individual has served on the board for at least six months. There will be no limit on the number of such 10,000 share option grants any one eligible non- employee board member may receive over his or her period of continued board service, and non-employee board members who have previously been in our employ will be eligible to receive one or more such annual option grants over their period of board service. Executive Officers Our executive officers are elected by, and serve at the discretion of, our board of directors. There are no family relationships among our directors and executive officers. Compensation The following table sets forth all compensation paid or accrued during the year ended December 31, 1999 to our Chief Executive Officer and our other executive officers who earned more than $100,000 during 1999. In accordance with the rules of the Securities and Exchange Commission, the compensation described in this table does not include perquisites and other personal benefits received by the executive officers named in the table below which do not exceed the lesser of $50,000 or 10% of the total salary and bonus reported for these officers.
Long-Term Compensation Annual Compensation Awards ------------------------------ ------------ Securities All Other Underlying Name and Principal Position Salary Bonus Compensation Options --------------------------- -------- -------- ------------ ------------ Richard N. Nottenburg.............. $219,849 $101,250 -- 6,600,000 Co-Chairman, President and Chief Executive Officer Jens Albers........................ $155,427 $ 55,556 -- 5,800,000 Co-Chairman and Executive Vice President Eric M. Pillmore(1)................ -- -- -- -- Senior Vice President, Chief Financial Officer and Secretary
- --------------------- (1) Mr. Pillmore joined us on July 17, 2000. Option Grants in 1999 During 1999, we granted options to purchase an aggregate of 20,011,250 shares of our Class A common stock to our employees, directors and consultants. All options were granted under our 1998 Stock Option Plan and our 1999 Stock Option Plan at exercise prices equal to the fair market value of our Class A common stock on the date of grant, as determined in good faith by our board of directors. 45 The following table sets forth information concerning individual grants of stock options made during 1999 to each of the executive officers named in the compensation table. The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the Securities and Exchange Commission and do not represent our estimate or projection of our future stock prices. The potential realizable values are calculated by assuming that an assumed initial public offering price of $ per share was the fair market value of our shares of common stock at the time of grant, that the shares of Class A common stock appreciate at the indicated rate for the entire term of the option and that the option is exercised at the exercise price and sold on the last day of the option term at the appreciated price.
Potential Individual Grants Realizable Value ------------------------------------------------- at Assumed Annual Rates of Stock Number of % of Total Price Securities Options Appreciation for Underlying Granted to Option Term Options Employees in Exercise Price Expiration ----------------- Name Granted Fiscal Year Per Share Date 5% 10% - ---- ---------- ------------ -------------- ---------- -------- -------- Richard N. Nottenburg(1).......... 2,300,000 11.49% $0.20 01/28/09 Richard N. Nottenburg... 4,300,000 21.49 0.55 10/14/09 Jens Albers(2).......... 2,000,000 9.99 0.20 01/28/09 Jens Albers............. 3,800,000 18.99 0.55 10/14/09 Eric M. Pillmore(3)..... -- -- -- -- -- --
- --------------------- (1) 300,000 of the shares subject to these options vested immediately upon grant. One-fourth of the remainder of the shares subject to these options vest each year for four years beginning with the first anniversary of the date of grant. (2) 200,000 of the shares subject to these options vested immediately upon grant. One-fourth of the remainder of the shares subject to these options vest each year for four years beginning with the first anniversary of the date of grant. (3) Mr. Pillmore joined us on July 17, 2000. Option Grants in 2000 The table below shows the number of shares subject to option grants to our executive officers during the period from January 1, 2000 through the date of this prospectus, and sets forth the current value of the option grants based on an assumed initial public offering price of $ per share. All options were granted under our 1999 Stock Option Plan at an exercise price equal to the fair market value of our Class A common stock on the date of grant, as determined in good faith by our board of directors.
Number of Securities Underlying Options Exercise Price Expiration Current Name Granted Per Share Date Value - ---- ---------- -------------- ---------- ------- Richard N. Nottenburg.............. -- -- -- -- Jens Albers........................ -- -- -- -- Eric M. Pillmore(1)................ 1,000,000 $2.50 7/17/10 $
- --------------------- (1) Mr. Pillmore joined us on July 17, 2000. Mr. Pillmore's options vest according to the following vesting schedule: one-third of the shares subject to these options vest one year after the date of grant of the option and one-twenty-fourth of the remaining shares subject to these options vest each month thereafter until July 2003. 46 Aggregate Option Exercises in 1999 and Year-End Option Values None of our executive officers exercised any options in 1999. The following table sets forth the number and value of securities underlying unexercised options held by each of our executive officers as of December 31, 1999. The value of unexercised in-the-money options at 1999 year end has been calculated on the basis of an assumed initial public offering price of $ per share, less the applicable exercise price per share, multiplied by the number of shares underlying the options.
Number of Securities Underlying Value of Unexercised Unexercised Options at In-the-Money Options December 31, 1999 December 31, 1999 ------------------------- ------------------------- Exercisable Unexercisable Exercisable Unexercisable ----------- ------------- ----------- ------------- Richard N. Nottenburg....... 300,000 6,300,000 $ $ Jens Albers................. 200,000 5,600,000 Eric M. Pillmore(1)......... -- -- -- --
- --------------------- (1) Mr. Pillmore joined us on July 17, 2000. Employee Benefit Plans 1998 Stock Option Plan Our board of directors adopted the 1998 Stock Option Plan in June 1998. Our shareholders approved the 1998 plan in February 1999. The 1998 plan was amended in January 1999 and in July 2000. A total of 24,000,000 shares of Class A common stock have been authorized and reserved for issuance under the 1998 plan. As of September 30, 2000, options to purchase an aggregate of 19,411,250 shares were outstanding and 4,588,750 shares were available for option grants under the 1998 plan. All outstanding options under the 1998 plan will be transferred to and administered under the successor 2000 Stock Incentive Plan upon completion of this offering, and no further option grants will be made under the 1998 plan. Prior to September 2000, the board of directors administered the 1998 plan. Since its formation in September 2000, the compensation committee has administered the 1998 plan. Under the 1998 plan, key employees and non-employee members of the board have been granted options to purchase shares of Class A common stock. The plan administrator had complete discretion to determine which eligible individuals will receive option grants, determine the type, number, vesting requirements and other features and conditions of option grants, interpret the 1998 plan and make all other decisions relating to the operation of the 1998 plan. Options granted under the 1998 plan were either incentive stock options within the meaning of Section 422 of the Internal Revenue Code, which permits the deferral of taxable income related to the exercise of these options, or non-statutory options not entitled to this deferral. Incentive stock options were only granted to employees and the term of an incentive stock option could not exceed ten years. The exercise price of incentive stock options granted under the 1998 plan were less than 100% of the fair market value of the Class A common stock on the date of grant, and the exercise price for non-statutory stock options were determined by the plan administrator on the grant date. The exercise price for the shares of Class A common stock subject to the option grants made under the 1998 plan may be paid in cash or check. 1999 Stock Option Plan Our board of directors adopted the 1999 Stock Option Plan in June 1999. Our shareholders approved the 1999 plan in May 2000. The 1999 plan was amended in September 1999, July 2000 and August 2000. A total of 18,000,000 shares of Class A common stock have been authorized and reserved for issuance under the 1999 plan. As of September 30, 2000, options to purchase an aggregate of 13,967,200 shares were outstanding and 4,032,800 shares were available for option grants under the 1999 plan. All outstanding options under the 1999 47 plan will be transferred to the successor 2000 Stock Incentive Plan upon completion of this offering, and no further option grants will be made under the 1999 plan. Prior to September 2000, the board of directors administered the 1999 plan. Since its formation in September 2000, the compensation committee has administered the 1999 plan. Under the 1999 plan, employees, non-employee members of the board and consultants were granted options to purchase shares of Class A common stock. The plan administrator had complete discretion to determine which eligible individuals were to receive option grants, determine the type, number, vesting requirements and other features and conditions of option grants, interpret the 1999 plan and make all other decisions relating to the operation of the 1999 plan. Options granted under the 1999 plan were either incentive stock options or non-statutory options. Incentive stock options were only granted to employees and the term of an incentive stock option could not exceed ten years. The exercise price of incentive stock options granted under the 1999 plan were in no event less than 100% of the fair market value of the Class A common stock on the date of grant, and the exercise price for non-statutory stock options was determined by the plan administrator on the grant date. 2000 Stock Incentive Plan Introduction. The 2000 Stock Incentive Plan is intended to serve as the successor program to our 1998 Stock Option Plan and our 1999 Stock Option Plan. The 2000 plan was adopted by our board of directors in August 2000. Subject to shareholder approval, the 2000 plan will become effective upon completion of this offering. At that time, all outstanding options under our existing 1998 Stock Option Plan and our 1999 Stock Option Plan will be transferred to the 2000 plan, and no further option grants will be made under the 1998 plan or the 1999 plan. The transferred options will continue to be governed by their existing terms, unless our compensation committee decides to extend one or more features of the 2000 plan to those options. Share Reserve. We have authorized up to 47,000,000 shares of our Class A common stock for issuance under the 2000 plan. This share reserve consists of the number of shares we estimate will be carried over from the 1998 plan and the 1999 plan plus an increase of 5,000,000 shares. The share reserve under our 2000 plan will automatically increase on the first trading day in January each calendar year, beginning with calendar year 2001, by an amount equal to four percent of the total number of shares of our common stock outstanding on the last trading day of December in the prior calendar year, but in no event will this annual increase exceed 5,000,000 shares and in no event will the total number of shares of Class A common stock in the share reserve (as adjusted for all such annual increases) exceed 100,000,000 shares. In addition, no participant in the 2000 plan may be granted stock options, direct stock issuances or share right awards for more than 3,000,000 shares of Class A common stock in total in any calendar year. Programs. Our 2000 plan has five separate programs: . the discretionary option grant program, under which the compensation committee may grant (1) non-statutory options to purchase shares of our Class A common stock to eligible individuals in our employ or service (including employees, non-employee board members and consultants) at an exercise price not less than 85% of the fair market value of those shares on the grant date and (2) incentive stock options to purchase shares of Class A common stock to eligible employees at an exercise price not less than 100% of the fair market value of those shares on the grant date; . the stock issuance program, under which eligible individuals may be issued shares of Class A common stock directly, upon the attainment of performance milestones or the completion of a specified period of service or as a bonus for past services; . the salary investment option grant program, under which our executive officers and other highly compensated employees may be given the opportunity to apply a portion of their base salary each year to the acquisition of special below-market stock option grants; 48 . the automatic option grant program, under which option grants will automatically be made at periodic intervals to eligible non-employee board members to purchase shares of Class A common stock at an exercise price equal to 100% of the fair market value of those shares on the grant date; and . the director fee option grant program, under which our non-employee board members may be given the opportunity to apply a portion of any retainer fee otherwise payable to them in cash each year to the acquisition of special below-market option grants. Eligibility. The individuals eligible to participate in our 2000 plan include our officers and other employees, our board members and any consultants we hire. Administration. Our compensation committee will administer the discretionary option grant and stock issuance programs. This committee will determine which eligible individuals are to receive option grants or stock issuances under those programs, the time or times when the grants or issuances are to be made, the number of shares subject to each grant or issuance, the status of any granted option as either an incentive stock option or a non-statutory stock option under the federal tax laws, the vesting schedule to be in effect for the option grant or stock issuance and the maximum term for which any granted option is to remain outstanding. The compensation committee will also have the authority to select the executive officers and other highly compensated employees who may participate in the salary investment option grant program in the event that program is put into effect for one or more calendar years. Discretionary Option Grant Program. Under this program, our employees, third party service providers and non-employee board members may be granted statutory stock options or non-statutory stock options. Program Features. Our discretionary option grant program will include the following features: . The exercise price for any options granted under the 2000 plan may be paid in cash or in shares of our Class A common stock valued at fair market value on the exercise date. The option may also be exercised through a same-day sale program without any cash outlay by the optionee. . The compensation committee will have the authority to cancel outstanding options under the discretionary option grant program, including any transferred options from our 1998 plan and 1999 plan, in return for the grant of new options for the same or different number of option shares with an exercise price per share based upon the fair market value of our Class A common stock on the new grant date. . Stock appreciation rights may be issued under the discretionary option grant program. These rights will provide the holders with the election to surrender their outstanding options for a payment from us equal to the fair market value of the shares subject to the surrendered options less the exercise price payable for those shares. We may make the payment in cash or in shares of our Class A common stock. Change in Control. Our discretionary option grant program will include the following change in control provisions which may result in the accelerated vesting of outstanding option grants and stock issuances: . In the event that we are acquired by merger or asset sale, each outstanding option under the discretionary option grant program that is not to be assumed, or otherwise compensated for, by the successor corporation will immediately become exercisable for all the option shares, and all outstanding unvested shares will immediately vest. Except to the extent as limited by the plan administrator, our repurchase rights with respect to those shares are to be assigned to the successor corporation. . The compensation committee will have complete discretion to grant one or more options that will become exercisable for all the option shares in the event those options are assumed in the acquisition but the optionee's service with us or the acquiring entity is subsequently terminated. The vesting of any outstanding shares under the stock issuance program may be accelerated upon similar terms and conditions. . The compensation committee may grant options and structure repurchase rights so that the shares subject to those options or repurchase rights will immediately vest in connection with a successful 49 tender offer for more than fifty percent of our outstanding voting stock or a change in the majority of our board through one or more contested elections. This accelerated vesting may occur either at the time of the transaction or upon the subsequent termination of the individual's service. Stock Issuance Program. Eligible individuals may be issued shares of Class A common stock through direct issuances in amounts to be determined by the compensation committee. Shares of Class A common stock may also be issued pursuant to awards that entitle the recipients to receive shares upon the attainment of designated performance goals. Under this program, the purchase price for the shares shall not be less than 100% of the fair market value of the shares on the date of issuance, and payment may be in the form of cash or past services rendered. In the event of a change of control, our repurchase rights for unvested shares under this program will terminate and all shares of stock subject to those rights shall immediately vest in full, unless assigned to the successor corporation or as limited by the plan administrator. Salary Investment Option Grant Program. In the event the compensation committee decides to put this program into effect for one or more calendar years, each of our executive officers and other highly compensated employees may elect to reduce his or her base salary for the calendar year by an amount not less than $10,000 nor more than $50,000. Each selected individual who makes this election will automatically be granted, on the first trading day in January of the calendar year for which his or her salary reduction is to be in effect, an option to purchase that number of shares of Class A common stock determined by dividing the salary reduction amount by two-thirds of the fair market value per share of our Class A common stock on the grant date. The option will have an exercise price per share equal to one-third of the fair market value of the option shares on the grant date. As a result, the option will be structured so that the fair market value of the option shares on the grant date less the aggregate exercise price payable for those shares will be equal to the amount of the salary reduction. The option will become exercisable in a series of twelve equal monthly installments over the calendar year for which the salary reduction is to be in effect. In the event of a change of control while the optionee remains in our service, each outstanding option under this program will automatically accelerate so that each option shall vest and become exercisable immediately prior to the change of control. Automatic Option Grant Program. Each individual who first becomes a non- employee board member at any time after the effective date of this offering will receive an option grant to purchase 50,000 shares of Class A common stock on the date the individual joins the board. In addition, on the date of each annual shareholders meeting held after the effective date of this offering, each non-employee board member who is to continue to serve as a non-employee board member, including each of our current non-employee board members, will automatically be granted an option to purchase 10,000 shares of Class A common stock, provided that the individual has served on the board for at least six months. Each automatic grant will have an exercise price per share equal to the fair market value per share of our Class A common stock on the grant date and will have a term of 10 years, subject to earlier termination following the optionee's cessation of board service. The option will be immediately exercisable for all of the option shares; however, we may repurchase, at the exercise price paid per share, any shares purchased under the option which are not vested at the time of the optionee's cessation of board service. The shares subject to each initial 50,000 share automatic option grant will vest at a rate of 25% per year for each year of continuous board service following the option grant date. However, the shares will immediately vest in full upon certain changes in control or ownership or upon the optionee's death or disability while a board member. The shares subject to each annual 10,000 share automatic grant will vest in full after one year of board service following the option grant date. In the event a of change in control while the optionee remains on our board, each outstanding option under this program will automatically accelerate so that each option shall vest and become exercisable immediately prior to the change of control. Director Fee Option Grant Program. If this program is put into effect in the future, then each non-employee board member may elect to apply all or a portion of any cash retainer fee for the year to the 50 acquisition of a below-market option grant. The option grant will automatically be made on the first trading day in January in the year for which the non- employee board member would otherwise be paid the cash retainer fee in the absence of his or her election. The option will have an exercise price per share equal to one-third of the fair market value of the option shares on the grant date, and the number of shares subject to the option will be determined by dividing the amount of the retainer fee applied to the program by two-thirds of the fair market value per share of our Class A common stock on the grant date. As a result, the option will be structured so that the fair market value of the option shares on the grant date less the aggregate exercise price payable for those shares will be equal to the portion of the retainer fee applied to that option. The option will become exercisable in a series of twelve equal monthly installments over the calendar year for which the election is in effect. However, the option will become immediately exercisable for all the option shares upon the death or disability of the optionee while serving as a board member. In the event of a change of control while the optionee remains on our board, each outstanding option under this program will automatically accelerate so that each option shall vest and become exercisable immediately prior to the change of control. Additional Program Features. Our 2000 plan will also have the following features: . Limited stock appreciation rights will automatically be included as part of each grant made under the salary investment option grant program and the automatic and director fee option grant programs, and these rights may also be granted to one or more officers as part of their option grants under the discretionary option grant program. Options with this feature may be surrendered to us upon the successful completion of a hostile tender offer for more than 50% of our outstanding voting stock or a change in the majority of our board through one or more contested elections. In return for the surrendered option, the optionee will be entitled to a cash payment from us in an amount per surrendered option share based upon the highest price per share of our Class A common stock paid in a tender offer, or the fair market value per share of our Class A common stock on the effective date of a change in the majority of our board. . The board may amend or modify the 2000 plan at any time, subject to any required shareholder approval. The 2000 plan will terminate no later than the tenth anniversary of the completion of this offering. 2000 Employee Stock Purchase Plan. Introduction. Our 2000 Employee Stock Purchase Plan was adopted by our board of directors in September 2000. Subject to shareholder approval, this plan will become effective upon the completion of this offering. The plan is designed to allow our eligible employees and the eligible employees of our participating subsidiaries to purchase shares of our Class A common stock, at semi-annual intervals, with their accumulated payroll deductions. Share Reserve. We have initially reserved 1,500,000 shares of our Class A common stock for issuance under this purchase plan. The reserve will automatically increase on the first trading day in January each calendar year, beginning in calendar year 2001, by an amount equal to one percent of the total number of outstanding shares of our common stock on the last trading day in December in the prior calendar year. In no event will any annual increase exceed 1,000,000 shares and in no event will the total number of shares of Class A common stock reserved for issuance under the plan (as adjusted for all such annual increases) exceed 11,500,000 shares. Administration. Our compensation committee will administer the purchase plan. The compensation committee shall have full authority to interpret and construe any provisions of the purchase plan and adopt such rules and regulations for administering the purchase plan as it may deem necessary in order to comply with the requirements of Section 423 of the Internal Revenue Code. Offering Periods. The purchase plan will have a series of successive offering periods, each with a maximum duration of 24 months. The initial offering period will start upon completion of this offering and will 51 end on the last business day in December 2002. The next offering period will start on the first business day in January 2003, and subsequent offering periods will set by our compensation committee. Eligible Employees. Individuals scheduled to work more than 20 hours per week for more than five calendar months per year may join an offering period on the start date of the offering period or any semi-annual entry date within that period. Semi-annual entry dates will occur on the first business day of January and July each year. Individuals who become eligible employees after the start date of an offering period may join the plan on any subsequent semi-annual entry date within that offering period. Payroll Deductions. A participant may contribute up from 1% to 15% of the participant's cash earnings through payroll deductions, and the accumulated deductions will be applied to the purchase of shares on each semi-annual purchase date. The purchase price per share will be equal to 85% of the fair market value per share of Class A common stock on the participant's entry date into the offering period or, if lower, 85% of the fair market value per share on the semi-annual purchase date. Semi-annual purchase dates will occur on the last business day of June and December each year. However, a participant may not purchase more than 5,000 shares on any purchase date, and not more than 500,000 shares may be purchased in total by all participants on any purchase date. Our compensation committee will have the authority to change these limitations for any subsequent offering period. Reset Feature. If the fair market value per share of our Class A common stock on any purchase date is less than the fair market value per share on the start date of the then current two-year offering period, then that offering period will automatically terminate, and a new two-year offering period will begin on the next business day. All participants in the terminated offering will be transferred to the new offering period. Change in control. Should we be acquired by merger or sale of substantially all of our assets or more than fifty percent of our voting securities, then all outstanding purchase rights will automatically be exercised immediately prior to the effective date of the acquisition. The purchase price will be equal to the lesser of 85% of the market value per share of Class A common stock on the participant's entry date into the offering period in which an acquisition occurs or 85% of the fair market value per share immediately prior to the acquisition. Plan Provisions. The following provisions will also be in effect under the plan: . The plan will terminate no later than the tenth anniversary of the completion of this offering. . The board may at any time amend, suspend or discontinue the plan. However, some amendments may require stockholder approval. 401(k) Plan Effective September 1, 1998, we established a 401(k) defined contribution plan, in which all of our U.S. employees may participate. Plan participants contribute up to 15% of their eligible compensation to the plan, subject to the statutorily prescribed annual limit, which is $10,500 for 2000. We intend the plan to qualify under Section 401(k) of the Internal Revenue Code so that contributions by employees to the plan, and income earned, if any, on plan contributions, are not taxable to employees until withdrawn from the plan. From the plan's inception through March 31, 2000, we made matching contributions on behalf of the plan participants at the rate of 25% of participant contributions up to 6% of compensation. The plan was updated on April 1, 2000 for a change in the matching contribution rate to 50% of participant contributions up to 6% of compensation. During 1998, 1999 and the six months ending June 30, 2000, we made matching contributions of $4,306, $21,632 and $35,201, respectively. Employment Agreements and Change in Control Arrangements None of our executive officers has employment agreements with us. Accordingly, the employment of any such executive officer may be terminated at any time at the discretion of the board of directors. 52 Director and Officer Indemnification and Liability Our articles of incorporation limit the personal liability of our directors for monetary damages to the fullest extent permitted by California law. California law provides that directors of a company will not be personally liable for monetary damages for breach of their fiduciary duties as a director, except liability associated with any of the following: . acts or omissions that involve intentional misconduct or a knowing and culpable violation of law; . acts or omissions that a director believes to be contrary to the best interests of the company or its shareholders or that involve the absence of good faith on the part of the director, for any transaction from which a director derived an improper personal benefit; . acts or omissions that show a reckless disregard for the director's duty to the company or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of a serious injury to the company or its shareholders; . acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the company or its shareholders; . concerning contacts or transactions between the company and a director; and . concerning directors' liability for improper dividends, loans and guarantees. The limitation of directors' liability does not affect liabilities arising under federal securities law and does not affect the availability of injunctions and other equitable remedies. Our articles of incorporation and bylaws also include an authorization for us to indemnify our directors, officers, employees and other agents, by agreement or otherwise, to the fullest extent permitted by law. In addition, we may, at our discretion, provide indemnification to persons whom we are not obligated to indemnify. We believe that indemnification under our bylaws covers at least negligence and gross negligence on the part of the indemnified parties. Our bylaws also allow us to enter into indemnity agreements with individual directors, officers, employees and other agents. We have entered into indemnification agreements with each of our officers and directors containing provisions that require us to, among other things, indemnify those officers and directors against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of a culpable nature, to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to cover our directors and officers under any of our liability insurance policies applicable to directors and officers. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers. 53 CERTAIN TRANSACTIONS Sales of Stock We have issued and sold shares of our capital stock in private placement transactions as follows: . 1,670,000 shares of Series A preferred stock at a price of $9.00 per share in June 1999 (each of which converts into ten shares of our Class A common stock, effectively reducing the purchase price to $0.90 per share); . 41,640 shares of Series A preferred stock at a price of $9.00 per share in September 1999 (each of which converts into ten shares of our Class A common stock, effectively reducing the purchase price to $0.90 per share); and . 1,000,000 shares of Series B preferred stock at a price of $40.00 per share in March through May 2000 (each of which converts into ten shares of our Class A common stock, effectively reducing the purchase price to $4.00 per share). All shares of preferred stock will convert into Class A common stock on a 10-for-1 basis upon the closing of this offering. All holders of preferred stock have entered into the lock-up agreements described in "Underwriting." In connection with the sale of Series B preferred stock, in May 2000 we issued to holders of our Series A preferred stock warrants to purchase up to 250,000 shares of Series B preferred stock at an exercise price of $40.00 per share. To the extent outstanding, these warrants will convert on a 10-for-1 basis into warrants to purchase 2,500,000 shares of our Class A common stock at an exercise price of $4.00 per share upon the closing of this offering. The following table summarizes, on an as-converted basis to Class A common stock, the shares of capital stock purchased by and warrants issued to beneficial owners holders of more than 5% of our outstanding Class A common stock in these private placement transactions, although this table does not necessarily reflect outstanding amounts:
Warrants to Purchase Series A Series B Series B Preferred Preferred Preferred Name of Purchaser Stock Stock Stock ----------------- ---------- --------- ----------- TRW, Inc.................................. -- 1,250,000 -- Entities affiliated with Brentwood Venture Capital.................................. 16,700,000 -- 2,439,200 Entities affiliated with Redpoint Ventures................................. -- 2,000,000 -- Entities affiliated with Meritech Capital Partners ................................ -- 3,750,000 -- International Business Machines Corporation.............................. -- 2,500,000 2,500,000
Affiliated Relationships Messrs. Jones and Walecka, who are members of our board of directors, are partners in entities affiliated with Brentwood Venture Capital and are founding partners of entities affiliated with Redpoint Ventures. Additionally, Brentwood Venture Capital and Redpoint Ventures is an investor in Meritech Capital Partners. Other Matters TRW In June 1997, we entered into a supply agreement with TRW pursuant to which TRW supplies us with a certain number of processed GaAs HBT wafers annually for a fixed price per wafer. The agreement was amended in June 1999 to revise the wafer delivery requirement thereunder. 54 IBM During May 2000, we entered into a series of agreements with IBM. Our semiconductor development agreement with IBM provides us with certain models and design kits for use in the fabrication process to develop new integrated circuits. Under our joint development agreement with IBM, pursuant to which we licensed to IBM and IBM licensed to us, certain technology, we jointly develop integrated circuits. We are both permitted to sell the jointly created products to third parties, subject to a fixed royalty fee payable to the other party. ASIP In July 2000, we entered into a stock purchase and option agreement with ASIP, an optical device start-up entity, pursuant to which we purchased 1,666,667 shares of ASIP's Series A preferred stock at an aggregate purchase price of $833,334. We were also granted an option to purchase, and we granted ASIP an option to require us to purchase upon the attainment of certain performance goals, 833,333 shares of ASIP's Series B preferred stock at an aggregate purchase price of $1,666,666. The other investors in the transaction were Redpoint Ventures and certain of its affiliates. Dr. Stephen Forrest, one of our directors, is a founder and director of ASIP. Additionally, Dr. Richard Nottenburg, our Co-Chairman of the Board, President and Chief Executive Officer, and G. Bradford Jones and John Walecka, two of our directors, are each directors of ASIP. Additionally, Messrs. Jones and Walecka are founding partners of entities affiliated with Redpoint Ventures. Other As of the date of this prospectus, Allen Matkins Leck Gamble & Mallory LLP and its affiliates beneficially own or have the right to purchase 481,800 shares of our Class A common stock. Allen Matkins has represented and continues to represent us with respect to a variety of legal matters, including in connection with this offering. 55 PRINCIPAL SHAREHOLDERS The following table sets forth certain information regarding the beneficial ownership of our shares of Class A common stock and Class B common stock as of September 30, 2000, and as adjusted to reflect the sale of the Class A common stock offered hereby, by the following: . each shareholder known by us to own beneficially more than 5% of our outstanding shares of Class A common stock or Class B common stock; . each of our executive officers named in the compensation table above; . each of our directors; and . all current executive officers and directors as a group. As of September 30, 2000 there were 41,483,116 shares of Class A common stock and 28,000,000 shares of Class B common stock outstanding, assuming that all outstanding preferred shares have been converted into shares of Class A common stock. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. For purposes of calculating the number of shares beneficially owned by a shareholder and the percentage ownership of that shareholder, shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of September 30, 2000 are deemed outstanding for purpose of computing percentage ownership. The numbers shown in the table below assume no exercise of the underwriters' over-allotment option. Unless otherwise noted, we believe that each of the shareholders has sole investment and voting power with respect to the common stock indicated, except to the extent shared by spouses under applicable law. Unless otherwise listed, the address for each shareholder listed in the table below is c/o Multilink Technology Corporation, 300 Atrium Drive, 2nd Floor, Somerset, New Jersey 08873.
Shares Beneficially Percentage of Total Owned Voting Power --------------------- ----------------------- Name or Group of Class A Class B Before After Beneficial Owners Shares Shares(1) Offering Offering - ----------------- ---------- ---------- ---------- --------- Directors And Executive Officers Richard N. Nottenburg(2).......... 1,875,000 15,820,000 33.63% Jens Albers(3).......... 1,600,000 8,480,000 * Eric M. Pillmore........ -- -- * G. Bradford Jones(4).... 23,139,200 -- 36.44 John Walecka(5)......... 23,139,200 -- 36.44 Stephen R. Forrest(6)... 50,000 -- * All directors and executive officers as a group (6 persons)...... 26,664,200 15,820,000 70.08 5% Shareholders Entities associated with Brentwood Venture Capital(7)............. 21,139,200 -- 36.02 Matthias Bussmann....... -- 6,480,000 13.62 International Business Machines Corporation(8)......... 5,000,000 -- 1.05 TRW, Inc................ 1,250,000 5,700,000 12.24 Entities associated with Meritech Capital Partners(9)............ 3,750,000 -- *
- --------------------- * Less than 1% (1) Holders of Class B common stock are entitled to ten votes per share. Each share of Class B common stock is convertible at the option of the holder into one share of Class A common stock and will, in general, automatically convert into one share of Class A common stock upon sale or other transfer to any person or entity other than a person or entity that owns or controls an entity that owns Class B common stock. 56 (2) Includes 1,875,000 shares subject to an option exercisable within 60 days of September 30, 2000. Also includes 8,480,000 shares of Class B common stock owned by Dr. Albers over which Dr. Nottenburg has sole voting power pursuant to a voting trust agreement between Dr. Nottenburg and Dr. Albers. Dr. Nottenburg disclaims beneficial interest in such shares. (3) Includes 1,600,000 shares subject to an option exercisable within 60 days of September 30, 2000. Dr. Nottenburg has sole voting power over Dr. Albers' shares of Class B common stock pursuant to a voting trust agreement between Dr. Nottenburg and Dr. Albers. Dr. Nottenburg disclaims beneficial interest in such shares. (4) Mr. Jones is a general partner of entities affiliated with Brentwood Venture Capital and entities affiliated with Redpoint Ventures. The shares listed include (i) 18,700,000 shares held by entities affiliated with Brentwood Venture Capital, (ii) 2,439,200 shares issuable to entities affiliated with Brentwood Venture Capital pursuant to currently exercisable warrants, and (iii) 2,000,000 shares held by entities affiliated with Redpoint Ventures. Mr. Jones disclaims beneficial interest in the shares held by these entities, except to the extent of his pecuniary interest in these entities. Shares of preferred stock held by entities affiliated with Brentwood Venture Capital possess voting rights entitling the holder to ten votes per share of common stock into which the preferred stock is convertible. Upon the conversion of such shares into Class A common stock upon the closing of this offering, each share so converted will entitle the holder to one vote per share. (5) Mr. Walecka is a general partner of entities affiliated with Brentwood Venture Capital and entities affiliated with Redpoint Ventures. The shares listed include (i) 18,700,000 shares held by entities affiliated with Brentwood Venture Capital, (ii) 2,439,200 shares issuable to entities affiliated with Brentwood Venture Capital pursuant to currently exercisable warrants, and (iii) 2,000,000 shares of held by entities affiliated with Redpoint Ventures. Mr. Walecka disclaims beneficial interest in the shares held by these entities, except to the extent of his pecuniary interest in these entities. Shares of preferred stock held by entities affiliated with Brentwood Venture Capital possess voting rights entitling the holder to ten votes per share of common stock into which the preferred stock is convertible. Upon the conversion of such shares into Class A common stock upon the closing of this offering, each share so converted will entitle the holder to one vote per share. (6) Consists of 50,000 shares subject to an option exercisable within 60 days of September 30, 2000. (7) Includes 20,505,000 shares held by or issuable to Brentwood Associates IX, L.P. and 634,200 shares held by or issuable to Brentwood Affiliates Fund III. (8) Includes 2,500,000 shares subject to a currently exercisable warrant. (9) Consists of 3,690,000 shares held by Meritech Capital Partners L.P. and 60,000 shares held by Meritech Capital Affiliates. 57 DESCRIPTION OF CAPITAL STOCK Our articles of incorporation authorize the issuance of up to 310,000,000 shares of capital stock, of which 200,000,000 shares are Class A common stock, 100,000,000 shares are Class B common stock, and 10,000,000 shares are preferred stock. From time to time, our board may establish the rights and preferences of the preferred stock. The following summary of our capital stock is, by necessity, not complete. We encourage you to refer to our articles of incorporation and bylaws, which are included as exhibits to the registration statement of which this prospectus is a part, and to applicable provisions of California law for a more complete description. Common Stock We are authorized to issue up to 300,000,000 shares of common stock, $0.0001 par value, of which 200,000,000 shares have been designated as Class A common stock and 100,000,000 shares have been designated as Class B common stock. At September 30, 2000, 2,000,000 shares of Class A common stock were issued and outstanding and held by one shareholder, and 28,000,000 shares of Class B common stock were issued and outstanding and held by four shareholders. After giving effect to this offering and the automatic conversion of our outstanding shares of preferred stock into shares of Class A common stock, there will be shares of Class A common stock issued and outstanding and 28,000,000 shares of Class B common stock issued and outstanding. The shares of our Class B common stock are substantially identical to the shares of our Class A common stock, except that the holders of Class A common stock are entitled to one vote per share and the holders of the Class B common stock are entitled to ten votes per share on all matters submitted to shareholder vote. Holders of shares of Class A common stock and holders of shares of Class B common stock vote together as a single class on all matters submitted to a shareholder vote, except (1) as otherwise required by law or (2) with respect to a proposed issuance of additional shares of Class B common stock, which issuance requires the affirmative vote of the holders of a majority of the outstanding shares of Class B common stock, voting separately as a class. Each share of Class B common stock is convertible at the option of the holder into one share of Class A common stock and will, in general, automatically convert into one share of Class A common stock upon sale or other transfer to any person or entity other than a person or entity that owns or controls an entity that owns Class B common stock. Under our bylaws, holders of common stock will not have cumulative voting rights after we are a "listed corporation" under California law. In such event, the holders of the remaining shares will not be able to elect any directors. We anticipate we will qualify as a listed corporation as of the closing of this offering. Preferred Stock Our articles of incorporation provide that our board of directors has the authority, without the action of our shareholders, to designate and issue preferred stock in one or more series and to designate the rights, preferences and privileges of each such series. The rights, preferences and privileges of each series of preferred stock may be greater than the rights of our common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights of holders of our common stock until the board of directors determines the specific rights of the holders of any preferred stock that may be issued. However, the effects might include, among other things: (1) restricting dividends on common stock; (2) diluting the voting power of the common stock; (3) impairing the liquidation rights of the common stock; and (4) delaying or preventing a change in our control without further action by the shareholders. Upon the completion of this offering, no shares of preferred stock will be outstanding, and we have no present plans to issue any shares of preferred stock. Transfer Agent and Registrar The transfer agent and registrar for our Class A common stock is . The transfer agent's address is , and its telephone number is . Nasdaq Stock Market National Market Listing We will apply to list our common shares on The Nasdaq Stock Market's National Market under the symbol "MLTC." 58 SHARES ELIGIBLE FOR FUTURE SALE Before this offering, there has not been any public market for shares of our Class A common stock, and we cannot predict the effect, if any, that market sales of shares of our Class A common stock by our existing shareholders or the availability of shares of our Class A common stock for sale will have on the market price of shares of our Class A common stock. Nevertheless, sales of substantial amounts of shares of our Class A common stock by our existing shareholders in the public market, or the perception that such sales could occur, could adversely affect the market price of shares of our Class A common stock and could impair our future ability to raise capital through the sale of equity securities. Upon completion of this offering, we will have a total of shares of Class A common stock outstanding, without giving effect to any warrants which remain outstanding at the closing of this offering, and assuming no exercise of outstanding options or warrants. Shares sold in this offering will be freely tradeable, except that any shares held by our "affiliates," as that term is defined in Rule 144 promulgated under the Securities Act of 1933, may only be sold in compliance with the limitations described below. The remaining shares outstanding of Class A common stock will be deemed "restricted securities" as defined under Rule 144. Restricted securities 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, summarized below. Lock-Up Agreements Our officers and directors and all of our shareholders have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any such aforementioned transaction is to be settled by delivery of our common stock or such other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any such transaction, swap, hedge or other arrangement without, in each case, the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus. If the reported last sale price of our common stock on The Nasdaq Stock Market's National Market is at least twice the public offering price per share shown on the cover page of this prospectus for 20 of the 30 trading days ending on the last trading day preceding the 90th day after the date of this prospectus, then 25% of the shares of our outstanding common stock, or shares, will be released from these restrictions. The release of these shares will occur on the later of: . the 91st day after this offering; or . the second trading day following the public release of our financial results for the quarter immediately after this offering. Under the lock-up agreements described above and the provisions of Rules 144, 144(k) and 701, additional shares will be available for sale in the public market as follows:
Maximum Number of Shares Date ------- ---- After the date of this prospectus After 90 days from the date of this prospectus (assuming the conditions described in the preceding paragraph are satisfied) After 180 days from the date of this prospectus (subject, in some cases, to volume limitations and contractual vesting schedules)
In addition, as of the date of this prospectus, options to purchase a total of shares of common stock are outstanding, all of which will become exercisable concurrent with this offering (without regard to the 59 above-mentioned lock up period) and shares of common stock will be issuable upon the exercise of outstanding warrants that are currently exercisable. Rule 144 In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned restricted shares for at least one year would be entitled to sell in any three-month period up to the greater of: . 1% of the then-outstanding shares of common stock, or approximately shares immediately after this offering; or . the average weekly trading volume of the common shares during the four calendar weeks preceding the filing of a Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain manner of sale and notice requirements and to the availability of current public information about us. Under Rule 144(k), a person who has not been one of our affiliates during the preceding 90 days and who has beneficially owned the restricted shares for at least two years is entitled to sell them without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Rule 701 Any of our employees, directors, officers, consultants or advisors who purchased shares from us in connection with a written stock or option plan before the effective date of this offering is entitled to rely on the resale provisions of Rule 701, subject to the lock-up agreements described above. In general, Rule 701 permits non-affiliates to sell their Rule 701 shares 90 days after the effectiveness of a registration statement relating to a company's initial public offering without having to comply with the public information, holding period, volume limitation or notice provisions of Rule 144 and permits affiliates to sell their Rule 701 shares without having to comply with the holding period of Rule 144. Stock Options and Warrants As of September 30, 2000, options to purchase a total of 33,378,450 shares of Class A common stock under our existing stock plans were outstanding. Warrants to purchase 5,813,716 shares of Class A common stock or shares convertible, on a one-for-one basis, into Class A common stock were also outstanding as of September 30, 2000. An additional 8,621,550 shares of Class A common stock were available for future option grants under our existing stock plans. An additional 5,000,000 shares of Class A common stock will become available for future option grants under our proposed 2000 incentive plan, and 1,500,000 shares of Class A common stock will become available for future purchase under our proposed 2000 employee stock purchase plan, each of which will become effective upon the effectiveness of this offering. We intend to file a registration statement on Form S-8 to register shares of Class A common stock issued or reserved for issuance under our existing stock plans, our proposed 2000 stock incentive plan and our proposed employee stock purchase plan within 180 days after the date of this prospectus, thus permitting the resale of such shares by nonaffiliates in the public market without restriction under the Securities Act, subject to the lock-up agreements described in "Underwriting." Registration Rights Pursuant to an investors' rights agreement we entered into with holders of our preferred stock, the holders of 32,116,400 shares of Class A common stock, assuming conversion of all outstanding shares of preferred stock and the exercise of all warrants to purchase preferred stock (which convert into warrants to purchase 60 Class A common stock upon the effectiveness of this offering), are entitled to registration rights regarding those shares. Under the terms of the agreement, if, at any time after six months following the initial public offering, we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders exercising registration rights, the holders of these shares are entitled to notice of the registration and to include their common stock in the registration at our expense. This right is subject to conditions and limitations, including the right of the underwriters in an offering to limit the number of shares included in the registration. The holders of these shares may also require us to file up to two registration statements under the Securities Act at our expense with respect to their common stock. We are required to use best efforts to effect these registrations, subject to conditions and limitations. Furthermore, the holders of these registration rights may require us to file additional registration statements on Form S-3, subject to conditions and limitations. These rights terminate on the earlier of five years after the effective date of this offering, or when a holder is able to sell all its shares pursuant to Rule 144 under the Securities Act in any 90-day period. Under the investors' rights agreement, we have a contractual right to prohibit any sales of common stock by the holders for a period of 180 days following this offering and 90 days following any follow-on offering by us. All holders of registerable securities have agreed not to exercise their registration rights until 180 days following the date of this prospectus without the consent of Credit Suisse First Boston Corporation. 61 U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS The following is a general discussion of the material U.S. federal income tax consequences of the ownership and disposition of our common stock to a non- U.S. holder. In this discussion, a non-U.S. holder is any holder that for U.S. federal income tax purposes is not a U.S. person. For purposes of this discussion, the term U.S. person means: . a citizen or resident of the United States; . a corporation or other entity taxable as a corporation created or organized in the United States or under the laws of the United States or any political subdivision thereof; . an estate whose income is included in gross income for U.S. federal income tax purposes regardless of its source; or . a trust whose administration is subject to the primary supervision of a U.S. court and one or more U.S. persons have the authority to control all substantial decisions of the trust. If a partnership holds common stock, the tax treatment of a partner will generally depend on the status of the partner and upon the activities of the partnership. This discussion does not address all aspects of U.S. federal income taxation that may be relevant in light of a non-U.S. holder's special tax status or special tax situations. U.S. expatriates, life insurance companies, tax-exempt organizations, dealers in securities or currency, banks or other financial institutions, investors whose functional currency is other than the U.S. dollar, and investors that hold common stock as part of a hedge, straddle or conversion transaction are among those categories of potential investors that are subject to special rules not covered in this discussion. This discussion does not address any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction. Furthermore, the following discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, and administrative and judicial interpretations thereof, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect. Accordingly, each non-U.S. Holder should consult a tax advisor regarding the U.S. federal, state, local and non-U.S. income and other tax consequences of acquiring, holding and disposing of shares of our common stock. Dividends We have not paid any dividends on our common stock and we do not plan to pay any dividends for the foreseeable future. However if we do pay dividends on our common stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from our current and accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those dividends exceed our current and accumulated earnings and profits, the dividends will constitute a return of capital and will first reduce a holder's basis, but not below zero, and then will be treated as gain from the sale of stock. Any dividend paid to a non-U.S. holder of common stock generally will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable tax treaty. In order to receive a reduced treaty rate, a non-U.S. holder must provide us with an IRS form W-8BEN certifying to us your qualification for the reduced rate. Dividends received by a non-U.S. holder that are effectively connected with a U.S. trade or business conducted by the non-U.S. holder are exempt from such withholding tax. In order to obtain this exemption, a non-U.S. holder must provide us with an IRS Form W-8ECI certifying to us such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. 62 In addition to the graduated tax described above, dividends received by a corporate non-U. S. holder that are effectively connected with a U.S. trade or business of the corporate non-U.S. holder may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable tax treaty. A non-U.S. holder of common stock that is eligible for a reduced rate of withholding tax pursuant to a tax treaty may obtain a refund of any excess amounts currently withheld by filing an appropriate claim for refund with the Internal Revenue Service ("IRS"). Gain on Disposition of Common Stock A non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of our common stock unless: . the gain is effectively connected with a U.S. trade or business of the non-U.S. holder (which gain, in the case of a corporate non-U.S. holder, must also be taken into account for branch profits tax purposes); . the non-U.S. holder is an individual who holds his or her common stock as a capital asset (generally, an asset held for investment purposes) and who is present in the U.S. for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met; or . we are or have been a "U.S. real property holding corporation" for U.S. federal income tax purposes at any time within the shorter of the five- year period preceding the disposition or the holder's holding period for our common stock. We have determined that we are not and do not believe that we will become a "U.S. real property holding corporation" for U.S. federal income tax purposes. Backup Withholding and Information Reporting Generally, we must report annually to the IRS the amount of dividends paid, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax treaties or other agreements, the IRS may make its reports available to tax authorities in the recipient's country of residence. Dividends paid to a non-U.S. Holder at an address within the United States may be subject to backup withholding at a rate of 31% if the non-U.S. Holder fails to establish that it is entitled to an exemption or to provide a correct taxpayer identification number and other information to the payer. Backup withholding generally will not apply to dividends paid to non-U.S. Holders at an address outside the United States on or prior to December, 2000 unless the payer has knowledge that the payee is a U.S. person. Under recently finalized Treasury Regulations regarding withholding and information reporting, payment of dividends to non-U.S. Holders at an address outside the United States after December, 2000 may be subject to backup withholding at a rate of 31% unless such non-U.S. Holder satisfies various certification requirements. Under current Treasury Regulations, the payment of the proceeds of the disposition of common stock to or through the U.S. office of a broker is subject to information reporting and backup withholding at a rate of 31% unless the holder certifies its non-U.S. status under penalties of perjury or otherwise establishes an exemption. Generally, the payment of the proceeds of the disposition by a non-U.S. Holder of common stock outside the U.S. to or through a foreign office of a broker will not be subject to backup withholding but will be subject to information reporting requirements if the broker is a U.S. person or has certain other connections to the United States, unless the broker has documentary evidence in its files of the holder's non-U.S. status and certain other conditions are met, or the holder otherwise establishes an exemption. Neither backup withholding nor information reporting generally will apply to a payment of the proceeds of a disposition of common stock by or through a foreign office of a foreign broker not subject to the preceding sentence. 63 In general, the recently promulgated final Treasury Regulations, described above, do not significantly alter the substantive withholding and information reporting requirements but would alter the procedures for claiming benefits of an income tax treaty and change the certifications procedures relating to the receipt by intermediaries of payments on behalf of the beneficial owner of shares of common stock. Non-U.S. holders should consult their tax advisors regarding the effect, if any, of those final Treasury Regulations on an investment in our common stock. Those final Treasury Regulations generally are effective for payments made after December, 2000. Backup withholding is not an additional tax. Rather, the U.S. income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is furnished to the IRS. 64 UNDERWRITING Under the terms and subject to the conditions contained in an underwriting agreement dated , 2000, we have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston Corporation, Salomon Smith Barney Inc. and Thomas Weisel Partners LLC are acting as representatives, the following respective numbers of shares of Class A common stock:
Number Underwriter of Shares ----------- --------- Credit Suisse First Boston Corporation............................. Salomon Smith Barney Inc. ......................................... Thomas Weisel Partners LLC......................................... ---- Total............................................................ ====
The underwriting agreement provides that the underwriters are obligated to purchase all the shares of Class A common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated. We have granted to the underwriters a 30-day option to purchase on a pro rata basis up to additional shares from us at the initial public offering price less the underwriting discounts and commissions. This option may be exercised only to cover any over-allotments of Class A common stock. The underwriters propose to offer the shares of Class A common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker/dealers. After the initial public offering, the public offering price and concession and discount to broker/dealers may be changed by the representatives. The following table summarizes the compensation and estimated expenses we will pay:
Per Share Total ----------------------------- ----------------------------- Without With Without With Over-allotment Over-allotment Over-allotment Over-allotment -------------- -------------- -------------- -------------- Underwriting Discounts and Commissions paid by us..................... $ $ $ $ Expenses payable by us.. $ $ $ $
The representatives have informed us that the underwriters do not expect discretionary sales to exceed 5% of the shares of Class A common stock being offered. We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus, except grants of options to purchase shares of common stock under any of our stock option plans disclosed in this prospectus and existing on the date hereof, issuances of common stock pursuant to the exercise of employee stock options outstanding on the date hereof and the filing of a Registration Statement on Form S-8. 65 Our officers and directors and all of our shareholders have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any such aforementioned transaction is to be settled by delivery of our common stock or such other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any such transaction, swap, hedge or other arrangement without, in each case, the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus. If the reported last sale price of our common stock on The Nasdaq Stock Market's National Market is at least twice the public offering price per share shown on the cover page of this prospectus for 20 of the 30 trading days ending on the last trading day preceding the 90th day after the date of this prospectus, then 25% of the shares of our outstanding common stock, or shares, will be released from these restrictions. The release of these shares will occur on the later of: . the 91st day after this offering; or . the second trading day following the public release of our financial results for the quarter immediately after this offering. The underwriters have reserved for sale, at the initial public offering price, up to shares of Class A common stock for persons associated with us who have expressed an interest in purchasing Class A common stock in this offering. The number of shares available for sale to the general public in this offering will be reduced to the extent these persons purchase the reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares. We have agreed to indemnify the underwriters against liabilities under the Securities Act, or contribute to payments which the underwriters may be required to make in that respect. We will apply to list the shares of Class A common stock on The Nasdaq Stock Market's National Market under the symbol "MLTC." Affiliates of Credit Suisse First Boston Corporation beneficially own 25,000 shares of our Series B convertible preferred stock which will convert into 250,000 shares of our Class A common stock upon the completion of this offering. Affiliates of Thomas Weisel Partners LLC beneficially own 25,000 shares of our Series B convertible preferred stock which will convert into 250,000 shares of our Class A common stock upon the completion of this offering. Thomas Weisel Partners LLC, one of the representatives of the underwriters, was organized and registered as a broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners LLC has acted as lead-manager or co- manager on numerous public offerings of equity securities. Thomas Weisel Partners LLC does not have any material relationship with us or any of our officers, directors or other controlling persons, except with respect to its affiliates' ownership of our Series B convertible preferred stock and its contractual relationship with us under the underwriting agreement entered into in connection with this offering. Prior to this offering, there has been no public market for our Class A common stock. The initial public offering price will be determined by negotiation between us and the underwriters and will not necessarily reflect the market price of the Class A common stock following the offering. The principal factors that will be considered in determining the public offering price will include: . the information in this prospectus and otherwise available to the underwriters; . market conditions for initial public offerings; 66 . the history and the prospects for the industry in which we will compete; . the ability of our management; . the prospects for our future earnings; . the present state of our development and our current financial condition; . the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies; and . the general condition of the securities markets at the time of this offering. We offer no assurances that the initial public offering price will correspond to the price at which the Class A common stock will trade in the public market subsequent to the offering or that an active trading market for the Class A common stock will develop and continue after the offering. In connection with the offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act. . Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. . Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over- allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by either exercising their over-allotment option and/or purchasing shares in the open market. . Syndicate covering transactions involve purchases of the Class A common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option--a naked short position--the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. . Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the Class A common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our Class A common stock or preventing or retarding a decline in the market price of the Class A common stock. As a result, the price of the Class A common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on The Nasdaq Stock Market's National Market or otherwise and, if commenced, may be discontinued at any time. A prospectus in electronic format will be made available on the web sites maintained by one or more of the underwriters participating in this offering. The representatives may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters that will make internet distributions on the same basis as other allocations. 67 NOTICE TO CANADIAN RESIDENTS Resale Restrictions The distribution of the Class A common stock in Canada is being made only on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of Class A common stock are made. Any resale of the Class A common stock in Canada must be made under applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the Class A common stock. Representations of Purchasers By purchasing Class A common stock in Canada and accepting a purchase confirmation, purchasing is representing to us and the dealer from whom the purchase confirmation is received that: . the purchaser is entitled under applicable provincial securities laws to purchase the Class A common stock without the benefit of a prospectus qualified under those securities laws; . where required by law, the purchaser is purchasing as principal and not as agent; and . the purchaser has reviewed the text above under Resale Restrictions. Rights of Action (Ontario Purchasers) The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual right of action prescribed by Ontario securities law. As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damages or rescission or rights of action under the civil liability provisions of the U.S. federal securities laws. Enforcement of Legal Rights All of the issuer's directors and officers as well as the experts named may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon the issuer or such persons. All or a substantial portion of the assets of the issuer and such persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or such persons in Canada or to enforce a judgment obtained in Canadian courts against such issuer or persons outside of Canada. Notice to British Columbia Residents A purchaser of Class A common stock to whom the Securities Act (British Columbia) applies is advised that such purchaser is required to file with the British Columbia Securities Commission a report within ten days of the sale of any Class A common stock acquired by such purchaser pursuant to this offering. The report must be in the form attached to British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one report must be filed for Class A common stock acquired on the same date and under the same prospectus exemption. Taxation and Eligibility for Investment Canadian purchasers of Class A common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the Class A common stock in their particular circumstances and about the eligibility of the Class A common stock for investment by the purchaser under relevant Canadian legislation. 68 LEGAL MATTERS Allen Matkins Leck Gamble & Mallory LLP, Los Angeles, California, will pass on the legality of the Class A common stock offered by this prospectus. Cravath, Swaine & Moore, New York, New York, has represented the underwriters. EXPERTS The financial statements of Multilink Technology Corporation as of December 31, 1998 and 1999, and for each of the three years in the period ended December 31, 1999, included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors as stated in their report appearing herein and elsewhere in this registration statement, and have been so included in reliance upon the report of such firm given upon their authority as experts in auditing and accounting. ADDITIONAL INFORMATION We have filed with the SEC a registration statement on Form S-1. This prospectus, which forms a part of the registration statement, does not contain all the information included in the registration statement. Certain information is omitted and you should refer to the registration statement and its exhibits. With respect to references made in this prospectus to any of our contracts or other documents, such references are not necessarily complete and you should refer to the exhibits attached to the registration statement for copies of the actual contract or document. You may read and copy the registration statement, including exhibits and schedules filed with it, at the SEC's public reference facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the SEC's public reference facilities by calling the SEC at 1-800-SEC-0330. The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as us, that file electronically with the SEC. Upon completion of this offering, we will become subject to the information and periodic reporting requirements under the Exchange Act and, in accordance with this law, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC's public reference facilities and the website of the SEC referred to above. 69 MULTILINK TECHNOLOGIES INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Independent Auditors' Report............................................... F-2 Consolidated Balance Sheets................................................ F-3 Consolidated Statements of Operations...................................... F-4 Consolidated Statements of Shareholders' Equity (Deficit).................. F-5 Consolidated Statements of Cash Flows...................................... F-6 Notes to Consolidated Financial Statements................................. F-7
F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders Multilink Technology Corporation: We have audited the accompanying consolidated balance sheets of Multilink Technology Corporation and subsidiaries (the "Company") as of December 31, 1998 and 1999, and the related consolidated statements of operations, shareholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States of America. 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1998 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Los Angeles, California June 15, 2000 F-2 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1999 and June 30, 2000 (Unaudited)
Pro Forma December 31, Shareholders' ------------------------ June 30, Equity 1998 1999 2000 June 30, 2000 ----------- ----------- ----------- ------------- (Unaudited) (Unaudited) ASSETS Current assets: Cash and cash equivalents............. $ 302,636 $ 8,997,086 $52,357,911 Accounts receivable, net of allowance for uncollectible accounts of $11,300, $51,000 and $51,000 as of December 31, 1998 and 1999 and June 30, 2000........... 656,326 5,216,702 3,279,827 Inventories.............. 368,597 5,002,280 6,726,876 Note receivable.......... -- -- 50,000 Costs and estimated earnings in excess of billings on uncompleted contracts............... 154,388 -- -- Prepaid expenses and other current assets.... 36,332 346,957 1,218,172 ----------- ----------- ----------- Total current assets... 1,518,279 19,563,025 63,632,786 Property and equipment, net...................... 221,080 2,667,877 4,102,295 Deferred income taxes..... -- -- 1,239,302 Deposits and other assets................... 7,585 413,400 431,068 ----------- ----------- ----------- Total assets........... $ 1,746,944 $22,644,302 $69,405,451 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable......... $ 853,755 $ 2,691,143 $ 5,391,941 Accrued expenses......... 276,283 1,015,741 2,441,674 Accrued warranty costs... 184,372 254,360 492,487 Billings in excess of costs and estimated earnings on uncompleted contracts............... 222,031 -- -- Lease obligations-- current portion......... 16,077 493,804 660,973 Income taxes payable..... -- -- 869,657 ----------- ----------- ----------- Total current liabilities........... 1,552,518 4,455,048 9,856,732 ----------- ----------- ----------- Lease obligations--net of current portion.......... 27,950 1,537,568 1,286,547 ----------- ----------- ----------- Line of credit from shareholder.............. 2,161,398 2,387,962 -- ----------- ----------- ----------- Commitments and contingencies Redeemable convertible preferred stock: Series A; $.0001 par value; 9,000,000 shares authorized, none issued and outstanding as of December 31, 1998; 1,711,640 issued and outstanding as of December 31, 1999 and June 30, 2000 (actual); no shares issued and outstanding as of June 30, 2000 (pro forma).... -- 14,978,163 15,025,711 -- Series B; $.0001 par value; 1,000,000 shares authorized, none issued and outstanding as of December 31, 1998 and 1999; 1,000,000 issued and outstanding as of June 30, 2000 (actual); no shares issued and outstanding as of June 30, 2000 (pro forma).................. -- -- 40,000,000 -- Shareholders' equity (deficit): Common stock, $.0001 par value: Class A: 200,000,000 shares authorized, none issued and outstanding at December 31, 1998 and 1999; 2,000,000 issued and outstanding as of June 30, 2000 (actual) 29,116,400 issued and outstanding as of June 30, 2000 (pro forma)............. -- -- 200 2,912 Class B: 100,000,000 shares authorized; 30,000,000 shares issued and outstanding as of December 31, 1998 and 1999; 28,000,000 issued and outstanding as of June 30, 2000 (actual and pro forma).................. 3,000 3,000 2,800 2,800 Additional paid-in- capital................. 630,750 7,077,088 25,784,613 80,807,612 Deferred stock compensation............ (155,630) (5,365,749) (9,051,914) (9,051,914) Accumulated deficit...... (2,467,623) (2,443,083) (13,500,361) (13,500,361) Accumulated other comprehensive income (loss).................. (5,419) 14,305 1,123 1,123 ----------- ----------- ----------- ------------ Total shareholders' equity (deficit)...... (1,994,922) (714,439) 3,236,461 $ 58,262,172 ----------- ----------- ----------- ============ Total liabilities and shareholders' equity (deficit)............. $ 1,746,944 $22,644,302 $69,405,451 =========== =========== ===========
See accompanying notes to consolidated financial statements. F-3 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 1997, 1998 and 1999 and Six Months Ended June 30, 1999 (Unaudited) and 2000 (Unaudited)
Six Months Ended June Year Ended December 31, 30, ------------------------------------ ------------------------ 1997 1998 1999 1999 2000 ---------- ----------- ----------- ---------- ------------ (Unaudited) Revenues Product............... $ 93,918 $ 2,125,748 $19,383,258 $5,960,184 $ 28,667,129 Development........... 1,447,219 1,725,816 1,011,744 946,209 -- ---------- ----------- ----------- ---------- ------------ Total revenues...... 1,541,137 3,851,564 20,395,002 6,906,393 28,667,129 ---------- ----------- ----------- ---------- ------------ Cost of revenues (Note 15).................... 1,178,053 1,847,179 6,747,882 2,233,784 10,858,689 ---------- ----------- ----------- ---------- ------------ Gross profit............ 363,084 2,004,385 13,647,120 4,672,609 17,808,440 ---------- ----------- ----------- ---------- ------------ Operating expenses: Research and development, excluding deferred stock compensation (Note 15)............ 650,303 2,218,472 8,778,922 2,584,229 8,934,427 Sales and marketing, excluding deferred stock compensation (Note 15)............ 190,175 349,180 2,291,780 795,197 2,513,993 General and administrative, excluding deferred stock compensation (Note 15)............ 265,533 391,284 1,767,146 664,001 2,029,079 Deferred stock compensation (Note 15)............ -- 343,870 822,582 61,896 2,238,302 Warrant issuances..... -- -- -- -- 6,455,606 ---------- ----------- ----------- ---------- ------------ Total operating expenses........... 1,106,011 3,302,806 13,660,430 4,105,323 22,171,407 ---------- ----------- ----------- ---------- ------------ Operating income (loss)................. (742,927) (1,298,421) (13,310) 567,286 (4,362,967) Other income and expenses Interest expense...... (60,965) (188,417) (226,564) (131,210) (199,862) Other income.......... -- -- 283,632 16,885 327,333 ---------- ----------- ----------- ---------- ------------ Income (loss) before provision for income taxes.................. (803,892) (1,486,838) 43,758 452,961 (4,235,496) Provision for income taxes.................. 1,419 800 19,218 200 446,782 ---------- ----------- ----------- ---------- ------------ Net income (loss)....... (805,311) (1,487,638) 24,540 452,761 (4,682,278) Accretion of redeemable convertible preferred stock to redemption value.................. -- -- 47,548 -- 47,548 Dividend related to warrant issuance....... -- -- -- -- 6,375,000 ---------- ----------- ----------- ---------- ------------ Net income (loss) attributable to common shareholders........... $ (805,311) $(1,487,638) $ (23,008) $ 452,761 $(11,104,826) ========== =========== =========== ========== ============ Net income (loss) per share: Basic................. $ (0.03) $ (0.05) $ 0.00 $ 0.02 $ (0.37) ========== =========== =========== ========== ============ Diluted............... $ (0.03) $ (0.05) $ 0.00 $ 0.01 $ (0.37) ========== =========== =========== ========== ============ Weighted average shares of common stock: Basic................. 30,000,000 30,000,000 30,000,000 30,000,000 30,000,000 ========== =========== =========== ========== ============ Diluted............... 30,000,000 30,000,000 30,000,000 37,598,127 30,000,000 ========== =========== =========== ========== ============
See accompanying notes to consolidated financial statements. F-4 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) Years Ended December 31, 1997, 1998 and 1999 and Six Months Ended June 30, 2000 (Unaudited)
Class A Class B Accumulated Common Stock Common Stock Additional Deferred Other ---------------- ------------------ Paid-in Stock-Based Accumulated Comprehensive Shares Amount Shares Amount Capital Compensation Deficit Income (Loss) --------- ------ ---------- ------ ----------- ------------ ------------ ------------- BALANCE, JANUARY 1, 1997........... 30,000,000 $3,000 $ 12,250 $ (174,674) $(1,172) Fair value of common stock purchase option... 119,000 Comprehensive income: Net loss......... (805,311) Other comprehensive income--Foreign currency translation adjustment...... (9,086) Comprehensive loss.............. --------- ---- ---------- ------ ----------- ----------- ------------ ------- BALANCE, DECEMBER 31, 1997.......... 30,000,000 3,000 131,250 (979,985) (10,258) Deferred stock compensation...... 499,500 $ (499,500) Amortization of deferred stock compensation...... 343,870 Comprehensive income: Net loss......... (1,487,638) Other comprehensive income--Foreign currency translation adjustment....... 4,839 Comprehensive loss.............. --------- ---- ---------- ------ ----------- ----------- ------------ ------- BALANCE, DECEMBER 31, 1998.......... 30,000,000 3,000 630,750 (155,630) (2,467,623) (5,419) Warrants issued in connection with the Series A preferred stock financing......... 330,549 Warrants issued in connection with equipment financing......... 130,636 Deferred stock compensation...... 6,032,701 (6,032,701) Amortization of deferred stock compensation...... 822,582 Accretion of redeemable convertible preferred stock... (47,548) Comprehensive income: Net income....... 24,540 Other comprehensive income--Foreign currency translation adjustment....... 19,724 Comprehensive income............ --------- ---- ---------- ------ ----------- ----------- ------------ ------- BALANCE, DECEMBER 31, 1999.......... 30,000,000 3,000 7,077,088 (5,365,749) (2,443,083) 14,305 Conversion of Class B common stock to Class A common stock (unaudited)....... 2,000,000 $200 (2,000,000) (200) Deferred stock compensation (unaudited)....... 5,924,467 (5,924,467) Amortization of deferred stock compensation (unaudited)....... 2,238,302 Accretion of redeemable convertible preferred stock (unaudited)....... (47,548) Warrant issuances (unaudited)....... 6,455,606 Dividend related to warrant issuance (unaudited)....... 6,375,000 (6,375,000) Comprehensive income: Net loss (unaudited)...... (4,682,278) Other comprehensive loss--Foreign currency translation adjustment (unaudited).. (13,182) Comprehensive loss (unaudited)....... --------- ---- ---------- ------ ----------- ----------- ------------ ------- BALANCE, JUNE 30, 2000 (UNAUDITED).. 2,000,000 $200 28,000,000 $2,800 $25,784,613 $(9,051,914) $(13,500,361) $ 1,123 ========= ==== ========== ====== =========== =========== ============ ======= Total ----------- BALANCE, JANUARY 1, 1997........... $ (160,596) Fair value of common stock purchase option... 119,000 Comprehensive income: Net loss......... (805,311) Other comprehensive income--Foreign currency translation adjustment...... (9,086) ----------- Comprehensive loss.............. (814,397) ----------- BALANCE, DECEMBER 31, 1997.......... (855,993) Deferred stock compensation...... -- Amortization of deferred stock compensation...... 343,870 Comprehensive income: Net loss......... (1,487,638) Other comprehensive income--Foreign currency translation adjustment....... 4,839 ----------- Comprehensive loss.............. (1,482,799) ----------- BALANCE, DECEMBER 31, 1998.......... (1,994,922) Warrants issued in connection with the Series A preferred stock financing......... 330,549 Warrants issued in connection with equipment financing......... 130,636 Deferred stock compensation...... -- Amortization of deferred stock compensation...... 822,582 Accretion of redeemable convertible preferred stock... (47,548) Comprehensive income: Net income....... 24,540 Other comprehensive income--Foreign currency translation adjustment....... 19,724 ----------- Comprehensive income............ 44,264 ----------- BALANCE, DECEMBER 31, 1999.......... (714,439) Conversion of Class B common stock to Class A common stock (unaudited)....... -- Deferred stock compensation (unaudited)....... -- Amortization of deferred stock compensation (unaudited)....... 2,238,302 Accretion of redeemable convertible preferred stock (unaudited)....... (47,548) Warrant issuances (unaudited)....... 6,455,606 Dividend related to warrant issuance (unaudited)....... -- Comprehensive income: Net loss (unaudited)...... (4,682,278) Other comprehensive loss--Foreign currency translation adjustment (unaudited).. (13,182) ----------- Comprehensive loss (unaudited)....... (4,695,460) ----------- BALANCE, JUNE 30, 2000 (UNAUDITED).. $3,236,461 ===========
See accompanying notes to consolidated financial statements. F-5 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1997, 1998 and 1999 and Six Months Ended June 30, 1999 (Unaudited) and 2000 (Unaudited)
Six Months Ended June Year Ended December 31, 30, ---------------------------------- ------------------------ 1997 1998 1999 1999 2000 --------- ----------- ---------- ----------- ----------- (Unaudited) Cash flows from operating activities: Net income (loss)...... $(805,311) $(1,487,638) $ 24,540 $ 452,761 $(4,682,278) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Warrant issuances..... -- -- -- -- 6,455,606 Provision for uncollectible accounts receivable.. 3,600 3,362 39,700 (900) -- Depreciation and amortization......... 39,923 59,737 292,628 41,564 836,250 Deferred stock compensation......... -- 343,870 822,582 61,896 2,238,302 Amortization of discount on line of credit from shareholder.......... -- 74,375 -- -- -- Interest expense on line of credit from shareholder.......... 44,625 161,398 226,564 96,699 61,206 Deferred income taxes................ (5,582) -- -- -- (1,239,302) Changes in operating assets and liabilities: Accounts receivable.. 136,416 (505,612) (4,595,088) (106,376) 1,936,875 Inventories.......... (46,700) (271,751) (4,633,683) (1,132,616) (1,724,596) Costs and estimated earnings in excess of billings on uncompleted contracts........... (100,247) (54,519) 159,376 102,415 -- Prepaid expenses and other current assets.............. 18,087 (26,753) (315,778) 12,397 (871,215) Deposits and other assets.............. (5,479) (2,106) (275,179) (24,104) (17,668) Accounts payable..... (97,575) 655,828 1,842,376 386,809 2,700,798 Accrued expenses..... 27,837 143,032 744,446 395,570 1,425,932 Accrued warranty costs............... 149,736 (25,813) 69,988 79,610 238,127 Accrued loss on uncompleted contract............ 22,643 (22,643) -- -- -- Billings in excess of costs and estimated earnings on uncompleted contracts........... (414,019) 158,702 (222,031) (185,809) -- Income taxes payable............. -- -- -- -- 869,657 Customer deposit..... 95,900 (95,900) -- 415,000 -- --------- ----------- ---------- ----------- ----------- Net cash provided by (used in) operating activities......... (936,146) (892,431) (5,819,559) 594,916 8,227,694 --------- ----------- ---------- ----------- ----------- Cash flows from investing activities: Purchases of property and equipment......... (64,743) (68,538) (695,491) (346,961) (2,115,179) --------- ----------- ---------- ----------- ----------- Cash flows from financing activities: Issuance of preferred stock, net............ -- -- 15,261,164 14,886,404 37,550,832 Borrowings under line of credit from shareholder........... 1,000,000 1,000,000 -- -- -- Note receivable........ -- -- -- -- (50,000) Payments on lease obligations........... -- (13,984) (46,450) (10,271) (239,340) --------- ----------- ---------- ----------- ----------- Net cash provided by financing activities......... 1,000,000 986,016 15,214,714 14,876,133 37,261,492 --------- ----------- ---------- ----------- ----------- Effect of exchange rate changes on cash........ (6,553) 4,194 (5,214) 40,138 (13,182) --------- ----------- ---------- ----------- ----------- Net increase in cash and cash equivalents....... (7,442) 29,241 8,694,450 15,164,226 43,360,825 Cash and cash equivalents, beginning of period.............. 280,837 273,395 302,636 302,636 8,997,086 --------- ----------- ---------- ----------- ----------- Cash and cash equivalents, end of period................. $ 273,395 $ 302,636 $8,997,086 $15,466,862 $52,357,911 ========= =========== ========== =========== =========== Supplemental disclosures of cash flow information--Cash paid during the period for: Income taxes........... $ -- $ 800 $ 38,800 $ 38,800 $ 844,000 Interest............... $ 107 $ 1,904 $ 4,318 $ 2,385 $ 120,411
See accompanying notes to consolidated financial statements. F-6 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND FOR THE PERIOD ENDED JUNE 30, 2000 (UNAUDITED) 1. BUSINESS AND BASIS OF PRESENTATION Multilink Technology Corporation and its subsidiaries (collectively, the "Company") are in the business of designing, developing, and marketing high- bandwidth, advanced integrated circuits, modules and higher-level assemblies that enable next generation optical networking systems. The Company was incorporated in 1994, and is headquartered in Somerset, New Jersey. The Company has wholly-owned subsidiaries located in Bochum, Germany ("Multilink GmbH"), and Vilnius, Lithuania ("UAB Multilink Technology"). On May 31, 2000, the Company's board of directors approved a ten-for-one stock split. The Company's consolidated financial statements have been retroactively adjusted to show the effect of this stock split for all periods presented. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Unaudited Condensed Consolidated Interim Financial Statements--The condensed consolidated financial statements as of June 30, 2000 and for the six months ended June 30, 1999 and 2000 are unaudited. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring adjustments as well as a charge related to the issuance of warrants (see Note 16), necessary for a fair presentation of the financial position and the results of operations as of such date and for such periods. Results of interim periods are not necessarily indicative of the results to be expected for the entire fiscal year. The interim tax provision is computed utilizing the estimated effective annual income tax rate. Principles of Consolidation--The accompanying consolidated financial statements include the accounts of Multilink Technology Corporation and its wholly owned subsidiaries, Multilink GmbH and UAB Multilink Technology. Intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates--The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Concentration of Credit Risk--Financial instruments that potentially subject the Company to concentration of credit risk consists principally of cash, cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high-credit, quality institutions and limits the amount of credit exposure to any one institution. The Company's accounts receivable arise from sales directly to customers. The Company performs ongoing credit evaluations of its customers before granting uncollateralized credit and provides allowances for estimated credit losses. To date the Company has not experienced any material credit losses. The following is a summary of the percentage of revenues from major customers:
Six Months Year Ended Ended December 31, June 30, ---------------- ------------ 1997 1998 1999 1999 2000 ---- ---- ---- ----- ----- (Unaudited) Lucent....................................... * 10.2% 36.1% 50.0% 49.9% Alcatel...................................... * * 19.7% 18.0% 16.3% TyCom........................................ 19.3% 38.9% 18.5% * * Cisco........................................ 20.2% * * * 18.2% NGK-Locke.................................... 31.5% * * * * JDS Uniphase................................. * 11.6% * * *
- --------------------- * Customer's sales represented less than 10% of total sales in the respective period. F-7 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, --------------- June 30, 1998 1999 2000 ------ ------ ----------- (Unaudited) Customer gross accounts receivable as a percent of total gross accounts receivable: Lucent.................................... 20% 25% 11% Alcatel................................... -- 29% 21% TyCom..................................... 25% 23% 13% Cisco..................................... -- -- 39%
Foreign Currency Translation--Assets and liabilities of Multilink GmbH and UAB Multilink Technology are translated into U.S. dollars using the exchange rates in effect at the balance sheet date. Results of operations are translated using the average exchange rates prevailing throughout the period. The aggregate effect of translating the financial statements of Multilink GmbH and UAB Multilink Technology into U.S. dollars is included as a separate component of accumulated other comprehensive income (loss) in the accompanying statement of shareholders' equity (deficit). Cash Equivalents--The Company classifies all highly liquid investments purchased with maturities of three months or less as cash equivalents. Inventories--Inventories are stated at the lower of cost (first-in, first- out) or market. Property and Equipment--Property and equipment are recorded at cost. Depreciation and amortization are provided for using the straight-line method over the estimated useful lives of the respective assets. Impairment of Long-Lived Assets--The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may no longer be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value. For purposes of estimating future cash flows from possibly impaired assets, the Company groups assets at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. Based upon the above described evaluation, the Company has concluded that its long-lived assets are not impaired. F-8 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Unaudited Pro Forma Net Loss Per Share and Unaudited Pro Forma Shareholders' Equity--Pro forma net loss per share has been computed to give effect to the fact that, if the offering contemplated by this prospectus is consummated it would result in the conversion of all of the Series A and Series B redeemable convertible preferred stock outstanding at June 30, 2000 (using the if- converted method) into an aggregate 27,116,400 shares of Class A common stock (see Notes 7 and 16). Unaudited pro forma shareholders' equity at June 30, 2000, as adjusted for the conversion of redeemable convertible preferred stock into Class A common stock, is reflected on the consolidated balance sheet. Pro forma basic and diluted net loss per share is as follows:
Year Ended Six Months December 31, Ended June 30, 1999 2000 ------------ -------------- Net loss attributable to common shareholders.... $ (23,008) $(11,104,826) Accretion of redeemable preferred stock......... 47,548 47,548 ---------- ------------ Adjusted net (loss) income attributable to common shareholders............................ $ 24,540 $(11,057,278) ========== ============ Shares used in computing basic net loss per share.......................................... 30,000,000 30,000,000 Adjusted to reflect the effect of the assumed conversion of all redeemable convertible preferred stock from the date of issuance...... 9,519,532 21,334,807 ---------- ------------ Weighted average shares used in computing pro forma basic net loss per share................. 39,519,532 51,334,807 ========== ============ Pro forma basic net loss per share attributable to common shareholders......................... $ 0.00 $ (0.22) ========== ============
Revenue Recognition--Product revenue is recognized upon shipment. The Company accrues related product return reserves at the time of sale. Development revenues are recognized using the percentage-of-completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation and amortization. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Warranty Costs--Substantially all of the Company's products are sold with a one-year warranty. Development contract costs include a provision for estimated product warranties to be provided by the Company upon contract completion and product shipment. Estimated warranty costs for all other products are provided for upon shipment to customers. Income Taxes--Deferred income tax assets and liabilities are computed annually based on enacted tax laws and rates for temporary differences between the financial accounting and income tax bases of assets and liabilities. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount that is more likely than not to be realized. Equity-Based Compensation--The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with the disclosure provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." Under APB Opinion No. 25, compensation expense is based on the difference, if any, on the date of grant, between the fair value of the Company's stock and the exercise price. The Company accounts for stock options issued to F-9 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) nonemployees in accordance with the provisions of SFAS No. 123, and Emerging Issues Task Force Consensus on Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." Net Income (Loss) Per Share of Common Stock--Basic net income or loss per share excludes dilution for potentially dilutive securities and is computed by dividing net income or loss attributable to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income or loss per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock. Potentially dilutive securities are excluded from the computation of diluted net income or loss per share when their inclusion would be antidilutive. A reconciliation between basic and diluted weighted average shares outstanding is as follows:
December 31, June 30, --------------------------------- --------------------- 1997 1998 1999 1999 2000 ---------- ---------- ---------- ---------- ---------- (unaudited) Weighted average shares outstanding, basic..... 30,000,000 30,000,000 30,000,000 30,000,000 30,000,000 Dilutive shares issuable in connection with stock plans............ -- 843,226 8,483,024 5,799,218 21,862,836 Dilutive shares issuable in connection with warrants granted....... -- -- 165,796 12,032 641,086 Conversion of preferred stock to common stock ....................... -- -- 9,519,532 1,786,877 21,334,807 ---------- ---------- ---------- ---------- ---------- Weighted average shares outstanding, diluted... 30,000,000 30,843,226* 48,168,352* 37,598,127 73,838,729* ========== ========== ========== ========== ==========
* Since there was a loss attributable to common shareholders in these periods, 30,000,000 shares was used in calculating diluted loss per share, as inclusion of the incremental shares shown in this calculation would be antidilutive. Fair Value of Financial Instruments--SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure about the fair value of financial instruments whether or not such instruments are recognized in the balance sheet. Due to the short-term nature of the Company's financial instruments, other than debt, fair values are not materially different from their carrying values. Based on the borrowing rates available to the Company for similar variable rate debt, the carrying value of capital lease obligations approximates fair value. The fair value of the line of credit from shareholder cannot be determined due to its related-party nature. Segments--The Company has adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," which requires companies to report selected information about operating segments, as well as enterprise-wide disclosures about products and services, geographic areas and major customers. Operating segments are determined based on the way management organizes its business for making operating decisions and assessing performance. The Company has determined that it conducts its operations in one business segment, the development and marketing of products that enable next generation optical networking systems. Effects of Recent Accounting Pronouncements--In June 1998, June 1999 and June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral F-10 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) of the Effective Date of FASB Statement No. 133," and SFAS No. 138, "Accounting for Derivative Instruments and Hedging Activities--An Amendment of SFAS No. 133." SFAS No. 133, as amended, requires the recognition of all derivatives as either assets or liabilities in the balance sheet and the measurement of those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the planned use of the derivative and the resulting designation. The Company is required to implement SFAS No. 133, as amended, in the first quarter of 2001. The Company has not determined the effects, if any, adoption of SFAS No. 133, as amended, will have on its consolidated financial statements. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, ("SAB 101") "Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. The Company has reviewed these criteria and believes its policies for revenue recognition to be in accordance with SAB 101. In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation--an interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB Opinion No. 25 and, among other issues clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The Company does not expect the application of FIN 44 to have a material impact on the Company's financial position or results of operations. 3. INVENTORIES Inventories consisted of the following:
December 31, -------------------- June 30, 1998 1999 2000 --------- ---------- ----------- (Unaudited) Finished goods.............................. $ -- $ 450,205 $1,347,433 Work-in-progress............................ -- 1,900,866 1,408,581 Raw materials............................... 368,597 2,651,209 3,970,862 --------- ---------- ---------- Total..................................... $ 368,597 $5,002,280 $6,726,876 ========= ========== ==========
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS A summary of costs and estimated earnings on uncompleted contracts as of December 31, 1998 is as follows: Costs incurred on uncompleted contracts........................... $ 538,302 Estimated earnings on uncompleted contracts....................... 379,055 --------- Subtotal.......................................................... 917,357 Less billings to date............................................. 985,000 --------- Total........................................................... $ (67,643) =========
F-11 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) These amounts are reflected in the accompanying balance sheet as of December 31, 1998 under the following captions: Costs and estimated earnings in excess of billings on uncompleted contracts......................................... $ 154,388 Billings in excess of costs and estimated earnings on uncompleted contracts......................................... (222,031) --------- Total........................................................ $ (67,643) =========
There were no uncompleted contracts at December 31, 1999, or June 30, 2000. 5. PROPERTY AND EQUIPMENT Property and equipment consisted of the following:
Estimated December 31, Useful Life -------------------- June 30, (Years) 1998 1999 2000 --------------------- -------- ---------- ----------- (Unaudited) Machinery and equipment.............. 5 $320,563 $2,920,192 $4,099,951 Furniture and fixtures.. 3 20,424 58,996 473,059 Leasehold improvements shorter of asset life ....................... or lease term 6,227 107,451 503,716 -------- ---------- ---------- Total................. 347,214 3,086,639 5,076,726 Accumulated depreciation and amortization....... (126,134) (418,762) (974,431) -------- ---------- ---------- Property and equipment, net.................... $221,080 $2,667,877 $4,102,295 ======== ========== ==========
Property leased under capital leases (which is included in property and equipment in the accompanying balance sheets) consists of the following:
December 31, -------------------- June 30, 1998 1999 2000 -------- ---------- ----------- (Unaudited) Machinery and equipment.................. $ 58,011 $2,091,805 $2,091,805 Accumulated amortization................. (8,957) (177,498) (177,498) -------- ---------- ---------- Total.................................. $ 49,054 $1,914,307 $1,914,307 ======== ========== ==========
6. LINE OF CREDIT FROM SHAREHOLDER The Company had a line of credit facility from a shareholder that provided for borrowings up to $2,000,000. The credit facility was provided to the Company pursuant to a Share Purchase Agreement executed in 1997 (see Note 7). In connection with the Share Purchase Agreement, the Company's then existing shareholders granted to the party providing the credit facility a share purchase option, which expired on October 31, 1998. The fair value of the option was estimated at $119,000 and was reflected as a discount on borrowings under the line of credit agreement and an increase in additional paid-in capital. The discount was amortized to interest expense on a straight-line basis over the 16-month option period (through October 31, 1998). Outstanding borrowings under the credit facility accrued interest at 6.0%, compounded semiannually, through expiration of the share purchase option on October 31, 1998, upon which date the interest rate converted to a certain bank's prime rate plus 2.0% (10.5 percent). Outstanding unpaid interest (which amounted F-12 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) to $161,398 and $387,962 as of December 31, 1998 and 1999, respectively) is due on October 31, 2002. As of December 31, 1999, outstanding borrowings under the credit facility amounted to $2,000,000, excluding accrued interest are due on October 31, 2002. Borrowings under the credit facility are not guaranteed or collateralized. 7. CAPITALIZATION Capital Reorganization--Effective February 26, 1999, the Board of Directors amended the Company's articles of incorporation to reorganize its capital structure by authorizing three classes of stock designated, respectively, as "Class A common stock," "Class B common stock" and "preferred stock." Under the amended articles, the total number of shares of stock the Company is authorized to issue is 310 million shares. 200 million shares are Class A common stock, par value $.0001 per share; 100 million shares are Class B common stock, par value $.0001 per share; and ten million shares are preferred stock, par value $.0001 per share. Upon the adoption of the restated articles of incorporation, each outstanding share of common stock (15,000 shares, par value $1 per share) was converted into 2,000 shares of Class B common stock. The accompanying consolidated financial statements have been adjusted to give effect for the capital reorganization and conversion for all periods presented. Each share of Class A common stock entitles the holder to one vote on all matters submitted to a vote of the shareholders of the corporation. Each share of Class B common stock entitles the holder to 10 votes on all matters submitted to a vote of the shareholders of the corporation. Subject to the preferences that may be applicable to preferred stock outstanding at the time, upon liquidation, dissolution, or winding up of the corporation, all of the remaining assets of the Company to be distributed will be distributed ratably to the holders of Class A and B common stock in proportion to the amount of stock owned by each holder. Redeemable Convertible Preferred Stock--In June 1999, the Company issued 1,711,640 shares of Series A redeemable convertible preferred stock to an institutional investor for $9 per share, or proceeds of $14,930,615, net of $474,145 in offering costs. Significant terms of the Series A redeemable convertible preferred stock are as follows: . At the option of the holder, each share of Series A redeemable convertible preferred stock is convertible at any time into ten shares of Class A common stock, subject to certain dilutive issuances. As of December 31, 1999, no such dilutive issuances had occurred. Shares automatically convert into Class A common stock upon the earlier of (a) completion of an initial public offering of the Company's common stock yielding gross proceeds to the Company in excess of $15,000,000 and at a price per share not less than $1.50 (as adjusted for any stock dividends, splits or similar capital modifications), and (b) the election by holders of at least a majority of the then outstanding shares of Series A redeemable convertible preferred stock. . Series A preferred shareholders are entitled to annual non-cumulative cash dividends when and if declared by the Company's Board of Directors. Dividends shall be paid to the holders of the Series A preferred stock prior to any cash dividends being paid to the holders of common stock. . In the event of any liquidation of the Company, the holders of Series A preferred stock have a liquidation preference over common stock of $9 per share, which is presently equal to the aggregate amount of $15,404,760, plus declared and unpaid dividends, if any. . Holders of the Series A preferred stock are entitled to the number of votes equal to the number of Class A common stock into which each share is convertible. F-13 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) . The Series A preferred stock is mandatorily redeemable upon the election of at least a majority of the holders of the then outstanding shares of Series A preferred stock beginning in March 2005. The aggregate redemption amount of $15,404,760, or $9 per share, plus declared but unpaid dividends, is payable in cash by the Company in three equal annual installments. Redeemable preferred stock is stated at the redemption amount and issuance costs are netted against the proceeds and accreted as a charge against additional paid-in capital over the expected life of the redeemable preferred stock. Share Purchase Agreement--On June 17, 1997, the Company, the Company's shareholders, and a third party executed a Share Purchase Agreement whereby the third party purchased 5,700,000 shares of the Company's Class A common stock from the shareholders for $1,000,000. In addition, the shareholders granted the third party an exclusive option to purchase all remaining outstanding capital stock of the Company for $5,000,000. The unexercised option expired on October 31, 1998. In connection with the Share Purchase Agreement, the third party extended a $2,000,000 line-of-credit facility to the Company (see Note 6). The Share Purchase Agreement required the Company to execute a Supply Agreement with the third party (see Note 9). 8. STOCK OPTIONS AND WARRANTS Stock Options--As of December 31, 1999, the Company has two stock option plans (the "1998 Plan" and the "1999 Plan") under which employees, consultants, and directors may be granted options to purchase common stock up to an aggregate of 37,000,000 shares. Options vest over periods of four or five years and expire 10 years from the grant date. When the exercise price of employee stock options issued under the Plan equals the fair value of the underlying stock, no compensation expense is recorded. Compensation expense is recognized for the fair value of options granted to non-employees and to the extent the fair value of the underlying stock exceeds the exercise price of employee stock options. During 1998 and 1999, the Company issued employee common stock options with exercise prices less than the fair value of the underlying common stock. The weighted-average fair value of the common stock, based upon equity security transactions entered into by the Company with certain third parties, was $0.20 per share in 1998 and $0.667 per share in 1999. Accordingly, the Company recorded $499,500 and $6,032,701 of the intrinsic value of such options as stock compensation in 1998 and 1999, respectively. Deferred stock compensation of $343,870 and $822,582 was amortized to expense during the years ended 1998 and 1999, respectively. At December 31, 1999, $5,365,749 of stock compensation is deferred as a component of shareholders' deficit and will be amortized to expense through 2003 as earned by the related employees. F-14 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) During the six months ended June 30, 2000 (unaudited), options to purchase 5,127,000 shares of Class A common stock were granted. The weighted-average grant date fair value of the 5,127,000 options granted was $1.63 per share. All of these options granted during the six months ended June 30, 2000 had exercise prices below fair value of the Company's stock at the time of issuance. A summary of the option transactions under the Plan follows:
Weighted- Average Number of Exercise Range of Shares Price Exercise Prices ---------- --------- --------------- Granted during 1998.................. 2,700,000 $0.015 $0.008--$0.025 ---------- Outstanding, December 31, 1998....... 2,700,000 $0.015 $0.008--$0.025 Granted.............................. 22,011,250 $0.393 $0.20--$0.707 Cancelled............................ (2,000,000) $0.200 $0.20 ---------- Outstanding, December 31, 1999....... 22,711,250 $0.365 $0.008--$0.707 Granted (unaudited).................. 5,127,000 $1.259 $0.71--$1.35 Cancelled (unaudited)................ (155,000) $0.419 $0.30--$0.71 ---------- Outstanding, June 30, 2000 (unaudited)......................... 27,683,250 $0.527 $0.008--$1.35 ----------
As of June 30, 2000 there were 9,316,750 shares available for future grant under the plan. Additional information regarding options outstanding as of December 31, 1999 is as follows:
Outstanding Options Exercisable Options -------------------------------- ------------------------------- Weighted- Weighted- Average Average Weighted- Remaining Weighted- Remaining Range of Number Average Contractual Number Average Contractual Exercise of Exercise Life of Exercise Life Prices Shares Price (Years) Shares Price (Years) -------------- ---------- --------- ----------- --------- --------- ----------- $0.008--$0.025 2,700,000 $0.016 8.7 2,097,000 $0.013 8.6 $0.20--$0.30 8,711,250 $0.208 9.1 -- $0.55--$0.707 11,300,000 $0.569 9.8 30,000 $0.550 9.7 ---------- --------- 22,711,250 $0.365 9.4 2,127,000 $0.021 8.6 ========== =========
As permitted under SFAS No. 123, the Company has elected to follow APB Opinion No. 25 and related interpretations in accounting for stock-based awards to employees. Pro-forma information regarding net income is required by SFAS No. 123. This information is required to be determined as if the Company had accounted for its stock-based awards to employees under the fair value method of that statement. The fair value of options granted during the years ended December 31, 1998 and 1999, as reported below has been estimated at the date of grant using the minimum value option pricing model with the following assumptions:
Year Ended December 31, --------------- 1998 1999 ------ ------ Risk-free interest rate.................................... 5.9% 6.8% Dividend yield............................................. -- -- Expected life (years)...................................... 7 7
The weighted-average estimated fair value of employee stock options granted during the years ended December 31, 1998 and 1999 was $0.191 and $0.417 per share, respectively. F-15 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) For purposes of pro-forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period in 1998 and 1999. There were no stock options outstanding in 1997. The Company's pro-forma information is as follows:
Year Ended December 31, ---------------------- 1998 1999 ----------- --------- Net loss attributable to common shareholders: As reported...................................... $(1,487,638) $ (23,008) Pro forma........................................ $(1,493,665) $(574,035) Net loss per share attributable to common shareholders: As reported: Basic and diluted................. $ (0.05) $ 0.00 Pro forma: Basic and diluted................... $ (0.05) $ (0.02)
The effects on pro-forma disclosures of applying SFAS No. 123 are not likely to be representative of the effects on pro-forma disclosures of future years. Warrants--In June 1999, the Company granted 516,670 Class A common stock purchase warrants to certain third parties in exchange for their services rendered in connection with the Series A preferred stock financing (see Note 7). The warrants were fully vested and exercisable on the grant date for $0.30 per option share into one share of Class A common stock and expire five years from the grant date (June 2004). The fair value of the warrants was estimated at $330,549 using the Black-Scholes option-pricing model and was reflected as a reduction in the proceeds from issuance of the Series A preferred stock and an increase in additional paid-in capital. In September 1999, the Company granted 163,640 Class A common stock purchase warrants to secure a capital equipment lease with a bank (see Note 9). The warrants were fully vested and exercisable on the grant date for $0.55 per option share into one share of Class A common stock and expire five years from the grant date (September 2004). The fair value of this warrant was estimated at $130,636 using the Black-Scholes option-pricing model and was reflected as an increase in deferred financing fees, which are included in deposits and other assets on the accompanying balance sheet, and an increase in additional paid-in capital. The deferred financing fees are being amortized to other expense on a straight-line basis over the three year term of the lease. 9. COMMITMENTS AND CONTINGENCIES Operating Leases--The Company leases its office facilities and certain equipment under operating lease agreements expiring at various dates through 2004 and thereafter. 2000............................................................. $ 1,566,182 2001............................................................. 1,191,638 2002............................................................. 731,309 2003............................................................. 547,524 2004............................................................. 568,101 Thereafter....................................................... 712,082 ----------- $ 5,316,836 ===========
F-16 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Rental expense under operating leases was $125,316, $264,549 and $509,451 for the years ended December 31, 1997, 1998 and 1999. Capital Leases--The Company leases certain equipment under capital leases. The following is a schedule of future minimum lease payments under the leases together with the present value of the net minimum lease payments as of December 31, 1999 and the fiscal years thereafter: 2000............................................................. $ 691,658 2001............................................................. 787,227 2002............................................................. 777,582 2003............................................................. 100,258 ---------- Total minimum lease payments..................................... 2,356,725 Less amount representing interest................................ 325,353 ---------- Present value of minimum lease payments.......................... 2,031,372 Less current portion of capital lease obligation................. 493,804 ---------- Long-term portion of capital lease obligation.................... $1,537,568 ==========
Supply Agreement--The Company purchases silicon wafer material and engineering services from a shareholder under the terms of a Supply Agreement, which was executed during 1997 (and amended in 1999) in connection with a Share Purchase Agreement with the shareholder (see Note 7). Under the terms of the Supply Agreement, as amended, which expires in December 2002, the Company is obligated to purchase certain minimum quantities of wafer material at various fixed prices. The minimum quantity purchase requirements in 2000, 2001, and 2002 are equal to the greater of the 1998 minimum purchase quantity ($1,200,000) or the actual quantity purchased in the immediately preceding year. The Company has met all such commitments as of December 31, 1999 and anticipates exceeding the minimum purchase quantities under the Supply Agreement. The Company purchased approximately $188,000, $1,059,000 and $4,438,000 of materials and engineering services from the shareholder during the years ended December 31, 1997, 1998 and 1999, respectively. 10. INCOME TAXES The provision for income taxes consists of the following:
December 31, ------------------------------- 1997 1998 1999 --------- --------- --------- Current: State..................................... $ 4,554 $ 800 $ 1,553 Federal................................... 2,447 -- 17,665 --------- --------- --------- Total current........................... 7,001 800 19,218 --------- --------- --------- Deferred benefit............................ (316,147) (575,872) (350,661) Valuation allowance......................... 310,565 575,872 350,661 --------- --------- --------- Total....................................... $ 1,419 $ 800 $ 19,218 ========= ========= =========
F-17 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The effective income tax rate differs from the federal statutory income tax rate applied to loss before income taxes due to the following:
Year Ended December 31, ---------------------------- 1997 1998 1999 ------- ------- -------- Federal statutory income tax rate................. (35.0)% (35.0)% 35.0 % Meals and entertainment... 0.1 0.1 17.2 Foreign income............ -- (0.8) (26.1) Research and development tax credits.............. -- (4.0) (342.8) Valuation allowance....... 39.7 42.7 363.7 Other..................... (4.6) (2.9) (3.1) ------- ------- -------- Total................... 0.2 % 0.1 % 43.9 % ======= ======= ========
The components of net deferred income taxes consist of the following:
December 31, ---------------------- 1998 1999 --------- ----------- Current deferred income tax assets: Accounts receivable allowances................... $ 4,893 $ 21,608 Accrued expenses................................. 50,006 77,618 Inventory reserves............................... 31,393 55,925 Costs and expenses capitalizable as inventory for tax purposes.................................... 315 138,348 Valuation allowance.............................. (86,607) (293,499) --------- ----------- Total current deferred income tax assets....... -- -- --------- ----------- Non-current deferred income tax assets: Net operating loss carryforwards................. 630,728 191,563 Tax credit carryforwards......................... -- 446,598 Depreciation..................................... 94,169 30,891 Deferred stock compensation...................... 148,896 348,510 Valuation allowance.............................. (873,793) (1,017,562) --------- ----------- Total non-current deferred income tax assets... -- -- --------- ----------- Net deferred income tax assets..................... $ -- $ -- ========= ===========
At December 31, 1999, the Company has an NOL carryforward for federal income tax purposes of approximately $547,000 which expires in varying amounts beginning in 2012 through 2019. 11. EMPLOYEE BENEFIT PLAN Effective September 1, 1998, the Company established a 401(k) defined contribution plan, in which all of its U.S. employees may participate. Plan participants contribute up to 15% of their eligible compensation to the plan, subject to the statutorily prescribed annual limit. The Company intends the plan to qualify under Section 401(k) of the Internal Revenue Code so that contributions by employees to the plan, and income earned, if any, on plan contributions, are not taxable to employees until withdrawn from the plan. From the plan's inception through December 31, 1999, the Company made matching contributions on behalf of the plan participants at the rate of 25% of participant contributions up to 6% of compensation. During 1998 and 1999, the Company made matching contributions of $4,306 and $21,632, respectively. F-18 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 12. SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS During 1997, the Company issued a common stock purchase option to a shareholder in connection with obtaining a line of credit from a shareholder (see Note 6). During 1998 and 1999, the Company financed the acquisition of equipment under capital leases in the amounts of $58,011 and $2,033,794, respectively. During 1999, the Company granted Class A common stock purchase warrants to certain third parties in exchange for their services rendered in connection with the Series A preferred stock financing. The fair value of the warrants was estimated at $330,549 and was reflected as a reduction in the proceeds from issuance of the Series A preferred stock and a credit to additional paid-in capital (see Note 8). During 1999, the Company granted Class A common stock purchase warrants to secure equipment financing with a bank. The fair value of the warrants was estimated at $130,636 and was reflected as a financing charge on the accompanying consolidated statement of operations in 1999 and a credit to additional paid-in capital (see Note 8). 13. RELATED PARTY TRANSACTIONS The Company purchases certain products from certain of its equity holders. For the years ended December 31, 1998 and 1999 and for the six months ended June 30, 1999 and 2000 purchases from such parties have been approximately $1,059,000, $4,438,000, $1,289,000 and $4,135,000, respectively. At December 31, 1998 and 1999 and June 30, 2000 accounts payable to these parties were approximately $499,000, $714,000 and $3,018,000, respectively. 14. GEOGRAPHIC INFORMATION Revenues to geographic locations are as follows:
Six Months Six Months Ended Ended June 30, June 30, 1997 1998 1999 1999 2000 ---------- ---------- ----------- ----------- ----------- (Unaudited) (Unaudited) North America........... $ 903,648 $3,350,841 $17,154,130 $6,616,756 $21,543,932 Europe.................. 637,489 486,840 3,179,033 280,537 7,021,876 Asia.................... -- 13,883 61,839 9,100 101,321 ---------- ---------- ----------- ---------- ----------- Total................. $1,541,137 $3,851,564 $20,395,002 $6,906,393 $28,667,129 ========== ========== =========== ========== ===========
Substantially all identifiable assets are located in the North America. F-19 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 15. AMORTIZATION OF DEFERRED STOCK COMPENSATION The composition of the amortization of deferred stock compensation is as follows:
Year Ended December Six Months 31, Ended June 30, ---------------------- ------------------ 1997 1998 1999 1999 2000 ---- -------- -------- ------- ---------- (Unaudited) Cost of revenues.................. $ -- $ -- $ 19,031 $ -- $ 159,281 Research and development.......... -- 343,870 216,404 59,093 792,588 Sales and marketing............... -- -- 31,071 2,803 88,702 General and administrative........ -- -- 556,076 -- 1,197,731 ---- -------- -------- ------- ---------- Total........................... $ -- $343,870 $822,582 $61,896 $2,238,302 ==== ======== ======== ======= ==========
16. SUBSEQUENT EQUITY TRANSACTIONS (UNAUDITED) Preferred Stock Financing--In May 2000, the Company completed a 1,000,000 share, Series B convertible preferred stock offering for $40 per share, or gross proceeds of $40,000,000. The Series B preferred stock have rights and privileges substantially similar to the Series A preferred stock (see Note 7). Series B convertible preferred stock will automatically convert into ten shares of common stock upon the closing of a qualified initial public offering, as defined. In conjunction with this offering, the Company issued 250,000 warrants exercisable at $40 per share to Series A preferred shareholders. Such grant was made in accordance with the original terms of the preferred stock investor's rights agreement and the value of the warrants at the date of grant ($6,375,000), as determined by an independent appraisal, has been treated as a dividend. Semiconductor Development Agreement and Stock Warrants--In May 2000, the Company executed a Semiconductor Development Agreement (the "Agreement") with a third party, which provides the Company with access to one or more of the third party's semiconductor fabrication processes solely for the development of product prototypes. The Agreement expires in June 2005. Upon the execution of the Agreement, the Company granted the third party a fully exercisable warrant to purchase (a) 250,000 shares of Series B preferred stock for $40 per share from the grant date through the date of the closing of an initial public offering of the Company's common stock yielding not less than $10 million, net of underwriting discounts and commissions (a "Qualified Public Offering"), or (b) 2,500,000 shares of Class A common stock, from the date, if any, of a Qualified Public Offering, through May 2005 for $4 per share. Neither the Agreement nor the terms of the warrant requires the third party to meet any performance requirements or prohibit the third party from participating in other similar programs with other parties. As such, the warrant is not subject to any forfeiture for any reason. The Company has measured the value of the warrant at the date of grant at $6,375,000, by utilizing an independent appraisal. The Company has expensed the value of this fully exercisable, nonforfeitable warrant in the accompanying statement of operations for the six months ended June 30, 2000, since there is no third party performance required with respect to the warrant and the activities underlying the Agreement relate to research and development efforts for which the Company cannot determine the benefit, if any, which may result. Stock Options Granted to Employees--In addition, the Company has granted 5,695,200 stock options to employees during the quarter ended September 30, 2000. The Company will record deferred stock compensation expense for the difference between the exercise price and the fair value of the underlying common stock at the date of grant. This amount will be amortized over the vesting period of the related stock options. ****** F-20 [MULTILINK TECHNOLOGY CORPORATION LOGO] 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 the underwriting discounts and commissions, payable by the registrant in connection with the sale of the securities being registered. All amounts are estimates except the Securities and Exchange Commission registration fee, the NASD filing fee and The Nasdaq National Market listing fee. Securities and Exchange Commission registration fee................. $39,600 NASD filing fee..................................................... 15,500 Nasdaq National Market filing fee................................... * Printing costs...................................................... * Legal fees and expenses............................................. * Accounting fees and expenses........................................ * Transfer Agent and Registrar Fees................................... * Miscellaneous ...................................................... * ------- Total............................................................. $ * =======
- --------------------- * To be filed by amendment Item 14. Indemnification of Directors and Officers. Our articles of incorporation limit the personal liability of our directors for monetary damages to the fullest extent permitted by the California General Corporation Law. Under the California General Corporation Law, a director's liability to a company or its shareholders may not be limited with respect to the following items: (1) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (2) acts or omissions that a director believes to be contrary to the best interests of the company or its shareholders or that involve the absence of good faith on the part of the director, (3) any transaction from which a director derived an improper personal benefit, (4) acts or omissions that show a reckless disregard for the director's duty to the company or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of a serious injury to the company or its shareholders, (5) acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the company or its shareholders, (6) contracts or transactions between the company and a director within the scope of Section 310 of the California General Corporation Law or (7) improper dividends, loans and guarantees under Section 316 of the California General Corporation Law. The limitation of liability does not affect the availability of injunctions and other equitable remedies available to our shareholders for any violation by a director of the director's fiduciary duty to us or our shareholders. Our articles of incorporation also include an authorization for Multilink to indemnify its "agents," as defined in Section 317 of the California General Corporation Law, through bylaw provisions, by agreement or otherwise, to the fullest extent permitted by law. Pursuant to this provision, our bylaws provide for indemnification of our directors, officers and employees. In addition, we may, at our discretion, provide indemnification to persons whom we are not obligated to indemnify. Our bylaws also allow us to enter into indemnity agreements with individual directors, officers, employees and other agents. We have entered into these indemnity agreements with all of our directors and executive officers. These agreements provide the maximum indemnification permitted by law. These agreements, together with our bylaws and articles of incorporation, may require us, among other things, to (1) indemnify our directors or executive officers, other than for liability resulting from willful misconduct of a culpable nature, (2) advance expenses to them as they are incurred, provided that they undertake to repay the amount advanced II-1 if it is ultimately determined by a court that they are not entitled to indemnification, and (3) obtain directors' and officers' insurance if available on reasonable terms. Section 317 of the California General Corporation Law and our bylaws make provision for the indemnification of officers, directors and other corporate agents in terms sufficiently broad to indemnify such persons, under certain circumstances, for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, as amended. With the approval of our board of directors, we intend to obtain directors' and officers' liability insurance prior to the effectiveness of this offering. There is no pending litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification will be required or permitted. Moreover, we are not aware of any threatened litigation or proceeding that might result in a claim for such indemnification. We believe that the foregoing indemnification provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers. The Underwriting Agreement (the form of which is filed as Exhibit 1.1 hereto) provides for indemnification by our underwriters and by for certain liabilities arising under the Securities Act or otherwise. Item 15. Recent Sales of Unregistered Securities. Each share of our Class B common stock is convertible into one share of Class A common stock at any time at the option of the holder, and will automatically convert upon transfer, except to certain permitted transferees as described in our articles of incorporation. Following is a description of all securities that the registrant has issued within the past three years without registering the securities under the Securities Act (adjusted for a 200-for-1 stock split in March 1999 and a 10-for-1 stock split in June 2000): . In June 1999, we sold an aggregate of 1,670,000 shares of Series A convertible preferred stock (which convert into 16,700,000 shares of Class A common stock) to Brentwood Venture Capital, and certain of its affiliates, for aggregate cash consideration of $15,030,000 (or $.90 per share of Class A common stock). . In June 1999, we issued a warrant to purchase 166,670 shares of Class A common stock at an exercise price of $.30 per share to a private investor as a fee in connection with the Series A preferred stock sale. . In June 1999, we issued a warrant to purchase 350,000 shares of Class A common stock at an exercise price of $.30 to our law firm. . In September 1999, we sold an aggregate of 41,640 shares of Series A convertible preferred stock (which convert into 416,400 shares of Class A common stock) to certain private investors for aggregate cash consideration of $374,760 (or $.90 per share of Class A common stock). . In October 1999, we issued a warrant to Imperial Bank to purchase 163,640 shares of Class A common stock at an exercise price of $.55 per share. . In February 2000, we issued a warrant to a partner in our law firm to purchase 100,000 shares of Class A common stock at an exercise price of $1.35 per share. . Between March 2000 and May 2000, we sold an aggregate of 1,000,000 shares of Series B convertible preferred stock (which convert into 10,000,000 shares of Class A common stock) to certain private investors for aggregate cash consideration of $40,000,000 (or $4.00 per share of Class A common stock). . In May 2000, we issued a warrant to purchase 250,000 shares of Series B convertible preferred stock (which convert into 2,500,000 shares of Class A common stock) to a strategic partner at an exercise price of $40 per share (or $4.00 per share of Class A common stock) in connection with a technology development arrangement. II-2 . In May 2000, we issued warrants to purchase an aggregate of 250,000 shares of Series B convertible preferred stock (which convert into 2,500,000 shares of Class A common stock) to our Series A preferred shareholders at an exercise price of $40 per share (or $4.00 per share of Class A common stock) pursuant to the terms of an investors' rights agreement. . In August 2000, we issued warrants to purchase an aggregate of 33,406 shares of Class A common stock to 3 vendors at an exercise price of $4.00 per share. . From July 1998 through September 30, 2000, we granted stock options to purchase an aggregate of 33,378,450 shares of Class A common stock to employees and consultants with aggregate exercise prices ranging from $0.08 to $3.90 per share pursuant to our stock option plans. As of September 30, 2000, no shares of Class A common stock have been issued upon exercise of options. No underwriters were used in connection with these sales and issuances above. We relied upon Section 4(2) of the Securities Act in each of the private placement transactions listed above. We determined, based on information received from the investors, including questionnaires and representations contained in the purchase agreements, that each investor was either an accredited investor or had such knowledge and experience in financial matters such that he or she was capable of evaluating the merits and risks of the investments. All recipients either received adequate information about us or had access, through employment or other relationships, to such information. The recipients of securities in each transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. Item 16. Exhibits and Financial Statement Schedules. (a) Exhibits.
Number Description ------ ----------- 1.1* Form of Underwriting Agreement 3.1 Amended and Restated Articles of Incorporation of the Registrant, as amended 3.2 Amended and Restated Bylaws of the Registrant 4.1* Specimen Class A Common Stock certificate 5.1* Opinion of Allen Matkins Leck Gamble & Mallory LLP as to the legality of the shares being registered 9.1 Amended and Restated Voting Trust Agreement dated March 8, 1999 10.1 Form of Indemnification Agreement entered into by the Registrant and each of its directors and officers 10.2 1998 Stock Option Plan, as amended 10.3 1999 Stock Option Plan, as amended 10.4 2000 Stock Incentive Plan 10.5* 2000 Employee Stock Purchase Plan 10.6 Amended and Restated Investors Rights Agreement, dated March 31, 2000, among the Registrant and the shareholders named therein, as amended 10.7 Lease dated March 10, 1999, between the Registrant and Spieker Properties, L.P., as amended 10.8 Facilities Use Agreement dated April 5, 1999, between the Registrant and TRW, Inc. 10.9 Sublease Agreement dated August 1999, between the Registrant and IMS Health Incorporated 10.10 Lease Agreement dated November 18, 1999, between the Registrant and First Industrial, L.P.
II-3
Number Description ------ ----------- 10.11 Master Lease Agreement dated September 14, 1999, between the Registrant and Imperial Bank Equipment Leasing, a Division of Imperial Bank 10.12* Supply Agreement dated June 29, 1997, between the Registrant and TRW, Inc. 10.13* Amendment to Supply Agreement dated January 13, 1999, between the Registrant and TRW, Inc. 10.14* Amendment to Supply Agreement dated June 30, 1999, between the Registrant and TRW, Inc. 10.15* Semiconductor Development Agreement dated May 18, 2000, between the Registrant and International Business Machines Corporation 10.16* Joint Development Agreement effective as of May 18, 2000, between the Registrant and International Business Machines 10.17* Development Agreement dated September 1, 1999, by and between the Registrant and Tyco Submarine Systems Ltd. 21.1 Subsidiaries of the Registrant 23.1 Consent of Deloitte & Touche LLP, Independent Accountants 23.2* Consent of Allen Matkins Leck Gamble & Mallory LLP (contained in the opinion filed as Exhibit 5.1 hereto) 24.1 Power of Attorney (See Page II-6) 27.1 Financial Data Schedule
- --------------------- * To be filed by amendment (b) Financial Statement Schedules. All schedules are omitted because they are inapplicable or the requested information is shown in the consolidated financial statements of the registrant or related notes thereto. Item 17. Undertakings. The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 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, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-4 The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be a part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 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 Somerset, State of New Jersey, on the 5th day of October 2000. MULTILINK TECHNOLOGY CORPORATION /s/ Richard N. Nottenburg By: _________________________________ Richard N. Nottenburg President and Chief Executive Officer POWER OF ATTORNEY Each person whose individual signature appears below hereby authorizes and appoints Richard N. Nottenburg and Eric M. Pillmore, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his true and lawful attorney-in-fact and agent to act in his name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file, any and all amendments to this registration statement, including any and all post-effective amendments thereto and any registration statement relating to the same offering as this registration statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in- fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated below on the 5th day of October 2000.
Signature Title Date --------- ----- ---- /s/ Richard N. Nottenburg President, Chief Executive October 5, 2000 ____________________________________ Officer and Director Richard N. Nottenburg (Principal Executive Officer) /s/ Eric M. Pillmore Chief Financial Officer October 5, 2000 ____________________________________ (Principal Financial and Eric M. Pillmore Accounting Officer), Senior Vice President and Secretary /s/ Jens Albers Executive Vice President and October 5, 2000 ____________________________________ Director Jens Albers /s/ G. Bradford Jones Director October 5, 2000 ____________________________________ G. Bradford Jones /s/ John Walecka Director October 5, 2000 ____________________________________ John Walecka /s/ Stephen Forrest Director October 5, 2000 ____________________________________ Stephen Forrest
II-6 EXHIBIT INDEX
Number Description ------ ----------- 1.1* Form of Underwriting Agreement 3.1 Amended and Restated Articles of Incorporation of the Registrant, as amended 3.2 Amended and Restated Bylaws of the Registrant 4.1* Specimen Class A Common Stock certificate 5.1* Opinion of Allen Matkins Leck Gamble & Mallory LLP as to the legality of the shares being registered 9.1 Amended and Restated Voting Trust Agreement dated March 8, 1999 10.1 Form of Indemnification Agreement entered into by the Registrant and each of its directors and officers 10.2 1998 Stock Option Plan, as amended 10.3 1999 Stock Option Plan, as amended 10.4 2000 Stock Incentive Plan 10.5* 2000 Employee Stock Purchase Plan 10.6 Amended and Restated Investors Rights Agreement, dated March 31, 2000, among the Registrant and the shareholders named therein, as amended 10.7 Lease dated March 10, 1999, between the Registrant and Spieker Properties, L.P., as amended 10.8 Facilities Use Agreement dated April 5, 1999, between the Registrant and TRW, Inc. 10.9 Sublease Agreement dated August 1999, between the Registrant and IMS Health Incorporated 10.10 Lease Agreement dated November 18, 1999, between the Registrant and First Industrial, L.P. 10.11 Master Lease Agreement dated September 14, 1999, between the Registrant and Imperial Bank Equipment Leasing, a Division of Imperial Bank 10.12* Supply Agreement dated June 29, 1997, between the Registrant and TRW, Inc. 10.13* Amendment to Supply Agreement dated January 13, 1999, between the Registrant and TRW, Inc. 10.14* Amendment to Supply Agreement dated June 30, 1999, between the Registrant and TRW, Inc. 10.15* Semiconductor Development Agreement dated May 18, 2000, between the Registrant and International Business Machines Corporation 10.16* Joint Development Agreement effective as of May 18, 2000, between the Registrant and International Business Machines 10.17* Development Agreement dated September 1, 1999, by and between the Registrant and Tyco Submarine Systems Ltd. 21.1 Subsidiaries of the Registrant 23.1 Consent of Deloitte & Touche LLP, Independent Accountants 23.2* Consent of Allen Matkins Leck Gamble & Mallory LLP (contained in the opinion filed as Exhibit 5.1 hereto) 24.1 Power of Attorney (See Page II-6) 27.1 Financial Data Schedule
- --------------------- * To be filed by amendment EX-3.1 2 0002.txt AMENDED AND RESTATED ARTICLES OF INCORPORATION EXHIBIT 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF MULTILINK TECHNOLOGY CORPORATION, a California corporation The undersigned Richard N. Nottenburg hereby certifies that: ONE: He is the duly elected and acting President and Secretary, respectively, of said corporation. TWO: The Articles of Incorporation of said corporation shall be amended and restated to read in full as follows: "ARTICLE I The name of this corporation is Multilink Technology Corporation. ARTICLE II The purpose of this corporation is to engage in any lawful act or activity for which corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. ARTICLE III A. Classes of Stock; Stock Split; Conversion Into Class B Common Stock. 1. Classes of Stock. This corporation is authorized to issue three classes of stock to be designated, respectively. "Class A Common Stock," "Class B Common Stock" and "Preferred Stock." The Class A Common Stock and Class B Common Stock are hereinafter referred to collectively as "Common Stock." The total number of shares of stock which the corporation is authorized to issue is Thirty-One Million (31,000,000) shares. Twenty Million (20,000,000) shares shall be Class A Common Stock, par value $.0001 per share, Ten Million (10,000,000) shares shall be Class B Common Stock, par value $.0001 per share, and One Million (1,000,000) shares shall be Preferred Stock, par value $.0001 per share. 2. Stock Split; Conversion Into Class B Common Stock. Upon the effectiveness of these amended and restated Articles of Incorporation, each outstanding share of Common Stock of the corporation will automatically be converted, without any further action on the part of the holder thereof, into two hundred (200) shares of Class B Common Stock. B. Common Stock. The Board of Directors of the corporation may authorize the issuance of shares of Class A Common Stock and shares of Class B Common Stock from time to time. Shares of Common Stock that are redeemed, purchased or otherwise acquired by the corporation may be reissued except as otherwise provided by law. The Board of Directors shall have no power to alter the rights with respect to Class A Common Stock or Class B Common Stock. 1. Dividends and Distributions. Subject to the preferences applicable to Preferred Stock outstanding at any time, the holders of shares of Class A Common Stock and the holders of shares of Class B Common Stock shall be entitled to receive such dividends, payable in cash or otherwise, as may be declared thereon by the Board of Directors from time to time out of assets or funds of the corporation legally available therefor, provided that the holders of shares of Class A Common Stock and shares of Class B Common Stock shall be entitled to share equally, on a per share basis, in such dividends, subject to the limitations described below. If dividends or other distributions are declared that are payable in shares of Class A Common Stock or shares of Class B Common Stock, including distributions pursuant to stock subdivisions or combinations of Class A Common Stock or Class B Common Stock which occur after the first date upon which the corporation has issued shares of both Class A Common Stock and Class B Common Stock, only shares of Class A Common Stock shall be distributed with respect to Class A Common Stock and only shares of Class B Common Stock shall be distributed with respect to Class B Common Stock, unless the Board of Directors of the corporation determines in its discretion that it is more desirable to distribute shares of Class A Common Stock with respect to Class B Common Stock, in which case shares of Class A Common Stock shall be distributed with respect to Class B Common Stock, provided that the number of shares of Class A Common Stock that shall be distributed with respect to Class B Common Stock shall be equal to the number of shares of Class B Common Stock that otherwise would have been distributed. If the corporation shall in any manner subdivide or combine the outstanding shares of Class A Common Stock or Class B Common Stock, the outstanding shares of the other such series of Common Stock shall be proportionately subdivided or combined in the same manner and on the same basis as the outstanding shares of Class A Common Stock or Class B Common Stock, as the case may be, which have been subdivided or combined. 2. Voting Rights. The holders of shares of Class A Common Stock and of Class B Common Stock shall have the following voting rights: a. Each share of Class A Common Stock shall entitle the holder thereof to one (1) vote on all matters submitted to a vote of the shareholders of the corporation. b. Each share of Class B Common Stock shall entitle the holder thereof to ten (10) votes on all matters submitted to a vote of the shareholders of the corporation. c. The holders of shares of Class A Common Stock and the holders of shares of Class B Common Stock shall vote together as one class on a11 matters submitted to a vote of shareholders of the corporation, except (i) as otherwise required by applicable law and (ii) in the case of a proposed issuance of shares of Class B Common Stock, which issuance shall require the affirmative vote of the holders of a majority of the outstanding shares of Class B Common Stock voting separately as a class. -2- 3. Transfer of Class B Common Stock to Permitted Transferee. a. Except as provided in Section 3(b) or Section 4 of this Article IIIB, no person holding shares of Class B Common Stock or any beneficial interest therein (a "Class B Holder") may voluntarily or involuntarily transfer (including without limitation the power to vote such shares of Class B Common Stock by proxy or otherwise except for proxies given to any Permitted Transferee of the Class B Holder), sell, assign, devise or bequeath any of such Class B Holder's interest in his Class B Common Stock, and the corporation and the transfer agent for the Class B Common Stock, if any (the "Transfer Agent"), shall not register the transfer of such shares of Class B Common Stock, whether by sale, grant of proxy, assignment, gift, devise, bequest, appointment or otherwise, except to a "Permitted Transferee" of such Class B Holder, which term shall include the corporation and shall have the following additional meanings in the following cases: (i) In the case of a Class B Holder who is a natural person holding record and beneficial ownership of the shares of Class B Common Stock in question, "Permitted Transferee" means: (a) the spouse of such Class B Holder (the "Spouse"); (b) a lineal descendant, or the spouse of such lineal descendant (collectively, "Descendants"), of such Class B Holder or of the Spouse; (c) the trustee of a trust (including a voting trust) for the benefit of such Class B Holder, the Spouse, other Descendants, or an organization contributions to which are deductible for federal income, estate or gift tax purposes (a "Charitable Organization"), and for the benefit of no other person; provided that such trust may grant a general or special power of appointment to the Spouse or to the Descendants and may permit trust assets to be used to pay taxes, legacies and other obligations of the trust or of the estate of such Class B Holder payable by reason of the death of such Class B Holder or the death of the Spouse or a Descendant, and that such trust (subject to the grant of a power of appointment as provided above) must prohibit transfer of shares of Class B Common Stock or a beneficial interest therein to persons other than Permitted Transferees as defined in subparagraph (ii) of this Section 3(a) (a "Trust"); (d) a Charitable Organization established by such Class B Holder or a Descendant; (e) an Individual Retirement Account, as defined in Section 408(a) of the Internal Revenue Code, of which such Class B Holder is a participant or beneficiary, provided that such Class B Holder is vested with the power to direct the investment of funds deposited into such Individual Retirement Account and to control the voting of securities held by such Individual Retirement Account (an "IRA"); (f) a pension, profit sharing, stock bonus or other type of plan or trust of which such Class B Holder is a participant or beneficiary and which satisfies the requirements for qualification under Section 401 of the Internal Revenue Code, provided that such Class B Holder is vested with the power to direct the investment of funds deposited into such plan or trust and to control the voting of securities held by such plan or trust (a "Plan"); (g) a corporation all of the outstanding capital stock of which is owned by, or a partnership all of the partners of which are, such Class B Holder, his or her Spouse, his or her Descendants, any Permitted Transferee of the Class B Holder and/or any other Class B Holder or its Permitted Transferee determined pursuant to this subparagraph (i) of this Section 3(a), -3- provided that if any share (or any interest in any share) of capital stock of such a corporation (or of any survivor of a merger or consolidation of such corporation), or any partnership interest in such a partnership, is acquired by any person who is not within such class of persons, all shares of Class B Common Stock then held by such corporation or partnership, as the case may be, shall be deemed without further act on anyone's part to be converted into shares of Class A Common Stock and stock certificates formerly representing such shares of Class B Common Stock shall thereupon and thereafter be deemed to represent the like number of shares of Class A Common Stock in the manner set forth in Section 4(b) of this Article IIIB; (h) another Class B Holder or such Class B Holder's Permitted Transferee determined pursuant to this subparagraph (i) of this Section 3(a); and (i) in the event of the death of such Class B Holder, such Class B Holder's estate. (ii) In the case of a Class B Holder holding the shares of Class B Common Stock in question as trustee of an IRA, a Plan or a Trust other than a Trust described in subparagraph (iii) of this Section 3(a), "Permitted Transferee" means: (a) any participant in or beneficiary of such IRA, such Plan or such Trust, or the person who transferred such shares of Class B Common Stock to such IRA, such Plan or such Trust, and (b) a Permitted Transferee of any such person or persons determined pursuant to subparagraph (i) of this Section 3(a). (iii) In the case of a Class B Holder holding the shares of Class B Common Stock in question as trustee pursuant to a Trust which was irrevocable on the Record Date (as defined below), "Permitted Transferee" means any person as of the Record Date to whom or for whose benefit principal may be distributed either during or at the end of the term of such Trust whether by power of appointment or otherwise. For purposes of these Articles of Incorporation, there shall be one "Record Date," which date shall be the date that is the record date for determining the persons to whom the Class B Common Stock is first distributed by the corporation. (iv) In the case of a Class B Holder holding record (but not beneficial) ownership of the shares of Class B Common Stock in question as nominee for the person who was the beneficial owner thereof on the Record Date, "Permitted Transferee" means such beneficial owner and a Permitted Transferee of such beneficial owner determined pursuant to subparagraph (i), (ii), (iii), (v) or (vi) of this Section 3(a), as the case may be. (v) In the case of a Class B Holder that is a partnership holding record and beneficial ownership of the shares of Class B Common Stock in question, "Permitted Transferee" means any partner of such partnership, provided that such partner was a partner in the partnership at the time it first became a Class B Holder, or any Permitted Transferee of such partner determined pursuant to subparagraph (i) of this Section 3(a). -4- (vi) In the case of a Class B Holder that is a corporation, other than a Charitable Organization described in clause (d) of subparagraph (i) of this Section 3(a), holding record and beneficial ownership of the shares of Class B Common Stock in question (a "Corporate Holder"), "Permitted Transferee" means (a) any shareholder of such Corporate Holder, provided that such shareholder was a shareholder of the Corporate Holder at the time it first became a Class B Holder, or any Permitted Transferee of any such shareholder determined pursuant to subparagraph (i) of this Section 3(a); and (b) the survivor (the "Survivor") of a merger or consolidation of such Corporate Holder, so long as such Survivor is controlled, directly or indirectly, by those shareholders of the Corporate Holder who were shareholders of the Corporate Holder at the time the Corporate Holder first became a Class B Holder or any Permitted Transferees of such shareholders determined pursuant to subparagraph (i) of this Section 3(a). (vii) In the case of a Class B Holder that is the estate of a deceased Class B Holder, or that is the estate of a bankrupt or insolvent Class B Holder, and provided such deceased, bankrupt or insolvent Class B Holder, as the case may be, held record and beneficial ownership of the shares of Class B Common Stock in question, "Permitted Transferee" means a Permitted Transferee of such deceased, bankrupt or insolvent Class B Holder as determined pursuant to subparagraphs (i), (v) or (vi) of this Section 3(a), as the case may be. (viii) In the case of any Class B Holder who desires to make a bona fide gift, "Permitted Transferee" means any other Class B Holder or its Permitted Transferee determined pursuant to subparagraph (i) of this Section 3(a). (ix) In the case of any Class B Holder, "Permitted Transferee" means any person or entity that will hold record (but not beneficial) ownership of the shares of Class B Stock in question as nominee for the Class B Holder or its Permitted Transferee determined pursuant to subparagraph (i), (ii), (iii), (v) or (vi) of this Section 3(a), as the case may be. b. Notwithstanding anything to the contrary set forth herein, any Class B Holder may pledge such holder's shares of Class B Common Stock to a pledgee pursuant to a bona fide pledge of such shares as collateral security for indebtedness due to the pledgee, provided that such shares shall not be transferred to, registered in the name of or voted by the pledgee and shall remain subject to this Section 3. In the event of foreclosure or other similar action by the pledgee, such pledged shares of Class B Common Stock may only be transferred to a Permitted Transferee of the pledgor or converted into shares of Class A Common Stock, as the pledgee may elect. c. For purposes of this Section 3: (i) The relationship of any person that is derived by or through legal adoption shall be considered a natural relationship. -5- (ii) Each joint owner of shares (if a Permitted Transferee) or owner of a community property interest in shares (if a Permitted Transferee) of Class B Common Stock shall be considered a "Class B Holder" of such shares. (iii) A minor for whom shares of Class B Common Stock are held pursuant to a Uniform Transfer to Minors Act or similar law shall be considered a Class B Holder of such shares. (iv) Unless otherwise specified, the term "person" means and includes natural persons, corporations, partnerships, limited liability companies, unincorporated associations, firms, joint ventures, trusts and all other entities. (v) The conversion of Class B Common Stock into securities of another corporation in connection with a merger effected for the purpose of reincorporating the corporation in another state shall not constitute a transfer of such Class B Common Stock. d. Except as otherwise provided in Section 4(b), any purported transfer of shares of Class B Common Stock not permitted hereunder shall be void and of no effect, and the purported transferee shall have no rights as a shareholder of the corporation and no other rights against or with respect to the corporation. The corporation may, as a condition to the transfer or the registration of transfer of shares of Class B Common Stock to a purported Permitted Transferee, require the furnishing of such affidavits or other proof as it deems necessary to establish that such transferee is a Permitted Transferee. Each certificate representing shares of Class B Common Stock shall be endorsed with a legend that states that shares of Class B Common Stock are not transferable other than to certain transferees and are subject to certain restrictions as set forth in the Articles of Incorporation filed by the corporation with the Secretary of State of the State of California. 4. Transfer of Class B Common Stock to Person Other than Permitted Transferee; Conversion and Exchange of Class B Common Stock. a. Each share of Class B Common Stock, at the option of its holder, may at any time be converted into one (1) fully paid and nonassessable share of Class A Common Stock. Such right shall be exercised by the surrender of the certificate representing such share of Class B Common Stock to be converted to the corporation at any time during normal business hours at the principal executive offices of the corporation or at the office of the Transfer Agent, accompanied by a written notice of the election by the holder thereof to convert and (if so required by the corporation or the Transfer Agent) by instruments of transfer, in form satisfactory to the corporation and to the Transfer Agent, duly executed by such holder or such holder's duly authorized attorney, and transfer tax stamps or funds therefor, if required pursuant to Section 4(e). b. If the beneficial ownership (as determined under Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of -6- 1934, as amended) of any share or any interest in any share of Class B Common Stock changes, voluntarily or involuntarily, such that each new beneficial owner of such share is not a "Permitted Transferee" (as defined in Section 3(a) of this Article IIIB) of the beneficial owner of such share of Class B Common Stock immediately prior to such change in beneficial ownership, then each such share shall thereupon be converted automatically into one (1) fully paid and nonassessable share of Class A Common Stock. A determination by the Secretary of the corporation that a change in beneficial ownership requires conversion under this paragraph shall be conclusive. Upon making such determination, the Secretary of the corporation shall promptly request of the holder of record of each such share that each such holder promptly deliver, and each such holder shall promptly deliver, the certificate representing each such share to the corporation for documentation of such conversion, together with instruments of transfer, in form satisfactory to the corporation and Transfer Agent, duly executed by such holder or such holder's duly authorized attorney, and together with transfer tax stamps or funds therefor, if required pursuant to Section 4(e) of this Article IIIB. c. As promptly as practicable following the surrender for conversion of a certificate representing shares of Class B Common Stock in the manner provided in paragraphs (a) or (b), as applicable, of this Section 4 and the payment in cash of any amount required by the provisions of Section 4(e) of this Article IIIB, the corporation will deliver or cause to be delivered at the office of the Transfer Agent to or upon the written order of the holder of such certificate, a certificate or certificates representing the number of full shares of Class A Common Stock issuable upon such conversion, issued in such name or names as such holder may direct. In the case of a conversion under Section 4(a) of this Article IIIB, such conversion shall be deemed to have been made immediately prior to the close of business on the date of the surrender of the certificate representing shares of Class B Common Stock. In the case of a conversion under Section 4(b), such conversion shall be deemed to have been made on the date that the beneficial ownership of such share has changed as set forth in Section 4(b). Upon the date any conversion under Section 4(a) is made, all rights of the holder of such shares as such holder shall cease, and the person or persons in whose name or names the certificate or certificates representing the shares of Class A Common Stock are to be issued shall be treated for all purposes as having become the record holder or holders of such shares of Class A Common Stock; provided, however, that any such surrender and payment on any date when the stock transfer books of the corporation shall be closed shall constitute the person or persons in whose name or names the certificate or certificates representing shares of Class A Common Stock are to be issued as the record holder or holders thereof for all purposes immediately prior to the close of business on the next succeeding day on which stock transfer books are open. Upon the date any conversion under Section 4(b) is made, all rights of the holder of such share as such holder shall cease, and the new beneficial owner or owners of such shares shall be treated for all purposes as having become the record holder or holders of such shares of Class A Common Stock. d. The corporation covenants that it will at all times reserve and keep available, solely for the purpose of issue upon conversion of the outstanding shares of Class B Common Stock, such number of shares of Class A Common Stock as shall be issuable upon the conversion of all such outstanding shares of Class B Common Stock, provided that nothing -7- contained herein shall be construed to preclude the corporation from satisfying its obligations in respect of the conversion of the outstanding shares of Class B Common Stock by delivery of purchased shares of Class A Common Stock that are held in the treasury of the corporation. The corporation covenants that if any shares of Class A Common Stock required to be reserved for purposes of conversion hereunder require registration with or approval of any governmental authority under any federal or state law before such shares of Class A Common Stock may be issued upon conversion, the corporation will cause such shares to be duly registered or approved, as the case may be. The corporation will endeavor to list the shares of Class A Common Stock required to be delivered upon conversion prior to such delivery upon each national securities exchange or automated quotation system upon which the outstanding Class A Common Stock is listed at the time of such delivery. The corporation covenants that all shares of Class A Common Stock that shall be issued upon conversion of the shares of fully paid and nonassessable Class B Common Stock will, upon issue, be fully paid and nonassessable. e. The issuance of certificates for shares of Class A Common Stock upon conversion of shares of Class B Common Stock shall be made without charge for any stamp or other similar tax in respect of such issuance. However, if any such certificate is to be issued in a name other than that of the holder of the share or shares of Class B Common Stock converted, then the person or persons requesting the issuance thereof shall pay to the corporation the amount of any tax that may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of the corporation that such tax has been paid. 5. Liquidation Rights. Subject to the preferences applicable to preferred stock outstanding at any time, upon the liquidation, dissolution or winding up of the corporation, all of the remaining assets of this corporation to be distributed shall be distributed ratably to the holders of Common Stock in proportion to the amount of such stock owned by each such holder, provided that the holders of Share of Class A Common Stock and shares of Class B Common Stock shall be entitled to share equally, on a per share basis, in such distribution. A consolidation or merger of the corporation with or into any other corporation or corporations, or a sale of all or substantially all of the assets of the corporation, shall not be deemed to be a liquidation, dissolution, or winding up, within the meaning of this Section 6 of this Article IIIB. 6. Redemption. The Common Stock is not redeemable. C. Preferred Stock. The Preferred Stock authorized by these Articles of Incorporation may be issued from time to time in one or more series. The Board of Directors is authorized to determine the designation of any such series and to fix the number of shares of any such series. The Board of Directors may determine to alter the rights, preferences, privileges, and restrictions granted to and imposed upon any wholly unissued series of Preferred Stock. The Board of Directors may, 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, increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. -8- ARTICLE IV A. The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. B. This corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaw provisions, agreements with the agents, vote of shareholders or disinterested directors, or otherwise in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to applicable limits set forth in Section 204 of the California Corporations Code with respect to actions for breach of duty to the corporation and its shareholders." THREE: The foregoing amendment has been approved by the Board of Directors of said corporation. FOUR: The foregoing amendment was approved by the holders of the requisite number of shares of said corporation in accordance with Sections 902 and 903 of the General Corporation Law of California; the total number of outstanding shares of each class entitled to vote with respect to the foregoing amendment was fifteen thousand (15,000) shares of Common Stock. The number of shares voting in favor of the foregoing amendment equaled or exceeded the vote required, such required vote being a majority of the outstanding shares of Common Stock. The undersigned further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of their own knowledge. IN WITNESS WHEREOF, the undersigned has executed this certificate on February 26, 1999. /s/ Richard N. Nottenburg ---------------------------- Richard N. Nottenburg President and Secretary [SEAL] -9- AMENDED AND RESTATED CERTIFICATE OF DETERMINATION OF RIGHTS AND PREFERENCES OF PREFERRED SHARES OF MULTILINK TECHNOLOGY CORPORATION, a California corporation PURSUANT TO THE PROVISIONS OF SECTION 401 OF THE GENERAL CORPORATION LAW OF THE STATE OF CALIFORNIA The undersigned, Richard N. Nottenburg, certifies that: FIRST: He is the President and the Secretary of Multilink Technology Corporation, a California corporation (the "Corporation"). SECOND: That the Board of Directors of the Corporation, pursuant to the authority so vested in it by the Amended and Restated Articles of Incorporation of the Corporation, as amended, and in accordance with the provisions of Section 401 of the General Corporation Law of the State of California (the "California Corporation Law"), duly adopted the following resolutions amending and restating the designation of rights, preferences, privileges and restrictions of the Corporation's Series A Convertible Preferred Stock, par value $0.0001 per share (the "Series A Preferred") and creating the following class of Preferred Stock designated as Series B Convertible Preferred Stock, par value $0.0001 per share (the "Series B Preferred"). THIRD: That the following resolutions designate one hundred seventy- one thousand one hundred sixty-four (171,164) shares of Series A Preferred, and that as of the date hereof, one hundred seventy-one thousand one hundred sixty- four (171,164) shares of Series A Preferred have been issued. FOURTH: That the following resolutions designate one hundred fifty thousand (150,000) shares of Series B Preferred, and that as of the date hereof, no shares of Series B Preferred have been issued. FIFTH: The resolutions duly adopted by the Board of Directors of the Company are as follows: WHEREAS, the Articles of Incorporation, as amended, of the Company authorize Preferred Stock consisting of one million (1,000,000) shares, par value of $0.0001 per share (the "Preferred Stock"), issuable from time to time in one or more series; WHEREAS, the Board of Directors of the Company is authorized, subject to limitations prescribed by law and by the provisions of Article III of the Corporation's Amended and Restated Articles of Incorporation, as amended, to establish and fix the number of shares to be included in any series of Preferred Stock and the designation of rights, preferences, privileges and restrictions of the shares of such series; WHEREAS, the Board of Directors of the Company previously approved and filed with the California Secretary of State a Certificate of Determination of Rights and Preferences of Preferred Shares and a Certificate of Amendment thereto (together the "Original Certificate of Determination"): WHEREAS, it is the desire of the Board of Directors to amend and restate the Original Certificate of Determination to amend and restate designation of rights, preferences, privileges and restrictions of the Series A Preferred and to establish and fix the number of shares to be included in the Series B Preferred and the designation of rights, preferences, privileges and restrictions of the shares of such new series. NOW, THEREFORE, BE IT RESOLVED, that pursuant to Article III of the Corporation's Amended and Restated Articles of Incorporation, as amended, hereby there is established the following series of Preferred Stock with such designations and authorized number of shares as set forth herein: (a) one hundred seventy-one thousand one hundred sixty-four (171,164) shares of Series A Preferred and (b) one hundred fifty thousand (150,000) shares of Series B Preferred. Such shares of Convertible Preferred Stock shall have the rights, preferences, privileges and restrictions set forth in the following Determination of Rights, Preferences, Privileges and Restrictions of Convertible Preferred Stock (the "Determination of Preferred Stock"): A. Convertible Preferred Stock. --------------------------- 1. Definitions. As used in this Subsection A of this Determination ----------- of Preferred Stock, the following capitalized terms have the following meanings: (a) "Articles of Incorporation" shall mean the Amended and Restated Articles of Incorporation of the Corporation, as amended, to date. (b) "Board" shall mean the Board of Directors of the Corporation. (c) "Class A Common Stock" shall mean the Class A Common Stock of the Corporation, par value $0.0001 per share. (d) "Class B Common Stock" shall mean the Class B Common Stock of the Corporation, par value $0.0001 per share. (e) "Common Stock" shall mean the Class A Common Stock and the Class B Common Stock. (f) "Conversion Price" shall have the meaning set forth in Section 5(a)(ii). -2- (g) "Conversion Rights" shall have the meaning set forth in the preamble to Section 5. (h) "Convertible Preferred Stock" shall mean the Series A Preferred and the Series B Preferred. (i) "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for additional shares of Class A Common Stock. (j) "Corporation" shall have the meaning set forth in the recitals. (k) "Deferred Series A Redemption Date" shall have the meaning set forth in the Section 6(a). (l) "Deferred Series B Redemption Date" shall have the meaning set forth in the Section 6(b). (m) "Liquidation Event" shall have the meaning set forth in Section 3(a). (n) "Preferred Stock" shall have the meaning set forth in the recitals. (o) "Qualified Public Offering" shall have the meaning set forth in Section 5(b)(i)(A). (p) "Redemption Date" shall have the meaning set forth in Section 6(b). (q) "Redemption Notice" shall have the meaning set forth in Section 6(d). (r) "Redemption Price" shall have the meaning set forth in Section 6(c). (s) "Related Party" shall mean, with respect to an individual, such individual's immediate family members and any trust, corporation, partnership, limited liability company or other entity owned or controlled by such individual or his or her immediate family members, and, with respect to a corporation, any person or entity who controls, is controlled by, or is under common control with, such corporation. (t) "Series A Conversion Price" shall have the meaning set forth in Section 5(a)(i). (u) "Series A Initial Redemption Date" shall have the meaning set forth in the Section 6(a). -3- (v) "Series A Preferred" shall have the meaning set forth in the recitals. (w) "Series A Redemption Date" shall have the meaning set forth in the Section 6(a). (x) "Series A Redemption Price" shall have the meaning set forth in Section 6(c). (y) "Series B Conversion Price" shall have the meaning set forth in Section 5(a)(ii). (z) "Series B Initial Redemption Date" shall have the meaning set forth in the Section 6(b). (aa) "Series B Preferred" shall have the meaning set forth in the recitals. (bb) "Series B Redemption Date" shall have the meaning set forth in the Section 6(b). (cc) "Series B Redemption Price" shall have the meaning set forth in Section 6(c). 2. Dividends --------- In each fiscal year of the Corporation, the holders of shares of Convertible Preferred Stock shall be entitled to receive, before any cash dividends shall be paid or declared and set aside for the Common Stock in such fiscal year, when and as declared by the Board, out of funds legally available for that purpose, dividends payable in an amount per share for such fiscal year equal to the per share amount, if any, of any cash dividend to be declared, paid or set aside for each share of Common Stock during such fiscal year, multiplied by the number of shares of Class A Common Stock into which each such share of Convertible Preferred Stock is then convertible. The Series A Preferred and Series B Preferred shall rank on a parity as to the declaration and payment of all dividends. Dividends for the Convertible Preferred Stock declared by the Board but not paid shall accrue. No dividend shall be declared or paid to any holders of shares of the capital stock of the Corporation, including without limitation holders of Common Stock, unless and until such a dividend of an equal or greater amount (determined on such as-converted basis) has first been declared and paid to the holders of shares of the Convertible Preferred Stock on a pari passu basis. 3. Liquidation, Dissolution or Winding Up -------------------------------------- (a) In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Corporation (a "Liquidation Event"), all assets and funds of the Corporation legally available for distribution shall be distributed to the holders of the Common Stock and the Convertible Preferred Stock in the following order of priority: -4- (i) First, ratably among the holders of the Convertible Preferred Stock on a pari passu basis until (A) the Series A Preferred holders have received the preferential amount of Ninety Dollars ($90.00) per share plus all declared and unpaid dividends thereon and (B) the Series B Preferred holders have received the preferential amount of Four Hundred Dollars ($400.00) per share plus all declared and unpaid dividends thereon; provided, that, the Series A Preferred and Series B Preferred shall rank on a parity as to the receipt of their respective preferential amounts for such series upon the occurrence of a liquidation event: provided, further, that if the assets and funds thus distributed among the holders of the Series A Preferred and Series B Preferred are insufficient to permit the payment to such holders of such full preferential amounts, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred and Series B Preferred in proportion to such full preferential amounts each such holder would be entitled to first receive based upon the aggregate liquidation preference of the Series A Preferred and the Series B Preferred held by each such holder and the aggregate liquidation preference of all Series A Preferred and Series B Preferred; and (ii) Second, to the holders of the Common Stock and the Convertible Preferred Stock on a pro rata basis according to the number of shares of Common Stock (A) then held, with respect to the Common Stock, and (B) in the case the Convertible Preferred Stock, into which the shares of Convertible Preferred Stock then held are convertible. (b) A reorganization or merger of the Corporation with or into any other corporation or entity, or a sale of all or substantially all of the assets of the Corporation, in which transaction the Corporation's shareholders immediately prior to such transaction do not retain immediately after such transaction direct or indirect beneficial ownership of more than fifty percent (50%) of the combined voting power of the outstanding voting stock of the surviving corporation (or its parent), shall be deemed to be a Liquidation Event within the meaning of this Section 3. (c) The dollar amounts specified in Section 3(a) and Section 6(c) shall be adjusted equitably in the event of any stock splits, stock dividends or similar capital modifications affecting the Common Stock or the Convertible Preferred Stock after the filing of this Amended and Restated Certificate of Determination of Rights and Preferences of Preferred Shares (the "Certificate of Determination"). No adjustment ?? any Conversion Price pursuant to this Certificate of Determination shall otherwise ?? the above liquidation preference dollar amounts. (d) Insofar as any distribution pursuant to Section 3(a) consists of property other than cash, the value thereof shall be, for purposes of the provisions of Section 3(a), the fair value at the time of such distribution as determined in good faith by the Board. -5- (e) Each holder of Convertible Preferred Stock shall be deemed to have consented, for purposes of Sections 502, 503 and 506 of the California Corporations Code, to distributions made by the Corporation and approved by the Board in connection with the repurchase of shares of Common Stock issued to or held by employees, directors or consultants upon termination of their employment or services pursuant to agreements providing for such right of repurchase between the Corporation and such persons. 4. Voting ------ (a) At all meetings of the shareholders of the Corporation and in the case of any actions of shareholders in lieu of a meeting, (i) each share of Series A Preferred shall be entitled to that number of votes equal to ten (10) times the number of whole shares of Class A Common Stock into which such share of Series A Preferred is then convertible and (ii) each share of Series B Preferred shall be entitled to the number of votes equal to the number of whole shares of Class A Common Stock into which such share of Series B Preferred is then convertible (in accordance with Section 5 hereof) on the record date set for the meeting or action or, if no record date is set, on the date of such meeting or the date such action is taken. Except as otherwise expressly provided below in this Section 4, in Article III.A.2.c. of the Articles of Incorporation or as required by law, the holders of Common Stock and Convertible Preferred Stock shall vote together as a single class in accordance with the preceding sentence, and neither the Common Stock nor any of the Convertible Preferred Stock shall be entitled to vote as a separate class on any matter to be voted on by shareholders of the Corporation. (b) The Corporation shall not amend, alter or repeal the preferences, privileges, special rights or other powers of the Series A Preferred, as set forth herein, in a manner adverse to the holders thereof, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series A Preferred. (c) The Corporation shall not amend, alter or repeal the preferences, privileges, special rights or other powers of the Series B Preferred, as set forth herein, in a manner adverse to the holders thereof, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series B Preferred. (d) The Corporation shall not authorize or issue, or obligate itself to issue, any equity security which is senior to the Series A Preferred as to dividend rights, redemption or sinking fund rights, liquidation preferences, conversion rights, voting rights or otherwise, nor shall the Corporation increase or decrease the authorized number of shares of the Series A Preferred, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series A Preferred. (e) The Corporation shall not authorize or issue, or obligate itself to issue, any equity security which is senior to the Series B Preferred as to dividend rights, redemption or sinking fund rights, liquidation preferences, conversion rights, voting rights or otherwise, nor shall the Corporation increase or decrease the authorized number of shares of the Series D Preferred, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series B Preferred. -6- (f) The Corporation shall not declare or pay any dividend or other distribution upon the Common Stock or Convertible Preferred Stock, or purchase, redeem, to otherwise acquire any shares of Common Stock or Convertible Preferred Stock, or otherwise effect any "Distribution to its shareholders" as defined in Section 166 of the California Corporations Code ("Section 166") without the affirmative vote of the holders of a majority of the then outstanding shares of the Convertible Preferred Stock; provided, however, that such vote shall not be required in connection with either (i) any redemption of shares of Convertible Preferred Stock in accordance with the provisions of this Certificate of Determination, or (ii) the repurchase by the Corporation of shares issued by it to employees, directors, or consultants to the extent that such repurchase does not constitute a "Distribution to its shareholders" within the meaning of clause (c) of Section 166. (g) The Corporation shall not acquire or otherwise own any subsidiary except any subsidiary which is owned entirely by the Corporation or any subsidiary which is owned in part by the Corporation if such partially owned subsidiary is not owned in part by any officer, director or shareholder of the Corporation or any Related Party of any officer, director or shareholder of the Corporation, without the affirmative vote of the holders of a majority of the then outstanding shares of the Convertible Preferred Stock. (h) Notwithstanding the provisions of paragraph (d) above, the actions of the Corporation specified therein shall not require the separate affirmative vote of the holders of a majority of the Series A Preferred if less than twenty-five percent (25%) of the aggregate number of shares of Series A Preferred theretofore issued by the Corporation are at the time outstanding. (i) Notwithstanding the provisions of paragraph (e) above, the actions of the Corporation specified therein shall not require the separate affirmative vote of the holders of a majority of the Series B Preferred if less than twenty-five percent (25%) of the aggregate number of shares of the Series B Preferred theretofore issued by the Corporation are at the time outstanding. (j) Notwithstanding the provisions of paragraphs (f) and (g) above, the actions of the Corporations specified therein shall not require the separate affirmative vote of the holders of a majority of the Convertible Preferred Stock if less than fifty percent (50%) of the aggregate number of shares of Convertible Preferred Stock theretofore issued by the Corporation are at the time outstanding. 5. Conversion ---------- The holders of the Convertible Preferred Stock shall have the following Conversion rights (the "Conversion Rights"): (a) Optional Conversion. ------------------- (i) Series A Preferred. Each share of Series A Preferred ------------------ shall be convertible, without the payment of any additional consideration by the holder -7- thereof and at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for the Class A Common Stock, into such number of fully paid and nonassessable shares of Class A Common Stock as is determined by dividing Ninety Dollars ($90.00) by the applicable Series A Conversion Price (determined as hereinafter provided) in effect at the time of conversion. The Series A Conversion Price at which shares of Class A Common Stock shall be deliverable upon conversion of the Series A Preferred without the payment of any additional consideration by the holder thereof (the "Series A Conversion Price"), at the time of the filing of this Certificate of Determination, initially shall be Nine Dollars ($9.00). Such initial Series A Conversion Price shall be subject to adjustment, in order to adjust the number of shares of Class A Common Stock into which the Series A Preferred is convertible, as hereinafter provided. (ii) Series B Preferred. Each share of Series B Preferred ------------------ shall be convertible, without the payment of any additional consideration by the holder thereof and at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for the Class A Common Stock, into such number of fully paid and nonassessable shares of Class A Common Stock as is determined by dividing Four Hundred Dollars ($400.00) by the applicable Series B Conversion Price (determined as hereinafter provided) in effect at the time of conversion. The Series B Conversion Price at which shares of Class A Common Stock shall be deliverable upon conversion of the Series B Preferred without the payment of any additional consideration by the holder thereof (the "Series B Conversion Price"), at the time of the filing of this Certificate of Determination, initially shall be Forty Dollars ($40.00). Such initial Series B Conversion Price shall be subject to adjustment, in order to adjust the number of shares of Class A Common Stock into which the Series B Preferred is convertible, as hereinafter provided. The term "Conversion Price" shall mean the Series A Conversion Price or the Series B Conversion Price, as applicable. (b) Automatic Conversion. -------------------- (i) Series A Preferred. Each share of Series A Preferred ------------------ shall be converted into shares of Class A Common Stock automatically upon: (A) the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of the Corporation's Common Stock if the aggregate purchase price of the Common Stock sold pursuant to such registration equals or exceeds Fifteen Million Dollars ($15,000,000) (a "Qualified Public Offering"); or (B) the optional conversion into Class A Common Stock of a cumulative number of shares of the Series A Preferred -8- representing a majority of the aggregate number of shares of the Series A Preferred theretofore issued by the Corporation. (ii) Series B Preferred. Each share of Series B Preferred ------------------ shall be converted into shares of Class A Common Stock automatically upon: (A) the closing of a Qualified Public Offering; or (B) the optional conversion into Class A Common Stock of a cumulative number of shares of the Series B Preferred representing a majority of the aggregate number of shares of the Series B Preferred theretofore issued by the Corporation. (c) Fractional Shares. No fractional shares of Common Stock ----------------- shall be issued upon conversion of the Convertible Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. (d) Mechanics of Optional Conversion. Before any holder of -------------------------------- Convertible Preferred Stock shall be entitled to convert the same into full shares of Class A Common Stock, such holder shall surrender the certificate or certificates therefor, endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his attorney duly authorized in writing, at the office of the Corporation or of any transfer agent for the Convertible Preferred Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein such holder's name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Class A Common Stock to be issued. As soon as practicable thereafter, the Corporation shall issue and deliver at such office to such holder of Convertible Preferred Stock, or to such holder's nominee or nominees, a certificate or certificates for the number of shares of Class A Common Stock to which such holder shall be entitled as aforesaid, together with cash in lieu of any fraction of a share. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Convertible Preferred Stock to be converted, and the person or persons entitled to receive the shares of Class A Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such shares of Class A Common Stock at the close of business on such date. From and after such date, all rights of the holder with respect to the Convertible Preferred Stock so converted shall terminate, except only the right of such holder to receive certificates for the number of shares of Class A Common Stock issuable up011 conversion thereof and cash for fractional shares, plus any dividends thereon declared and unpaid as of the time of such conversion. (e) Mechanics of Automatic Conversion. All holders of record of --------------------------------- shares of Convertible Preferred Stock will be given written notice of the date of any automatic conversion referenced in Section 5(b). Such notice will be sent by mail; first class, postage prepaid, to each record holder of Convertible Preferred Stock at such -9- holder's address appearing on the stock register. Promptly after receiving such notice, each holder of shares of Convertible Preferred Stock shall surrender such holder's certificate or certificates for all such shares to the Corporation at the place designated in such notice, and thereafter shall receive certificates for the number of shares of Class A Common Stock or such other securities to which such holder is entitled. Upon the date of any such automatic conversion, all rights with respect to the Convertible Preferred Stock will terminate, except only the right of the holders thereof, upon surrender of their certificate or certificates therefore, to receive certificates for the number of shares of Class A Common Stock or such other securities into which such Convertible Preferred Stock has been converted and cash for fractional shares, plus any dividends thereon declared and unpaid as of the time of such conversion. All certificates evidencing shares of Convertible Preferred Stock which are converted automatically in accordance with the provisions hereof shall be deemed to have been retired and canceled from and after the date of such automatic conversion, and the shares of Convertible Preferred Stock represented thereby converted into Class A Common Stock for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates. As soon as practicable after the date of any such automatic conversion and the surrender of the certificate or certificates for Convertible Preferred Stock as aforesaid, the Corporation shall cause to be issued and delivered to such holder, or to such holder's written order, a certificate or certificates for the number of full shares of Class A Common Stock or such other securities issuable on such conversion in accordance with the provisions hereof and cash as provided in Subsection 5(c) in respect of any fraction of a share of Common Stock otherwise issuable upon such conversion. (f) Certain Adjustments to Conversion Price. --------------------------------------- (i) Adjustment for Stock Splits, Stock Dividends and ------------------------------------------------ Combinations of Common Stock. In the event the outstanding shares of Class ---------------------------- A Common Stock shall be subdivided (split), or combined (reverse split) further, by reclassification or otherwise, after the filing of this Certificate of Determination, or in the event of any dividend or other distribution payable on the Class A Common Stock in shares of Class A Common Stock, the Conversion Price in effect immediately prior to such subdivision, combination, dividend or other distribution shall be adjusted proportionately, concurrently with the effectiveness of such subdivision, combination or dividend or other distribution. (ii) Adjustment for Merger or Reorganization, Etc. In case of a -------------------------------------------- reclassification, reorganization or exchange transaction or any consolidation or merger of the Corporation with another corporation (other than a merger or other reorganization which is deemed to be a liquidation pursuant to Section 3(b) of this Subsection (A), each share of Convertible Preferred Stock shall be convertible thereafter into the number of shares of stock or other securities or property to which a holder of the number of shares of Class A Common Stock of the Corporation deliverable upon conversion of such Convertible Preferred Stock would have been entitled upon such reclassification, reorganization, exchange, consolidation, merger or conveyance; and, in any such case, appropriate adjustment (as determined by the Board) shall be made in the application of the -10- provisions herein set forth with respect to the rights and interests thereafter of the holders of the Convertible Preferred Stock, to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustments of the Conversion Price) shall be applicable thereafter, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Convertible Preferred Stock. (iii) Adjustments for Other Dividends and Distributions. In the ------------------------------------------------- event the Corporation at any time or from time to time after the filing of this Certificate of Determination makes or fixes a record date for the determination of holders of Class A Common Stock entitled to receive a dividend or other distribution payable in securities of the Company other than shares of Class A Common Stock, then and in each such event provision shall be made so that the holders of Convertible Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Class A Common Stock receivable thereupon, the amount of securities of the Company which they would have received had their Convertible Preferred Stock been converted into Class A Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 5 with respect to the rights of the holders of the Convertible Preferred Stock. (g) Certificate as to Adjustments. Upon the occurrence of each ----------------------------- adjustment or readjustment of a Conversion Price of any of the Convertible Preferred Stock pursuant to this Section 5, the Corporation, at its expense, promptly shall compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such Convertible Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. At any time, upon the written request of any holder of any Convertible Preferred Stock, the Corporation shall furnish or cause to be furnished to such holder a like certificate setting forth: (i) such adjustments and readjustments; (ii) the applicable Conversion Price of such Convertible Preferred Stock at the time in effect; and (iii) the number of shares of Class A Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of such Convertible Preferred Stock. (h) Notices of Record Date. In the event of any taking by the ---------------------- Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, any capital reorganization of the Corporation, any reclassification or recapitalization of the Corporation's capital stock, any consolidation or merger with or into another corporation, any transfer of all or substantially all of the assets of the Corporation or any dissolution, liquidation or winding up of the Corporation, the Corporation shall mail to each holder of Convertible Preferred Stock, at least ten (10) days prior to the date specified for the taking of a record, a notice specifying the date on -11- which any such record is to be taken for the purpose of such dividend, distribution or other such event. (i) Class A Common Stock Reserved. The Corporation shall reserve and ----------------------------- keep available out of its authorized but unissued Common Stock such number of shares of Class A Common Stock as shall be sufficient to effect the full conversion of all outstanding Convertible Preferred Stock from time to time. (j) Payment of Taxes. The Corporation will pay all taxes (other than ---------------- taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of shares of Common Stock upon conversion of shares of Convertible Preferred Stock, other than any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the shares of Convertible Preferred Stock so converted were registered. (k) No Impairment. The Corporation will not avoid or seek to avoid ------------- the observance or performance of any of the terms to be observed or performed hereunder by the Corporation by amendment of its Articles of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation merger, dissolution, issue or sale of securities, or any other voluntary action. The Company will assist in the carrying out of all the provisions hereof at all times, in good faith, and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Convertible Preferred Stock as set forth herein against impairment. 6. Mandatory Redemption of Convertible Preferred Stock. --------------------------------------------------- (a) Mandatory Redemption of Series A Preferred. Beginning on any date ------------------------------------------ specified by the affirmative vote of the holders of a majority of the then outstanding shares of the Series A Preferred, which date shall be no sooner than March 31, 2005 (the "Series A Initial Redemption Date"), but only if such majority so elects and so specifies a Series A Redemption Date, the Corporation shall redeem the Series A Preferred in the manner and at the applicable Series A Redemption Price (hereinafter specified). The Corporation shall redeem the Series A Preferred in three (3) equal annual installments beginning on the Series A Initial Redemption Date and on each of the first and second anniversaries of the Series A Initial Redemption Date (each, a "Series A Redemption Date"). In the event the Corporation does not have sufficient funds legally available to redeem all of the Series A Preferred on any Series A Redemption Date, the Corporation shall redeem pro rata (based upon the number of shares held by each holder) the maximum number of shares of Series A Preferred it can legally redeem on such date, and shall redeem the remainder as soon as the Corporation has funds legally available therefor on one or more occasions as necessary. Each deferred date upon which the Corporation redeems shares of Series A Preferred in accordance with the immediately preceding sentence is also herein referred to as a "Deferred Series A Redemption Date." (b) Mandatory Redemption of Series B Preferred. Beginning on any ------------------------------------------ date specified by the affirmative vote of the holders of a majority of the then outstanding -12- shares of the Series B Preferred, which date shall be no sooner than March 31, 2005 (the "Series B Initial Redemption Date"), but only if such majority so elects and so specifies a Series B Redemption Date, the Corporation shall redeem the Series B Preferred in the manner and at the applicable Series B Redemption Price (hereinafter specified). The Corporation shall redeem the Series B Preferred in three (3) equal annual installments beginning on the Series B Initial Redemption Date and on each of the first and second anniversaries of the Series B Initial Redemption Date (each, a "Series B Redemption Date"). In the event the Corporation does not have sufficient funds legally available to redeem all of the Series B Preferred on any Series B Redemption Date, the Corporation shall redeem pro rata (based upon the number of shares held by each holder) the maximum number of shares of Series B Preferred it can legally redeem on such date, and shall redeem the remainder as soon as the Corporation has funds legally available therefor on one or more occasions as necessary. Each deferred date upon which the Corporation redeems shares of Series B Preferred in accordance with the immediately preceding sentence is also herein referred to as a "Deferred Series B Redemption Date." The term "Redemption Date" shall mean the Series A Redemption Date or the Series B Redemption Date, as applicable. (c) Price. The redemption price shall be an amount per share equal to ----- (i) Ninety Dollars ($90.00) plus any dividends declared but unpaid thereon for the Series A Preferred (the "Series A Redemption Price") or (ii) Four Hundred Dollars ($400.00) plus any dividends declared but unpaid thereon for the Series B Preferred (the "Series B Redemption Price") The term "Redemption Price" shall mean the Series A Redemption Price or Series B Redemption Price, as applicable. (d) Redemption Notice by Company. Not less than ten (10) days nor ---------------------------- more than thirty (30) days prior to the Initial Series A Redemption Date, Initial Series B Redemption Date and any other Redemption Date, the Corporation shall mail written notice (a "Redemption Notice"), postage prepaid, to each holder of record of Convertible Preferred Stock at the holder's post office address last shown on the records of the Corporation. Each Redemption Notice shall state: (i) the number of outstanding shares of: (A) Series A Preferred to be redeemed on such Series A Redemption Date, which in any event shall equal no more than one-third (1/3) of all shares of Series A Preferred outstanding as of the Initial Series A Redemption Date, and no more than one-half (1/2) of all shares of Series A Preferred outstanding on any subsequent Series A Redemption Date (other than a Deferred Series A Redemption Date, in which case the Redemption Notice shall specify no more than that number of shares of Series A Preferred that were not redeemed by the Corporation on the most recent Series A Redemption Date due to a lack of sufficient funds legally available for such redemption); or (B) Series B Preferred to be redeemed on such Series B Redemption Date, which in any event shall equal no more than one- third -13- (1/3) of all shares of Series B Preferred outstanding as of the Initial Series B Redemption Date, and no more than one-half (1/2) of all shares of Series B Preferred outstanding on any subsequent Series B Redemption Date (other than a Deferred Series B Redemption Date, in which case the Redemption Notice shall specify no more than that number of shares of Series B Preferred that were not redeemed by the Corporation on the most recent Series B Redemption Date due to a lack of sufficient funds legally available for such redemption); (ii) the number of shares of the Series A Preferred or Series B Preferred, as applicable, held by the holder which the Corporation shall redeem on such Redemption Date in accordance with the provisions hereof; (iii) that the shares of Series A Preferred or Series B Preferred, as applicable, to be redeemed by the Corporation shall be redeemed on such Redemption Date, which shall be specified as a calendar date and shall be a business day; (iv) the applicable Redemption Price; and (v) the time and manner in, and place at, which the holder is to surrender to the Corporation the certificate or certificates representing the shares of Series A Preferred or Series B preferred, as applicable, to be redeemed on the Redemption Date. (e) Surrender of Stock. On or before each Redemption Date, each ------------------ holder of Convertible Preferred Stock to be redeemed pursuant to this Section 6 shall surrender to the Corporation the certificate or certificates representing the shares to be redeemed on such Redemption Date, in the manner and at the place designated in the Redemption Notice, and upon each such Redemption Date the Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof, or to such payee as such owner may designate in writing to the Corporation prior to each such Redemption Date, and each surrendered certificate shall be canceled and retired. (f) Termination of Rights. If a Redemption Notice is duly given --------------------- and if, on or prior to a Redemption Date, the Redemption Price is paid, then, notwithstanding that the certificates evidencing any of the shares of Convertible Preferred Stock so called for redemption have not been surrendered, all rights with respect to such shares shall cease forthwith after such Redemption Date cease. 7. Reissuance of Preferred Stock. ----------------------------- No shares of Convertible Preferred Stock which are redeemed, purchased or acquired by the Corporation or converted into Common Stock shall be reissued, and all such share shall be canceled and eliminated from the shares which the Corporation shall be authorized to issue. -14- SIXTH: The foregoing amendment was approved by the holders of the requisite number of shares of said Corporation in accordance with Sections 902 and 903 of the General Corporation Law of California; the total number of outstanding shares of each class entitled to vote with respect to the foregoing amendment was two hundred thousand shares of Class A Common Stock, two million eight hundred thousand shares of Class B Common Stock and one hundred seventy- one thousand one hundred sixty-four (171,164) shares of Series A Preferred. The number of shares voting in favor of the foregoing amendment equaled or exceeded the vote required, such required vote being (i) a majority of the outstanding shares of Common Stock and Series A Preferred voting together as a single class, and (ii) a majority of the outstanding shares of Series A Preferred voting as a single class. The undersigned declares under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true of my own knowledge. DATE: March 22, 2000 /s/ Richard N. Nottenburg ------------------------------ Richard N. Nottenburg, President and Secretary -15- CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF MULTILINK TECHNOLOGY CORPORATION, a California corporation The undersigned, Richard N. Nottenburg hereby certifies that: FIRST: He is the duly elected and acting President and Secretary of Multilink Technology Corporation, a California corporation. SECOND: Paragraph A of ARTICLE III of the Articles of Incorporation of this corporation is amended to read as follows: "ARTICLE III A. Classes of Stock; Stock Split. 1. Classes of Stock. This corporation is authorized to issue three classes of stock to be designated, respectively, "Class A Common Stock," "Class B Common Stock" and "Preferred Stock." The Class A Common Stock and Class B Common Stock are hereinafter referred to collectively as "Common Stock." The total number of shares of stock which the corporation is authorized to issue is Three Hundred Ten Million (310,000,000) shares. Two Hundred Million (200,000,000) share shall be Class A Common Stock, par value $.0001 per share, One Hundred Million (100,000,000) shares shall be Class B Common Stock, par value $.0001 per share, and Ten Million (10,000,000) shares shall be Preferred Stock, par value $.0001 per share. 2. Stock Split. Upon the Amendment of this article to read as herein set forth, each outstanding share of Common Stock and Preferred Stock of the corporation will automatically be split up and converted into ten (10) shares of each said class or series." THIRD: The foregoing amendment, hereby provides for equal treatment for each outstanding share of the same class or series of all Common and Preferred Stock of the Corporation. The designation of rights, preferences, privileges and restrictions of the Corporation's Preferred Stock as set forth in the Amended and Restated Certificate of Determination of Rights and Preferences of Preferred Shares of the Corporation, remain in effect and unchanged. FOURTH: The foregoing amendment of Articles of Incorporation has been duly approved by the Corporation's board of directors. FIFTH: The foregoing amendment of Articles of Incorporation has been duly approved by the holders of the requisite number of shares of said corporation in accordance with Sections 902 and 903 of the General Corporation Law of California; the total number of outstanding shares of each class entitled to vote with respect to the foregoing amendment was two hundred thousand (200,000) shares of Class A Common Stock, two million eight hundred thousand (2,800,000) shares of Class B Common Stock, one hundred seventy-one thousand one hundred sixty-four (171,164) shares of Series A Preferred Stock and one hundred thousand (100,000) shares of Series B Preferred Stock. The number of shares voting in favor of the foregoing amendment equaled or exceeded the vote required, such required vote being (i) a majority of the outstanding shares of Common Stock and Series A Preferred and Series B Preferred voting together as a single class, (ii) a majority of the outstanding shares of Class A Common Stock voting as a single class, (iii) a majority of the outstanding shares of Class B Common Stock voting as a single class, (iv) a majority of the outstanding shares of Series A Preferred voting as a single class, and (v) a majority of the Series B Preferred voting as a single class. -2- The undersigned further declares under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of his own knowledge. IN WITNESS WHEREOF, the undersigned has executed this certificate on June 21, 2000. /s/ Richard N. Nottenburg, -------------------------------- Richard N. Nottenburg, President and Secretary F I L E D In the office of the Secretary of State of the State of California JUN 22 2000 /s/ Bill Jones BILL JONES, Secretary of State 1748156 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF DETERMINATION OF RIGHTS AND PREFERENCES OF PREFERRED SHARES OF MULTILINK TECHNOLOGY CORPORATION, a California corporation PURSUANT TO THE PROVISIONS OF SECTION 401 OF THE GENERAL CORPORATION LAW OF THE STATE OF CALIFORNIA The undersigned, Richard N. Nottenburg hereby certifies that: FIRST: He is the duly elected and acting President and Secretary of Multilink Technology Corporation, a California corporation. SECOND: That the Board of Directors of the Corporation, pursuant to the authority so vested in it by the Amended and Restated Articles of Incorporation of the Corporation, as amended, and in accordance with the provisions of Section 401 of the general Corporation Law of the State of California (the "California Corporation Law"), duly adopted the following resolutions amending the designation of rights, preferences, privileges and restrictions of the Corporation's Series A Convertible Preferred Stock, par value $0.0001 per share (the "Series A Preferred") and Series B Convertible Preferred Stock, par value $0.0001 per share (the "Series B Preferred"). THIRD: That the following resolutions designate one million seven hundred eleven thousand six hundred forty (1,711,640) shares of Series A Preferred, and that as of the date hereof, one hundred seventy-one thousand one hundred sixty-four (171,164) shares of Series A Preferred have been issued. FOURTH: That the following resolutions designate one million five hundred thousand (1,500,000) shares of Series B Preferred, and that as of the date hereof, one hundred thousand (100,000) shares of Series B Preferred have been issued. FIFTH: The resolutions duly adopted by the Board of Directors of the Corporation are as follows: WHEREAS, the Amended and Restated Articles of Incorporation, as amended, of the Corporation authorized Preferred Stock consisting of ten million (10,000,000) shares, par value of $0.0001 per share (the "Preferred Stock"), issuable from time to time in one or more series: WHEREAS, the Board of Directors of the Corporation is authorized, subject to limitations prescribed by law and by the provisions of Article III of the Corporation's Amended and Restated Articles of Incorporation, as amended, to establish and fix the number of shares to be included in any series of Preferred Stock and the designation of rights, preferences, privileges and restrictions of the shares of such series; WHEREAS, the Board of Directors of the Corporation previously approved and filed with the California Secretary of State an Amended and Restated Certificate of Determination of Rights and Preferences of Preferred Shares (the "Certificate of Determination"); WHEREAS, it is the desire of the Board of Directors to amend the Certificate of Determination to increase the authorized number of shares to be included in the Series A Preferred and the Series B Preferred. NOW, THEREFORE, BE IT RESOLVED, that pursuant to Article III of the Corporation's Amended and Restated Articles of Incorporation, as amended, the following series of Preferred Stock shall have the authorized number of shares as set forth herein: (a) one million seven hundred eleven thousand, six hundred forty (1,711,640) shares shall be designated Series A Preferred and (b) one million five hundred thousand (1,500,000) shares shall be designated Series B Preferred. Such shares of Convertible Preferred Stock shall have the rights, preferences, privileges and restrictions set forth in the Certificate of Determination, as amended. FIFTH: The foregoing amendment of Amended and Restated Certificate of Determination of Rights and Preferences of Preferred Shares has been duly approved by the holders of the requisite number of shares of said corporation in accordance with Sections 902 and 903 of the General Corporation Law of California; the total number of outstanding shares of each class entitled to vote with respect to the foregoing amendment was two hundred thousand (200,000) shares of Class A Common Stock, two million eight hundred thousand (2,800,000) shares of Class B Common Stock, one hundred seventy-one thousand one hundred sixty-four (171,164) shares of Series A Preferred Stock and one hundred thousand (100,000) shares of Series B Preferred Stock. The number of shares voting in favor of the foregoing amendment equaled or exceeded the vote required, such required vote being (i) a majority of the outstanding shares of Common Stock and Series A Preferred and Series B Preferred voting together as a single class, (ii) a majority of the outstanding shares of Class A Common Stock voting as a single class, (iii) a majority of the outstanding shares of Class B Common Stock voting as a single class, (iv) a majority of the outstanding shares of Series A Preferred voting as a single class, and (v) a majority of the Series B Preferred voting as a single class. -2- The undersigned further declares under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of his own knowledge. IN WITNESS WHEREOF, the undersigned has executed this certificate on June 21, 2000 /s/ Richard N. Nottenburg -------------------------------- Richard N. Nottenburg, President and Secretary [SEAL] EX-3.2 3 0003.txt AMENDED AND RESTATED BYLAWS EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF MULTILINK TECHNOLOGY CORPORATION ARTICLE I CORPORATE OFFICES 1.1 PRINCIPAL OFFICE The Board of Directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside California and the corporation has one or more business offices in California, then the Board of Directors shall fix and designate a principal business office in California. 1.2 OTHER OFFICES The Board of Directors may at any time establish branch or subordinate offices at any place or places. ARTICLE II MEETINGS OF SHAREHOLDERS 2.1 PLACE OF MEETINGS Meetings of shareholders shall be held at any place within or outside the State of California designated by the Board of Directors. In the absence of any such designation, shareholders meetings shall be held at the principal executive office of the corporation or any place consented to in writing by all persons entitled to vote at such meeting, given before or after the meeting and filed with the Secretary of the corporation. 2.2 ANNUAL MEETING An annual meeting of shareholders shall be held each year on a date and at a time designated by the Board of Directors. At that meeting, directors shall be elected. Any other proper business may be transacted at the annual meeting of shareholders. 2.3 SPECIAL MEETINGS Special meetings of the shareholders may be called at any time, subject to the provisions of Sections 2.4 and 2.5 of these Bylaws, by the board of Directors, the Chairman of the Board, the President or the holders of shares entitled to cast not less than twenty-five percent (25%) of the votes at that meeting. If a special meeting is called by anyone other than the Board of Directors or the President or the Chairman of the Board, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by other written communication to the Chairman of the Board, the President, any Vice President or the Secretary of the corporation. The officer receiving the request shall cause notice to be given to the shareholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of these Bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, then the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the Board of Directors may be held. 2.4 NOTICE OF SHAREHOLDERS MEETINGS All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 2.5 of these Bylaws not less than ten (10) (or, if sent by third-class mail pursuant to Section 2.5 of these Bylaws, not less than thirty (30)) nor more than sixty (60) days before the date of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date, and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted, and no business other than that specified in the notice may be transacted, or (ii) in the case of the annual meeting, those matters which the Board of Directors, at the time of the mailing of the notice, intends to present for action by the shareholders, but, subject to the provisions of the next paragraph of this Section 2.4, any proper matter may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by the Board for election. If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the California Corporations Code (the "Code"), (ii) an amendment of the Articles of Incorporation, pursuant to Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other than in accordance with the rights of any outstanding preferred shares, pursuant to Section 2007 of the Code, then the notice shall also state the general nature of that proposal. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Notice of a shareholders meeting shall be given either personally or by first-class mail, or, if the corporation has outstanding shares held or record by five hundred (500) or more persons (determined as provided in Section 605 of the Code) on the record date for the shareholders meeting, notice may be sent by third-class mail, or other means of written communication, addressed to the shareholder at the address of the shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal executive office of the -2- corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located. The notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. If any notice (or any report referenced in Article VII of these Bylaws) addressed to a shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice. An affidavit of mailing of any notice or report in accordance with the provisions of this Section 2.5, executed by the Secretary, Assistant Secretary or any transfer agent, shall be prima facie evidence of the giving of the notice or report. 2.6 QUORUM Unless otherwise provided in the Articles of Incorporation of the corporation, shares entitled to vote and holding a majority of the voting power, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by shares holding at least a majority of the voting power required to constitute a quorum. In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented either in person or by proxy, but no their business may be transacted, except as provided in the last sentence of the preceding paragraph. 2.7 ADJOURNED MEETING NOTICE Any shareholders meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the shares entitled to vote and holding a majority of the voting power, represented in person or by proxy, at that meeting. When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if its time and place are announced at the meeting at which the adjournment is taken. However, if the adjournment is for more than forty-five (45) days from the date set for the original meeting or if a new record date for the adjourned meeting is fixed, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.4 and 2.5 of these Bylaws. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. -3- 2.8 VOTING The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 2.11 of these Bylaws, subject to the provisions of Sections 702 through 704 of the Code (relating to voting shares held by a fiduciary, in the name of a corporation, or in joint ownership). Elections for directors and voting on any other matter at a shareholders meeting need not be by ballot unless a shareholder demands election by ballot at the meeting and before the voting begins. Except as provided in the last paragraph of this Section 2.8, or as may be otherwise provided in the Articles of Incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the shareholders. Any holder of shares entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or may vote them against the proposal other than elections to office, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares which the shareholder is entitled to vote. The affirmative vote of shares holding a majority of the voting power, represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the voting power required to constitute a quorum), shall be the act of the shareholders, unless the vote of a greater number of voting by classes is required by the Code or by the Articles of Incorporation. At a shareholders meeting at which directors are to be elected, a shareholder shall be entitled to cumulate votes either (i) by giving one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are normally entitled or (ii) by distributing the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit, if the candidate or candidates' names have been placed in nomination prior to the voting and the shareholder has given notice prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination. The candidates receiving the highest number of affirmative votes, up to the number of directors to be elected, shall be elected; votes against any candidate and votes withheld shall have no legal effect. Notwithstanding the foregoing, at such time as the corporation becomes a listed corporation (as such term is defined in Section 301.5(d) of the California Corporations Code), shareholders shall no longer be entitled to cumulate their votes for candidates in an election of directors. 2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, are as valid as though they had been taken at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by -4- proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. Neither the business to be transacted at nor the purpose of any annual or special meeting of shareholders need be specified in any written waiver of notice or consent to the holding of the meeting or approval of the minutes thereof, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 2.4 of these Bylaws, the waiver of notice or consent or approval shall state the general nature of the proposal. All such waivers, consents, and approval shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at that meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice of such meeting but not so included, if such objection is expressly made at the meeting. 2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares having not less than the minimum number of notes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. However, a director may be elected at any time to fill any vacancy on the Board of Directors, provided that the vacancy was not created by removal of a director and that it has not been filled by the directors, by the written consent of shares holding a majority of the voting power that are entitled to vote for the election of directors. All such consents shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares, or a personal representative of the shareholder, or their respective proxy holders, may revoke the consent by a writing received by the Secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the Secretary. If the consents of all shareholders entitled to vote have not been solicited in writing, the Secretary shall give prompt notice of any corporate action approved by the shareholders without a meeting by less than unanimous written consent to those shareholders entitled to vote who have not consented in writing. Such notice shall be given in the manner specified in Section 2.5 of these Bylaws. In the case of approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, -5- the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval, unless the consents of all shareholders entitled to vote have been solicited in writing. Notwithstanding the foregoing, at such time as the corporation becomes a listed corporation (as such term is defined in Section 301.5(d) of the California Corporations Code), shareholders shall no longer be entitled to cumulate their votes for candidates in an election of directors. 2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVEN CONSENTS In order that the corporation may determine the shareholders entitled to notice of any meeting or to vote, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days prior to the date of such meeting nor more than sixty (60) days before any other action. Shareholders at the close of business on the record date are entitled to notice and to vote, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation or the Code. A determination of shareholders or record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five (45) days from the date set for the original meeting. If the Board of Directors does not so fix a record date: (a) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (b) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given, or (ii) when prior action by the Board of Directors has been taken, shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. The record date for any other purpose shall be as provided in Section 8.1 of these Bylaws. 2.12 PROXIES Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the Secretary of the corporation. A proxy shall be deemed signed if the shareholder's name or other authorization is placed on the proxy (whether by manual signature, -6- typewriting, telegraphic or electronic transmission or otherwise) by the shareholder or the shareholder's attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) the person who executed the proxy revokes it prior to the time of voting by delivering a writing to the corporation stating that the proxy is revoked or by executing a subsequent proxy and presenting it to the meeting or by attendance at such meeting and voting in person, or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date thereof, unless otherwise provided in the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Code. 2.13 INSPECTORS OF ELECTION In advance of any meeting of shareholders, the Board of Directors may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed or designed or if any persons so appointed fail to appear or refuse to act, then the Chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election (or persons to replace those who so fail to appear) at the meeting. The number of inspectors shall be either one (1) or three (3). If appointed at a meeting on the request of one (1) or more shareholders or proxies, shares holding a majority of the voting power, represented in person or by proxy, shall determine whether one (1) or three (3) inspectors are to be appointed. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies, receive votes, ballots or consents, bear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the Code, any limitations in the Articles of Incorporation, and these Bylaws, relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. The Board of Directors may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board of Directors. -7- 3.2 NUMBER OF DIRECTORS The authorized number of directors of the corporation shall be not less than four (4) nor more than seven (7) (which in no event shall be greater than two times the stated minimum minus one), and the exact number of directors shall be seven (7) until changed within the limits specified above, by a resolution amending such exact number, duly adopted by the Board of Directors or by the shareholders. The minimum and maximum number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the Articles of Incorporation or by an amendment to this Bylaw duly adopted by vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the fixed number or minimum number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than sixteen and two-third percent (16-2/3%) of the outstanding shares entitled to vote thereon. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS At each annual meeting of shareholders, directors shall be elected to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified, except in the case of the death, resignation, or removal of such a director. 3.4 REMOVAL The entire Board of Directors or any individual director may be removed from office without cause by the affirmative vote of shares holding a majority of the voting power that are entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director's removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election at which the same total number of votes cast were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the same time of such director's most recent election were then being elected. 3.5 RESIGNATION AND VACANCIES Any director may resign effective upon giving oral or written notice to the Chairman of the Board, the President, the Secretary, or the Board of directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation of a director is effective at a future time, the Board of Directors may elect a successor to take office when the resignation becomes effective. Vacancies on the Board of Directors may be filled by a majority of the remaining directors, or if the number of directors then in office is less than a quorum by (i) unanimous -8- written consent of the directors then in office, (ii) the affirmative vote of a majority of directors then in office at a meeting held pursuant to notice or waiver of notice, or (iii) a sole remaining director; however, a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the affirmative vote of shares holding a majority of the voting power represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the voting power required to constitute a quorum), or by the unanimous written consent of all shares entitled to vote thereon. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified, or until his or her death, resignation or removal. A vacancy or vacancies in the Board of Directors shall be deemed to exist (i) in the event of the death, resignation or removal of any director, (ii) if the Board of Directors resolution declares vacant the office of a director who has been declared of unsound mind by an order of court of convicted or a felony, (iii) if the authorized number of directors is increased, or (iv) if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the full number of directors to be elected at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent, other than to fill a vacancy created by removal, shall require the consent of shares holding a majority of the voting power that are entitled to vote thereon. A director may not be elected by written consent to fill a vacancy created by removal except by unanimous consent of all shares entitled to vote for the election of directors. 3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE Regular meetings of the Board of Directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the Board of Directors. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the Board of Directors may be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation. Members of the Board of Directors may participate in a meeting through the use of a conference telephone or similar communications equipment, so long as all directors participating in such meeting can hear one another. Participation in a meeting pursuant to this paragraph constitutes presence in person at such meeting. 3.7 REGULAR MEETINGS Regular meetings of the Board of Directors may be held without notice if the time and place of such meetings are fixed by the Board of Directors. -9- 3.8 SPECIAL MEETINGS; NOTICE Subject to the provisions of the following paragraph, special meetings of the Board of Directors for any purpose or purposes may be called at any time by the Chairman of the Board, the President, any Vice President, the Secretary or any two (2) directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first class mail, telegram, charges prepaid, or by telecopier, addressed to each director at the director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telecopier or telegram, it shall be delivered personally or by telephone or by telecopier or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. An oral notice given personally or by telephone may be communicated either to the director or to the person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting. 3.9 QUORUM A majority of the authorized number of directors shall constitute a quorum of the transaction of business, except to adjourn as provided in Section 3.10 of these Bylaws. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present is the act of the Board of Directors, subject to the provisions of Section 310 of the Code (as to the approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the Code (as to the appointment of committees), Section 317(e) of the Code (as to the indemnification of directors), the Articles of Incorporation, and other applicable law. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. 3.10 WAIVER OF NOTICE Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack or notice to such director. All such waivers, consents, and approval shall be filed with the corporate records or be made a part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the Board of Directors. -10- 3.11 ADJOURNMENT A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. 3.12 NOTICE OF ADJOURNMENT If the meeting is adjourned for over twenty-four (24) hours, notice of any adjournment to another time and place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. 3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board of Directors individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board of Directors. Such action by written consent shall have the same force and effect as a unanimous vote of the Board of Directors. 3.14 FEES AND COMPENSATION OF DIRECTORS Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the Board of Directors. This Section 3.14 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for those services. 3.15 APPROVAL OF LOANS TO OFFICERS If these Bylaws have been approved by the corporation's shareholders in accordance with the Code, the corporation may, upon the approval of the Board of Directors alone, make loans of money or property to, or guarantee the obligations of, any officer of the corporation or of its parent, if any, whether or not a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties provided that (i) the Board of Directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation, (ii) the corporation has outstanding shares of record by 100 or more persons (determined as provided in Section 605 of the Code) on the date of approval of the Board of Directors, and (iii) the approval of the Board of Directors is by a vote sufficient without counting the vote of any interested director or directors. Notwithstanding the foregoing, the corporation shall have the power to make loans permitted by the Code. -11- ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two (2) or more directors, to serve at the pleasure of the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of the directors. Any such committee shall have authority to act in the manner and to the extent provided in the resolution of the Board of Directors and may have all the authority of the Board of Directors, except with respect to: (a) The approval of any action which, under the Code, also requires shareholders' approval or approval of the outstanding shares. (b) The filling of vacancies of the Board of Directors or of any committee. (c) The fixing of compensation of the directors for serving on the Board of Directors or on any committee. (d) The amendment or repeal of these Bylaws or the adoption of new Bylaws. (e) The amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable. (f) A distribution to the shareholders of the corporation, except at a rate, in a periodic amount or within a price range set forth in the Articles of Incorporation or determined by the Board of Directors. (g) The appointment of any other committee of the Board of Directors or the members thereof . 4.2 MEETINGS AND ACTIONS OF COMMITTEES Meetings and actions of committee shall be governed by, and held and taken in accordance with, the provisions of Article III of these Bylaws, Section 3.6 (place of meetings), Section 3.7 (regular meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment), Section 3.12 (notice of adjournment), and Section 3.13 (action without meeting), with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of the Committees may also be called by resolution of the Board of Directors, and that notice of special meetings of committees shall also be given to all -12- alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. ARTICLE V OFFICERS 5.1 OFFICERS The officers of a corporation shall be a President, a Secretary, and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of officers may be held by the same person. 5.2 APPOINTMENT OF OFFICERS The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws, shall be chosen by the Board and serve at the pleasure of the Board of Directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS The Board of Directors may appoint, or may empower the Chairman of the Board or the President to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine. 5.4 REMOVAL OR RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, all officers serve at the pleasure of the Board of Directors and any officer may be removed, either with or without cause, by the Board of Directors at any regular or special meeting of the Board of Directors or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. -13- 5.5 VACANCY IN OFFICES A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed by these Bylaws for regular appointments to that office. 5.6 CHAIRMAN OF THE BOARD The Chairman of the Board, if such an officer be elected, shall, if present, preside at meetings of the Board of Directors and exercise and perform such other powers and duties as may from time to time be assigned by the Board of Directors or as may be prescribed by these Bylaws. If there is no President, then the Chairman of the Board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these Bylaws. 5.7 PRESIDENT Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation. The President shall preside over all meetings of the shareholders and, in the absence or nonexistence of a Chairman of the Board, at all meetings of the Board of Directors. The President shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. 5.8 VICE PRESIDENTS In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a Vice President designated by the Board of Directors, shall perform all the duties of the President and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the President or the Chairman of the Board. 5.9 SECRETARY The Secretary shall keep or cause to be kept, at the principal executive office of the corporation or other such place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors and shareholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. -14- The Secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and dates of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meeting of shareholders and of the Board of Directors required to be given by law or by these Bylaws. The Secretary shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform other such duties as may be prescribed by the Board of Directors or by these Bylaws. 5.10 CHIEF FINANCIAL OFFICER The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS 6.1 INDEMNIFICATION OF DIRECTORS The corporation shall, to the maximum extent and in the manner permitted by the Code, indemnify each of its directors against expenses (as defined in Section 317(a) of the Code), judgment, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was a director of the corporation. For purposes of this Article VI, a "director" of the corporation includes any person (i) who is or was a director of the corporation, (ii) who is or was serving at the request of the corporation as a director of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS The corporation shall have the power, to the extent and in the manner permitted by the Code, to indemnify each of its employees, officers, and agents (other than directors) against expenses (as defined in Section 317(a) of the Code), judgements, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an employee, officer, or agent of the corporation. For purposes of this Article VI, for an "employee" or "officer" or "agent" of the corporation (other than a director) includes any person (i) who is or -15- was an employee, officer, or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee, officer, or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or (ii) who was an employee, officer, or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 PAYMENT OF EXPENSES IN ADVANCE Expenses and attorneys' fees incurred in defending any civil or criminal action or proceeding for which indemnification is required pursuant to Section 6.1, or if otherwise authorized by the Board of Directors, shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such an amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI. 6.4 INDEMNITY NOT EXCLUSIVE The indemnification provided by the Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of shareholders or directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. The rights to indemnity hereunder shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors, and administrators of the person. 6.5 INSURANCE INDEMNIFICATION The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation against any liability asserted against or incurred by such person in such capacity or arising out of that person's status as such, whether or not the corporation would have the power to indemnify that person against such liability under the provisions of this Article VI. 6.6 CONFLICTS No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where is appears: (a) That it would be inconsistent with the provisions of the Articles of Incorporation, these Bylaws, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. -16- 6.7 RIGHT TO BRING SUIT If a claim under this Article VI is not paid in full by the corporation within 90 days after a written claim has been received by the corporation (either because the claim is denied or because no determination is made), the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall also be entitled to be paid the expenses of prosecuting such claim. The corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the Code for the corporation to indemnify the claimant for the claim. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he or she has met the applicable standard of conduct, if any, nor an actual determination by the corporation (including the Board of Directors, independent legal counsel, or its shareholders) that the claimant has not met the applicable standard of conduct, shall be a defense to such action or create a presumption for the purposes of such action that the claimant has not met the applicable standard of conduct. 6.8 INDEMNITY AGREEMENTS The Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the corporation, or any person who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, or any person who was a director, officer, employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation, providing for indemnification rights equivalent to or, if the Board of Directors so determines and to the extent permitted by applicable law, greater than, those provided for in this Article VI. 6.9 AMENDMENT, REPEAL OR MODIFICATION Any amendment, repeal or modification of any provision of this Article VI shall not adversely affect any right or protection of a director, employee, officer or agent of the corporation existing at the time of such amendment, repeal or modification. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER The corporation shall keep either at its principal executive office or at the office of its transfer agent or registrar (if either be appointed), as determined by resolution of the Board of Directors, a record of its shareholders listing the names and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who held at least one percent -17- (1%) of such voting shares and have filed a Schedule 14A with the United States Securities and Exchange Commission relating to the election of directors, shall have an absolute right to do either or both of the following (i) inspect and copy the record of shareholders' names, addresses, and shareholdings during usual business hours upon five (5) days' prior written demand upon the corporation, or (ii) obtain from the transfer agent of the corporation, upon written demand and upon the tender of such transfer agent's usual charges for such list (the amount of which charges shall be stated to the shareholder by the transfer agent upon request), a list of the shareholders' names and addresses who are entitled to vote for the election of the directors, and their shareholdings, as of the most recent record date for which it has been compiled or as of the date specified by the shareholder subsequent to the date of demand. The list shall be made available on or before the later of five (5) business days after the demand is received or the date specified therein as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection or copying by any shareholder or holder of a voting trust certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to the holder's interests as a shareholder or holder of a voting trust certificate. Any inspection and copying under this Section 7.1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand. 7.2 MAINTENANCE AND INSPECTION OF BYLAWS The corporation shall keep at its principal executive office or, if its principal executive office is not in the State of California, at its principal business office in California, the original or a copy of these Bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during business hours. If the principal executive office is outside the State of California and the corporation has no principal business office in such state, then it shall, upon the written request of any shareholder, furnish to such shareholder a copy of these Bylaws as amended to date. 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS The accounting books and records and the minutes of proceedings of the shareholders and the Board of Directors, and committees of the Board of Directors shall be kept at such place or places as are designated by the Board of Directors or, in absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder's interests as a shareholder or as a holder of a voting trust certificate. Such inspection by a shareholder or a holder of a voting trust certificate may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts. Such rights of inspections shall extend to the records of each subsidiary corporation of the corporation. -18- 7.4 INSPECTION BY DIRECTORS Every director shall have the absolute right at any reasonable time to inspect and copy all books, records, and documents of every kind and to inspect the physical properties of the corporation and each of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts. 7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER The Board of Directors shall cause an annual report to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal year adopted by the corporation. Such report shall be sent to the shareholders at least fifteen (15) (or, if sent by third class mail, thirty-five (35)) days prior to the annual meeting of shareholders to be held in the next fiscal year and in the manner specified in Section 2.5 of these Bylaws for giving notice to shareholders of the corporation. The annual report shall contain a balance sheet as of the end of the fiscal year and an income statement and statement of changes in financial position for the fiscal year, accompanied by any report thereon of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation. The foregoing requirement of an annual report is hereby waived so long as the shares of the corporation are held by fewer than one hundred (100) holders of record (determined as provided in Section 605 of the Code). 7.6 FINANCIAL STATEMENTS If no annual report for the fiscal year has been sent to shareholders, then the corporation shall, upon the written request of any shareholder made more than one hundred twenty (120) days after the close of such fiscal year, deliver or mail to the person making the request, within thirty (30) days thereafter, a copy of a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year. A shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of the corporation may make a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the current fiscal year ended more than thirty (30) days prior to the date of the request and a balance sheet of the corporation as of the end of that period. The statements shall be delivered or mailed to the person making the request within thirty (30) days thereafter. A copy of the statements shall be kept on file in the principal office of the corporation for twelve (12) months and it shall be exhibited at all reasonable times to any shareholder demanding an examination of the statements or a copy shall be mailed to the shareholder. If the corporation has not sent to the shareholders its annual report for the last fiscal year, the statements referred to in the first paragraph of this section 7.6 shall likewise be delivered or mailed to the shareholder or shareholders within thirty (30) days after the request. -19- The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report thereon, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation. 7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Secretary or Assistant Secretary of this corporation, or any other person authorized by the Board of Directors or the President or a Vice President, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or by power of attorney duly executed by such person having the authority. ARTICLE VIII GENERAL MATTERS 8.1 RECORD DATE FOR PURPOSED OTHER THAN NOTICE AND VOTING For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action (other than with respect to notice or voting at a shareholders meeting or action by shareholders by written consent without a meeting), the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days prior to any such action. Only shareholders of record at the close of business on the record date are entitled to receive the dividend, distribution or allotment of rights, or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided for in the Articles of Incorporation or the Code. If the Board of Directors does not so fix a record date, then the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto or the sixtieth (60th) day prior to the date of that action, whichever is later. 8.2 CHECKS; DRAFTS; EVIDENCE OF INDEBTEDNESS From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of or on behalf of the corporation; such authority may be general or confined to specific -20- instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.4 CERTIFICATE FOR SHARES A certificate or certificates for shares of the corporation shall be issued to each shareholder when any such shares are fully paid. The Board of Directors may authorize the issuance of certificates for shares partly paid provided that these certificates shall state the total amount of the consideration to be paid for them and the amount actually paid. All certificates shall be signed in the name of the corporation by the Chairman of the Board or the Vice Chairman of the Board or the President or a Vice President and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or an Assistant Secretary, certifying the number of shares and the class and series of shares owned by the shareholder. Any or all of the signatures on the certificates may be by facsimile. In case any officer, transfer agent or registrar has signed or whose facsimile signature has been placed on a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent or registrar at the date of issue. 8.5 LOST CERTIFICATES Except as provided in this Section 8.5, no new certificate for shares shall be issued to replace a previously issued certificate unless the later is surrendered to the corporation or its transfer agent or registrar and cancelled at the same time. The Board of Directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed (as evidenced by a written affidavit or affirmation of such fact), authorize the issuance of replacement certificates on such terms and conditions as the Board of Directors may require; the Board of Directors may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate. 8.6 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the code shall govern the construction of these Bylaws. Without limiting the generality of the provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. -21- ARTICLE IX AMENDMENTS 9.1 AMENDMENT BY SHAREHOLDERS New Bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of outstanding shares entitled to vote; provided, however, that if the Articles of Incorporation of the corporation set forth the number of authorized directors of the corporation, then the authorized number of directors may be changed only by an amendment of the Articles of Incorporation. 9.2 AMENDMENT BY DIRECTORS Subject to the rights of the shareholders as provided by Section 9.1 of these Bylaws, Bylaws, other than a Bylaw or an amendment of a Bylaw changing the authorized number of directors (except to fix the authorized number of directors pursuant to a Bylaw providing for a variable number of directors), may be adopted, amended or repealed by the Board of Directors. 9.3 RECORD OF AMENDMENTS Whenever an amendment or new Bylaw is adopted, it shall be copied in the book of minutes with the original Bylaws. If any Bylaw is repealed, the face of repeal, with the date of the meeting at which the repeal was enacted or written consent was filed, shall be stated in said book of minutes. ARTICLE X INTERPRETATION Reference in the Bylaws to any provision of the California Corporations Code shall be deemed to include all amendments thereof. -22- EX-9.1 4 0004.txt AMENDED AND RESTATED VOTING TRUST AGREEMENT EXHIBIT 9.1 AMENDED AND RESTATED VOTING TRUST AGREEMENT ------------------------------------------- THIS AMENDED AND RESTATED VOTING TRUST AGREEMENT (this "Agreement") is entered into and effective this 8th day of March, 1999, by and between the following persons, both holders of MULTILINK TECHNOLOGY CORPORATION, a California corporation (the "Corporation"): JENS ALBERS, an individual ("Shareholder"), and RICHARD N. NOTTENBURG, an individual, ("Trustee"). Shareholder and Trustee are collectively referred to herein as the "Parties". WHEREAS, the Parties desire to amend and restate the Voting Trust Agreement (the "Original Agreement") dated October 24, 1996 (the "Effective Date") as modified by the Release of Certain Shares from Voting Trust Agreement dated May 31, 1997 (the "Release") by entering into this Agreement which is to reflect the changes that are a result of the reclassification of the Corporation's capital stock pursuant to the filing of the Amended and Restated Articles of Incorporation of the Corporation with the California Secretary of State on March 8, 1999. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the recital set forth above which are incorporated herein by reference, and other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows: 1. Exchange Of Shares For Voting Trust Certificates. ------------------------------------------------ (a) Exchange of Shares by Trustee. Upon the execution of this ----------------------------- Agreement, Trustee shall deliver the shares of the Corporation's capital stock that Trustee holds for the benefit of Shareholder pursuant to the Original Agreement (as adjusted by the Release) to the Corporation and Trustee shall seek receipt of a properly issued share certificate for Eight Hundred Forty Eight Thousand (848,000) shares of the Corporation's Class B Common Stock (the "Shares"). The Trustee shall hold the Shares subject to the terms of this Agreement. Shareholder shall have no right to withdraw any of the Shares prior to termination of this Agreement as hereinafter provided. (b) Issuance of Voting Trust Certificate. The Shares shall be held in ------------------------------------ the name of the Trustee on the Corporation's books and records. The Trustee shall, upon receipt of the Shares, issue and deliver to the Shareholder a voting trust certificate, in the form shown in Exhibit "A" to this Agreement (the ----------- "Certificate"), for the number of Shares so transferred, subject to satisfying any applicable qualification requirements under the California Corporate Securities Law. 2. Trustee Powers; Rights; Compensation. The Trustee may also serve the ------------------------------------ Corporation as an officer or director, or in any other capacity. The Trustee shall have all of the rights, privileges and powers of a Shareholder of the Corporation with respect to the Shares, subject to the limitations set forth below. (a) Trustee Voting Rights. During the existence of this Trust, the --------------------- Trustee shall have the sole and exclusive right to vote the Shares as set forth herein. The Trustee may exercise such right in person or by proxy at all shareholder meetings and in all proceedings in which the vote or consent of shareholders is or may be required by the Articles of Incorporation or bylaws of the Corporation, or as a matter of law. (b) Notices, Dividends and Distributions. The Trustee shall forward ------------------------------------ to the Shareholder copies of all notices, reports, to the Shareholder statements and other communications received from the Corporation. The Trustee shall distribute to the Shareholder, promptly upon receipt, all dividends and other payments or distributions received from the Corporation with respect to the Shares; provided, however, if any dividend or distribution consists of additional shares of the Corporation having voting rights, the Trustee shall hold those shares in trust subject to the terms of this Agreement, and shall issue a new voting trust certificate representing the additional shares to the Shareholder, subject to qualification if required under the California Corporate Securities Law. (c) No Right to Sell Shares. The Trustee shall have no authority to ----------------------- sell, pledge, hypothecate, encumber or otherwise dispose of the Shares or any additional shares received from the Corporation by way of stock split or stock dividend. (d) Compensation of Trustee. The Trustee shall receive no ----------------------- compensation for the Trustee's services under this Agreement; provided, however, this subsection shall not affect the right of Trustee to compensation from the Corporation for services performed on its behalf in any other capacity (as officer, director, employee or otherwise). (e) Liability of Trustee. The Trustee shall not be liable for any -------------------- error of judgment or mistake of fact or law, or for any action or omission under this Agreement, except for Trustee's own willful misconduct or gross negligence. The Trustee shall not be liable for actions or omissions of any other trustee or trustees, or for actions or omissions of any employee or agent of any other trustee or trustees. The Trustee may consult with legal counsel, and any action or omission undertaken by them in good faith in accordance with the opinion of legal counsel shall be binding and conclusive on the Parties to this Agreement. (f) Replacement of Trustee. In case of the Trustee's death, ---------------------- resignation or inability to act, Janet Nottenburg is hereby appointed as successor Trustee. If Janet Nottenburg is not living, the executor or administrator of Janet Nottenburg's estate shall elect a successor Trustee. 3. Termination. ----------- (a) Termination Date. This Agreement shall terminate automatically ---------------- ten (10) years after the Effective Date. This Agreement may be terminated at any earlier date by an instrument in writing executed by the Trustee. The termination of this Agreement shall not affect the rights of the Trustee set forth in Paragraph 2(e) above. Except as otherwise specifically provided in this Agreement, the trust created by this Agreement is hereby expressly declared to be irrevocable. -2- (b) Actions Upon Termination. As soon as practicable after ------------------------ termination hereof the Trustee shall deliver to the Shareholder a share certificate representing the number of shares of the Corporation held by Trustee under this Agreement for the benefit of the Shareholder, properly endorsed for transfer, and the Shareholder shall surrender to the Trustee its Certificate properly endorsed, together with payment of funds sufficient to cover any taxes and other expenses relating to the transfer and delivery of the share certificate. If the Shareholder fails or refuses to surrender his or her Certificate or the Certificate cannot be located, the Trustee may deliver the share certificate due the Shareholder to the Secretary of the Corporation, for the benefit of said person, and upon so doing shall be fully discharged with respect to such share certificate. 4. Filing, Inspection Rights. A duplicate of this Agreement shall be ------------------------- filed with the Secretary of the Corporation and shall be open for inspection by any Shareholder of the Corporation, a holder of a voting trust certificate or the agent of either upon the same terms as the record of shareholders of the Corporation is open to inspection. 5. Successors and Assigns. This Agreement shall bind and inure to the ----------------------- benefit of Trustee and Shareholder hereunder and each and all of their heirs, executors, administrators successors and assigns. 6. Applicable Law. This Agreement shall be governed by and construed in -------------- accordance with the laws of the State of California. 7. Severability. If any term or provision of this Agreement or the ------------ application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each such term and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law. IN WITNESS WHEREOF, the Parties have executed this Agreement on the date hereinabove set forth. "TRUSTEE" /s/ Richard N. Nottenburg - ----------------------------- RICHARD N. NOTTENBURG "SHAREHOLDER" /s/ JENS ALBERS - ----------------------------- JENS ALBERS -3- Certificate No. B-7 EIGHT MILLION FOUR HUNDRED EIGHTY THOUSAND (8,480,000) Shares of Class B Common Stock VOTING TRUST CERTIFICATE IN RESPECT OF CLASS B COMMON STOCK MULTILINK TECHNOLOGY CORPORATION, a California corporation THIS VOTING TRUST CERTIFICATE ("Certificate") certifies that the undersigned Trustee has received a certificate representing EIGHT MILLION FOUR HUNDRED EIGHTY THOUSAND (8,480,000) shares of Class B Common Stock (the "Shares") of MULTILINK TECHNOLOGY CORPORATION, a California corporation (the "Corporation"), from JENS ALBERS, an individual ("Certificate Holder"), duly endorsed to the undersigned Trustee. This Certificate replaces the Voting Trust Certificate executed by the undersigned on March 8, 1999 and is being executed to reflect a ten-for-one stock split effected by the Corporation on June 22, 2000. By acceptance hereof, the Certificate Holder hereby accepts and ratifies all of the terms, conditions, and covenants of that certain Amended and Restated Voting Trust Agreement executed on March 8, 1999 or any extension thereof under California Corporations Code (S).706(b) ("Voting Trust Agreement"), and agrees to be bound thereby with like effect as if the Voting Trust Agreement had been signed by such person. A copy of the Voting Trust Agreement is on file at the office of the Secretary of the Corporation at 300 Atrium Drive, 2/nd/ Floor, Somerset, New Jersey, 08873-4105, and is incorporated herein by this reference. The Certificate Holder shall possess and be entitled to rights of ownership of the Shares only as provided in the Voting Trust Agreement. During the term of the Voting Trust Agreement, the undersigned Trustee is the owner of the Shares for all purposes relating to the Voting Trust Agreement and in all matters of the Company for which the Shares may be voted. This Certificate represents only the those rights provided to the Certificate Holder in the Voting Trust Agreement and shall not be construed to grant to the Certificate Holder any voting rights with respect to the Shares. Subject to the limitations set forth in the Voting Trust Agreement, the Certificate Holder shall be entitled to receive all dividends or other distributions of the Company received by the undersigned Trustee except that, in the event of a share dividend or stock split by the Corporation, the Trustee shall receive and hold such shares pursuant to the terms of the Voting Trust Agreement and shall issue to the Certificate Holder additional voting trust certificates representing such shares. The Voting Trust Agreement shall terminate as provided therein. Upon the termination of the Voting Trust Agreement, the Trustee shall deliver to the Certificate Holder certificates for the number of shares for which this Certificate was issued. -1- Subject to the terms of the Voting Trust Agreement, this Certificate shall be transferable in the same manner as any other security. Any such transfer shall be upon the books of the Trustee or its agent and shall be made only upon the surrender of the Certificate by the Certificate Holder or his attorney endorsed in blank or to the transferee. The Trustee may treat the registered Certificate Holder, or the bearer of this Certificate when presented duly endorsed in blank, as the absolute owner hereof and of all of the rights and interests represented hereby for all purposes whatsoever, and the Trustee shall not be bound or affected by any notice to the contrary. Dated: June 22, 2000 "Trustee" /s/ Richard N. Nottenburg ------------------------------- RICHARD N. NOTTENBURG NOTICE: THE ASSIGNMENT, SALE OR TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY THE PROVISIONS OF THAT CERTAIN AMENDED AND RESTATED VOTING TRUST AGREEMENT DATED THE 8TH DAY OF MARCH, 1999, A COPY OF WHICH IS ON FILE IN THE OFFICES OF THE CORPORATION AND ANY TRANSFER OR PURPORTED TRANSFER IN VIOLATION OF THE PROVISIONS OF SAID AGREEMENT IS NULL AND VOID. -2- EX-10.1 5 0005.txt INDEMNIFICATION AGREEMENT Exhibit 10.1 MULTILINK TECHNOLOGY CORPORATION INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is effective as of ___________, 2000 by and between Multilink Technology Corporation, a California corporation (the "Company"), and ______________ ("Indemnitee"). WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and its related entities; WHEREAS, in order to induce Indemnitee to continue to provide services to the Company, the Company wishes to provide for the indemnification of, and the advancement of expenses to, Indemnitee to the maximum extent permitted by law; WHEREAS, the Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for the Company's directors, officers, employees, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; and WHEREAS, in connection with the Company's initial public offering, the Company and Indemnitee desire to continue to have in place the additional protection provided by an indemnification agreement, with such changes as are required to conform the existing agreement to California law and to provide indemnification and advancement of expenses to the Indemnitee to the maximum extent permitted by California law; WHEREAS, in view of the considerations set forth above, the Company desires that Indemnitee shall be indemnified and advanced expenses by the Company as set forth herein; NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below. 1. Certain Definitions. ------------------- a. "Change in Control" shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the Shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company's then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's Shareholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, (iii) the Shareholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (iv) the Shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company's assets. b "Claim" shall mean with respect to a Covered Event: any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other. c. References to the "Company" shall include, in addition to Multilink Technology Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which Multilink Technology Corporation (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. d. "Covered Event" shall mean any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity. e. "Expenses" shall mean any and all expenses (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not -2- be unreasonably withheld) of any Claim and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement. f. "Expense Advance" shall mean a payment to Indemnitee pursuant to Section 3 of Expenses in advance of the settlement of or final judgement in any action, suit, proceeding or alternative dispute resolution mechanism, hearing, inquiry or investigation which constitutes a Claim. g. "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(d) hereof, who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other Indemnitees under similar indemnity agreements). h. References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. i. "Reviewing Party" shall mean, subject to the provisions of Section 2(d), any person or body appointed by the Board of Directors in accordance with applicable law to review the Company's obligations hereunder and under applicable law, which may include a member or members of the Company's Board of Directors, Independent Legal Counsel or any other person or body not a party to the particular Claim for which Indemnitee is seeking indemnification. j. "Section" refers to a section of this Agreement unless otherwise indicated. k. "Voting Securities" shall mean any securities of the Company that vote generally in the election of directors. 2. Indemnification. --------------- a. Indemnification of Expenses. Subject to the provisions of Section --------------------------- 2(b) below, the Company shall indemnify Indemnitee for Expenses to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any Claim (whether by reason of or arising in part out of a Covered Event), including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses. b. Review of Indemnification Obligations. Notwithstanding the ------------------------------------- foregoing, in the event any Reviewing Party shall have determined (in a written opinion, in any case in which -3- Independent Legal Counsel is the Reviewing Party) that Indemnitee is not entitled to be indemnified hereunder under applicable law, (i) the Company shall have no further obligation under Section 2(a) to make any payments to Indemnitee not made prior to such determination by such Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all Expenses theretofore paid to Indemnitee to which Indemnitee is not entitled hereunder under applicable law; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee is entitled to be indemnified hereunder under applicable law, any determination made by any Reviewing Party that Indemnitee is not entitled to be indemnified hereunder under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expenses theretofore paid in indemnifying Indemnitee until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any Expenses shall be unsecured and no interest shall be charged thereon. c. Indemnitee Rights on Unfavorable Determination; Binding Effect. -------------------------------------------------------------- If any Reviewing Party determines that Indemnitee substantively is not entitled to be indemnified hereunder in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by such Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and, subject to the provisions of Section 15, the Company hereby consents to service of process and to appear in any such proceeding. Absent such litigation, any determination by any Reviewing Party shall be conclusive and binding on the Company and Indemnitee. d. Selection of Reviewing Party; Change in Control. If there has not ----------------------------------------------- been a Change in Control, any Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), any Reviewing Party with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnification of Expenses under this Agreement or any other agreement or under the Company's Articles of Incorporation or Bylaws as now or hereafter in effect, or under any other applicable law, if desired by Indemnitee, shall be Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be entitled to be indemnified hereunder under applicable law and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Notwithstanding any other provision of this Agreement, the Company shall not be required to pay Expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnitees unless (i) the employment of separate counsel by one or more Indemnitees has been previously authorized by the Company in writing, or (ii) an Indemnitee shall have provided to the Company a written statement that such Indemnitee has reasonably concluded that there may be a conflict of interest -4- between such Indemnitee and the other Indemnitees with respect to the matters arising under this Agreement. e. Mandatory Payment of Expenses. Notwithstanding any other ----------------------------- provision of this Agreement other than Section 10 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any Claim, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith. 3. Expense Advances. ---------------- a. Obligation to Make Expense Advances. Upon receipt of a written ----------------------------------- undertaking by or on behalf of the Indemnitee to repay such amounts if it shall ultimately be determined that the Indemnitee is not entitled to be indemnified therefore by the Company hereunder under applicable law, the Company shall make Expense Advances to Indemnitee. b. Form of Undertaking. Any obligation to repay any Expense Advances ------------------- hereunder pursuant to a written undertaking by the Indemnitee shall be unsecured and no interest shall be charged thereon. c. Determination of Reasonable Expense Advances. The parties agree -------------------------------------------- that for the purposes of any Expense Advance for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in such Expense Advance that are certified by affidavit of Indemnitee's counsel as being reasonable shall be presumed conclusively to be reasonable. 4. Procedures for Indemnification and Expense Advances. --------------------------------------------------- a. Timing of Payments. All payments of Expenses (including without ------------------ limitation Expense Advances) by the Company to the Indemnitee pursuant to this Agreement shall be made to the fullest extent permitted by law as soon as practicable after written demand by Indemnitee therefor is presented to the Company, but in no event later than thirty (30) business days after such written demand by Indemnitee is presented to the Company, except in the case of Expense Advances, which shall be made no later than ten (10) business days after such written demand by Indemnitee is presented to the Company. b. Notice/Cooperation by Indemnitee. Indemnitee shall, as a -------------------------------- condition precedent to Indemnitee's right to be indemnified or Indemnitee's right to receive Expense Advances under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. c. No Presumptions; Burden of Proof. For purposes of this Agreement, -------------------------------- the termination of any Claim by judgment, order, settlement (whether with or without court -5- approval) or conviction, or upon a plea of nolocontendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by this Agreement or applicable law. In addition, neither the failure of any Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by any Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under this Agreement under applicable law, shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by any Reviewing Party or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder under applicable law, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled. d. Notice to Insurers. If, at the time of the receipt by the Company ------------------ of a notice of a Claim pursuant to Section 4(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies. e. Selection of Counsel. In the event the Company shall be obligated -------------------- hereunder to provide indemnification for or make any Expense Advances with respect to the Expenses of any Claim, the Company, if appropriate, shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee (which approval shall not be unreasonably withheld) upon the delivery to Indemnitee of written notice of the Company's election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently retained by or on behalf of Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend such Claim, then the fees and expenses of Indemnitee's separate counsel shall be Expenses for which Indemnitee may receive indemnification or Expense Advances hereunder. 5. Additional Indemnification Rights; Nonexclusivity. ------------------------------------------------- a. Scope. The Company hereby agrees to indemnify the Indemnitee to ----- the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Articles of Incorporation, the Company's Bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, it is the -6- intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 10(a) hereof. b. Nonexclusivity. The indemnification and the payment of Expense -------------- Advances provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its Bylaws, any other agreement, any vote of Shareholders or disinterested directors, the Corporation Law of the State of California, or otherwise. The indemnification and the payment of Expense Advances provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though subsequent thereto Indemnitee may have ceased to serve in such capacity. 6. No Duplication of Payments. The Company shall not be liable under -------------------------- this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, provision of the Company's Articles of Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder. 7. Partial Indemnification. If Indemnitee is entitled under any ----------------------- provision of this Agreement to indemnification by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled. 8. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge --------------------- that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 9 Liability Insurance. To the extent the Company maintains liability ------------------- insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary. 10. Exceptions. Notwithstanding any other provision of this Agreement, ---------- the Company shall not be obligated pursuant to the terms of this Agreement: -7- a. Excluded Action or Omissions. To indemnify or make Expense ---------------------------- Advances to Indemnitee with respect to Claims arising out of acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under applicable law. b. Claims Initiated by Indemnitee. To indemnify or make Expense ------------------------------ Advances to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, counterclaim or cross-claim, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company's Articles of Incorporation or Bylaws now or hereafter in effect relating to Claims for Covered Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 145 of the California General Corporation Law, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, Expense Advances, or insurance recovery, as the case may be. c. Lack of Good Faith. To indemnify Indemnitee for any Expenses ------------------ incurred by the Indemnitee with respect to any action instituted (i) by Indemnitee to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material assertions made by the Indemnitee as a basis for such action was not made in good faith or was frivolous, or (ii) by or in the name of the Company to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous. d. Claims Under Section 16(b). To indemnify Indemnitee for Expenses -------------------------- and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 11. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall constitute an original. 12. Binding Effect; Successors and Assigns. This Agreement shall be -------------------------------------- binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), spouses, heirs and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary (as applicable) of the Company or of any other enterprise at the Company's request. 13. Expenses Incurred in Action Relating to Enforcement or Interpretation. --------------------------------------------------------------------- In the event that any action is instituted by Indemnitee under this Agreement or under any liability -8- insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee with respect to such action (including without limitation attorneys' fees), regardless of whether Indemnitee is ultimately successful in such action, unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous; provided, however, that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee in defense of such action (including without limitation costs and expenses incurred with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous; provided, however, that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action. 14. Period of Limitations. No legal action shall be brought and no cause --------------------- of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern. 15. Notice. All notices, requests, demands and other communications under ------ this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and signed for by the party addressed, on the date of such delivery, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 16. Consent to Jurisdiction. The Company and Indemnitee each hereby ----------------------- irrevocably consent to the jurisdiction of the courts of the State of California for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the state courts of the State of California, which shall be the exclusive and only proper forum for adjudicating such a claim. 17. Severability. The provisions of this Agreement shall be severable in ------------ the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement -9- (including without limitation each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 18. Choice of Law. This Agreement, and all rights, remedies, liabilities, ------------- powers and duties of the parties to this Agreement, shall be governed by and construed in accordance with the laws of the State of California as applied to contracts between California residents entered into and to be performed entirely in the State of California without regard to principles of conflicts of laws. 19. Subrogation. In the event of payment under this Agreement, the ----------- Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 20. Amendment and Termination. No amendment, modification, termination or ------------------------- cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. 21. Integration and Entire Agreement. This Agreement sets forth the -------------------------------- entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto. 22. No Construction as Employment Agreement. Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries or affiliated entities. [Remainder of Page Intentionally Left Blank] -10- IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written. MULTILINK TECHNOLOGY CORPORATION By:________________________________ Name:______________________________ Title:_____________________________ Address: 300 Atrium Drive 2/nd/ Floor Somerset, New Jersey 08873 AGREED TO AND ACCEPTED INDEMNITEE: _______________________________________ (signature) _______________________________________ Name _______________________________________ Address -11- EX-10.2 6 0006.txt 1998 STOCK OPTION PLAN EXHIBIT 10.2 1998 STOCK OPTION PLAN OF MULTILINK TECHNOLOGY CORPORATION Section 1.01. Purpose. The purpose of this 1998 Stock Option Plan of ------- Multilink Technology Corporation (the "Plan") is to promote the growth and general prosperity of Multilink Technology Corporation, a California corporation (the "Company"), by permitting the Company to grant options to purchase shares of the Company's common stock ("Shares"). The Plan is designed to help attract and retain superior personnel for positions of substantial responsibility with the Company and to provide directors, officers and key employees with an additional incentive to contribute to the success of the Company. Options granted pursuant to the provisions of the Plan may be either "incentive stock options," within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or non-statutory stock options, as determined by the Plan Administrator and set forth in the stock option agreements. Options granted under this Plan must be labeled either as an "Incentive Stock Option" or a "Non-Statutory Stock Option." As used in the Plan, the terms "parent corporation" and "subsidiary corporation" shall have the meanings set forth in subsections (e) and (f), respectively, of Section 424 of the Code. Section 2.01. Administration. The Plan will be administered by the Board -------------- of Directors of the Company (the "Board of Directors") or, if the Board of Directors so determines, by a committee appointed by the Board of Directors from among its members (such committee administering the Plan being hereinafter referred to as the "Committee"; and the Board of Directors or the Committee administering the Plan, as the case may be, being hereinafter referred to as the "Plan Administrator"). If the Board of Directors designates a Committee to administer the Plan, the Committee (which may include members of the compensation committee of the Board of Directors, if any) shall be comprised solely of not less than two members who shall be (i) "disinterested persons" within the meaning of Rule 16b-3 (or any successor rule) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (ii) unless otherwise determined by the Board of Directors, "outside directors" within the meaning of Section 162(m) of the Code. Section 2.02. Authority of Plan Administrator. The Plan Administrator is ------------------------------- authorized, subject to the provisions of the Plan, to establish such rules and regulations as it deems necessary for the proper administration of the Plan and to make such determinations and interpretations and to take such action in connection with the Plan and any options granted hereunder as it deems necessary or advisable. All determinations and interpretations made by the Plan Administrator shall be binding and conclusive on all participants and their legal representatives. No member of the Board of the Directors, no member of the Committee and no employee of the Company shall be liable for any act or failure to act hereunder, except in circumstances involving his or her bad faith, gross negligence or willful misconduct, or for any act or failure to act hereunder by any other member or employee or by any agent to whom duties in connection with the administration of this Plan have been delegated. The Company shall indemnify members of the Plan Administrator and any agent of the Plan Administrator who is an employee of the Company, against any and all liabilities or expenses to which they may be subjected by reason of any act or failure to act with respect to their duties on behalf of the Plan, except in circumstances involving such person's bad faith, gross negligence or willful misconduct. The Plan Administrator may delegate to one or more of its members, or to one or more agents, such administrative duties as it may deem advisable, and the Plan Administrator, or any person to whom it has delegated duties as aforesaid, may employ one or more persons to render advice with respect to any responsibility the Plan Administrator or such person may have under the Plan. The Plan Administrator may employ such legal or other counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such counsel, consultant or agent. Expenses incurred by the Plan Administrator in the engagement of such counsel, consultant or agent shall be paid by the Company, or the subsidiary whose employees have benefited from the Plan as determined by the Plan Administrator. Section 2.03. Terms, Conditions and Method of Grant. The terms and ------------------------------------- conditions of options granted under the Plan may differ from one another as the Plan Administrator, in its absolute discretion, shall determine as long as all options granted under the Plan satisfy the requirements of the Plan. Whenever the Plan Administrator shall designate an employee or other individual to receive an option (the "optionee"), any officer of the Company designated by the Plan Administrator shall forthwith send notice thereof to the optionee, stating the number of Shares covered by the option, the price per Share and the class of common stock underlying the option. The date of notice shall be the date of granting the option to the optionee for all purposes of the Plan. The notice shall be accompanied by an option agreement (with a copy of the Plan attached) to be signed by the Company and by the optionee, which option agreement shall be in the form and shall contain such provisions consistent with the Plan as the Plan Administrator, acting with the benefit of legal counsel, shall consider advisable. Section 3.01. Maximum Number of Shares Subject to the Plan. Subject to the -------------------------------------------- provisions of Section 13.01(a), the maximum aggregate number of authorized and unissued Shares that may be optioned and sold under the Plan is Six Thousand (6,000) Shares. If any of the options granted under the Plan expire or terminate for any reason before they have been exercised in full, the unpurchased Shares subject to those expired or terminated options shall again be available for the purposes of the Plan. Section 4.01. Eligibility and Participation. Only full-time, key employees ----------------------------- of the Company or of any subsidiary corporation or any parent corporation shall be eligible for selection by the Plan Administrator to receive incentive stock options and full-time, key employees and directors of the Company or of any subsidiary corporation or any parent corporation shall be eligible to receive non-statutory stock options. For purposes of this Plan, the phrase "key employees" shall include officers, department heads, division managers, other employees having supervisory responsibilities, and those other employees as the Plan Administrator may specifically designate from time to time. Section 5.01. Effective Date and Term of Plan. The Plan shall become ------------------------------- effective upon its adoption by the Board of Directors of the Company subject to the receipt of the approval of the -2- Plan required by Section 15.01. The Plan shall remain in effect for a term of 10 years, unless sooner terminated under Section 14.01. Section 5.02. Duration of Options. Each option and all rights thereunder ------------------- granted pursuant to the terms of the Plan shall expire on the date determined by the Plan Administrator, but in no event shall any option granted under the Plan expire later than the (10) years from the date on which the option is granted. In addition, each option shall be subject to early termination as provided in the Plan. However, any non-statutory stock option granted to a non-employee director of the Company or any subsidiary corporation or parent corporation shall expire five (5) years after the date of grant of such option. Section 5.03. Purchase Price. The purchase price for Shares acquired -------------- pursuant to the exercise (in whole or in part) of any incentive stock option granted under this Plan shall be not less than 100% of the fair market value of the Shares at the time of the grant. Fair market value shall be determined by the Plan Administrator on the basis of those factors they deem in good faith to be appropriate; provided, however, that if at the time the determination is made the Shares are admitted to trading on a national securities exchange, the fair market value of the Shares shall be not less than the higher of (a) the mean between the high bid and asked prices reported for the Shares on that exchange on the date or most recent trading day preceding the date on which the option is granted, or (b) the last reported sale price reported for the Shares on that exchange on the date or most recent trading day preceding the date on which the option is granted. The phrase "national securities exchange" shall include the National Association of Securities Dealers Automated Quotation System and the over-the-counter market. Section 5.04. Term and Purchase Price of Incentive Stock Option Granted to ------------------------------------------------------------ More Than 10% Shareholder. Notwithstanding anything to the contrary in Sections - ------------------------- 5.02 and 5.03, if an incentive stock option is to be granted to an employee of the Company or any subsidiary corporation or parent corporation who at the time the option is granted owns (or under Section 424(d) of the Code is deemed to own) more than 10% of the total combined voting power of all classes of stock of the Company or of any parent corporation or subsidiary corporation, that option by its terms shall not be exercisable after the expiration of five (5) years after the date that option is granted, and the purchase price of the Shares acquired pursuant to the exercise (in whole or in part) of that option shall be at least 110% of the fair market value (as determined under Section 5.03 by the Plan Administrator) of the Shares subject to the option at the time the option is granted. Section 5.05. Maximum Amount of Options. The maximum aggregate fair market ------------------------- value (determined as of the time the option is granted) of the Shares with respect to which incentive stock options are exercisable for the first time by any optionee in any calendar year under all stock option plans of the Company, or of any parent corporation or subsidiary corporation of the Company, shall not exceed $100,000. To the extent that the aggregate fair market value (determined as of the time the option is granted) of the Shares with respect to which incentive stock options are exercisable for the first time by any optionee in any calendar year under all stock option plans of the Company or any parent corporation or subsidiary corporation of the Company exceeds $100,000, such options shall be treated as non-statutory options. -3- Section 6.01. Exercise of Options. Subject to Section 6.03. each option ------------------- shall be exercisable in one or more installments prior to its expiration or termination at such times as determined by the Plan Administrator at the time of grant; provided, however, that no option may be exercisable by a non-employee director until six (6) months after the date of the grant. The right to exercise may be cumulative as determined by the Plan Administrator. No option may be exercised for a fraction of a Share or other than on a business day of the Company. The full purchase price of any Shares purchased shall be paid (i) in cash or by certified or cashier's check payable to the order of the Company, or by a combination of cash or certified or cashier's check, at the time of exercise of the option, or (ii) at the discretion of the Plan Administrator and as permitted by law, by delivering the Company's Shares already owned by the optionee or a combination of Shares and cash or certified or cashiers checks. Section 6.02. Written Notice Required. Any option granted pursuant to the ----------------------- terms of the Plan shall be considered exercised when written notice of that exercise, together with the investment representation described in Section 7.01, has been given to the Company at its principal executive office by the person entitled to exercise the option and full payment for the Shares with respect to which the option is exercised has been received by the Company. Section 6.03. Vesting of Non-Statutory Stock Options. Non-statutory stock -------------------------------------- options granted to non-employee directors of the Company or any subsidiary corporation or parent corporation will become exercisable as follows: 100% three (3) months after the date of the grant. Section 7.01. Compliance With State and Federal Laws: Delivery of Shares. ---------------------------------------------------------- No Shares shall be issued with respect to any option granted under the Plan unless the exercise of that option and the issuance and delivery of the Shares pursuant to that exercise shall comply with all relevant provisions of state and federal laws, rules, and regulations, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to that compliance. If any law, or any regulation of the Securities and Exchange Commission, or of any other body having jurisdiction, shall require the Company or the optionee to take any action in connection with the Shares specified in the optionee's notice, then the date for the delivery of the Shares shall be postponed until the completion of the necessary action. The Plan Administrator shall require (to the extent required by or advisable under applicable laws, rules, and regulations) an optionee to furnish evidence satisfactory to the Company (including a written and signed representation letter and a consent to be bound by any transfer restrictions imposed by laws, legend condition, or otherwise) upon exercise of the option that the Shares to be acquired are being purchased only for investment and without any present intention to sell or distribute the Shares in violation of any law, rule, or regulation. Further, each optionee shall consent to the imposition of a legend on the stock certificate evidencing the Shares subject to his or her option restricting their transferability as required by or advisable under applicable laws, rules and regulations. Section 8.01. Employment of Optionee. Nothing in the Plan or in any option ---------------------- granted hereunder shall confer upon any optionee (i) any right to continued employment by the Company or any parent corporation or subsidiary corporation, or limit in any way the right of the employer at any time to terminate or alter the terms of that employment or (ii) any right to sue the Company, or any parent corporation or subsidiary corporation for any adverse tax consequences -4- in connection with the grant or exercise of any option or the disposition of any Shares acquired pursuant to this Plan. Section 9.01. Option Rights Upon Termination of Employment. If an optionee -------------------------------------------- ceases to be an employee or a director of the Company or any subsidiary corporation or parent corporation for any reason other than death or permanent and total disability (within the meaning of Section 22(e)(3) of the Code), the optionee's option shall immediately terminate; provided, however, that the Plan Administrator, in its absolute discretion, may provide at the time of the grant of an option that the option may be exercised (to the extent it remains unexercised on the date of termination) at any time within a period of up to three months following the date of termination, unless either the option or the Plan otherwise provides for earlier termination but only to the extent that the optionee is entitled to exercise the option at the date of such termination. The transfer of an employee from the employ of the Company to any subsidiary corporation or parent corporation, or vice versa, or from any subsidiary corporation or parent corporation, to any other subsidiary corporation or parent corporation shall not be deemed to constitute a cessation of employment for purposes of this Plan. Section 10.01. Option Rights Upon Death or Disability. Except as otherwise -------------------------------------- limited by the Plan Administrator at the time of the grant of an option, if an optionee dies or becomes permanently and totally disabled within the meaning of Section 22(e)(3) of the Code while an employee or a director of the Company or any subsidiary corporation or parent corporation, or dies within three months after ceasing to be an employee or director thereof (provided that the optionee was entitled to exercise the option at the time of ceasing to be an employee or director), the optionee's option shall expire one year after the date of death or the date of permanent and total disability, unless either the option or the Plan otherwise provides for earlier termination. During this one year (or shorter) period, the option may be exercised, to the extent that it remains unexercised on the date of death or on the date of permanent and total disability, by the optionee, if living, or by the person or persons to whom the optionee's rights under the option shall pass by will or by the laws of descent and distribution, but only to the extent that the optionee is entitled to exercise the option at the date of death or date of permanent and total disability, as the case may be. Section 11.01. No Privileges of Ownership. Notwithstanding the exercise of -------------------------- any option granted pursuant to the Plan, no optionee shall have any of the rights or privileges of a shareholder of the Company in respect of any Shares issuable upon the exercise of the option until the optionee becomes a shareholder of record. Section 12.01. Options Not Transferable. Options granted pursuant to the ------------------------ terms of the Plan, may not be sold, pledged, assigned, or transferred in any manner, other than by will or the laws of descent and distribution, and may be exercised during the lifetime of an optionee only by that optionee. Section 13.01. Adjustment to Number and Purchase Price; Acceleration of -------------------------------------------------------- Right to Exercise Option; Cancellation of Option. All options granted pursuant - ------------------------------------------------ to the Plan shall be adjusted, modified, or canceled in the manner prescribed by this section. -5- (a) If the outstanding Shares of the Company are increased, decreased, changed into, or exchanged for a different number or kind or Shares or securities through merger, consolidation, combination, exchange of Shares, or other reorganization, recapitalization, reclassification, stock dividend, stock split, or reverse stock split, an appropriate and proportionate adjustment shall be made in the maximum number and kind of Shares as to which options may be granted under the Plan. A corresponding adjustment changing the number or kind of Shares allocated to unexercised options or portions thereof that were granted prior to any such change shall likewise be made. Any adjustments made pursuant to this Section 13.01 in outstanding options shall be made without change in the aggregate purchase price applicable to the unexercised portion of the option, but with a corresponding adjustment in the price for each Share or other unit of any security covered by the option. With respect to incentive stock options, the adjustments described in this section 13.01(a) shall be made in accordance with Section 424 of the Code. (b) Upon the effective date of the dissolution or liquidation of the Company, or of a reorganization, merger, or consolidation of the Company with one or more other corporations in which the Company is not the surviving corporation, or of the transfer of substantially all of the assets or Shares of the Company to another corporation, the Plan and any option theretofore granted hereunder shall terminate. In the event of such dissolution, liquidation, reorganization, merger, consolidation, transfer of assets, or transfer of stock, at the discretion of the Plan Administrator, each optionee (or that person's estate or a person who acquired the right to exercise the option from the optionee by bequest or inheritance) shall be entitled, prior to the effective date of the consummation of any such transaction, to purchase, in whole or in part, the full number of Shares under the option or options granted to the optionee that the optionee would otherwise have been entitled to purchase during the remaining term of the option and without regard to any otherwise applicable restrictions set forth in the option delaying the immediate exercise of the option. To the extent that any such exercise relates to stock that is not otherwise available for purchase through the exercise of the option by the optionee at that time, the exercise pursuant to this Section 13.01(b) shall be contingent upon the consummation of that dissolution, liquidation, reorganization, merger, consolidation, sale, or transfer of assets or stock. (c) Notwithstanding the foregoing, in the event of a complete liquidation of a subsidiary corporation or parent corporation, or in the event that such corporation ceases to be a subsidiary corporation or parent corporation, any unexercised options theretofore granted to an employee of such subsidiary corporation or parent corporation, respectively, shall be deemed canceled unless the employee shall become employed by the Company or by any other subsidiary corporation or parent corporation, respectively, on the occurrence of any such event Section 14.01. Termination and Amendment of Plan. The Plan shall terminate --------------------------------- ten (10) years from the effective date of the Plan (as determined under Section 5.01), and no options shall be granted under the Plan after that date; provided, however, that termination of the Plan shall not terminate any option granted prior thereto, and options granted prior to termination of the Plan and existing at the time of termination of the Plan shall continue to be subject to all the terms and conditions of the Plan as if the Plan had not terminated. Subject to the limitation contained in Section 14.02, the Plan Administrator may at any time amend or revise the terms of the Plan (including the form and substance of the option agreements to be used hereunder), provided that no amendment or revision shall (a) increase the maximum aggregate number of -6- Shares provided for in Section 3.01 that may be sold pursuant to options granted under the Plan except as required under the provisions of Section 13.01(a), (b) permit the granting of an option to anyone other than as provided in Section 4.01, (c) increase the maximum term provided for in Sections 5.02 and 5.04 of any option. or (d) change the minimum purchase price for the Shares under Sections 5.03 and 5.04, unless approved by the written consent of the shareholders, or by the affirmative vote, in person or by proxy, of a majority of the outstanding voting stock of the Company at a duly held shareholders' meeting. Section 14.02. Prior Rights and Obligations. No amendment, suspension, or ---------------------------- or termination of the Plan shall, without the consent of the optionee, alter or impair any of that optionee's right or obligations under any option granted under the Plan prior to that amendment, suspension, or termination. Section 15.01. Approval of Shareholders. Within 12 months after its ------------------------ adoption by the Board of Directors of the Company, the Plan must be approved by the unanimous written consent of the shareholders, or by the affirmative vote, in person or by proxy, of a majority of the outstanding voting stock of the Company at a duly held shareholders' meeting. Options may be granted under the Plan prior to obtaining shareholder approval, but those options shall be contingent upon shareholder approval being obtained and may not be exercised prior to the receipt of shareholder approval. Section 16.01. Reservation of Shares. During the term of the Plan, the --------------------- Company will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. In addition, the Company will from time to time, as is necessary to accomplish the purposes of the Plan, seek to obtain from any regulatory agency having jurisdiction any requisite authority in order to grant options under the Plan and to issue and sell Shares hereunder. Section 17.01. Tax Withholding. The Company may make such provisions it may --------------- deem appropriate for the withholding of any state or federal taxes which the Company determines is advisable to withhold in connection with any option or any other right, payment or settlement made under this Plan. The exercise of the option shall not be effective unless such withholding shall have been effected or obtained in a manner acceptable to the Company, including, but not limited to, requiring the optionee to remit to the Company an amount sufficient to satisfy any federal, state and/or local tax withholding requirements. Section 18.01. Sections-Headings. The headings of the sections of the Plan ----------------- are for convenience only and shall not be considered or referred to in resolving questions of interpretation. References to "Section" that are not followed by a section number and the phrase "of the Code" are references to sections of the Plan. Section 19.01. Governing Law. The Plan shall be governed by and construed ------------- and interpreted in accordance with the internal laws of the State of California, except to the extent preempted by federal law, which shall govern to such extent. Section 20.01. Invalid Provision. In the event that any provision of this ----------------- Plan is found to be invalid or otherwise unenforceable under any applicable law, such invalidity or -7- unenforceability shall not be construed as rendering any other provisions contained herein invalid or unenforceable, and all such other provisions shall be given full force and effect to the same extent as though the invalid or unenforceable provision was not contained herein. Section 21.01. Adoption. The Plan was adopted by a resolution duly adopted -------- by the Board of Directors of the Company on June 5, 1998. -8- AMENDMENT TO THE 1998 STOCK OPTION PLAN --------------------------------------- 1. The first sentence of Section 1.01 of the Plan is hereby deleted in its entirety and replaced with the following: "The purpose of this 1998 Stock Option Plan of Multilink Technology Corporation (the `Plan') is to promote the growth and general prosperity of Multilink Technology Corporation, a California corporation (the `Company'), by permitting the Company to grant options to purchase shares of the Company's Class A Common Stock (`Shares')." 2. The second sentence of Section 2.03 of the Plan is hereby deleted in its entirety and replaced with the following: "Whenever the Plan Administrator shall designate an employee or other individual to receive an option (the `optionee'), any officer of the Company designated by the Plan Administrator shall forthwith send notice thereof to the optionee, stating the number of Shares covered by the option and the price per Share." 3. The first sentence of Section 3.01 of the Plan is hereby deleted in its entirety and replaced with the following: "Subject to the provisions of Section 13.01(a), the maximum aggregate number of authorized and unissued Shares that may be optioned and sold under the Plan is Two Million Four Hundred Thousand (2,400,000) Shares." 4. The second sentence of Section 13.01(b) of the Plan is hereby deleted in its entirety and replaced with the following: "In the event of such dissolution, liquidation, reorganization, merger, consolidation, transfer of assets, or transfer of stock, each optionee (or that person's estate or a person who acquired the right to exercise the option from the optionee by bequest or inheritance) shall be entitled, prior to the effective date of the consummation of any such transaction, to purchase, in whole or in part, the full number of Shares under the option or options granted to the optionee that the optionee would otherwise have been entitled to purchase during the remaining term of the option and without regard to any otherwise applicable restrictions set forth in the option delaying the immediate exercise of the option." AMENDMENT NO. 2 TO THE 1998 STOCK OPTION PLAN --------------------------------------------- Section 12.01 of the Plan is hereby deleted in its entirety and replaced with the following: "Limited Transferability of Options. During the lifetime of an ---------------------------------- optionee, incentive stock options shall be exercisable only by the optionee and shall not be assignable or transferable other than by will or by the laws of descent and distribution following the optionee's death. Non-statutory stock options shall be subject to the same restrictions, except that a non-statutory stock option may, to the extent permitted by the Plan Administrator, be assigned in whole or in part during an optionee's lifetime to one or more members of the optionee's immediate family or to a trust established exclusively for one or more such family members. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate." EX-10.3 7 0007.txt 1999 STOCK OPTION PLAN Exhibit 10.3 1999 STOCK OPTION PLAN OF MULTILINK TECHNOLOGY CORPORATION Section 1.01. Purpose. The purpose of this 1999 Stock Option Plan of ------- Multilink Technology Corporation (the "Plan") is to promote the growth and general prosperity of Multilink Technology Corporation, a California corporation (the "Company"), by permitting the Company to grant options to purchase shares of the Company's Class A Common Stock ("Shares"). The Plan is designed to help attract and retain superior personnel for positions of substantial responsibility with the Company and to provide directors, officers, employees and consultants with an additional incentive to contribute to the success of the Company. Options granted pursuant to the provisions of the Plan may be either "incentive stock options," within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or non-statutory stock options, as determined by the Plan Administrator and set forth in the stock option agreements. Options granted under this Plan must be labeled either as an "Incentive Stock Option" or a "Non-Statutory Stock Option." As used in the Plan, the terms "parent corporation" and "subsidiary corporation" shall have the meanings set forth in subsections (e) and (f), respectively, of Section 424 of the Code. Section 2.01. Administration. The Plan will be administered by the Board of -------------- Directors of the Company (the "Board of Directors") or, if the Board of Directors so determines, by a committee appointed by the Board of Directors from among its members (such committee administering the Plan being hereinafter referred to as the "Committee"; and the Board of Directors or the Committee administering the Plan, as the case may be, being hereinafter referred to as the "Plan Administrator"). If the Board of Directors designates a Committee to administer the Plan, the Committee (which may include members of the compensation committee of the Board of Directors, if any) shall be comprised solely of not less than two members who shall be (i) "disinterested persons" within the meaning of Rule 16b-3 (or any successor rule) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (ii) unless otherwise determined by the Board of Directors, "outside directors" within the meaning of Section 162(m) of the Code. Section 2.02. Authority of Plan Administrator. The Plan Administrator is ------------------------------- authorized, subject to the provisions of the Plan, to establish such rules and regulations as it deems necessary for the proper administration of the Plan and to make such determinations and interpretations and to take such action in connection with the Plan and any options granted hereunder as it deems necessary or advisable. All determinations and interpretations made by the Plan Administrator shall be binding and conclusive on all participants and their legal representatives. No member of the Board of the Directors, no member of the Committee and no employee of the Company shall be liable for any act or failure to act hereunder, except in circumstances involving his or her bad faith, gross negligence or willful misconduct, or for any act or failure to act hereunder by any other member or employee or by any agent to whom duties in connection with the administration of this Plan have been delegated. In addition to any other rights of indemnification as they may have as members of the Board of Directors or officers or employees of the Company, the Company shall indemnify members of the Plan Administrator and any agent of the Plan Administrator who is an employee of the Company, against any and all liabilities or expenses, including reasonable attorneys' fees, to which they may be subjected by reason of any act or failure to act with respect to their duties on behalf of the Plan, or any right granted hereunder, except in circumstances involving such person's bad faith, gross negligence or willful misconduct. The Plan Administrator may delegate to one or more of its members, or to one or more agents, such administrative duties as it may deem advisable, and the Plan Administrator, or any person to whom it has delegated duties as aforesaid, may employ one or more persons to render advice with respect to any responsibility the Plan Administrator or such person may have under the Plan. The Plan Administrator may employ such legal or other counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such counsel, consultant or agent. Expenses incurred by the Plan Administrator in the engagement of such counsel, consultant or agent shall be paid by the Company, or the subsidiary whose employees have benefited from the Plan as determined by the Plan Administrator. Section 2.03. Terms, Conditions and Method of Grant. The terms and ------------------------------------- conditions of options granted under the Plan may differ from one another as the Plan Administrator, in its absolute discretion, shall determine as long as all options granted under the Plan satisfy the requirements of the Plan. Whenever the Plan Administrator shall designate an employee or other individual to receive an option (the "optionee"), any officer of the Company designated by the Plan Administrator shall forthwith send notice thereof to the optionee, stating the number of Shares covered by the option and the price per Share. The date of notice shall be the date of granting the option to the optionee for all purposes of the Plan. The notice shall be accompanied by an option agreement (with a copy of the Plan attached) to be signed by the Company and by the optionee, which option agreement shall be in the form and shall contain such provisions consistent with the Plan as the Plan Administrator, acting with the benefit of legal counsel, shall consider advisable. Section 3.01. Maximum Number of Shares Subject to the Plan. Subject to -------------------------------------------- the provisions of Section 13.01(a), the maximum aggregate number of authorized and unissued Shares that may be optioned and sold under the Plan is Eighteen Million (18,000,000) Shares. If any of the options granted under the Plan expire or terminate for any reason before they have been exercised in full, the unpurchased Shares subject to those expired or terminated options shall again be available for the purposes of the Plan. Notwithstanding the foregoing, at any such time as the offer and sale of Shares pursuant to the Plan is subject to compliance with Section 260.140.45 of Title 10 of the California Code of Regulations, the total number of Shares issuable upon the exercise of all outstanding options (together with options outstanding under any other stock option plan of the Company) and the total number of shares provided for under any stock bonus or similar plan of the Company shall not exceed thirty percent (30%) of the then outstanding shares of the Company as calculated in accordance with the conditions and exclusions of Section 260.140.45, unless a higher percentage than thirty percent (30%) is approved by at least two-thirds of the outstanding shares entitled to vote. -2- Section 4.01. Eligibility and Participation. Only full-time employees of ----------------------------- the Company or of any subsidiary corporation or any parent corporation shall be eligible for selection by the Plan Administrator to receive incentive stock options and directors, consultants and full-time employees of the Company or of any subsidiary corporation or any parent corporation shall be eligible to receive non-statutory stock options. Section 5.01. Effective Date and Term of Plan. The Plan shall become ------------------------------- effective upon its adoption by the Board of Directors of the Company subject to the receipt of the approval of the Plan required by Section 16.01. The Plan shall remain in effect for a term of 10 years, unless sooner terminated under Section 14.01. Section 5.02. Duration of Options. Each option and all rights thereunder ------------------- granted pursuant to the terms of the Plan shall expire on the date determined by the Plan Administrator, but in no event shall any option granted under the Plan expire later than the (10) years from the date on which the option is granted. In addition, each option shall be subject to early termination as provided in the Plan. Section 5.03. Purchase Price. The purchase price for Shares acquired -------------- pursuant to the exercise (in whole or in part) of any incentive stock option granted under this Plan shall be not less than 100% of the fair market value of the Shares at the time of the grant. Fair market value shall be determined by the Plan Administrator on the basis of those factors they deem in good faith to be appropriate; provided, however, that if at the time the determination is made the Shares are admitted to trading on a national securities exchange, the fair market value of the Shares shall be not less than the higher of (a) the mean between the high bid and asked prices reported for the Shares on that exchange on the date or most recent trading day preceding the date on which the option is granted, or (b) the last reported sale price reported for the Shares on that exchange on the date or most recent trading day preceding the date on which the option is granted. The phrase "national securities exchange" shall include the National Association of Securities Dealers Automated Quotation System and the over-the-counter market, or such other national or regional securities exchange or market system constituting the primary market for the Shares. Section 5.04. Term and Purchase Price of Incentive Stock Option Granted to ------------------------------------------------------------ More Than 10% Shareholder. Notwithstanding anything to the contrary in Sections - ------------------------- 5.02 and 5.03, (a) if an incentive stock option is to be granted to an employee of the Company or any subsidiary corporation or parent corporation who at the time the option is granted owns (or under Section 424(d) of the Code is deemed to own) more than 10% of the total combined voting power of all classes of stock of the Company or of any parent corporation or subsidiary corporation, that option by its terms shall not be exercisable after the expiration of five (5) years after the date that option is granted, and the purchase price of the Shares acquired pursuant to the exercise (in whole or in part) of that option shall be at least 110% of the fair market value (as determined under Section 5.03 by the Plan Administrator) of the Shares subject to the option at the time the option is granted, and (b) if a non-statutory stock option is to be granted to an employee, director or consultant of the Company or any subsidiary corporation or parent corporation who at the time the option is granted owns more than 10% of the total combined voting power of all classes of stock of the Company or of any parent corporation or subsidiary corporation, the purchase price of the Shares acquired pursuant to the exercise (in whole or in part) of that option shall be -3- at least 110% of the fair market value (as determined under Section 5.03 by the Plan Administrator) of the Shares subject to the option at the time the option is granted. Section 5.05. Maximum Amount of Options. The maximum aggregate fair market ------------------------- value (determined as of the time the option is granted) of the Shares with respect to which incentive stock options are exercisable for the first time by any optionee in any calendar year under all stock option plans of the Company, or of any parent corporation or subsidiary corporation of the Company, shall not exceed $100,000. To the extent that the aggregate fair market value (determined as of the time the option is granted) of the Shares with respect to which incentive stock options are exercisable for the first time by any optionee in any calendar year under all stock option plans of the Company or any parent corporation or subsidiary corporation of the Company exceeds $100,000, such options shall be treated as non-statutory options. Section 6.01. Exercise of Options. Subject to Section 6.03, each option ------------------- shall be exercisable in one or more installments prior to its expiration or termination at such times as determined by the Plan Administrator at the time of grant; provided, however, that no option may be exercisable by a non-employee director until six (6) months after the date of the grant and, with the exception of an option granted to an officer, director or consultant, no option shall become exercisable at a rate of less than twenty percent (20%) per year over a period of five (5) years from the effective date of grant of such option, subject to the optionee's continued employment by the Company. The right to exercise may be cumulative as determined by the Plan Administrator. No option may be exercised for a fraction of a Share or other than on a business day of the Company. The full purchase price of any Shares purchased shall be paid at the time of the exercise of the option in cash or by certified or cashier's check payable to the order of the Company. The purchase price may also be paid, at the sole discretion of the Company and as permitted by applicable law, (i) by delivering Shares already owned by the optionee having a fair market value (as determined by the Plan Administrator) equal to an amount not less than the aggregate purchase price of the Shares being purchased, (ii) by the optionee's promissory note in a form approved by the Company, (iii) by the assignment of the proceeds of a sale or a loan with respect to some or all of the Shares being acquired upon the exercise of the option, and (iv) any combination of the foregoing as determined by the Plan Administrator with respect to the Option Shares to be purchased. Unless otherwise provided by the Plan Administrator, an option may not be exercised by delivery to the Company of the Company's Shares owned by the optionee unless such Shares either have been owned by the optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company. Any permitted promissory note shall be on such terms as the Plan Administrator shall determine at the time the option is granted. The Plan Administrator shall have the authority to permit or require the optionee to secure any promissory note used to exercise an option with the Shares acquired upon the exercise of the option or with other collateral acceptable to the Company and the amount of the promissory note shall not exceed the exercise price of the Shares with respect to which the option is being exercised plus applicable local, state, federal and foreign taxes attributable to such exercise. Unless otherwise provided by the Board, if the Company at any time is subject to the regulations promulgated by the Board of Governors of the Federal Reserve System or any other governmental entity affecting the extension of credit in -4- connection with the Company's securities, any promissory note shall comply with such applicable regulations, and the optionee shall pay the unpaid principal and accrued interest, if any, to the extent necessary to comply with such applicable regulations. Section 6.02. Written Notice Required. Any option granted pursuant to the ----------------------- terms of the Plan shall be considered exercised when written notice of that exercise, together with the investment representation described in Section 7.01, has been given to the Company at its principal executive office by the person entitled to exercise the option and full payment for the Shares with respect to which the option is exercised has been received by the Company. Section 6.03. Vesting of Non-Statutory Stock Options. Non-statutory stock -------------------------------------- options granted to non-employee directors of the Company or any subsidiary corporation or parent corporation will become exercisable as follows: 100% three (3) months after the date of the grant. Section 7.01. Compliance With State and Federal Laws; Delivery of Shares. ---------------------------------------------------------- No Shares shall be issued with respect to any option granted under the Plan unless the exercise of that option and the issuance and delivery of the Shares pursuant to that exercise shall comply with all relevant provisions of state and federal laws, rules, and regulations, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to that compliance. If any law, or any regulation of the Securities and Exchange Commission, or of any other body having jurisdiction, shall require the Company or the optionee to take any action in connection with the Shares specified in the optionee's notice, then the date for the delivery of the Shares shall be postponed until the completion of the necessary action. The Plan Administrator shall require (to the extent required by or advisable under applicable laws, rules, and regulations) an optionee to furnish evidence satisfactory to the Company (including a written and signed representation letter and a consent to be bound by any transfer restrictions imposed by laws, legend condition, or otherwise) upon exercise of the option that the Shares to be acquired are being purchased only for investment and without any present intention to sell or distribute the Shares in violation of any law, rule, or regulation. Further, each optionee shall consent to the imposition of a legend on the stock certificate evidencing the Shares subject to his or her option restricting their transferability as required by or advisable under applicable laws, rules and regulations. Section 7.02 Transfer Restrictions. Shares issued under the Plan may be --------------------- subject to a right of first refusal or other conditions and restrictions as determined by the Plan Administrator in its sole discretion at the time the option is granted. Upon request by the Company, each optionee shall execute any agreement evidencing such transfer restrictions prior to the receipt of Shares hereunder and shall promptly present to the Company any and all certificates representing Shares acquired hereunder for the placement on such certificates of appropriate legends evidencing such transfer restrictions. Section 8.01. Employment of Optionee. Nothing in the Plan or in any option ---------------------- granted hereunder shall confer upon any optionee (i) any right to continued employment by the Company or any parent corporation or subsidiary corporation, or limit in any way the right of the employer at any time to terminate or alter the terms of that employment or (ii) any right to sue the Company, or any parent corporation or subsidiary corporation for any adverse tax consequences -5- in connection with the grant or exercise of any option or the disposition of any Shares acquired pursuant to this Plan. Section 9.01. Option Rights Upon Termination of Employment. If an optionee -------------------------------------------- ceases to be an employee or a director of the Company or any subsidiary corporation or parent corporation for any reason other than death or permanent and total disability (within the meaning of Section 22(e)(3) of the Code), the optionee's option shall immediately terminate; provided, however, that the Plan Administrator, in its absolute discretion, may provide at the time of the grant of an option that the option may be exercised (to the extent it remains unexercised on the date of termination) at any time within a period of up to three months following the date of termination, unless either the option or the Plan otherwise provides for earlier termination but only to the extent that the optionee is entitled to exercise the option at the date of such termination. The transfer of an employee from the employ of the Company to any subsidiary corporation or parent corporation, or vice versa, or from any subsidiary corporation or parent corporation, to any other subsidiary corporation or parent corporation shall not be deemed to constitute a cessation of employment for purposes of this Plan. Section 10.01. Option Rights Upon Death or Disability. Except as otherwise -------------------------------------- limited by the Plan Administrator at the time of the grant of an option, if an optionee dies or becomes permanently and totally disabled within the meaning of Section 22(e)(3) of the Code while an employee or a director of the Company or any subsidiary corporation or parent corporation, or dies within three months after ceasing to be an employee or director thereof (provided that the optionee was entitled to exercise the option at the time of ceasing to be an employee or director), the optionee's option shall expire one year after the date of death or the date of permanent and total disability, unless either the option or the Plan otherwise provides for earlier termination. During this one year (or shorter) period, the option may be exercised, to the extent that it remains unexercised on the date of death or on the date of permanent and total disability, by the optionee, if living, or by the person or persons to whom the optionee's rights under the option shall pass by will or by the laws of descent and distribution, but only to the extent that the optionee is entitled to exercise the option at the date of death or date of permanent and total disability, as the case may be. Section 11.01. No Privileges of Ownership. Notwithstanding the exercise of -------------------------- any option granted pursuant to the Plan, no optionee shall have any of the rights or privileges of a shareholder of the Company in respect of any Shares issuable upon the exercise of the option until the optionee becomes a shareholder of record. Section 12.01. Options Not Transferable. Options granted pursuant to the ------------------------ terms of the Plan, may not be sold, pledged, assigned, or transferred in any manner, other than by will or the laws of descent and distribution, and may be exercised during the lifetime of an optionee only by that optionee. Section 13.01. Adjustment to Number and Purchase Price; Acceleration of -------------------------------------------------------- Right to Exercise Option; Cancellation of Option. All options granted pursuant - ------------------------------------------------ to the Plan shall be adjusted, modified, or canceled in the manner prescribed by this section. -6- (a) If the outstanding Shares of the Company are increased, decreased, changed into, or exchanged for a different number or kind or Shares or securities through merger, consolidation, combination, exchange of Shares, or other reorganization, recapitalization, reclassification, stock dividend, stock split, or reverse stock split, an appropriate and proportionate adjustment shall be made in the maximum number and kind of Shares as to which options may be granted under the Plan. A corresponding adjustment changing the number or kind of Shares allocated to unexercised options or portions thereof that were granted prior to any such change shall likewise be made. Any adjustments made pursuant to this Section 13.01 in outstanding options shall be made without change in the aggregate purchase price applicable to the unexercised portion of the option, but with a corresponding adjustment in the price for each Share or other unit of any security covered by the option. With respect to incentive stock options, the adjustments described in this section 13.01(a) shall be made in accordance with Section 424 of the Code. The adjustments determined by the Plan Administrator pursuant to this Section 13.01(a) shall be final, binding and conclusive. (b) Notwithstanding any other provision of this Plan, upon a Change of Control of the Company, the Plan and any option theretofore granted hereunder shall terminate. For purposes of the Plan, a "Change of Control" shall be deemed to have occurred upon any of the following events: (i) following the date hereof, a person or entity or group of persons or entities, acting in concert, shall become the direct or indirect beneficial owner (within the meaning of Rule 13d-3 of the Exchange Act) of securities of the Company representing fifty percent (50%) or more of the combined voting power of the issued and outstanding capital stock of the Company (a "Significant Owner"), unless such shares are originally issued to such Significant Owner by the Company; (ii) the majority of the Company's Board of Directors is no longer comprised of (A) the incumbent directors who constitute the Board of Directors on the date hereof and (B) any other individual(s) who becomes a director subsequent to the date hereof whose initial election or nomination for election as a director, as the case may be, was approved by at least a majority of the directors who comprised the incumbent directors as of the date of such election or nomination; (iii) the dissolution or liquidation of the Company; (iv) the transfer of substantially all of the assets of the Company to another entity; (v) the approval by the shareholders of the Company of any reorganization, merger, or consolidation of the Company with one or more other entities in which the Company is not the surviving corporation, or which would result in the occurrence of any event described above in this Section 13.01(b). In the event of the occurrence of any of the events described in clauses (i) through (v) above, each optionee (or that person's estate or a person who acquired the right to exercise the option from the optionee by bequest or inheritance) shall be entitled, prior to the effective date of -7- the consummation of any such transaction, to purchase, in whole or in part, the full number of Shares under the option or options granted to the optionee that the optionee would otherwise have been entitled to purchase during the remaining term of the option and without regard to any otherwise applicable restrictions set forth in the option delaying the immediate exercise of the option. To the extent that any such exercise relates to stock that is not otherwise available for purchase through the exercise of the option by the optionee at that time, the exercise pursuant to this Section 13.01(b) shall be contingent upon the consummation of the Change of Control. (c) Notwithstanding the foregoing, in the event of a complete liquidation of a subsidiary corporation or parent corporation, or in the event that such corporation ceases to be a subsidiary corporation or parent corporation, any unexercised options theretofore granted to an employee of such subsidiary corporation or parent corporation, respectively, shall be deemed canceled unless the employee shall become employed by the Company or by any other subsidiary corporation or parent corporation, respectively, on the occurrence of any such event Section 14.01. Termination and Amendment of Plan. The Plan shall terminate --------------------------------- ten (10) years from the effective date of the Plan (as determined under Section 5.01), and no options shall be granted under the Plan after that date; provided, however, that termination of the Plan shall not terminate any option granted prior thereto, and options granted prior to termination of the Plan and existing at the time of termination of the Plan shall continue to be subject to all the terms and conditions of the Plan as if the Plan had not terminated. Subject to the limitation contained in Section 14.02, the Plan Administrator may at any time amend or revise the terms of the Plan (including the form and substance of the option agreements to be used hereunder), provided that no amendment or revision shall (a) increase the maximum aggregate number of Shares provided for in Section 3.01 that may be sold pursuant to options granted under the Plan except as required under the provisions of Section 13.01(a), (b) permit the granting of an option to anyone other than as provided in Section 4.01, (c) increase the maximum term provided for in Sections 5.02 and 5.04 of any option, or (d) change the minimum purchase price for the Shares under Sections 5.03 and 5.04, unless approved by the written consent of the shareholders, or by the affirmative vote, in person or by proxy, of a majority of the outstanding voting stock of the Company at a duly held shareholders' meeting. Section 14.02. Prior Rights and Obligations. No amendment, suspension, or ---------------------------- termination of the Plan shall, without the consent of the optionee, alter or impair any of that optionee's right or obligations under any option granted under the Plan prior to that amendment, suspension, or termination. Section 15.01. Approval of Shareholders. Within 12 months after its ------------------------ adoption by the Board of Directors of the Company, the Plan must be approved by the unanimous written consent of the shareholders, or by the affirmative vote, in person or by proxy, of a majority of the outstanding voting stock of the Company at a duly held shareholders' meeting. Options may be granted under the Plan prior to obtaining shareholder approval, but those options shall be contingent upon shareholder approval being obtained and may not be exercised prior to the receipt of shareholder approval. Section 16.01. Reservation of Shares. During the term of the Plan, the --------------------- Company will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the -8- requirements of the Plan. In addition, the Company will from time to time, as is necessary to accomplish the purposes of the Plan, seek to obtain from any regulatory agency having jurisdiction any requisite authority in order to grant options under the Plan and to issue and sell Shares hereunder. Section 17.01. Tax Withholding. The Company may make such provisions as it --------------- may deem appropriate for the withholding of any state or federal taxes which the Company determines is advisable to withhold in connection with any option or any other right, payment or settlement made under this Plan. The exercise of the option shall not be effective unless such withholding shall have been effected or obtained in a manner acceptable to the Company, including, but not limited to, requiring the optionee to remit to the Company an amount sufficient to satisfy any federal, state and/or local tax withholding requirements. Section 18.01. Provision of Information. At least annually, copies of the ------------------------ Company's financial statements for the just completed fiscal year shall be made available to each optionee and purchaser of Shares upon the exercise of an option. The Company shall not be required to provide such information to persons whose duties in connection with the Company assure them access to equivalent information. Section 19.01. Sections-Headings. The headings of the sections of the Plan ----------------- are for convenience only and shall not be considered or referred to in resolving questions of interpretation. References to "Section" that are not followed by a section number and the phrase "of the Code" are references to sections of the Plan. Section 19.02. Governing Law. The Plan shall be governed by and construed ------------- and interpreted in accordance with the internal laws of the State of California, except to the extent preempted by federal law, which shall govern to such extent. Section 19.03. Invalid Provision. In the event that any provision of this ----------------- Plan is found to be invalid or otherwise unenforceable under any applicable law, such invalidity or unenforceability shall not be construed as rendering any other provisions contained herein invalid or unenforceable, and all such other provisions shall be given full force and effect to the same extent as though the invalid or unenforceable provision was not contained herein. Section 19.04. Adoption. The Plan was adopted by a resolution duly adopted -------- by the Board of Directors of the Company on June 2, 1999. I hereby certify that the foregoing Plan was duly adopted by the Board of Directors of MULTILINK TECHNOLOGY CORPORATION on June 2, 1999. Executed this 2nd day of June, 1999. /s/ Richard N. Nottenburg ___________________________ Richard N. Nottenburg, Secretary -9- AMENDMENT TO 1999 STOCK OPTION PLAN Section 13.01(b) of the 1999 Plan is hereby deleted in its entirety and replaced with the following: (b) For purposes of the Plan, a "Change of Control" shall be deemed to have occurred upon any of the following events: (i) following the date hereof, a person or entity or group of persons or entities, acting in concert, shall become the direct or indirect beneficial owner (within the meaning of Rule 13d-3 of the Exchange Act) of securities of the Company representing fifty percent (50%) or more of the combined voting power of the issued and outstanding capital stock of the Company (a "Significant Owner"), unless such shares are originally issued to such Significant Owner by the Company; (ii) the majority of the Company's Board of Directors is no longer comprised of (A) the incumbent directors who constitute the Board of Directors on the date hereof and (B) any other individual(s) who becomes a director subsequent to the date hereof whose initial election or nomination for election as a director, as the case may be, was approved by at least a majority of the directors who comprised the incumbent directors as of the date of such election or nomination; (iii) the dissolution or liquidation of the Company; (iv) the transfer of all or substantially all of the assets of the Company to another entity; (v) the approval by the shareholders of the Company of any reorganization, merger, or consolidation of the Company with or into one or more other entities in which the Company is not the surviving corporation, or which would result in the occurrence of any event described above in this Section 13.01(b). Upon any Change of Control, the Plan and any option theretofore granted hereunder shall terminate. Upon such Change of Control, each optionee (or that person's estate or a person who acquired the right to exercise the option from the optionee by bequest or inheritance) shall be entitled, prior to the effective date of the consummation of the Change of Control (or in the case of subsection (v) above, the consummation of the transaction underlying the Change of Control), to purchase, in whole or in part, the full number of Shares under the option or options granted to the optionee that the optionee would otherwise have been entitled to purchase during the remaining term of the option and without regard to any otherwise applicable restrictions set forth in the option delaying the immediate exercise of the option. To the extent that any such exercise relates to stock that is not otherwise available for purchase through the exercise of the option by the optionee at that time, the exercise pursuant to this Section 13.01(b) shall be contingent upon the consummation of the Change of Control. Notwithstanding the foregoing, the Plan and any option theretofore granted hereunder shall not immediately terminate upon a Change in Control under subsections (iv) or (v) above in which the acquiring entity agrees to either (A) assume, and does assume upon the consummation of the transaction underlying the Change of Control, each option theretofore granted hereunder which has not otherwise expired by its terms or been terminated (the "Assumed Options"), or (B) tender, and does tender upon the consummation of the transaction underlying the Change of Control, an economically equivalent substitute option, award or arrangement for each option theretofore granted hereunder which has not otherwise expired by its terms or been terminated (together with the Assumed Options, the "Acquiror Options") (an "Assumed Change of Control"). In the event of an Assumed Change of Control, each optionee (or that person's estate or a person who acquired the right to exercise the Acquiror Options from the optionee by bequest or inheritance) shall be entitled after the earlier of (A) the date that is six (6) months following the date of such Assumed Change of Control, or (B) the date the optionee's employment is terminated without cause after or as a result of a Change of Control under subsections (iv) or (v) above, to purchase, in whole or in part, the full number of shares of capital stock under the Acquiror Options that the optionee would otherwise have been entitled to purchase during the remaining term of such Acquiror Options, and without regard to any otherwise applicable restrictions set forth in the Acquiror Options delaying the immediate exercise of the Acquiror Options. -2- AMENDMENT NO. 2 TO THE 1999 STOCK OPTION PLAN --------------------------------------------- Section 12.01 of the 1999 Plan is hereby deleted in its entirety and replaced with the following: "Limited Transferability of Options. During the lifetime of an ---------------------------------- optionee, incentive stock options shall be exercisable only by the optionee and shall not be assignable or transferable other than by will or by the laws of descent and distribution following the optionee's death. Non-statutory stock options shall be subject to the same restrictions, except that a non-statutory stock option may, to the extent permitted by the Plan Administrator, be assigned in whole or in part during an optionee's lifetime to one or more members of the optionee's immediate family or to a trust established exclusively for one or more such family members. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate." AMENDMENT NO. 3 TO 1999 STOCK OPTION PLAN ----------------------------------------- The first sentence of Section 3.01 of the 1999 Plan is hereby deleted in its entirety and replaced with the following: "Subject to the provisions of Section 13.01(a), the maximum aggregate number of authorized and unissued Shares that may be optioned and sold under the Plan is Eighteen Million (18,000,000) Shares." EX-10.4 8 0008.txt 2000 STOCK INCENTIVE PLAN Exhibit 10.4 MULTILINK TECHNOLOGY CORPORATION 2000 STOCK INCENTIVE PLAN ARTICLE ONE GENERAL PROVISIONS I. PURPOSE OF THE PLAN This 2000 Stock Incentive Plan is intended to promote the interests of Multilink Technology Corporation, a California corporation, by providing eligible persons in the Corporation's Service with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in such Service. Capitalized terms shall have the meanings assigned to such terms in the attached Appendix. All share numbers reflect the ten-for-one split of the Common Stock which was effected on June 22, 2000 through the payment of a dividend of nine additional shares of Common Stock for every share of Common Stock outstanding on June 22, 2000. II. STRUCTURE OF THE PLAN A. The Plan shall be divided into five separate equity incentive programs: - the Discretionary Option Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock, - the Salary Investment Option Grant Program under which eligible employees may elect to have a portion of their base salary invested each year in special option grants, - the Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common Stock directly, either through the immediate purchase of such shares or as a bonus for services rendered the Corporation (or any Parent or Subsidiary), - the Automatic Option Grant Program under which eligible non- employee Board members shall automatically receive option grants at designated intervals over their period of continued Board Service, and - the Director Fee Option Grant Program under which non-employee Board members may elect to have all or any portion of their annual retainer fee otherwise payable in cash applied to a special stock option grant. B. The provisions of Articles One and Seven shall apply to all equity incentive programs under the Plan and shall govern the interests of all persons under the Plan. III. ADMINISTRATION OF THE PLAN A. The Primary Committee shall have sole and exclusive authority to administer the Discretionary Option Grant and Stock Issuance Programs with respect to Section 16 Insiders. Administration of the Discretionary Option Grant and Stock Issuance Programs with respect to all other persons eligible to participate in those programs may, at the Board's discretion, be vested in the Primary Committee or a Secondary Committee, or the Board may retain the power to administer those programs with respect to all such persons. However, any discretionary option grants or stock issuances to members of the Primary Committee must be authorized and approved by a disinterested majority of the Board. B. Members of the Primary Committee or any Secondary Committee shall serve for such period of time as the Board may determine and may be removed by the Board at any time. The Board may also at any time terminate the functions of any Secondary Committee and reassume all powers and authority previously delegated to such committee. C. Each Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority (subject to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of the Discretionary Option Grant and Stock Issuance Programs and to make such determinations under, and issue such interpretations of, the provisions of those programs and any outstanding options or stock issuances thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding on all parties who have an interest in the Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or any stock option or stock issuance thereunder. D. The Primary Committee shall have the sole and exclusive authority to determine which Section 16 Insiders and other highly compensated Employees shall be eligible for participation in the Salary Investment Option Grant Program for one or more calendar years. However, all option grants under the Salary Investment Option Grant Program shall be made in accordance with the express terms of that program, and the Primary Committee shall not exercise any discretionary functions with respect to the option grants made under that program. E. Service on the Primary Committee or a Secondary Committee shall constitute Service as a Board member, and members of each such committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Primary Committee or the Secondary Committee shall be liable for any act or omission made in good faith with respect to the Plan or any option grants or stock issuances under the Plan. F. Administration of the Automatic Option Grant and Director Fee Option Grant Programs shall be self-executing in accordance with the terms of those programs, and no Plan Administrator shall exercise any discretionary functions with respect to any option grants or stock issuances made under those programs. -2- IV. ELIGIBILITY A. The persons eligible to participate in the Discretionary Option Grant and Stock Issuance Programs are as follows: (i) Employees, (ii) non-employee members of the Board or the board of directors of any Parent or Subsidiary, and (iii) consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary). B. Only Employees who are Section 16 Insiders or other highly compensated individuals shall be eligible to participate in the Salary Investment Option Grant Program. C. Each Plan Administrator shall, within the scope of its administrative jurisdiction under the Plan, have full authority to determine, (i) with respect to the option grants under the Discretionary Option Grant Program, which eligible persons are to receive such grants, the time or times when those grants are to be made, the number of shares to be covered by each such grant, the status of the granted option as either an Incentive Option or a Non-Statutory Option, the time or times when each option is to become exercisable, the vesting schedule (if any) applicable to the option shares and the maximum term for which the option is to remain outstanding and (ii) with respect to stock issuances under the Stock Issuance Program, which eligible persons are to receive such issuances, the time or times when the issuances are to be made, the number of shares to be issued to each Participant, the vesting schedule (if any) applicable to the issued shares and the consideration for such shares. D. The Plan Administrator shall have the absolute discretion either to grant options in accordance with the Discretionary Option Grant Program or to effect stock issuances in accordance with the Stock Issuance Program. E. The individuals who shall be eligible to participate in the Automatic Option Grant Program shall be limited to (i) those individuals who first become non-employee Board members after the Underwriting Date, whether through appointment by the Board or election by the Corporation's shareholders, and (ii) those individuals who continue to serve as non-employee Board members at one or more Annual Shareholders Meetings held after the Underwriting Date, including any individuals who first became non-employee Board members prior to such Underwriting Date. A non-employee Board member who has previously been in the employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to receive an option grant under the Automatic Option Grant Program at the time he or she first becomes a non-employee Board member, but shall be eligible to receive periodic option grants under the Automatic Option Grant Program while he or she continues to serve as a non-employee Board member. F. All non-employee Board members shall be eligible to participate in the Director Fee Option Grant Program. -3- V. STOCK SUBJECT TO THE PLAN A. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Corporation on the open market. The number of shares of Common Stock initially reserved for issuance over the term of the Plan shall not exceed 47,000,000 shares. Such authorized reserve consists of (i) the number of shares which remain available for issuance, as of the Plan Effective Date, under the Predecessor Plans as last approved by the Corporation's shareholders (42,000,000 shares), including the shares subject to the outstanding options to be incorporated into the Plan and the additional shares which would otherwise be available for future grant, plus (ii) an increase of 5,000,000 shares authorized by the Board but subject to shareholder approval prior to the Section 12 Registration Date. B. The number of shares of Common Stock available for issuance under the Plan shall automatically increase on the first trading day of January each calendar year during the term of the Plan, beginning with calendar year 2000, by an amount equal to four percent (4%) of the total number of shares of Class A and Class B Common Stock outstanding on the last trading day in December of the immediately preceding calendar year, but in no event shall any such annual increase exceed 5,000,000 shares and in no event shall the aggregate number of shares of Common Stock available for issuance under the Plan (as adjusted for all such annual increases) exceed 100,000,000 shares. C. No one person participating in the Plan may receive stock options, separately exercisable stock appreciation rights and direct stock issuances or share right awards for more than 3,000,000 shares of Common Stock in the aggregate per calendar year. D. Shares of Common Stock subject to outstanding options (including options incorporated into this Plan from the Predecessor Plans) shall be available for subsequent issuance under the Plan to the extent (i) those options expire or terminate for any reason prior to exercise in full or (ii) the options are cancelled in accordance with the cancellation-regrant provisions of Article Two. Unvested shares issued under the Plan and subsequently cancelled or repurchased by the Corporation at the original exercise or issue price paid per share, pursuant to the Corporation's repurchase rights under the Plan, shall be added back to the number of shares of Common Stock reserved for issuance under the Plan and shall accordingly be available for reissuance through one or more subsequent option grants or direct stock issuances under the Plan. In addition, should the exercise price of an option under the Plan be paid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an option or the vesting of a stock issuance under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall be reduced only by the net number of shares of Common Stock issued to the holder of such option or stock issuance, and not by the gross number of shares for which the option is exercised or which vest under the stock issuance. However, shares of Common Stock underlying one or more stock appreciation rights exercised under Section V of Article Two, Section III.C of Article Three, Section II.D of Article Five or Section III.C of Article Six of the Plan shall not be available for subsequent issuance under the Plan. -4- E. If any change is made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made by the Plan Administrator to (i) the maximum number and/or class of securities issuable under the Plan, (ii) the maximum number and/or class of securities for which any one person may be granted stock options, separately exercisable stock appreciation rights and direct stock issuances or share right awards under the Plan per calendar year, (iii) the number and/or class of securities for which grants are subsequently to be made under the Automatic Option Grant Program to new and continuing non-employee Board members, (iv) the number and/or class of securities and the exercise price per share in effect under each outstanding option under the Plan, (v) the number and/or class of securities and exercise price per share in effect under each outstanding option incorporated into this Plan from the Predecessor Plans, (vi) the maximum number and/or class of securities by which the share reserve is to increase automatically each calendar year pursuant to the provisions of Section V.A. of this Article One and (vii) the maximum number and/or class of securities which may be added to the Plan through the repurchase of shares issued under the Predecessor Plans. Such adjustments to the outstanding options are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. ARTICLE TWO DISCRETIONARY OPTION GRANT PROGRAM I. OPTION TERMS Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options. A. EXERCISE PRICE. 1. The exercise price per share shall be fixed by the Plan Administrator but shall not be less than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the option grant date. 2. The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of Section I of Article Seven and the documents evidencing the option, be payable in one or more of the forms specified below: (i) cash or check made payable to the Corporation, or (ii) shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or -5- (iii) to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable instructions to (a) a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale. Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option shall have a term in excess of ten (10) years measured from the option grant date. C. EFFECT OF TERMINATION OF SERVICE. 1. The following provisions shall govern the exercise of any options held by the Optionee at the time of cessation of Service or death: (i) Any option outstanding at the time of the Optionee's cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no such option shall be exercisable after the expiration of the option term. (ii) Any option held by the Optionee at the time of death and exercisable in whole or in part at that time may be subsequently exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or the laws of descent and distribution or by the Optionee's designated beneficiary or beneficiaries of that option. (iii) Should the Optionee's Service be terminated for Misconduct or should the Optionee otherwise engage in Misconduct while holding one or more outstanding options under this Article Two, then all those options shall terminate immediately and cease to be outstanding. (iv) During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for which the option is exercisable on the date of the Optionee's cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Service, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares. -6- 2. The Plan Administrator shall have complete discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to: (i) extend the period of time for which the option is to remain exercisable following the Optionee's cessation of Service from the limited exercise period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or (ii) permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more additional installments in which the Optionee would have vested had the Optionee continued in Service. D. SHAREHOLDER RIGHTS. The holder of an option shall have no shareholder rights with respect to the shares subject to the option until such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares. E. REPURCHASE RIGHTS. The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of Common Stock. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase, at the exercise price paid per share, any or all of those unvested shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right. F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, Incentive Options shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or the laws of descent and distribution following the Optionee's death. Non-Statutory Options shall be subject to the same limitation, except that a Non-Statutory Option may be assigned in whole or in part during the Optionee's lifetime to one or more members of the Optionee's family or to a trust established exclusively for one or more such family members or to Optionee's former spouse, to the extent such assignment is in connection with the Optionee's estate plan or pursuant to a domestic relations order. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate. Notwithstanding the foregoing, the Optionee may also designate one or more persons as the beneficiary or beneficiaries of his or her outstanding options under this Article Two, and those options shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee's death while holding those options. Such beneficiary or beneficiaries shall take the transferred options subject to all the terms and conditions of the applicable agreement evidencing each such transferred option, including (without limitation) the limited time period during which the option may be exercised following the Optionee's death. -7- II. INCENTIVE OPTIONS The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Seven shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall not be subject to the terms of this Section II. A. ELIGIBILITY. Incentive Options may only be granted to Employees. B. EXERCISE PRICE. The exercise price per share shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date. C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted. D. FAILURE TO QUALIFY AS INCENTIVE OPTION. To the extent that any option governed by this Plan does not qualify as an Incentive Option, by reason of the dollar limitation described in Section II.C of this Article Two or for any other reason, such option shall be exercisable as a Non-Statutory Option under the Federal tax laws. E. 10% SHAREHOLDER. If any Employee to whom an Incentive Option is granted is a 10% Shareholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date, and the option term shall not exceed five (5) years measured from the option grant date. III. CHANGE IN CONTROL/HOSTILE TAKE-OVER A. No option outstanding at the time of a Change in Control shall become exercisable on an accelerated basis if and to the extent: (i) that option is, in connection with the Change in Control, assumed by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction, (ii) such option is replaced with a cash incentive program of the successor corporation which preserves the spread existing at the time of the Change in Control on the shares of Common Stock for which the option is not otherwise at that time exercisable and provides for subsequent payout in accordance with the same exercise/vesting schedule applicable to those option shares or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. However, if none of the foregoing conditions are satisfied, then each option outstanding at the time of the Change in Control but not otherwise exercisable for all the shares of Common Stock at that time subject to such option shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Change in Control, become exercisable for all the shares of Common Stock at the time -8- subject to such option and may be exercised for any or all of those shares as fully vested shares of Common Stock. B. All of the Corporation's outstanding repurchase rights under the Discretionary Option Grant Program shall also terminate automatically, and the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Change in Control, except to the extent: (i) those repurchase rights are assigned to the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued. C. Immediately following the consummation of the Change in Control, all outstanding options shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise expressly continued in full force and effect pursuant to the terms of the Change in Control transaction. D. Each option which is assumed in connection with a Change in Control or otherwise continued in effect shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Change in Control had the option been exercised immediately prior to such Change in Control. Appropriate adjustments to reflect such Change in Control shall also be made to (i) the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same, (ii) the maximum number and/or class of securities available for issuance over the remaining term of the Plan, (iii) the maximum number and/or class of securities by which the share reserve is to increase each calendar year pursuant to the automatic share increase provisions of the Plan, (iv) the maximum number and/or class of securities for which any one person may be granted options, separately exercisable stock appreciation rights and direct stock issuances or share right awards under the Plan per calendar year and (v) the maximum number and class of securities which may be added to the Plan through the repurchase of shares issued under the Predecessor Plans. To the extent the actual holders of the Corporation's outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control transaction, the successor corporation may, in connection with the assumption of the outstanding options under the Discretionary Option Grant Program, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control transaction. E. The Plan Administrator shall have the discretionary authority to structure one or more outstanding options under the Discretionary Option Grant Program so that those options shall, immediately prior to the effective date of a Change in Control, become exercisable for all the shares of Common Stock at that time subject to such options on an accelerated basis and may be exercised for any or all of such shares as fully vested shares of Common Stock, whether or not those options are to be assumed or otherwise continued in full force and effect pursuant to the express terms of the Change in Control transaction. In addition, the Plan Administrator shall have the discretionary authority to structure one or more of the Corporation's repurchase rights under the Discretionary Option Grant Program so that those rights shall immediately terminate at the time of such Change in Control and shall not be assignable to the successor corporation (or -9- parent thereof), and the shares subject to those terminated rights shall accordingly vest in full at the time of such Change in Control. F. The Plan Administrator shall have full power and authority to structure one or more outstanding options under the Discretionary Option Grant Program so that those options shall vest and become exercisable for all the shares of Common Stock at that time subject to such options on an accelerated basis in the event the Optionee's Service is subsequently terminated by reason of an Involuntary Termination within a designated period (not to exceed eighteen (18) months) following the effective date of any Change in Control in which those options do not otherwise accelerate. Any options so accelerated shall remain exercisable for fully vested shares of Common Stock until the expiration or sooner termination of the option term. In addition, the Plan Administrator may structure one or more of the Corporation's repurchase rights under the Discretionary Option Grant Program so that those rights shall immediately terminate with respect to any shares of Common Stock held by the Optionee at the time of his or her Involuntary Termination, and the shares subject to those terminated repurchase rights shall accordingly vest in full at that time. G. The Plan Administrator shall have the discretionary authority to structure one or more outstanding options under the Discretionary Option Grant Program so that those options shall, immediately prior to the effective date of a Hostile Take-Over, vest and become exercisable for all the shares of Common Stock at that time subject to such options on an accelerated basis and may be exercised for any or all of such shares as fully vested shares of Common Stock. In addition, the Plan Administrator shall have the discretionary authority to structure one or more of the Corporation's repurchase rights under the Discretionary Option Grant Program so that those rights shall terminate automatically upon the consummation of such Hostile Take-Over, and the shares subject to those terminated rights shall thereupon immediately vest in full. Alternatively, the Plan Administrator may condition the automatic acceleration of one or more outstanding options under the Discretionary Option Grant Program and the termination of one or more of the Corporation's outstanding repurchase rights under such program upon the Involuntary Termination of the Optionee's Service within a designated period (not to exceed eighteen (18) months) following the effective date of such Hostile Take-Over. Each option so accelerated shall remain exercisable for fully vested shares of Common Stock until the expiration or sooner termination of the option term. H. The portion of any Incentive Option accelerated in connection with a Change in Control or Hostile Take-Over shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-Statutory Option under the Federal tax laws. I. The grant of options under the Discretionary Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. -10- IV. CANCELLATION AND REGRANT OF OPTIONS The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Discretionary Option Grant Program (including outstanding options incorporated from the Predecessor Plans) and to grant in substitution new options covering the same or a different number of shares of Common Stock but with an exercise price per share calculated based upon the Fair Market Value per share of Common Stock on the new grant date. V. STOCK APPRECIATION RIGHTS A. The Plan Administrator shall have full power and authority to grant to selected Optionees tandem stock appreciation rights and/or limited stock appreciation rights. B. The following terms shall govern the grant and exercise of tandem stock appreciation rights: (i) One or more Optionees may be granted the right, exercisable upon such terms as the Plan Administrator may establish, to elect between the exercise of the underlying option for shares of Common Stock and the surrender of that option in exchange for a payment from the Corporation in an amount equal to the excess of (a) the Fair Market Value (on the option surrender date) of the number of shares in which the Optionee is at the time vested under the surrendered option (or surrendered portion thereof) over (b) the aggregate exercise price payable for such shares. (ii) No such option surrender shall be effective unless it is approved by the Plan Administrator, either at the time of the actual option surrender or at any earlier time. If the surrender is so approved, then the payment to which the Optionee shall be entitled may be made in shares of Common Stock valued at Fair Market Value on the option surrender date, in cash, or partly in shares and partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate. (iii) If the surrender of an option is not approved by the Plan Administrator, then the Optionee shall retain whatever rights the Optionee had under the surrendered option (or surrendered portion thereof) on the option surrender date and may exercise such rights at any time prior to the later of (a) five (5) business days after the receipt of the rejection notice or (b) the last day on which the option is otherwise exercisable in accordance with the terms of the documents evidencing such option, but in no event may such rights be exercised more than ten (10) years after the option grant date. C. The following terms shall govern the grant and exercise of limited stock appreciation rights: (i) One or more Section 16 Insiders may be granted limited stock appreciation rights with respect to their outstanding options. -11- (ii) Upon the occurrence of a Hostile Take-Over, each individual holding one or more options with such a limited stock appreciation right shall have the unconditional right (exercisable for a thirty (30)-day period following such Hostile Take-Over) to surrender each such option (or any portion thereof) to the Corporation. In return for the surrendered option, the Optionee shall receive a cash payment from the Corporation in an amount equal to the excess of (A) the Take-Over Price of the shares of Common Stock at the time subject to such option (whether or not the option is otherwise vested and exercisable for those shares) over (B) the aggregate exercise price payable for those shares. Such cash payment shall be paid within five (5) days following the option surrender date. (iii) At the time such limited stock appreciation right is granted, the Plan Administrator shall pre-approve any subsequent exercise of that right in accordance with the terms of this Paragraph C. Accordingly, no further approval of the Plan Administrator or the Board shall be required at the time of the actual option surrender and cash payment. (iv) The balance of the option (if any) shall remain outstanding and exercisable in accordance with the documents evidencing such option. ARTICLE THREE SALARY INVESTMENT OPTION GRANT PROGRAM I. OPTION GRANTS The Primary Committee shall have the sole and exclusive authority to determine the calendar year or years (if any) for which the Salary Investment Option Grant Program is to be in effect and to select the Section 16 Insiders and other highly compensated Employees eligible to participate in the Salary Investment Option Grant Program for such calendar year or years. Each selected individual who elects to participate in the Salary Investment Option Grant Program must, prior to the start of each calendar year of participation, file with the Plan Administrator (or its designee) an irrevocable authorization directing the Corporation to reduce his or her base salary for that calendar year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely authorization shall automatically be granted an option under the Salary Investment Grant Program on the first trading day in January of the calendar year for which the salary reduction is to be in effect. II. OPTION TERMS Each option shall be a Non-Statutory Option evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below. -12- A. EXERCISE PRICE. 1. The exercise price per share shall be thirty-three and one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock on the option grant date. 2. The exercise price shall become immediately due upon exercise of the option and shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. B. NUMBER OF OPTION SHARES. The number of shares of Common Stock subject to the option shall be determined pursuant to the following formula (rounded down to the nearest whole number): X = A / (B x 66-2/3%), where X is the number of option shares, A is the dollar amount of the reduction in the Optionee's base salary for the calendar year to be in effect pursuant to this program, and B is the Fair Market Value per share of Common Stock on the option grant date. C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable in a series of twelve (12) successive equal monthly installments upon the Optionee's completion of each calendar month of Service in the calendar year for which the salary reduction is in effect. Each option shall have a maximum term of ten (10) years measured from the option grant date. D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease Service for any reason while holding one or more options under this Article Three, then each such option shall remain exercisable, for any or all of the shares of Common Stock for which the option is exercisable at the time of such cessation of Service, until the earlier of (i) the expiration of the ten (10)-year option term or (ii) the expiration of the three (3)-year period measured from the date of such cessation of Service. Should the Optionee die while holding one or more options under this Article Three, then each such option may be exercised, for any or all of the shares of Common Stock for which the option is exercisable at the time of the Optionee's cessation of Service (less any shares subsequently purchased by Optionee pursuant to such option prior to death), by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or the laws of descent and distribution or by the designated beneficiary or beneficiaries of the option. Such right of exercise shall lapse, and the option shall terminate, upon the earlier of (i) the expiration of the ten (10)-year option term or (ii) the three (3)-year period measured from the date of the Optionee's cessation of Service. However, the option shall, immediately upon the Optionee's cessation of Service for any reason, terminate and cease to remain outstanding with respect to any and all shares of Common Stock for which the option is not otherwise at that time exercisable. -13- III. CHANGE IN CONTROL/HOSTILE TAKE-OVER A. In the event of a Change in Control while the Optionee remains in Service, each outstanding option held by such Optionee under this Salary Investment Option Grant Program shall automatically accelerate so that each such option shall, immediately prior to the effective date of such Change in Control, vest and become exercisable for all the shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. Each such outstanding option shall terminate immediately following the Change in Control, except to the extent assumed by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the express terms of the Change in Control transaction. Any option so assumed or continued in effect shall remain exercisable for the fully-vested shares of Common Stock until the earliest to occur of (i) the expiration of the ten (10)-year option term, (ii) the expiration of the three (3)-year period measured from the date of the Optionee's cessation of Service, (iii) the termination of the option in connection with a subsequent Change in Control or (iv) the surrender of the option in connection with a Hostile Take-Over. B. In the event of a Hostile Take-Over while the Optionee remains in Service, each outstanding option held by such Optionee under this Salary Investment Option Grant Program shall automatically accelerate so that each such option shall, immediately prior to the effective date of such Hostile Take-Over, vest and become exercisable for all the shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. The option shall remain so exercisable until the earliest to occur of (i) the expiration of the ten (10)-year option term, (ii) the expiration of the three (3)-year period measured from the date of the Optionee's cessation of Service, (iii) the termination of the option in connection with a Change in Control or (iv) the surrender of the option in connection with that Hostile Take-Over. C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each outstanding option granted him or her under the Salary Investment Option Grant Program. The Optionee shall in return be entitled to a cash payment from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to the surrendered option (whether or not the option is otherwise at the time exercisable for those shares) over (ii) the aggregate exercise price payable for such shares. Such cash payment shall be paid within five (5) days following the surrender of the option to the Corporation. The Primary Committee shall, at the time the option with such limited stock appreciation right is granted under the Salary Investment Option Grant Program, pre-approve any subsequent exercise of that right in accordance with the terms of this Paragraph C. Accordingly, no further approval of the Primary Committee or the Board shall be required at the time of the actual option surrender and cash payment. D. Each option which is assumed in connection with a Change in Control or otherwise continued in full force and effect shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Change in Control had the option been exercised immediately prior to such Change in Control. Appropriate adjustments shall also be made to the exercise price payable per share under each outstanding option, provided the -14- aggregate exercise price payable for such securities shall remain the same. To the extent the actual holders of the Corporation's outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control transaction, the successor corporation may, in connection with the assumption of the outstanding options under the Salary Investment Option Grant Program, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control transaction. E. The grant of options under the Salary Investment Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. IV. REMAINING TERMS The remaining terms of each option granted under the Salary Investment Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program. ARTICLE FOUR STOCK ISSUANCE PROGRAM I. STOCK ISSUANCE TERMS Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to share right awards which entitle the recipients to receive those shares upon the attainment of designated performance goals. A. PURCHASE PRICE. 1. The purchase price per share shall be fixed by the Plan Administrator, but shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the issuance date. 2. Subject to the provisions of Section I of Article Seven, shares of Common Stock may be issued under the Stock Issuance Program for any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance: (i) cash or check made payable to the Corporation, or (ii) past services rendered to the Corporation (or any Parent or Subsidiary). -15- B. VESTING PROVISIONS. 1. Shares of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the Participant's period of Service or upon attainment of specified performance objectives. The elements of the vesting schedule applicable to any unvested shares of Common Stock issued under the Stock Issuance Program shall be determined by the Plan Administrator and incorporated into the Stock Issuance Agreement. Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to share right awards which entitle the recipients to receive those shares upon the attainment of designated performance goals. Upon the attainment of such performance goals, fully vested shares of Common Stock shall be issued in satisfaction of those share right awards. 2. Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to the Participant's unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant's unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate. 3. The Participant shall have full shareholder rights with respect to any shares of Common Stock issued to the Participant under the Stock Issuance Program, whether or not the Participant's interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares. 4. Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further shareholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant's purchase-money indebtedness), the Corporation shall repay to the Participant the cash consideration paid for the surrendered shares and shall cancel the unpaid principal balance of any outstanding purchase-money note of the Participant attributable to the surrendered shares. 5. The Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock which would otherwise occur upon the cessation of the Participant's Service or the non- attainment of the performance objectives applicable to those shares. Such waiver shall result in the immediate vesting of the Participant's interest in the shares of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant's cessation of Service or the attainment or non-attainment of the applicable performance objectives. -16- 6. Outstanding share right awards under the Stock Issuance Program shall automatically terminate, and no shares of Common Stock shall actually be issued in satisfaction of those awards, if the performance goals or Service requirements established for such awards are not attained. The Plan Administrator, however, shall have the discretionary authority to issue shares of Common Stock under one or more outstanding share right awards as to which the designated performance goals or Service requirements have not been attained. II. CHANGE IN CONTROL/HOSTILE TAKE-OVER A. All of the Corporation's outstanding repurchase rights under the Stock Issuance Program shall terminate automatically, and all the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Change in Control, except to the extent (i) those repurchase rights are assigned to the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the express terms of the Change in Control transaction or (ii) such accelerated vesting is precluded by other limitations imposed in the Stock Issuance Agreement. B. The Plan Administrator shall have the discretionary authority to structure one or more of the Corporation's repurchase rights under the Stock Issuance Program so that those rights shall automatically terminate in whole or in part upon the occurrence of a Change on Control and shall not be assignable to the successor corporation (or parent thereof), and the shares of Common Stock subject to those terminated rights shall immediately vest in full at the time of such Change in Control. C. The Plan Administrator shall also have the discretionary authority to structure one or more of the Corporation's repurchase rights under the Stock Issuance Program so that those rights shall automatically terminate in whole or in part, and the shares of Common Stock subject to those terminated rights shall immediately vest in full, upon the Involuntary Termination of the Participant's Service within a designated period (not to exceed eighteen (18) months) following the effective date of any Change in Control in which those repurchase rights do not otherwise terminate. D. The Plan Administrator shall also have the discretionary authority to structure one or more of the Corporation's repurchase rights under the Stock Issuance Program so that those rights shall automatically terminate in whole or in part upon the occurrence of a Hostile Take-Over, and the shares of Common Stock subject to those terminated rights shall immediately vest in full at the time of such Hostile Take-Over. III. SHARE ESCROW/LEGENDS Unvested shares may, in the Plan Administrator's discretion, be held in escrow by the Corporation until the Participant's interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares. -17- ARTICLE FIVE AUTOMATIC OPTION GRANT PROGRAM I. OPTION TERMS A. GRANT DATES. Option grants shall be made on the dates specified below: 1. Each individual who is first elected or appointed as a non- employee Board member at any time on or after the Underwriting Date shall automatically be granted, on the date of such initial election or appointment, a Non-Statutory Option to purchase 50,000 shares of Common Stock, provided that individual has not previously been in the employ of the Corporation or any Parent or Subsidiary. 2. On the date of each Annual Shareholders Meeting held after the Underwriting Date, each individual who is to continue to serve as a non-employee Board member, whether or not that individual is standing for re-election to the Board at that particular Annual Shareholders Meeting, shall automatically be granted a Non-Statutory Option to purchase 10,000 shares of Common Stock, provided such individual has served as a non-employee Board member for at least six (6) months. There shall be no limit on the number of such 10,000-share option grants any one non-employee Board member may receive over his or her period of Board Service, and non-employee Board members who have previously been in the employ of the Corporation (or any Parent or Subsidiary) or who joined the Board prior to the Underwriting Date shall be eligible to receive one or more such annual option grants over their period of continued Board Service. B. EXERCISE PRICE. 1. The exercise price per share shall be equal to one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date. 2. The exercise price shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. C. OPTION TERM. Each option shall have a maximum term of ten (10) years measured from the option grant date. D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately exercisable for any or all of the option shares. However, any unvested shares purchased under the option shall be subject to repurchase by the Corporation, at the exercise price paid per share, upon the Optionee's cessation of Board Service prior to vesting in those shares. The shares subject to each initial 50,000-share grant shall vest, and the Corporation's repurchase right shall lapse, in a series of four (4) successive equal annual installments upon the Optionee's completion of each year of Service as a Board member over the four (4)-year period measured from the option grant date. The shares subject to each annual 10,000-share option grant shall vest, and the -18- Corporation's repurchase right shall lapse, upon the Optionee's completion of one (1) year of Board Service measured from the option grant date. E. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this Article Five may be assigned in whole or in part during the Optionee's lifetime to one or more members of the Optionee's family or to a trust established exclusively for one or more such family members or to Optionee's former spouse, to the extent such assignment is in connection with the Optionee's estate plan or pursuant to domestic relations order. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate. The Optionee may also designate one or more persons as the beneficiary or beneficiaries of his or her outstanding options under this Article Five, and those options shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee's death while holding those options. Such beneficiary or beneficiaries shall take the transferred options subject to all the terms and conditions of the applicable agreement evidencing each such transferred option, including (without limitation) the limited time period during which the option may be exercised following the Optionee's death. F. TERMINATION OF BOARD SERVICE. The following provisions shall govern the exercise of any options held by the Optionee at the time the Optionee ceases to serve as a Board member: (i) The Optionee (or, in the event of Optionee's death, the personal representative of the Optionee's estate or the person or persons to whom the option is transferred pursuant to the Optionee's will or the laws of descent and distribution or the designated beneficiary or beneficiaries of such option) shall have a twelve (12)-month period following the date of such cessation of Board Service in which to exercise each such option. (ii) During the twelve (12)-month post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares of Common Stock for which the option is exercisable at the time of the Optionee's cessation of Board Service. (iii) Should the Optionee cease to serve as a Board member by reason of death or Permanent Disability, then all shares of Common Stock at the time subject to the option shall immediately vest so that such option may, during the twelve (12)-month exercise period following such cessation of Board Service, be exercised for all or any portion of those shares as fully-vested shares of Common Stock. (iv) In no event shall the option remain exercisable after the expiration of the option term. Upon the expiration of the twelve (12)-month post-Service exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Board Service -19- for any reason other than death or Permanent Disability, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares. II. CHANGE IN CONTROL/ HOSTILE TAKE-OVER A. In the event of any Change in Control while the Optionee remains a Board member, the shares of Common Stock at the time subject to each outstanding option held by such Optionee under the Automatic Option Grant Program but not otherwise vested shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Change in Control, vest and become exercisable for all the shares of Common Stock at the time subject to such fully vested shares of Common Stock and may be exercised for any or all of those vested shares. Immediately following the consummation of the Change in Control, each automatic option grant shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the express terms of the Change in Control transaction. B. In the event of a Hostile Take-Over while the Optionee remains a Board member, the shares of Common Stock at the time subject to each option outstanding under the Automatic Option Grant Program but not other wise vested shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Hostile Take-Over, vest and become exercisable for all the option shares as fully vested shares of Common Stock and may be exercised for any or all of those vested shares. Each such option shall remain exercisable for such fully-vested option shares until the expiration or sooner termination of the option term or the surrender of the option in connection with that Hostile Take-Over. C. All outstanding repurchase rights under the Automatic Option Grant Program shall automatically terminate, and the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Change in Control or Hostile Take-Over. D. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each of his or her outstanding automatic option grants. The Optionee shall in return be entitled to a cash payment from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to each surrendered option (whether or not the Optionee is otherwise at the time vested in those shares) over (ii) the aggregate exercise price payable for such shares. Such cash payment shall be paid within five (5) days following the surrender of the option to the Corporation. The Plan Administrator shall, at the time the option with such limited stock appreciation right is granted under the Automatic Option Grant Program, pre-approve any subsequent exercise of that right in accordance with the terms of this Paragraph D. Accordingly, no further approval of the Plan Administrator or the Board shall be required at the time of the actual option surrender and cash payment. E. Each option which is assumed in connection with a Change in Control or otherwise continued in full force and effect shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Change in Control had the option been -20- exercised immediately prior to such Change in Control. Appropriate adjustments shall also be made to the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same. To the extent the actual holders of the Corporation's outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control transaction, the successor corporation may, in connection with the assumption of the outstanding options under the Automatic Option Grant Program, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control transaction. F. The grant of options under the Automatic Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. III. REMAINING TERMS The remaining terms of each option granted under the Automatic Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program. ARTICLE SIX DIRECTOR FEE OPTION GRANT PROGRAM I. OPTION GRANTS The Primary Committee shall have the sole and exclusive authority to determine the calendar year or years for which the Director Fee Option Grant Program is to be in effect. For each such calendar year the program is in effect, each non-employee Board member may irrevocably elect to apply all or any portion of the annual retainer fee otherwise payable in cash for his or her Service on the Board for that year to the acquisition of a special option grant under this Director Fee Option Grant Program. Such election must be filed with the Corporation's Chief Financial Officer prior to the first day of the calendar year for which the annual retainer fee which is the subject of that election is otherwise payable. Each non-employee Board member who files such a timely election shall automatically be granted an option under this Director Fee Option Grant Program on the first trading day in January in the calendar year for which the annual retainer fee which is the subject of that election would otherwise be payable in cash. II. OPTION TERMS Each option shall be a Non-Statutory Option governed by the terms and conditions specified below. A. EXERCISE PRICE. 1. The exercise price per share shall be thirty-three and one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock on the option grant date. -21- 2. The exercise price shall become immediately due upon exercise of the option and shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. B. NUMBER OF OPTION SHARES. The number of shares of Common Stock subject to the option shall be determined pursuant to the following formula (rounded down to the nearest whole number): X = A / (B x 66-2/3%), where X is the number of option shares, A is the portion of the annual retainer fee subject to the non-employee Board member's election, and B is the Fair Market Value per share of Common Stock on the option grant date. C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable in a series of twelve (12) equal monthly installments upon the Optionee's completion of each calendar month of Board Service during the calendar year for which the retainer fee election is in effect. Each option shall have a maximum term of ten (10) years measured from the option grant date. D. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this Article Six may be assigned in whole or in part during the Optionee's lifetime to one or more members of the Optionee's family or to a trust established exclusively for one or more such family members or to Optionee's former spouse, to the extent such assignment is in connection with Optionee's estate plan or pursuant to a domestic relations order. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate. The Optionee may also designate one or more persons as the beneficiary or beneficiaries of his or her outstanding options under this Article Six, and those options shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee's death while holding those options. Such beneficiary or beneficiaries shall take the transferred options subject to all the terms and conditions of the applicable agreement evidencing each such transferred option, including (without limitation) the limited time period during which the option may be exercised following the Optionee's death. E. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board Service for any reason (other than death or Permanent Disability) while holding one or more options under this Director Fee Option Grant Program, then each such option shall remain exercisable, for any or all of the shares of Common Stock for which the option is exercisable at the time of such cessation of Board Service, until the earlier of (i) the expiration of the ten (10)- -22- year option term or (ii) the expiration of the three (3)-year period measured from the date of such cessation of Board Service. However, each option held by the Optionee under this Director Fee Option Grant Program at the time of his or her cessation of Board Service shall immediately terminate and cease to remain outstanding with respect to any and all shares of Common Stock for which the option is not otherwise at that time exercisable. F. DEATH OR PERMANENT DISABILITY. Should the Optionee's Service as a Board member cease by reason of death or Permanent Disability, then each option held by such Optionee under this Director Fee Option Grant Program shall immediately become exercisable for all the shares of Common Stock at the time subject to that option, and the option may be exercised for any or all of those shares as fully-vested shares of Common Stock until the earlier of (i) the expiration of the ten (10)-year option term or (ii) the expiration of the three (3)-year period measured from the date of such cessation of Board Service. In the event of the Optionee's death while holding such option, the option may be exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or the laws of descent and distribution or by the designated beneficiary or beneficiaries of such option. Should the Optionee die after cessation of Board Service but while holding one or more options under this Director Fee Option Grant Program, then each such option may be exercised, for any or all of the shares of Common Stock for which the option is exercisable at the time of the Optionee's cessation of Board Service (less any shares subsequently purchased by Optionee pursuant to such option prior to death), by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or the laws of descent and distribution or by the designated beneficiary or beneficiaries of such option. Such right of exercise shall lapse, and the option shall terminate, upon the earlier of (i) the expiration of the ten (10)-year option term or (ii) the three (3)-year period measured from the date of the Optionee's cessation of Board Service. III. CHANGE IN CONTROL/HOSTILE TAKE-OVER A. In the event of any Change in Control while the Optionee remains a Board member, each outstanding option held by such Optionee under this Director Fee Option Grant Program shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Change in Control, vest and become exercisable for all the shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. Each such outstanding option shall terminate immediately following the Change in Control, except to the extent assumed by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the express terms of the Change in Control transaction. Any option so assumed or continued in effect shall remain exercisable for the fully-vested shares until the earliest to occur of (i) the expiration of the ten (10)-year option term, (ii) the expiration of the three (3)-year period measured from the date of the Optionee's cessation of Board Service, (iii) the termination of the option in connection with a subsequent Change in Control transaction or (iv) the surrender of the option in connection with a Hostile Take-Over. -23- B. In the event of a Hostile Take-Over while the Optionee remains a Board member, each outstanding option held by such Optionee under this Director Fee Option Grant Program shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Hostile Take-Over, vest and become exercisable for all the shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully-vested shares of Common Stock. The option shall remain so exercisable until the earliest to occur of (i) the expiration of the ten (10)-year option term, (ii) the expiration of the three (3)-year period measured from the date of the Optionee's cessation of Board Service, (iii) the termination of the option in connection with a Change in Control transaction or (iv) the surrender of the option in connection with that Hostile Take-Over. C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each outstanding option granted him or her under the Director Fee Option Grant Program. The Optionee shall in return be entitled to a cash payment from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to each surrendered option (whether or not the option is otherwise at the time exercisable for those shares) over (ii) the aggregate exercise price payable for such shares. Such cash payment shall be paid within five (5) days following the surrender of the option to the Corporation. The Plan Administrator shall, at the time the option with such limited stock appreciation right is granted under the Director Fee Option Grant Program, pre-approve any subsequent exercise of that right in accordance with the terms of this Paragraph C. Accordingly, no further approval of the Plan Administrator or the Board shall be required at the time of the actual option surrender and cash payment. D. Each option which is assumed in connection with a Change in Control shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Change in Control had the option been exercised immediately prior to such Change in Control. Appropriate adjustments shall also be made to the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same. To the extent the actual holders of the Corporation's outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control transaction, the successor corporation may, in connection with the assumption of the outstanding options under this Plan, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control transaction. E. The grant of options under the Director Fee Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. IV. REMAINING TERMS The remaining terms of each option granted under this Director Fee Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program. -24- ARTICLE SEVEN MISCELLANEOUS I. FINANCING The Plan Administrator may permit any Optionee or Participant to pay the option exercise price under the Discretionary Option Grant Program or the purchase price of shares issued under the Stock Issuance Program by delivering a full-recourse, interest bearing promissory note payable in one or more installments. The terms of any such promissory note (including the interest rate and the terms of repayment) shall be established by the Plan Administrator in its sole discretion. In no event may the maximum credit available to the Optionee or Participant exceed the sum of (i) the aggregate option exercise price or purchase price payable for the purchased shares plus (ii) any Federal, state and local income and employment tax liability incurred by the Optionee or the Participant in connection with the option exercise or share purchase. II. TAX WITHHOLDING A. The Corporation's obligation to deliver shares of Common Stock upon the exercise of options or the issuance or vesting of such shares under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements. B. The Plan Administrator may, in its discretion, provide any or all holders of Non-Statutory Options or unvested shares of Common Stock under the Plan (other than the options granted or the shares issued under the Automatic Option Grant or Director Fee Option Grant Program) with the right to use shares of Common Stock in satisfaction of all or part of the Withholding Taxes to which such holders may become subject in connection with the exercise of their options or the vesting of their shares. Such right may be provided to any such holder in either or both of the following formats: Stock Withholding: The election to have the Corporation withhold, from the shares of Common Stock otherwise issuable upon the exercise of such Non- Statutory Option or the vesting of such shares, a portion of those shares with an aggregate Fair Market Value equal to the amount of the Withholding Taxes (not to exceed one hundred percent (100%) of such Withholding Taxes) to be satisfied in such manner as designated by the holder in writing. Stock Delivery: The election to deliver to the Corporation, at the time the Non-Statutory Option is exercised or the shares vest, one or more shares of Common Stock previously acquired by such holder (other than in connection with the option exercise or share vesting triggering the Withholding Taxes) with an aggregate Fair Market Value equal to the amount of the Withholding Taxes (not to exceed one hundred percent (100%) of such Withholding Taxes) to be satisfied in such manner as designated by the holder in writing. -25- III. EFFECTIVE DATE AND TERM OF THE PLAN A. The Plan shall become effective immediately upon the Plan Effective Date. However, the Salary Investment Option Grant Program and the Director Fee Option Grant Program shall not be implemented until such time as the Primary Committee may deem appropriate. Options may be granted under the Discretionary Option Grant Program at any time on or after the Plan Effective Date, and the initial option grants under the Automatic Option Grant Program shall be made on the Plan Effective Date to any non-employee Board members eligible for such grants at that time. However, no options granted under the Plan may be exercised, and no shares shall be issued under the Plan, until the Plan is approved by the Corporation's shareholders. If such shareholder approval is not obtained within twelve (12) months after the Plan Effective Date, then all options previously granted under this Plan shall terminate and cease to be outstanding, and no further options shall be granted and no shares shall be issued under the Plan. B. The Plan shall serve as the successor to the Predecessor Plans, and no further option grants or direct stock issuances shall be made under the Predecessor Plans after the Section 12 Registration Date. All options outstanding under the Predecessor Plans on the Section 12 Registration Date shall be incorporated into the Plan at that time and shall be treated as outstanding options under the Plan. However, each outstanding option so incorporated shall continue to be governed solely by the terms of the documents evidencing such option, and no provision of the Plan shall be deemed to affect or otherwise modify the rights or obligations of the holders of such incorporated options with respect to their acquisition of shares of Common Stock. C. One or more provisions of the Plan, including (without limitation) the option/vesting acceleration provisions of Article Two relating to Changes in Control and Hostile Take-Overs, may, in the Plan Administrator's discretion, be extended to one or more options incorporated from the Predecessor Plans which do not otherwise contain such provisions. D. The Plan shall terminate upon the earliest of (i) the tenth anniversary of the Plan Effective Date, (ii) the date on which all shares available for issuance under the Plan shall have been issued as fully-vested shares or (iii) the termination of all outstanding options in connection with a Change in Control. Upon such Plan termination, all option grants and unvested stock issuances outstanding at that time shall thereafter continue to have force and effect in accordance with the provisions of the documents evidencing such grants or issuances. IV. AMENDMENT OF THE PLAN A. The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, no such amendment or modification shall adversely affect the rights and obligations with respect to stock options or unvested stock issuances at the time outstanding under the Plan unless the Optionee or the Participant consents to such amendment or modification. In addition, certain amendments may require shareholder approval pursuant to applicable laws or regulations. -26- B. Options to purchase shares of Common Stock may be granted under the Discretionary Option Grant and Salary Investment Option Grant Programs and shares of Common Stock may be issued under the Stock Issuance Program that are in each instance in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued under those programs shall be held in escrow until there is obtained shareholder approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such shareholder approval is not obtained within twelve (12) months after the date the first such excess issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptly refund to the Optionees and the Participants the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding. V. USE OF PROCEEDS Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes. VI. REGULATORY APPROVALS A. The implementation of the Plan, the granting of any stock option under the Plan and the issuance of any shares of Common Stock (i) upon the exercise of any granted option or (ii) under the Stock Issuance Program shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the stock options granted under it and the shares of Common Stock issued pursuant to it. B. No shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements of Federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any stock exchange (or the Nasdaq National Market, if applicable) on which Common Stock is then listed for trading. VII. NO EMPLOYMENT/SERVICE RIGHTS Nothing in the Plan shall confer upon any Optionee or Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of any Optionee or Participant, which rights are hereby expressly reserved by each, to terminate such person's Service at any time for any reason, with or without cause. -27- APPENDIX The following definitions shall be in effect under the Plan: A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant program in effect under Article Five of the Plan. B. BOARD shall mean the Corporation's Board of Directors. C. CHANGE IN CONTROL shall mean a change in ownership or control of the Corporation effected through any of the following transactions: (i) a shareholder-approved merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or (ii) a sale, transfer or other disposition of all or substantially all of the Corporation's assets, or (iii) the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's shareholders. D. CODE shall mean the Internal Revenue Code of 1986, as amended. E. COMMON STOCK shall mean the Corporation's Class A Common Stock. F. CORPORATION shall mean Multilink Technology Corporation, a California corporation, and any corporate successor to all or substantially all of the assets or voting stock of Multilink Technology Corporation, which shall by appropriate action adopt the Plan. G. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock option grant program in effect for non-employee Board members under Article Six of the Plan. H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option grant program in effect under Article Two of the Plan. I. EMPLOYEE shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. J. EXERCISE DATE shall mean the date on which the Corporation shall have received written notice of the option exercise. -A1- K. FAIR MARKET VALUE per share of Common Stock on any relevant date shall be determined in accordance with the following provisions: (i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported on the Nasdaq National Market. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (iii) For purposes of any option grants made on the Underwriting Date, the Fair Market Value shall be deemed to be equal to the price per share at which the Common Stock is to be sold in the initial public offering pursuant to the Underwriting Agreement. (iv) For purposes of any option grants made prior to the Underwriting Date, the Fair Market Value shall be determined by the Plan Administrator, after taking into account such factors as it deems appropriate. L. HOSTILE TAKE-OVER shall mean either of the following events effecting a change in control or ownership of the Corporation: (i) the acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's shareholders which the Board does not recommend such shareholders to accept, or (ii) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination. M. INCENTIVE OPTION shall mean an option which satisfies the requirements of Code Section 422. -A2- N. INVOLUNTARY TERMINATION shall mean the termination of the Service of any individual which occurs by reason of: (i) such individual's involuntary dismissal or discharge by the Corporation for reasons other than Misconduct, or (ii) such individual's voluntary resignation following (A) a change in his or her position with the Corporation or Parent or Subsidiary which materially reduces his or her duties and responsibilities or the level of management to which he or she reports, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and target bonus under any corporate-performance based bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of such individual's place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without the individual's consent. O. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of any Optionee, Participant or other person in the Service of the Corporation (or any Parent or Subsidiary). P. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended. Q. NON-STATUTORY OPTION shall mean an option not intended to satisfy the requirements of Code Section 422. R. OPTIONEE shall mean any person to whom an option is granted under the Discretionary Option Grant Program, the Salary Investment Option Grant Program, the Automatic Option Grant Program or the Director Fee Option Grant Program. S. PARENT shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. T. PARTICIPANT shall mean any person who is issued shares of Common Stock under the Stock Issuance Program. U. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of continuous duration of twelve (12) months or more. However, solely for purposes of the Automatic Option Grant and Director Fee Option Grant Programs, Permanent Disability or Permanently Disabled shall mean the inability of the non-employee Board member -A3- to perform his or her usual duties as a Board member by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more. V. PLAN shall mean the Corporation's 2000 Stock Incentive Plan, as set forth in this document. W. PLAN ADMINISTRATOR shall mean the particular entity, whether the Primary Committee, the Board or the Secondary Committee, which is authorized to administer the Discretionary Option Grant and Stock Issuance Programs with respect to one or more classes of eligible persons, to the extent such entity is carrying out its administrative functions under those programs with respect to the persons under its jurisdiction. X. PLAN EFFECTIVE DATE shall mean the date the Plan becomes effective which shall be coincident with the Underwriting Date. Y. PREDECESSOR PLANS shall collectively mean the Corporation's 1998 Stock Option Plan and the Corporation's 1999 Stock Option Plan, as in effect immediately prior to the Plan Effective Date hereunder. Z. PRIMARY COMMITTEE shall mean the committee of two (2) or more non- employee Board members appointed by the Board to administer the Discretionary Option Grant and Stock Issuance Programs with respect to Section 16 Insiders and to administer the Salary Investment Option Grant Program solely with respect to the selection of the eligible individuals who may participate in such program. AA. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary investment option grant program in effect under Article Three of the Plan. BB. SECONDARY COMMITTEE shall mean a committee of one or more Board members appointed by the Board to administer the Discretionary Option Grant and Stock Issuance Programs with respect to eligible persons other than Section 16 Insiders. CC. SECTION 12 REGISTRATION DATE shall mean the date on which the Common Stock is first registered under Section 12 of the 1934 Act. DD. SECTION 16 INSIDER shall mean an officer or director of the Corporation subject to the short-swing profit liabilities of Section 16 of the 1934 Act. EE. SERVICE shall mean the performance of services for the Corporation (or any Parent or Subsidiary) by a person in the capacity of an Employee, a non- employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant or stock issuance. FF. SHORT TERM FEDERAL RATE shall mean the federal short-term rate in effect under Section 1274(d) of the Code for the period the shares were held in escrow. -A4- GG. STOCK EXCHANGE shall mean either the American Stock Exchange or the New York Stock Exchange. HH. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the Corporation and the Participant at the time of issuance of shares of Common Stock under the Stock Issuance Program. II. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect under Article Four of the Plan. JJ. SUBSIDIARY shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. KK. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value per share of Common Stock on the date the option is surrendered to the Corporation in connection with a Hostile Take-Over or, if applicable, (ii) the highest reported price per share of Common Stock paid by the tender offeror in effecting the Hostile Take-Over through the acquisition of such Common Stock. However, if the surrendered option is an Incentive Option, the Take-Over Price shall not exceed the price per share described in clause (i) above. LL. 10% SHAREHOLDER shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary). MM. UNDERWRITING AGREEMENT shall mean the agreement between the Corporation and the underwriter or underwriters managing the initial public offering of the Common Stock. NN. UNDERWRITING DATE shall mean the date on which the Underwriting Agreement is executed and priced in connection with an initial public offering of the Common Stock. OO. WITHHOLDING TAXES shall mean the Federal, state and local income and employment withholding taxes to which the holder of Non-Statutory Options or unvested shares of Common Stock may become subject in connection with the exercise of those options or the vesting of those shares. -A5- EX-10.6 9 0009.txt AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT EXHIBIT 10.6 MULTILINK TECHNOLOGY CORPORATION AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT THIS INVESTORS' RIGHTS AGREEMENT is made as of March 31, 2000 by and among Multilink Technology Corporation, a California corporation (the "Company"), and the First Series A Purchasers, the Second Series A Purchasers, the Series B Purchasers, and the Purchasers subsequently added pursuant to Section 6.12 hereof ("Additional Purchasers"), each of which is listed on the signature pages attached hereto (collectively, the "Purchasers"). R E C I T A L S: --------------- WHEREAS, the Company and the First Series A Purchasers entered into (a) that certain Series A Convertible Preferred Stock Purchase Agreement dated as of June 11, 1999, and amended January 20, 2000 (the "First Series A Purchase Agreement") providing for, among other things, the sale by the Company and the several purchase by the First Series A Purchasers of shares of the Company's Series A Convertible Preferred Stock, par value $0.0001 per share (the "Series A Preferred") and (b) that certain Investor Rights Agreement dated as of June 11, 1999 (the "First Series A Investor Rights Agreement"); WHEREAS, the Company and the Second Series A Purchasers entered into (a) that certain Series A Convertible Preferred Stock Purchase Agreement dated as of September 28, 1999, and amended January 20, 2000 (the "Second Series A Purchase Agreement") providing for, among other things, the sale by the Company and the several purchase by the Second Series A Purchasers of shares of the Series A Preferred and (b) that certain the Investor Rights Agreement dated as of September 28, 1999 (the "Second Series A Investor Rights Agreement" and together with the First Series A Investor Rights Agreement, "Series A Investor Rights Agreements"); WHEREAS, the Company and the Series B Purchasers are entering into that certain Series B Convertible Preferred Stock Purchase Agreement dated of even date herewith (the "Series B Purchase Agreement") providing for, among other things, the sale by the Company and the several purchase by the Series B Purchasers of shares of the Company's Series B Convertible Preferred Stock, par value $0.0001 per share (the "Series B Preferred"); WHEREAS, the sale of the Series B Preferred to the Series B Purchasers is conditioned upon the rights set forth herein, including the registration rights set forth herein, being extended to each of such Purchasers, and the Company desires to extend such rights herein; WHEREAS, the Company, the First Series A Purchasers and the Second Series A Purchasers now desire to amend and restate the First Series A Investor Rights Agreement and the Second Series A Investor Rights Agreement in their entirety to combine such agreements into a single agreement and to add the Series B Purchasers and Additional Purchasers as parties and to read as set forth below. NOW THEREFORE, in consideration of the foregoing, the parties agree as follows: 1. Registration Rights. ------------------- 1.1. Certain Definitions. As used in this Agreement, the following ------------------- terms shall have the following respective meanings: "Affiliate" of any person or entity shall mean any other Person or --------- entity which, directly or indirectly, controls, is controlled by or is under common control with such Person or entity. "Blue Sky Laws" shall mean state securities laws and applicable ------------- regulations. "Board of Directors" shall mean the Board of Directors of the Company. ------------------ "Class B Common Stock" shall mean the Class B Common Stock of the Company, par value $0.0001 per share. "Commission" shall mean the Securities and Exchange Commission of the ---------- United States or any other U.S. federal agency at the time administering the Securities Act. "Common Stock" shall mean the Class A Common Stock of the Company, ------------ par value $0.0001 per share and/or the Class B Common Stock, as applicable. "Holder" shall mean each of the Purchasers (and their transferees as ------ permitted by Section 1.11) holding Registrable Securities or securities convertible into or exercisable for Registrable Securities. "Initiating Holders" shall mean Holders who in the aggregate hold at ------------------ least fifty percent (50%) of the Registrable Securities and join in a request referred to in Section 1.2(a). "Market Stand-Off Period" shall have the meaning set forth in Section ------------------------- 1.12. "Other Holders" shall mean holders of Company securities, other than ------------- Holders, proposing to distribute their securities pursuant to a registration referred to in this Agreement. "Preferred Stock" shall mean the Series A Preferred and the Series B --------------- Preferred. "Registrable Securities" shall mean any Common Stock hereafter ---------------------- acquired by any Holder issued or issuable on conversion of any Series A Preferred or Series B Preferred now held or hereafter acquired by any Holder, excluding shares of Common Stock that have been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, including, but not limited to, a registration pursuant to which such shares have been disposed of in accordance with the registration statement covering them, (B) distributed to the public pursuant to Rule 144 (or any similar rule then in force) under the Securities Act, or (C) sold or transferred in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act so that a new certificate(s) or other evidence of ownership for -2- such shares not bearing restrictive legends have been delivered and no other restrictions on transfer exist. The terms "register," "registered" and "registration" refer to a --------- ---------- ------------ registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" shall mean all expenses, excluding Selling Expenses --------------------- (as defined below) except as otherwise stated below, incurred by the Company in complying with Sections 1.2, 1.3 and 1.4 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company and of the independent accountants for the Company and Blue Sky fees and expenses. Registration Expenses specifically shall exclude Selling Expenses and the fees and disbursements of counsel representing any Selling Holder, all of which shall be borne by such Holder in all cases. "Registration Notice" shall have the meaning set forth in Section 1.2. ------------------- "Securities Act" shall mean the Securities Act of 1933, as amended, and the -------------- rules and regulations of the Commission thereunder, or any similar United States federal statute. "Selling Expenses" shall mean all underwriting discounts, selling ---------------- commissions and stock transfer taxes applicable to the securities registered by Holders and any fees, expenses or other disbursements of any underwriter or agent acting on behalf of any Holders. Such expenses shall be borne by the Holders or the underwriter or agent, as agreed between the Holders and the underwriter or agent. "Selling Holders" shall mean each Holder who holds Registrable Securities --------------- included in a registration statement under the Securities Act pursuant to this Agreement. 1.2. Requested Registrations. ----------------------- (a) Request for Registration. In the event the Company shall ------------------------ receive from the Initiating Holders a written request that the Company effect any registration with respect to not less than fifty percent (50%) of the then- outstanding Registrable Securities with an anticipated aggregate offering price, net of any underwriting discounts and commissions, in excess of Ten Million dollars ($10,000,000) (a "Registration Notice"), the Company will: (i) promptly give written notice of the proposed registration, qualification or compliance to all other Holders pursuant to Section 6.2; and (ii) as soon as reasonably practicable, use its best efforts to effect such registration (including, without limitation, appropriate qualification under applicable Blue Sky Laws or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder joining in such request as are -3- specified in a written request received by the Company from any Holder within fifteen (15) days after the request from the Initiating Holders. Notwithstanding the foregoing, the Company shall not be obligated to take any action to effect any such registration pursuant to this Section 1.2: (A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company already is subject to service in such jurisdiction and except as may be required by the Securities Act; (B) Prior to six (6) months after the effective date of the Company's first registered public offering of its stock; (C) During the period starting with the date sixty (60) days prior to the Company's estimated date of filing of, and ending on the date six (6) months immediately following the effective date of, any registration statement pertaining to securities of the Company sold by the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is employing in good faith all reasonable efforts to cause such registration statement to become effective; (D) After the Company has effected two (2) registrations pursuant to this Section 1.2, and such registrations have been declared or ordered effective; or (E) If the Company shall furnish to such Holders a certificate signed by an officer of the Company stating that, in the good faith judgment of the Board of Directors (excluding for all purposes the vote of any member of the Board of Directors who is a representative or Affiliate of any of the Initiating Holders), (i) it would be detrimental to the Company or its shareholders for a registration statement to be filed in the near future, or (ii) that a material event has occurred that has not been disclosed publicly and, if disclosed, would have a detrimental effect on the Company or its ability to consummate the offering under the registration requested hereunder, then the Company's obligation to use its best efforts to register under this Section 1.2 shall be deferred for a period not to exceed ninety (90) days from the date of receipt of written request from the Initiating Holders, provided, however, that the Company shall not utilize this right more than once in any twelve (12) month period. Subject to the foregoing clauses (A) through (E), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable, after receipt of the request or requests of the Initiating Holders, but in no event shall the Company be required to file any such registration statement sooner than forty-five (45) days following such request. (b) Underwriting. In the event that a registration pursuant to ------------ this Section 1.2 is for a registered public offering involving an underwriting, the Company so shall advise the Holders as part of the notice given pursuant to Section 1.2(a)(i). In such event, the right of any Holder to registration pursuant to Section 1.2 shall be conditioned upon such Holder's participation in the underwriting arrangements required by this Section 1.2, and the -4- inclusion of such Holder's Registrable Securities in the underwriting to the extent requested shall be limited to the extent provided herein. The Company shall enter (together with all Holders and Other Holders proposing to distribute their securities through such underwriting) into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 1.2, if the managing underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Company so shall advise all Holders and Other Holders proposing to distribute their securities through such underwriting, and the number of shares that may be included in the registration and underwriting shall be allocated, first, among all participating Holders in proportion, as nearly as practicable, - ----- to the respective amounts of Registrable Securities on an as-converted basis held by such Holders at the time of filing the registration statement and, second, among any Other Holders in proportion to the number of shares proposed - ------ be included in such registration by such Other Holders (or in such other proportion as the Company and/or such Other Holders determine). No Registrable Securities or other securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder or Other Holder to the nearest one hundred (100) shares. If any Holder or Other Holder desires to withdraw from the registration, it may do so only during the period of time and on the terms agreed to by such Holder or Other Holder, the Company and the managing underwriter. The Registrable Securities and/or other securities so withdrawn also shall be withdrawn from registration and shall not be transferred in a public distribution prior to one hundred eighty (180) days after the effective date of the registration statement relating thereto, or such other shorter period of time as the underwriters may require pursuant to Section 1.12. 1.3. Company Registrations. --------------------- (a) Notice of Registration. If at any time or from time to time the ---------------------- Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration relating solely to stock option or other employee benefit plans, (ii) a registration relating solely to a Commission Rule 145 transaction, or (iii) a registration on Form S-4 or Form S-8 or any form substituted therefor, the Company will: (i) promptly give to each Holder written notice thereof pursuant to Section 6.2 hereof; and (ii) include in such registration (and any related qualification under Blue Sky Laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests received by the Company from any Holder within fifteen (15) days after such Holder's receipt of such written notice from the Company. (b) Underwriting. If the registration of which the Company gives ------------ notice is for a registered public offering involving an underwriting, the Company so shall advise the Holders as a part of the written notice given pursuant to Section 1.3(a)(i). In such event the -5- right of any Holder to registration pursuant to this Section 1.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter, together with the Company and Other Holders, into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. Notwithstanding any other provision of this Section 1.3, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit the Registrable Securities and other securities to be included in such registration. The Company shall so advise all Holders and Other Holders, and the number of shares that may be included in the registration and underwriting shall be allocated, (1) if the registration has been initiated by the Company (and not at the demand of Other Holders exercising contractual "demand" registration rights similar to those set forth in Sections 1.2 and 1.4 hereof ("Other Demand Holders")), first, to the Company, and second, among the ----- ------ participating Holders and Other Holders in proportion to the number of shares proposed to be included in the registration by such Holders and Other Holders, respectively, and (2) if the registration is being made at the demand of Other Demand Holders, first, among the Other Demand Holders and, if applicable, the ----- Company, in such manner as the Other Demand Holders and the Company have agreed or then agree, and second, among the participating Holders in proportion to the ------ number of shares proposed to be included in such registration by such Holders. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder or Other Holder to the nearest one hundred (100) shares. If any Holder or Other Holder desires to withdraw from the registration, it may only do so during the period of time and on the terms agreed to by such Holder or Other Holder, the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to one hundred eighty (180) days after the effective date of the registration statement relating thereto, or such other shorter period of time as the underwriters may require pursuant to Section 1.12. (c) Right to Terminate Registration. The Company shall have the ------------------------------- right to terminate or withdraw any registration initiated by it under this Section 1.3 prior to the effectiveness of such registration whether or not any Holder has elected to include Registrable Securities in such registration; provided, however, if the Holders elect to use their demand registration right, pursuant to Section 1.2 hereof, then such registration shall be governed by Section 1.2 and it shall not be terminated, except as set forth in Section 1.2(a)(ii). 1.4. Registrations on Form S-3. ------------------------- (a) Request for Registration. If at any time or from time to time ------------------------ any Holder or Holders request that the Company file a registration statement on Form S-3 (or any successor form to Form S-3) for a public offering of shares of the Registrable Securities with a reasonably anticipated aggregate price to the public of at least One Million Dollars ($1,000,000), and the Company is a registrant entitled to use Form S-3 to register the Registrable Securities for such an offering, the Company shall use its best efforts (i) to cause such Registrable Securities to be registered for the offering on such form (but in no event shall the Company be required to file any such registration statement sooner than thirty (30) days following such request) and (ii) to cause such Registrable Securities to be qualified in such jurisdictions as the Holder or Holders -6- may reasonably request. The substantive provisions of Section 1.2(b) shall be applicable to each such registration initiated under this Section 1.4 involving an underwriting. (b) Limitations. Notwithstanding the foregoing, the Company shall ----------- not be obligated to take any action pursuant to this Section 1.4: (i) more than once in any twelve (12)-month period (including any registration made pursuant to Section 1.2 herein); (ii) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (iii) if the Company, within twenty (20) days of the receipt of the request of the Initiating Holders requesting registration under this Section 1.4, gives notice of its bona fide intention to effect the filing of a registration statement with the Commission within ninety (90) days of receipt of such request (other than with respect to a registration statement relating to a Rule 145 transaction, an offering solely to employees or any other registration which is not appropriate for the registration of Registrable Securities); (iv) within a six (6) month period immediately following the effective date of any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to a stock option or other employee benefit plan); (v) if the Company shall furnish to such Initiating Holders a certificate signed by an officer of the Company stating that in the good faith judgment of the Board of Directors (excluding for all purposes the vote of any member of the Board of Directors who is a representative or Affiliate of any of the Initiating Holders) (i) it would be detrimental to the Company or its shareholders for a registration statement to be filed in the near future, or (ii) that a material event has occurred that has not been disclosed publicly and, if disclosed, would have a detrimental effect on the Company or its ability to consummate the offering under the registration requested hereunder, then the Company's obligation to use its best efforts to file a registration statement shall be deferred for a period not to exceed ninety (90) days from the receipt of the request to file such registration by such Holder; provided, however, that the Company shall not utilize this right more than once in any twelve (12)-month period. 1.5. Limitations on Subsequent Registration Rights. From and after the --------------------------------------------- date hereof, the Company will not enter into any agreement with any Holder, Other Holder or prospective holder of the Company's securities which agreement is in conflict with the provisions hereof. 1.6. Expenses of Registration. ------------------------ (a) Registration Expenses. The Company shall bear all Registration --------------------- Expenses incurred in connection with all registrations pursuant to Sections 1.2, 1.3 and 1.4. In the event any Initiating Holders withdraw a Registration Notice, abandon a registration statement -7- or, following an effective registration pursuant to Section 1.2 hereof, do not sell Registrable Securities, then all Registration Expenses in respect of such Registration Notice shall be borne, at the Initiating Holders' option, either by the Initiating Holders or by the Company (in which case, if borne by the Company, such withdrawn or abandoned registration shall be deemed to be an effective registration for purposes of Section 1.2(a)(ii)(D) hereof). (b) Selling Expenses. All Selling Expenses relating to securities ---------------- registered on behalf of the Holders and Other Holders shall be borne by the Holders and Other Holders pro rata on the basis of the number of shares so registered. 1.7. Registration and Qualification. If and whenever the Company is ------------------------------ required to use its best efforts to effect the registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Company will as promptly as is practicable: (a) prepare and file with the Commission, within the time frame set forth in the penultimate paragraph of Section 1.2(a) hereof, and use its best efforts to cause to become effective, a registration statement under the Securities Act relating to the Registrable Securities to be offered on such form as the Initiating Holders, or if not filed pursuant to Section 1.2 or Section 1.4 hereof, the Company, determines and for which the Company then qualifies; (b) prepare and file with the Commission such amendments (including post-effective amendments) and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities until the earlier of such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition set forth in such registration statement or the expiration of ninety (90) days after such registration statement becomes effective; provided that such ninety (90) day period shall be extended in the case of a registration pursuant to Section 1.2 hereof for such number of days that equals the number of days elapsing from (i) the date the written notice contemplated by Section 1.7(f) hereof is given by the Company to (ii) the date on which the Company delivers to the Selling Holders the supplement or amendment contemplated by Section 1.7(f) hereof; (c) furnish to the Selling Holders and to any underwriter of Registrable Securities such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act, such documents incorporated by reference in such registration statement or prospectus, and such other documents, as the Selling Holders or such underwriter reasonably may request; (d) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of such registration statement at the earliest possible moment; (e) if requested by an Initiating Holder, (i) furnish to each Selling Holder an opinion of counsel for the Company addressed to each Selling Holder and dated the date of the closing under the underwriting agreement (if any) (or if such offering is not -8- underwritten, dated the effective date of the registration statement), and (ii) use its best efforts to furnish to each Selling Holder a "comfort" or "special procedures" lever addressed to each Selling Holder and signed by the independent public accountants who have audited the Company's financial statements included in such registration statement, in each such case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities and such other matters as the Selling Holders reasonably may request and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements; (f) notify the Selling Holders in writing (i) at any time when a prospectus relating to a registration hereunder is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (ii) of any request by the Commission or any other regulatory body or other body having jurisdiction for any amendment of or supplement to any registration statement or other document relating to such offering, and in either such case (i) or (ii) at the request of a Selling Holder prepare and furnish to such Selling Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; (g) use its best efforts to list all such Registrable Securities covered by such registration statement on each securities exchange and inter- dealer quotation system on which a class of common equity securities of the Company is then listed, and to pay all fees and expenses in connection therewith; and (h) upon the transfer of shares by a Selling Holder in connection with a registration hereunder, furnish unlegended certificates representing ownership of the Registrable Securities being sought in such denominations as shall be requested by the Selling Holders or the underwriters. 1.8. Indemnification. --------------- (a) By Company. To the extent permitted by law, the Company will ---------- indemnify and hold harmless each Holder, each of its officers and directors and partners, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration has been effected pursuant to this Agreement against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement or prospectus included within such registration statement or any amendment or supplement thereto, incident to any such registration, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to -9- make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act or any rule or regulation promulgated under the Securities Act applicable to the Company in connection with any such registration. The Company will reimburse each Holder, each of its officers, directors and partners, and each person controlling such Holder, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by such Holder or controlling person specifically for use therein. If the Holders are represented by counsel other than counsel for the Company, the Company will not be obligated under this Section 1.8(a) to reimburse legal fees and expenses of more than one separate counsel for the Holders. The Company will also indemnify underwriters participating in the distribution, and each person who controls such underwriters within the meaning of Section 16 of the Securities Act, to the same extent customarily requested by such persons in similar circumstances. (b) By Holders. To the extent permitted by law, each Selling Holder ---------- will indemnify and hold harmless the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other Selling Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such Selling Holders, such directors, officers, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Selling Holder and stated to be specifically for use therein. Notwithstanding the foregoing, the liability of each Selling Holder under this subsection (b) shall be limited in an amount equal to the net proceeds from the shares sold by such Selling Holder, unless such liability arises out of or is based on willful misconduct by such Selling Holder. The Company also shall be entitled to receive indemnities from underwriters participating in the distribution to the same extent as customarily furnished by such persons in similar circumstances. (c) Procedure for Indemnification. Each party indemnified under ----------------------------- paragraph (a) or (b) of this Section 1.8 (the "Indemnified Party") promptly (but in any event no more than fifteen (15) days) after receipt of notice of any claim or the commencement of any action against such Indemnified Party in respect of which indemnity may be sought, shall notify the party required to provide indemnification (the "Indemnifying Party") in writing of the claim or the commencement thereof, providing reasonable detail of such claim or action together with copies of all correspondence received by the Indemnified Party in connection therewith; -10- provided that the failure of the Indemnified Party to notify the Indemnifying Party within the time period required shall not relieve the Indemnifying Party from any liability which it may have to an Indemnified Party on account of the indemnity agreement contained in paragraph (a) or (b) of this Section 1.8, unless the Indemnifying Party was prejudiced materially by such failure, and in no event shall relieve the Indemnifying Party from any other liability which it may have to such Indemnified Party. If any such claim or action shall be brought against an Indemnified Party, it shall notify the Indemnifying Party thereof in writing within the time period required above and the Indemnifying Party shall be entitled to participate therein, and, to the extent that it wishes (if the Indemnified Party is a Selling Holder, jointly with any other similarly notified Indemnifying Party), to assume the defense thereof with counsel reasonably satisfactory to the Indemnified Party. After notice from the Indemnifying Party to the Indemnified Party of its election to assume the defense of such claim or action, the Indemnifying Party shall not be liable (except to the extent the proviso to this sentence is applicable, in which event it will be so liable) to the Indemnified Party under this Section 1.8 for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof; provided that each Indemnified Party shall have the right to employ separate counsel to represent it and assume its defense (in which case, the Indemnifying Party shall not represent it) if (i) upon the written advice of counsel that the representation of both parties by the same counsel would cause an actual and material conflict of interest between them, or (ii) in the event the Indemnifying Party has not assumed the defense thereof within fifteen (15) business days of receipt of written notice of such claim or commencement of action, and in which case the fees and expenses of one such separate counsel for all Indemnified Parties reasonably acceptable to the Indemnifying Party shall be paid by the Indemnifying Party. If the Indemnified Parties employ such separate counsel they will not enter into any settlement agreement without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld. If the Indemnifying Party so assumes the defense thereof, it may not agree to any settlement of any such claim or action as the result of which any remedy or relief (other than monetary damages for which the Indemnifying Party shall be responsible hereunder) shall be applied to or against the Indemnified Party, without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld. In any action hereunder as to which the Indemnifying Party has assumed the defense thereof with counsel reasonably satisfactory to the Indemnified Party, the Indemnified Party shall continue to be entitled to participate in the defense thereof, with counsel of its own choice, and, except as set forth above, at its sole expense, and the Indemnifying Party shall not be obligated hereunder to reimburse the Indemnified Party for the fees and costs thereof. (d) Contribution. If the indemnification provided for in this ------------ Section 1.8 shall for any reason be held to be unenforceable by a court of competent jurisdiction although applicable in accordance with its terms to an Indemnified Party in respect of any loss, claim, damage or liability, or any action in respect thereof, in lieu of indemnifying such Indemnified Party, each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability, or action in respect thereof, in such proportion as shall be appropriate to reflect the relative fault of the Indemnifying Party on the one hand and the Indemnified Party on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or -11- alleged omission to state a material fact relates to (i) information supplied specifically for use in any registration statement, prospectus, offering circular or other similar document by the Indemnifying Party on the one hand or the Indemnified Party on the other, (ii) the intent of the parties and their relative knowledge, (iii) access to information and (iv) opportunity to correct or prevent such statement or omission, but not by reference to any Indemnified Party's stock ownership in the Company. In no event, however, shall a Holder of Registrable Securities be required to contribute in excess of the amount of the net proceeds received by such Holder in connection with the sale of Registrable Securities in the offering which is the subject of such loss, claim, damage or liability. The amount paid or payable by an Indemnified Party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this paragraph shall be deemed to include, for purposes of this paragraph, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 1.8, each officer of the Company who signed a registration statement relating to the offering to which any losses, claims, damages or liabilities or actions relate, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, shall have the same rights to contribution as the Company. (e) Survival. The obligations of the Company and Holders under this -------- Section 1.8 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.9. Information by Holder. Holders including any Registrable Securities --------------------- in any registration promptly shall furnish to the Company in writing such information regarding such Holders as shall be necessary to enable the Company to comply with the provisions hereof in connection with any registration, qualification or compliance referred to in this Agreement. 1.10. Rule 144 Reporting. With a view to making available the benefits of ------------------ certain rules and regulations of the Commission which may at any time permit the sale of the Restricted Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date that the Company becomes subject to the reporting requirements of the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"); (b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and (c) Furnish to any Holder forthwith upon prior written request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time ninety (90) days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act -12- and the Exchange Act (at any time after it has become subject to such reporting requirements), (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as such Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing such Holder to sell any such securities without registration. 1.11. Transfer of Registration Rights. The rights to cause the Company to ------------------------------- register securities granted Holders under Sections 1.2, 1.3 and 1.4 may be assigned in connection with any transfer or assignment by a Holder of Registrable Securities provided that: (a) such transfer may otherwise be effected in accordance with applicable securities laws; (b) such transfer is effected in compliance with the restrictions on transfer contained in this Agreement and in any other agreement between the Company and the Holder; and (c) such assignee or transferee agrees in writing to be bound by the terms of this Agreement and assumes all of the obligations of the transferring Holder hereunder. No transfer or assignment will divest a Holder or any subsequent owner of such rights and powers unless all Registrable Securities are transferred or assigned. 1.12. Market Stand-Off Agreement. Each Holder hereby agrees that, for so -------------------------- long as such Holder holds at least one percent (1%) of the then outstanding voting securities of the Company, during the period of duration specified by the Company or, if applicable, an underwriter of Common Stock or other securities of the Company, following the date of the first sale to the public pursuant to a registration statement of the Company filed under the Act ("Market Stand-Off Period"), it shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who consent in writing to be similarly bound) any securities of the Company held by it at any time during such period, except Common Stock included in such registration; provided, however, that: (a) such Market Stand-Off Period shall be applicable only to the first two (2) such registration statements of the Company which cover Common Stock (or other securities) to be sold on its behalf to the public in an underwritten offering; (b) all officers and directors of the Company and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements; and (c) such Market Stand-Off Period shall not (i) exceed one hundred eighty (180) days in connection with the first registration statement of the Company, which covers Common Stock or other securities to be sold on its behalf to the public and (ii) exceed ninety (90) days with respect to any subsequent registration statement. Notwithstanding the foregoing, the obligations described in this Section 1.12 shall not apply to a registration relating solely to employee benefit plans on Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to a Commission Rule -13- 145 transaction on Form S-4, Form S-14 or Form S-15 or similar forms which may be promulgated in the future. This Section 1.12 shall be binding on all transferees or assignees of Registrable Securities, whether or not such persons are entitled to registration rights pursuant to Section 1.11, and if requested by the Company, any such transferee or assignee shall confirm in writing its agreement to be bound by the provisions hereof. 1.13. Termination of Registration Rights. Except for the provisions ---------------------------------- of Section 1.12, the registration rights granted in Sections 1.2, 1.3 and 1.4 shall terminate, with respect to each Holder, the sooner of such time as (a) all Registrable Securities held by such Holder can be sold pursuant to Rule 144(k) without compliance with the registration requirements of the Securities Act, or (b) all Registrable Securities held by such Holder can be sold pursuant to Rule 144 in a single transaction without compliance with the registration requirements of the Securities Act. The respective indemnities, representations and warranties of the Purchasers and the Company shall survive such termination. 2. Information Rights. ------------------ 2.1. Financial Information. The Company will provide to each --------------------- Purchaser the following information: (a) As soon as reasonably practicable after the end of each fiscal year, and in any event within ninety (90) days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of such fiscal year, and consolidated statements of income, stockholders' equity and cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles ("GAAP") and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and all certified by a nationally recognized public accounting firm. (b) As soon as reasonably practicable after the end of each fiscal quarter and in any event within thirty (30) days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarter, consolidated statements of income, consolidated statements of changes in financial condition, and a consolidated statement of cash flow of the Company and its subsidiaries for such quarter and for the current fiscal year to date, and setting forth in each case in comparative form the figures for corresponding quarters in the previous fiscal year, and setting forth in comparative form the budgeted figures for such quarter and for the current fiscal year then reported, prepared in accordance with GAAP (other than for accompanying notes), subject to changes resulting from year-end audit adjustments, all in reasonable detail and signed by the principal financial or accounting of ricer of the Company. (c) An annual operating plan and budget for the next fiscal year of the Company containing revenue projections, profit and loss projections, cash flow projections, and capital expenditures, all on a quarterly basis, as soon as it is available but in any event within forty-five (45) days prior to the end of the current fiscal year. -14- (d) The rights granted pursuant to this Section 2.1 may not be assigned or otherwise conveyed by any Purchaser or by any subsequent transferee of any such rights without the prior written consent of the Company. 2.2. Additional Information. The Company will allow each Purchaser ---------------------- holding at least five percent (5%) of the Company's outstanding securities to visit and inspect any of the properties of the Company (at reasonable times and upon reasonable advance notice but in any event no more than two (2) times per calendar year) and will deliver or provide to each Purchaser with reasonable promptness such information and data, including access to books, records, officers and accountants, with respect to the Company and its subsidiaries as any such Purchaser may from time to time reasonably request; provided, however, -------- ------- that (a) the Company shall not be obligated to provide any information that it considers in good faith to be a trade secret or to contain confidential or classified information, (b) the provisions of this Section 2.2 shall not be applicable to any Purchasers during such time as any Purchaser has a representative who is a member of the Board of Directors, and (c) with respect to any such information and data not contained in regularly prepared reports of the Company, the Purchaser requesting the same shall reimburse the Company for any reasonable costs incurred by the Company in providing such information, data or access. 2.3. Confidential Treatment of Information. ------------------------------------- (a) Each Purchaser agrees to maintain the confidentiality of all nonpublic information obtained by it from the Company which is either non- public, confidential or proprietary in nature, including, but not limited to, any and all information required to be provided by the Company to the Purchasers hereunder, under the First Series A Purchase Agreement, the Second Series A Purchase Agreement or the Series B Purchase Agreement, and not to use or disclose any such information for any reason, in whole or in part, except as set forth below or in respect of evaluating its purchase of securities from the Company; provided, that (a) each Purchaser may disclose such information, to the extent required by law, in connection with the sale or transfer of any Preferred Stock or the Common Stock issued upon conversion thereof if such Purchaser's transferee agrees in writing to be bound by the provisions hereof, and (b) each Purchaser may disclose such information (i) at the written request of any applicable governmental regulatory authority, (ii) pursuant to subpoena or other court process, (iii) when required to do so in accordance with the provisions of any applicable law as evidenced by a written opinion of counsel reasonably satisfactory to the Company, and (iv) to the Purchaser's officers, agents, representatives, independent auditors and other professional advisors on a need- to-know basis; provided, such persons acknowledge in writing that they are bound by the Purchaser's confidentiality obligations hereunder; provided, however, that with respect to subsections (b)(i) and (b)(ii) above, the Company shall be provided prompt notice of such request, subpoena or process and shall be given reasonable opportunity to seek a protective order or other appropriate remedy. (b) It is agreed that money damages would not be a sufficient remedy for any breach of Section 2.3(a) by any Purchaser or its representatives and that the Company shall be entitled to injunctive relief, specific performance and/or other appropriate equitable remedies for such breach. Such remedies shall not be deemed to be the exclusive remedy for breach of Section 2.3(a) but shall be in addition to all remedies available under law or in equity. -15- 3. Right of First Refusal. ---------------------- 3.1. General. Except for (i) securities issued pursuant to ------- conversion rights applicable to the Preferred Stock, (ii) securities issued pursuant to conversion rights applicable to the Class B Common Stock (iii) securities issued in a public offering pursuant to an effective registration statement under the Securities Act, (iv) securities issued pursuant to the Company's acquisition of another corporation, or all or a portion of its assets, by merger, purchase of assets or other corporate reorganization, (v) securities issued in connection with any stock split, recapitalization or stock dividend of the Company, (vi) securities issued after the date hereof to employees, officers, or directors of, or contractors, consultants or advisors to, the Company pursuant to stock purchase or stock option plans, warrants, stock bonuses or awards, contracts or other arrangements that are approved by the Board of Directors, (vii) warrants or other securities issued to financial institutions or lenders in connection with lease lines or loans approved by the Board of Directors, (viii) securities issued to technology providers or in connection with joint venture, partnering or development agreements approved by the Board of Directors (including, without limitation, any warrants issued to International Business Machines Corporation ("IBM") pursuant to a proposed technological access agreement between the Company and IBM), (ix) securities issued pursuant to the Series B Purchase Agreement, (x) Warrants issued pursuant to the First Series A Purchase Agreement or the Second Series A Purchase Agreement (as defined therein) or (xi) securities issued upon exercise of the Warrants (collectively, the securities described in items (i) through (xi) above are referred to herein as the "Excluded Securities"), the Company will not authorize or issue any shares of stock of the Company of any class and will not authorize, issue or grant any options, warrants, conversion rights or other rights to purchase or acquire any shares of stock of the Company of any class without offering the Purchasers the right of first refusal described below. 3.2. Right of First Refusal. Each Purchaser shall have a right of ---------------------- first refusal to purchase an amount of securities of the Company of any class or kind which the Company proposes to sell (other than the Excluded Securities) sufficient to maintain such Purchaser's proportionate beneficial ownership interest in the Company. If the Company wishes to make any such sale of its securities, it shall give the Purchasers written notice of the proposed sale. The notice shall set forth (a) the Company's bona fide intention to offer such shares and (b) the material terms and conditions of the proposed sale (including the number of shares to be offered and the price, if any, for which the Company proposes to offer such shares), and shall constitute an offer to sell such securities to the Purchaser on such terms and conditions. A Purchaser may accept such offer by delivering a written notice of acceptance to the Company within ten (10) days after such Purchaser has received notice of the proposed sale in accordance with Section 6.2 hereof. Any Purchaser exercising its right of first refusal shall be entitled to participate in the purchase of such securities on a pro rata basis to the extent necessary to maintain such Purchaser's proportionate beneficial ownership interest in the Company (for purposes of determining the pro rata interest of the Purchaser, any Purchaser or Other Holder shall be treated as owning that number of shares of Common Stock into which any outstanding convertible securities (or convertible securities for which any outstanding options or warrants may be exercised) may be converted and for which any outstanding options or warrants may be exercised). If the Company does not enter into an agreement for the sale of such shares within ninety (90) days after the receipt of the Purchaser's written notice of acceptance, the right provided hereunder shall be deemed to be revived and all future shares of stock of the Company -16- of any class shall not be offered unless first re-offered to the Purchasers in accordance with this Section 3. A Purchaser shall be entitled to apportion the right of first refusal hereby granted among itself and its partners and Affiliates in such proportions it deems appropriate. 3.3. Issuances by Subsidiaries. If a subsidiary of the Company ------------------------- issues any of its securities to any person other than the Company or a wholly- owned subsidiary of the Company, such issuances shall be subject to the same right of first refusal principles as set forth in this Section 3. 4. Vesting of Employee Stock. The Company shall not grant, after the ------------------------- date hereof, without the approval of the Board of Directors (including specifically the approving vote of G. Bradford Jones as long as he is a member of the Board of Directors), any stock option, stock award or other stock-based compensation arrangement to any employee, director or consultant of the Company under the Company's 1999 Stock Option Plan unless the terms thereof subject such option or shares to vesting over a four (4)-year period, vesting monthly or at such greater intervals as the Board of Directors shall determine; provided, -------- however, that (a) vesting may accelerate fully no fewer than six (6) months - ------- following a change in control, or immediately following a change in control if the employee is terminated without cause, and (b) vesting may accelerate fully upon a change in control if the acquiring corporation does not assume the option, award or arrangement or tender an economically equivalent substitute option, award or arrangement. 5. Termination of Certain Provisions. The rights set forth in Sections --------------------------------- 2.1 and 2.2, and the provisions of Sections 3 and Section 4, all shall terminate and be of no further force or effect upon the date the Company becomes subject to the reporting requirements of Section 13 or 1 S(d) of the Securities Exchange Act of 1934, as amended. 6. Miscellaneous. ------------- 6.1. Waivers and Amendments. With the written consent of the Company ---------------------- and the Purchasers holding more than fifty percent (50%) of the Registrable Securities, the obligations of the Company and the rights of the Purchasers under this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely), and with the same consent, the Company, when authorized by resolution of the Board of Directors, may amend this Agreement or enter into a supplementary agreement for the purpose of adding any provisions to this Agreement; provided, however, that no such waiver or supplemental agreement shall reduce the above percentage of Registrable Securities, the holders of which are required to consent to any waiver or supplemental agreement, without the consent of the record or beneficial holders of all of the Registrable Securities. Neither this Agreement nor any provisions hereof may be changed, waived, discharged or terminated orally, but only by a signed statement in writing. Any amendment, waiver or supplementary agreement effected in accordance with this paragraph shall be binding upon each Purchaser, each future holder of any Registrable Securities and the Company. 6.2. Notices. All notices and other communications required or ------- permitted hereunder shall be in writing (or in the form of a telex or telecopy (confirmed in writing) to be -17- given only during the recipient's normal business hours unless arrangements have otherwise been made to receive such notice by telex or telecopy outside of normal business hours) and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand, messenger, or telex or telecopy (as provided above) addressed (a) if to a Purchaser, at the address for such Purchaser set forth on the signature pages hereto or at such other address as such Purchaser shall have furnished to the Company in writing, or (b) if to any Other Holder of Registrable Securities, at such address as such holder shall have furnished the Company in writing or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Registrable Securities who has so furnished an address to the Company, or (c) if to the Company, one copy should be sent to its principal executive officer and addressed to the attention of the Corporate Secretary, or at such other address as the Company shall have furnished in writing to the Purchasers. 6.3. Descriptive Headings. The descriptive headings herein have been -------------------- inserted for convenience only and shall not be deemed to limit or otherwise affect the construction of any provisions hereof. 6.4. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND ------------- INTERPRETED UNDER THE LAWS OF THE STATE OF CALIFORNIA AS APPLIED TO AGREEMENTS AMONG CALIFORNIA RESIDENTS, MADE AND TO BE PERFORMED ENTIRELY WITHIN THE STATE OF CALIFORNIA. 6.5. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument, but only one of which need be produced. 6.6. Facsimile Signatures. Any signature page delivered by a fax -------------------- machine or telecopy machine shall be binding to the same extent as an original signature page, with regard to any agreement subject to the terms hereof or any amendment thereto. Any party who delivers such a signature page agrees to later deliver an original counterpart to any party which requires it. 6.7. Expenses. If any action at law or in equity is necessary to -------- enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 6.8. Successors and Assigns. Except as otherwise expressly provided ---------------------- in this Agreement, this Agreement shall benefit and bind the successors, assigns, heirs, executors and administrators of the parties to this Agreement. 6.9. Entire Agreement; Supercedence. This Agreement constitutes the ------------------------------ full and entire understanding and agreement between the parties with regard to the subject matter of this Agreement. This Agreement supersedes in its entirety the First Series A Investor Rights Agreement and the Second Series A Investor Rights Agreement; and the parties acknowledge that the foregoing agreements shall be of no further force or effect. -18- 6.10. Separability; Severability. Unless expressly provided in this -------------------------- Agreement, the rights of each Purchaser under this Agreement are several rights, not rights jointly held with any other Purchasers. Any invalidity, illegality or limitation on the enforceability of this Agreement with respect to any Purchaser shall not affect the validity, legality or enforceability of this Agreement with respect to the other Purchasers. If any provision of this Agreement is judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired. 6.11. Stock Splits. All references to numbers of shares in this ------------ Agreement shall be appropriately adjusted to reflect any stock dividend, split, combination or other recapitalization of shares by the Company occurring after the date of this Agreement. 6.12. Authorization to Add Purchasers to Agreement. The Board of -------------------------------------------- Directors shall have the absolute right to amend this Agreement further to add individuals or entities as Purchasers, and to add such Purchaser's names to the signature pages attached hereto upon such Purchaser's executing a counterpart signature page of this Agreement. The Company shall notify each Purchaser of the addition of new Purchasers pursuant to Section 6.2 hereof. 6.13. Amendment of Series A Investor Rights Agreements; Consent to ------------------------------------------------------------ Series B Financing. The undersigned First Series A Purchasers and Second - ------------------ Series A Purchasers, constituting the holders of a majority of the Registrable Securities under the Series A Investor Rights Agreements, hereby agree to amend and restate the Series A Investor Rights Agreements in accordance with Section 6.1 of the Series A Investor Rights Agreements and hereby consent to the issuance of the Series B Preferred Stock pursuant to the Series B Agreement and the Company's Amended and Restated Certificate of Designations and the grant of registration rights to the Series B Investors under this Agreement. * * * -19- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COMPANY: MULTILINK TECHNOLOGY CORPORATION A California corporation By: /s/ Richard N. Nottenburg --------------------------------------- Richard N. Nottenburg President and CEO FIRST SERIES A PURCHASERS: BRENTWOOD ASSOCIATES IX, L.P. By: Brentwood IX Ventures, LLC Its General Partner By: /s/ G. Bradford Jones ---------------------------------- G. Bradford Jones Managing Member 11150 Santa Monica Boulevard Suite 1200 Los Angeles, California 90025 BRENTWOOD AFFILIATES FUND III, L.P. By: Brentwood IX Ventures, LLC Its General Partner By: /s/ G. Bradford Jones ---------------------------------- G. Bradford Jones Managing Member 11150 Santa Monica Boulevard Suite 1200 Los Angeles, California 90025 SECOND SERIES A PURCHASERS: GRAZIADIO FAMILY TRUST u/t/d 11/13/75 By: /s/ Phillip M. Bardack ---------------------------------- Phillip M. Bardack, Trustee 16633 Ventura Blvd., Suite 510 Encino, California 91436 -20- ROBERT W. CONN TRUST u/t/d 2/25/99 By: /s/ Robert W. Conn ------------------------------------- Robert W. Conn, Trustee 2655 Mira Montana Place Del Mar, California 92014 /s/ Donald Willfong ---------------------------------------- Donald Willfong 2711 Bellavista Santa Barbara, California 93108 /s/ Mark J. Kelson ---------------------------------------- Mark J. Kelson 10365 Tennessee Avenue Los Angeles, California 90064 SERIES B PURCHASERS: MERITECH CAPITAL PARTNERS L.P. By: Meritech Capital Associates L.L.C. its General Partner By: Meritech Management Associates L.L.C. a managing member By: /s/ Michael B. Gordon ----------------------------------------- Michael B. Gordon, a managing member 90 Middlefield Road Suite 201 Menlo Park, California 94025 -21- MERITECH CAPITAL AFFILIATES L.P. By: Meritech Capital Associates L.L.C. its General Partner By: Meritech Management Associates L.L.C. a managing member By: /s/ Michael B. Gordon ----------------------------------------- Michael B. Gordon, a managing member 90 Middlefield Road Suite 201 Menlo Park, California 94025 REDPOINT VENTURES I, L.P. By: Redpoint Ventures I, LLC its General Partner By: /s/ G. Bradford Jones ----------------------------------------- G. Bradford Jones, Managing Director 3000 Sand Hill Road Building 2, Suite 290 Menlo Park, CA 94025 REDPOINT TECHNOLOGY PARTNERS Q-1, L.P By: Redpoint Ventures I, LLC its General Partner By: /s/ G. Bradford Jones ----------------------------------------- G. Bradford Jones, Managing Director 3000 Sand Hill Road Building 2, Suite 290 Menlo Park, CA 94025 -22- REDPOINT TECHNOLOGY PARTNERS, A-1, L.P. By: Redpoint Ventures I, LLC its General Partner By: /s/ G. Bradford Jones --------------------------------------- G. Bradford Jones, Managing Director 3000 Sand Hill Road Building 2, Suite 290 Menlo Park, CA 94025 REDPOINT ASSOCIATES I, LLC. By: Redpoint Ventures I, LLC its General Partner By: /s/ G. Bradford Jones --------------------------------------- G. Bradford Jones, Managing Director 3000 Sand Hill Road Building 2, Suite 290 Menlo Park, CA 94025 -23- FIRST AMENDMENT TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT Reference is hereby made to that certain Amended and Restated Investors' Rights Agreement dated March 31, 2000 (the "Agreement") by and among Multilink Technology Corporation, a California corporation, and the parties named therein. NOW, THEREFORE, BE IT RESOLVED, that pursuant to Section 6.12 of the Agreement, the Agreement is hereby amended to add the parties listed below as signatories thereto, and such parties shall be considered Purchasers (as defined in the Agreement) for all purposes thereunder. The Agreement shall remain in full force and effect, as amended hereby. IN WITNESS WHEREOF, the undersigned has executed this First Amendment to the Amended and Restated Investors' Rights Agreement this 7th day of April, 2000. PURCHASERS: TRW INC., an Ohio corporation By: /s/ Wesley G. Bush ---------------------------- Wesley G. Bush Vice President TAILWIND CAPITAL PARTNERS 2000, L.P. a Delaware limited partnership By: Thomas Weisel Capital Partners LLC General Partner By: /s/ David A. Baylor ---------------------------- David A. Baylor General Counsel ACKNOWLEDGED AND APPROVED BY: MULTILINK TECHNOLOGY CORPORATION, a California corporation By: /s/ Richard N. Nottenburg ----------------------------- Richard N. Nottenburg President and CEO SECOND AMENDMENT TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT Reference is hereby made to that certain Amended and Restated Investors' Rights Agreement dated March 31, 2000 (the "Agreement"), as amended on April 7, 2000 by and among Multilink Technology Corporation, a California corporation, and the parties named therein. NOW, THEREFORE, BE IT RESOLVED, that pursuant to Section 6.12 of the Agreement, the Agreement is hereby amended to add the parties listed below as signatories thereto, and such parties shall be considered Purchasers (as defined in the Agreement) for all purposes thereunder. The Agreement shall remain in full force and effect, as amended hereby. IN WITNESS WHEREOF, the undersigned has executed this Second Amendment to the Amended and Restated Investors' Rights Agreement this 27th day of April, 2000. PURCHASERS: CREDIT SUISSE FIRST BOSTON VENTURE FUND I, L.P., a Delaware limited partnership By: QBB Management I, L.L.C. its General Partner By: /s/ Frank Quattrone -------------------------------- Frank Quattrone Member CREDIT SUISSE FIRST BOSTON TECHNOLOGY FUND II, L.P., a Delaware limited partnership By: Merchant Capital, Inc. its General Partner By: /s/ Frank Quattrone -------------------------------- Frank Quattrone Director /s/ Mark S. Maron ------------------------------------ Mark S. Maron [Signature page to Second Amendment Amended and Restated Investor's Rights Agreement] ACKNOWLEDGED AND APPROVED BY: MULTILINK TECHNOLOGY CORPORATION, a California corporation By: /s/ Richard N. Nottenburg --------------------------------- Richard N. Nottenburg President and CEO -2- THIRD AMENDMENT TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT Reference is hereby made to that certain Amended and Restated Investors' Rights Agreement dated March 31, 2000 (the "Agreement") by and among Multilink Technology Corporation, a California corporation, and the parties named therein. NOW, THEREFORE, BE IT RESOLVED, that pursuant to Section 6.12 of the Agreement, the Agreement is hereby amended to add the party listed below as a signatory thereto, and such party shall be considered a Purchaser (as defined in the Agreement) for all purposes thereunder. The Agreement shall remain in full force and effect, as amended hereby. IN WITNESS WHEREOF, the undersigned has executed this Third Amendment to the Amended and Restated Investors' Rights Agreement this 18th day of May, 2000. PURCHASER: INTERNATIONAL BUSINESS MACHINES CORPORATION, a New York corporation By: /s/ Patrick J. Glennon ----------------------------------------- Name: Patrick J. Glennon --------------------------------------- Title: Director, Corporate Development -------------------------------------- ACKNOWLEDGED AND APPROVED BY: MULTILINK TECHNOLOGY CORPORATION, a California corporation By: /s/ Richard N. Nottenburg ---------------------------- Richard N. Nottenburg President and CEO EX-10.7 10 0010.txt LEASE DATED MARCH 10, 1999 EXHIBIT 10.7 LEASE AMENDMENT NUMBER ONE to Lease dated March 10, 1999, between SPIEKER PROPERTIES, L.P., a California limited partnership, as Landlord, and Multilink Technology Corporation, a California corporation, as Tenant, for the Premises commonly known as 2850 Ocean Park Blvd., Santa Monica, California 90405. Effective April 23, 1999, the above-described Lease shall be modified as follows for Tenant's expansion into Suite 330 and Suite 335: TERM; The term for Suites 330 and 335 shall commence May 15, 1999, or when the - ---- improvements are substantially completed, whichever is earlier, and shall be coterminous with the initial Garden Level space, which is September 30, 2000. RENTABLE AREA. The rentable area shall include that portion of the 3/rd/ floor - ------------- designated as Suite 330 (approximately 2,361 rentable square feet) and Suite 335 (approximately 2,635 rentable square feet) as shown cross hatched on the attached Exhibit B. Tenant's total rentable square area shall be increased to 9,677 rentable square feet. BASIC MONTHLY RENTAL. - -------------------- The base rental amount for Suite 330 is as follows: Commencement Date - September 30, 2000 $4,840.05 per month ($2.05/rsf) The base rental amount for Suite 335 is as follows Commencement Date - September 30, 2000 $5,401.75 per month ($2.05/rsf) IMPROVEMENTS. - ------------ Tenant agrees to Lease Suite 330 in its "as is" condition, except for the following: Landlord agrees at Landlord's sole cost and expense to remove panic hardware on the three (3) exterior corridor doors and install building standard hardware; remove two (2) sets of interior doors and frame the doorways; remove the display walls, patch and paint walls; remove the vertical blinds and replace with building standard mini blinds on exterior windows; remove two (2) white boards; remove verticals blinds along west wall. Tenant agrees to lease Suite 335 in its "as is" condition, except for the following: Landlord agrees at Landlord's sole cost and expense to install additional electrical wall outlet every six (6) feet in the open area of the suite; touch up paint as required; install suite door frame. OPTION TO RENEW. Tenant shall, provided this Lease is in full force and effect - --------------- and Tenant is not and has not been in default under any of the terms and conditions of this Lease, have one (1) option to renew this Lease for a term of six (6) months for the Premises (Suite 330, Suite 335, and Garden Level Suite) in "as is" condition and on the same terms and conditions set forth in this Lease, except as modified by the terms, covenants and conditions set forth below: (1) If Tenant elects to exercise such option, then Tenant shall provide Landlord with written notice no later than 5:00 p.m. (Pacific Standard Time) on the date which is six (6) months prior to the expiration of the then current term of this Lease. If Tenant fails to provide such notice, Tenant shall have no further or additional right to extend or renew the term of this Lease. (2) The Base Rent in effect at the expiration of the then current term of this Lease shall be increased to $2.22 per square foot, per month. (3) Tenant's right to exercise any option to renew under this Paragraph shall be conditioned upon Tenant occupying the entire Premises and the same not being occupied by any assignee, subtenant or license other than Tenant or its affiliate at the time of exercise of any option and commencement of the renewal term. Tenant's exercise of any option to renew shall constitute a representation by Tenant to Landlord that as of the date of exercise of the option and the commencement of the applicable renewal term, Tenant does not intend to seek to assign this Lease in whole or in part, or sublet all or any portion of the Premises. (4) Any exercise by Tenant of any option to renew under this Paragraph shall be irrevocable. If requested by Landlord, Tenant agrees to execute a lease amendment or, at Landlord's option, a new lease agreement on Landlord's then standard lease form for the Building, reflecting the foregoing terms and conditions, prior to the commencement of the renewal term. The option to renew granted under this Paragraph is not transferable; the parties hereto acknowledge and agree that they intend that the option to renew this Lease under this Paragraph shall be "personal" to the specific Tenant named in this Lease and that in no event will any assignee or subleasee have any rights to exercise such option(s) to renew SECURITY DEPOSIT. Security deposit shall increase by $10,241.80 to reflect the - ---------------- inclusion of Suites 330 ($4,840.05) and 335 ($5,401.75). PARKING. Tenant shall be allowed an additional twenty (20) parking spaces at the - ------- prevailing market rate. Ten (10) unreserved surface parking spaces at the prevailing market rate of $60/month/space, not including taxes; and Four (4) reserved tandem spaces (8 spaces total) at the prevailing market rate of $60/month/space, not including taxes; and Two (2) single reserved spaces at the prevailing market rate of $120/month/space, not including taxes. [LOGO OF SPIEKER PROPERTIES] [LOGO OF SANTA MONICA BUSINESS PARK] 2850 OCEAN PARK BOULEVARD SUITE 330 Santa Monica, California RENTABLE SQ. FT. 2,361 [PLAN APPEARS HERE] 2850 OCEAN PARK BLVD. Santa Monica, california Building W SUITE 335 RENTABLE SQ. FT.: 2,664 [PLAN APPEARS HERE] IN WITNESS WHEREOF, the parties hereto have signed and sealed this Lease Amendment Number One as dated below. LANDLORD: SPIEKER PROPERTIES, L.P., a California limited partnership By: Spieker Properties, Inc., a Maryland corporation Its: General Partner By /s/ Mark Valentine ----------------------------- Mark Valentine Vice President Date 5/19/99 --------------------------- TENANT: MULTILINK TECHNOLOGY CORPORATION a California corporation By: /s/ Richard N. Nottenburg ---------------------------- Its: President --------------------------- Date: 4/30/99 -------------------------- EXHIBIT B [SITE PLAN APPEARS HERE] Site Plan - Santa Monica Business Park BASIC LEASE INFORMATION OFFICE GROSS LEASE DATE: March 10, 1999 (same as date in first paragraph of Lease) TENANT: Multilink Technology Corporation, a California Corporation TENANT'S NOTICE ADDRESS: 2850 Ocean Park Boulevard Santa Monica, CA 90405 TENANT'S BILLING ADDRESS: 2850 Ocean Park Boulevard Santa Monica, CA 90405 TENANT CONTACT: Dr. Richard Nottenburg PHONE NUMBER: 310/581-6444 FAX NUMBER: 31O/581-6449 LANDLORD: Spieker Properties, L.P., a California limited partnership LANDLORD'S NOTICE ADDRESS: 3250 Ocean Park Blvd., Suite 150 Santa Monica, CA 90405 LANDLORD'S REMITTANCE ADDRESS: P.O. Box 60077 Department 12371 Los Angeles, CA 90060-0077 Project Description: A project commonly known as Santa Monica Business Park consisting of approximately 19 buildings as further shown on Exhibit B and attached hereto. Building Description: A three story office building located at 2850 Ocean Park Boulevard, Santa Monica as further shown on Exhibit B and attached hereto. Premises: Approximately 4,681 rentable square feet on the Garden level located in the above described building as shown on Exhibit B and attached hereto. Permitted Use: General office use, as well as other legally permitted uses. Occupancy Density: Four (4) individuals/1,000 rentable square feet. Parking Density: Tenant may rent up to 15 unreserved surface parking or in the parking structure located in the west campus of the Santa Monica Business Park. Parking and Parking Charge: 15 non-exclusive spaces at $66.00 per space/per month plus applicable municipal city tax per space (this rate is market adjusted and may vary). Scheduled Term Commencement Date: April 1, 1999 Scheduled Length of Term: 18 months Scheduled Term Expiration Date: September 30, 2000 Rent: Base Rent: Months 1-18 4/1/99-9/30/2000: $8,893.9 (1.90 FSG/month) Base Year for Operating Expenses: 1999 Security Deposit: $ 8,893.90 Tenant's Proportionate Share: Of Building: 3.29%
The foregoing Basic Lease Information is incorporated into and made a part of this Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information above and shall be construed to incorporate all of the terms provided under the particular Lease paragraph pertaining to such information. In the event of any conflict between the Basic Lease Information and the Lease, the latter shall control. LANDLORD TENANT Spieker Properties, L.P., Multilink Technology Corporation a California limited partnership a California Corporation By: Spieker Properties, Inc., a Maryland corporation, By: /s/ Richard Nottenberg ------------------------------- its general partner Richard Nottenberg Its: President By: /s/ Jeffrey K. Nickell ------------------------------ Jeffrey K. Nickell Its: Vice President TABLE OF CONTENTS
Page Basic Lease Information............................................... 1 Table of Contents..................................................... 2 1. Premises.............................................................. 4 2. Possession and Lease Commencement..................................... 4 3. Term.................................................................. 4 4. Use................................................................... 4 5. Rules and Regulations................................................. 5 6. Rent.................................................................. 5 7. Operating Expenses.................................................... 5 8. Insurance and Indemnification......................................... 7 9. Waiver of Subrogation................................................. 8 10. Landlord's Repairs and Maintenance.................................... 9 11. Tenant's Repairs and Maintenance...................................... 9 12. Alterations........................................................... 9 13. Signs................................................................. 9 14. Inspection/Posting Notices............................................ 10 15. Services and Utilities................................................ 10 16. Subordination......................................................... 11 17. Financial Statements.................................................. 11 18. Estoppel Certificate.................................................. 11 19. Security Deposit...................................................... 11 20. Limitation of Tenant's Remedies....................................... 11 21. Assignment and Subletting............................................. 11 22. Authority of Tenant................................................... 12 23. Condemnation.......................................................... 12 24. Casualty Damage....................................................... 13 25. Holding Over.......................................................... 13 26. Default............................................................... 13 27. Liens................................................................. 14 28. Substitution.......................................................... 15 29. Transfers by Landlord................................................. 15 30. Right of Landlord to Perform Tenant's Covenants....................... 15 31. Waiver................................................................ 15 32. Notices............................................................... 15 33. Attorney's Fees....................................................... 16 34. Successors and Assigns................................................ 16 35. Force Majeure......................................................... 16 36. Surrender of Premises................................................. 16 37. Parking .............................................................. 16 38. Miscellaneous......................................................... 16 39 Additional Provisions................................................. 17 40. Jury Trial Waiver..................................................... 17 Signatures............................................................ 18
Exhibits: Exhibit A.............................................Rules and Regulations Exhibit B...................................Site Plan, Property Description Exhibit C............................Tenant Improvements and Specifications Additional Exhibits as Required 3 LEASE THIS LEASE is made as of the 10/th/ day of March 1999, by and between Spieker Properties, L.P., a California limited partnership (hereinafter called "Landlord"), and Multilink Technology Corporation, a California Corporation (hereinafter called "Tenant"). 1. PREMISES Landlord leases to Tenant and Tenant leases from Landlord, upon the terms and conditions hereinafter set forth, those premises (the "Premises") outlined in red on Exhibit B and described in the Basic Lease Information. The Premises shall be all or part of a building (the "Building") and of a project (the "Project"), which may consist of more than one building and additional facilities, as described in the Basic Lease Information. The Building and Project are outlined in blue and green respectively on Exhibit B. Landlord and Tenant acknowledge that the number of buildings and additional facilities which constitute the Project may change from time to time, which may result in an adjustment in Tenant's Proportionate Share, as defined in the Basic Lease Information, as provided in Paragraph 7.A. 2. POSSESSION AND LEASE COMMENCEMENT A. Existing Improvements. If this Lease pertains to a Premises in which the interior improvements have already been constructed ("Existing Improvements"), the provisions of this Paragraph 2.A. shall apply and the term commencement date ("Term Commencement Date") shall be the earlier of the date on which: (1) Tenant takes possession of some or all of the Premises; or (2) Landlord notifies Tenant that Tenant may occupy the Premises. If for any reason Landlord cannot deliver possession of the Premises to Tenant on the scheduled Term Commencement Date, Landlord shall not be subject to any liability therefor, nor shall Landlord be in default hereunder nor shall such failure affect the validity of this Lease, and Tenant agrees to accept possession of the Premises at such time as Landlord is able to deliver the same, which date shall then be deemed the Term Commencement Date. Tenant shall not be liable for any Rent (defined below), for any period prior to the Term Commencement Date. Tenant acknowledges that Tenant has inspected and accepts the Premises in their present condition, "as is," and as suitable for, the Permitted Use (as defined below), and for Tenant's intended operations in the Premises. Tenant agrees that the Premises and other improvements are in good and satisfactory condition as of when possession was taken. Tenant further acknowledges that no representations as to the condition or repair of the Premises nor promises to alter, remodel or improve the Premises have been made by Landlord or any agents of Landlord unless such are expressly set forth in this Lease. Upon Landlord's request, Tenant shall promptly execute and return to Landlord a "Start-Up Letter" in which Tenant shall agree, among other things, to acceptance of the Premises and to the determination of the Term Commencement Date, in accordance with the terms of this Lease, but Tenant's failure or refusal to do so shall not negate Tenant's acceptance of the Premises or affect determination of the Term Commencement Date. Landlord represents that all building systems (HVAC, plumbing, electrical, etc.) are in good working order (within premises at lease) and will be responsible for primary repair of all latent defects. 3. TERM The term of this Lease (the "Term") shall commence on the Term Commencement Date and continue in full force and effect for the number of months specified as the Length of Term in the Basic Lease Information or until this Lease is terminated as otherwise provided herein. If the Term Commencement Date is a date other than the first day of the calendar month, the Term shall be the number of months of the Length of Term in addition to the remainder of the calendar month following the Term Commencement Date. 4. USE A. General. Tenant shall use the Premises for the permitted use specified in the Basic Lease Information ("Permitted Use") and for no other use or purpose. Tenant shall control Tenant's employees, agents, licensees, contractors, assignees and subtenants (collectively, "Tenant's Parties") in such a manner that Tenant and Tenant's Parties cumulatively do not exceed the occupant density (the "Occupancy Density") or the parking density (the "Parking Density") specified in the Basic Lease Information at any time. Tenant shall pay the Parking Charge specified in the Basic Lease Information as Additional Rent (as hereinafter defined) hereunder. So long as Tenant is occupying the Premises, Tenant and Tenant's Parties shall have the nonexclusive right to use, in common with other parties occupying the Building or Project, the parking areas, driveways and other common areas of the Building and Project, subject to the terms of this Lease and such rules and regulations as Landlord may from time to time prescribe. Landlord reserves the right, without notice or liability to Tenant, and without the same constituting an actual or constructive eviction, to alter or modify the common areas from time to time, including the location and configuration thereof, and the amenities and facilities which Landlord may determine to provide from time to time. B. Limitations. Tenant shall not permit any odors, smoke, dust, gas, substances, noise or vibrations to emanate from the Premises or from tiny portion of the common areas as a result of Tenant's or any Tenant's Party's use thereof, nor take any action which would constitute a nuisance or would disturb, obstruct or endanger any other tenants or occupants of the Building or Project or elsewhere, or interfere with their respective premises or common areas. Storage outside the Premises of materials, vehicles or any other items is prohibited. Tenant shall not use or allow the Premises to be used for any immoral, improper or unlawful purpose, nor shall Tenant cause or maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer the commission of an waste in, 4 on or about the Premises. Tenant shall not allow any sale by auction upon the Premises, or place any loads upon the floors, walls or ceilings which could endanger the structure, or place any harmful substances in the drainage system of the Building or Project. No waste, materials or refuse shall be dumped upon or permitted to remain outside the Premises. Landlord shall not be responsible to Tenant for the non-compliance by any other tenant or occupant of the Building or Project with any of the above-referenced rules or any other terms or provisions of such tenant's or occupant's lease or other contract, however, Landlord agrees to make reasonable efforts to provide Tenant with the quiet enjoyment of the Premises. C. Compliance with Regulations. Tenant shall at its sole cost and expense strictly comply with all existing or future applicable municipal, state and federal and other governmental statutes, rules, requirements, regulations, laws and ordinances, including zoning ordinances and regulations, and covenants, casements and restrictions of record governing and relating to the use, occupancy or possession of the Premises, to Tenant's use of the common areas, or to the use, storage, generation or disposal of Hazardous Materials (hereinafter defined) (collectively "Regulations"). Tenant shall at its sole cost and expense obtain any and all licenses or permits necessary for Tenant's use of the Premises. Tenant shall at its sole cost and expense promptly comply with the requirements of any board of fire underwriters or other similar body now or hereafter constituted. Tenant shall not do or permit anything to be done in, on, under or about the Project or bring or keep anything which will in any way increase the rate of any insurance upon the Premises, Building or Project or upon any contents therein or cause a cancellation of said insurance or otherwise affect said insurance in any manner. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord harmless from and against any loss, cost, expense, damage, attorneys' fees or liability arising out of the failure of Tenant to comply with any Regulation. Tenant's obligations pursuant to the foregoing indemnity shall survive the expiration or earlier termination of this Lease. Landlord represents the compliance of Premises, Building and Project with all such regulations that have been notice to Landlord by the Governing Authority as of the Term Commencement Date. D. Hazardous Materials. AS used in this Lease, "Hazardous Materials" shall include, but not be limited to, hazardous, toxic and radioactive materials and those substances defined as "hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," or other similar designations in any Regulation. Tenant shall not cause, or allow any of Tenant's Parties to cause, any Hazardous Materials to be handled, used, generated, stored, released or disposed of in, on, under or about the Premises, the Building or the Project or surrounding land or environment in violation of any Regulations. Tenant must obtain Landlord's written consent prior to the introduction of any Hazardous Materials onto the Project. Notwithstanding the foregoing, Tenant may handle, store, use and dispose of products containing small quantities of Hazardous Materials for "general office purposes" (such as toner for copiers) to the extent customary and necessary for the Permitted Use of the Premises; provided that Tenant shall always handle, store, use, and dispose of any such Hazardous Materials in a safe and lawful manner and never allow such Hazardous Materials to contaminate the Premises, Building, or Project or surrounding land or environment. Tenant shall immediately notify Landlord in writing of any Hazardous Materials' contamination of any portion of the Project of which Tenant becomes aware, whether or not caused by Tenant. Landlord shall have the right upon notice to tenant, at all reasonable times to inspect the Premises and to conduct tests and investigations to determine whether Tenant is in compliance with the foregoing provisions, the costs of all such inspections, tests and investigations to be borne by Tenant. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord harmless from and against any and all claims, liabilities, losses, costs, loss of rents, liens, damages, injuries or expenses (including attorneys' and consultants' fees and court costs), demands, causes of action, or judgments arising out of or related to the use, generation, storage, release, or disposal of Hazardous Materials by Tenant or any of Tenant's Parties in, on, under or about the Premises, the Building or the Project or surrounding land or environment, which indemnity shall include without limitation, damages for personal or bodily injury, property damage, damage to the environment or natural resources occurring on or off the Premises, losses attributable to diminution in value or adverse effects on marketability, the cost of any investigation, monitoring, government oversight, repair, removal, remediation, restoration, abatement, and disposal, and the preparation of any closure or other required plans, whether such action is required or necessary prior to or following the expiration or earlier termination of this Lease. Neither the consent by Landlord to the use, generation, storage, release or disposal of Hazardous Materials nor the strict compliance by Tenant with all laws pertaining to Hazardous Materials shall excuse Tenant from Tenant's obligation of indemnification pursuant to this Paragraph 4.D. Tenant's obligations pursuant to the foregoing indemnity shall survive the expiration or earlier termination of this Lease. 5. RULES AND REGULATIONS Tenant shall faithfully observe and comply with the building rules and regulations attached hereto as Exhibit A and any other rules and regulations and any non-discriminatory modifications or additions thereto which Landlord may from time to time prescribe in writing for the purpose of maintaining the proper care, cleanliness, safety, traffic flow and general order of the Premises or the Building or Project. Tenant shall cause Tenant's Parties to comply with such rules and regulations. Landlord shall not be responsible to Tenant for the non- compliance by any other tenant or occupant of the Building or Project with any of such rules and regulations, any other tenant's or occupant's lease or any Regulations. 6. RENT A. Base Rent. Tenant shall pay to Landlord and Landlord shall receive, without notice or demand throughout the Term, Base Rent as specified in the Basic Lease Information, payable in monthly installments in advance on or before the first day of each calendar month, in lawful money of the United States, without deduction or offset whatsoever, at the Remittance Address specified in the Basic Lease Information or to such other place as Landlord may from time to time designate in writing. Base Rent for the first full month of the Term shall be paid by Tenant upon Tenant's execution of this Lease. If the obligation for payment of Base Rent commences on a day other than the first day of a month, then Base Rent shall be prorated and the prorated installment shall be paid on the first day of the calendar month next succeeding the Term Commencement Date. The Base Rent payable by Tenant hereunder is subject to adjustment as provided elsewhere in this Lease, as applicable. As used herein, the term "Base Rent" shall mean the Base Rent specified in the Basic Lease Information as it may be so adjusted from time to time. B. Additional Rent. All monies other than Base Rent required to be paid by Tenant hereunder, including, but not limited to, Tenant's Proportionate Share of Operating Expenses, as specified in Paragraph 7 of this Lease, charges to be paid by Tenant under Paragraph 15, the interest and late charge described in Paragraphs 26.C. and D., and any monies spent by Landlord pursuant to Paragraph 30, shall be considered additional rent ("Additional Rent"). "Rent" shall mean Base Rent and Additional Rent. 7. OPERATING EXPENSES A. Operating Expenses. In addition to the Base Rent required to be paid hereunder, beginning with the expiration of the Base Year specified in the Basic Lease Information (the "Base Year"), Tenant shall pay as Additional Rent, Tenant's Proportionate Share of the Building and/or Project (as applicable), 2s defined in the Basic Lease Information, of increases in Operating Expenses (defined below) over the Operating Expenses incurred by Landlord during the Base Year (the "Base Year Operating Expenses"), in the manner set forth below. Tenant shall pay the applicable Tenant's Proportionate Share of each such Operating Expenses. Landlord and Tenant acknowledge that if the number of buildings which constitute the Project increases or decreases, or if physical changes are made to the Premises, Building or Project or the configuration of any thereof, Landlord may at its discretion reasonably adjust Tenant's Proportionate Share of the Building or Project to reflect the change. Landlord's determination of Tenant's Proportionate Share of the Building and of the Project shall be conclusive so long as it is reasonably and consistently applied. "Operating Expenses" shall mean all expenses and costs of every kind and nature which Landlord shall pay or become obligated to pay, because of or in connection with the ownership, management, maintenance, repair, preservation, replacement and operation of the Building or Project and its supporting facilities and such 5 additional facilities now and in subsequent years as may be determined by Landlord to be necessary or desirable to the Building and/or Project (as determined in a reasonable manner) other than those expenses and costs which are specifically attributable to Tenant or which are expressly made the financial responsibility of Landlord or specific tenants of the Building or Project pursuant to this Lease. Operating Expenses shall include, but are not limited to, the following: (1) Taxes. All real property taxes and assessments, possessory interest taxes, sales taxes, personal property taxes, business or license taxes or fees, gross receipts taxes, service payments in lieu of such taxes or fees, annual or periodic license or use fees, excises, transit charges, and other impositions, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind (including fees "in-lieu" of any such tax or assessment) which are now or hereafter assessed, levied, charged, confirmed, or imposed by any public authority upon the Building or Project, its operations or the Rent (or any portion or component thereof), or any tax, assessment or fee imposed in substitution, partially or totally, of any of the above. Operating Expenses shall also include any taxes, assessments, reassessments, or other fees or impositions with respect to the development, leasing, management, maintenance, alteration, repair, use or occupancy of the Premises, Building or Project or any portion thereof, including, without limitation, by or for Tenant, and all increases therein or reassessments thereof whether the increases or reassessments result from increased rate and/or valuation (whether upon a transfer of the Building or Project or any portion thereof or any interest therein or for any other reason). Operating Expenses shall not include inheritance or estate taxes imposed upon or assessed against the interest of any person in the Project, or taxes computed upon the basis of the net income of any owners of any interest in the Project. If it shall not be lawful for Tenant to reimburse Landlord for all or any part of such taxes, the monthly rental payable to Landlord under this Lease shall be revised to net Landlord the same net rental after imposition of any such taxes by Landlord as would have been payable to Landlord prior to the payment of any such taxes. (2) Insurance. All insurance premiums and costs, including, but not limited to, any deductible amounts, premiums and other costs of insurance reasonably incurred by Landlord, including for the insurance coverage set ---------- forth in Paragraph 8.A. herein. (3) Common Area Maintenance. (a) Repairs, replacements, and general maintenance of and for the Building and Project and public and common areas and facilities of and comprising the Building and Project, including, but not limited to, the roof and roof membrane, windows, elevators, restrooms, conference rooms, health club facilities, lobbies, mezzanines, balconies, mechanical rooms, building exteriors, alarm systems, pest extermination, landscaped areas, parking and service areas, driveways, sidewalks, loading areas, fire sprinkler systems, sanitary and storm sewer lines, utility services, heating/ventilation/air conditioning systems, electrical, mechanical or other systems, telephone equipment and wiring servicing, plumbing, lighting, and any other items or areas which affect the operation or appearance of the Building or Project, which determination shall be at Landlord's discretion, except for: those items expressly made the financial responsibility of Landlord pursuant to Paragraph 10 hereof; those items to the extent paid for by the proceeds of insurance; and those items attributable solely or jointly to specific tenants of the Building or Project. (b) Repairs, replacements, and general maintenance shall include the cost of any capital improvements made to or capital assets acquired for the Project or Building that in Landlord's discretion may reduce any other Operating Expenses, (but limited to the extent of such --------------------------------- reasonably anticipated savings) including present or future repair ------------------------------ work are reasonably necessary for the health and saftey of the occupants of the Building or Project, or are required to comply with any Regulation, such costs or allocable portions thereof to be amortized over such reasonable period as Landlord shall determine, together with interest on the unamortized balance at the publicly announced "prime rate" charged by Wells Fargo Bank, N.A. (San Francisco) or its successor at the time such improvements or capital assets are constructed or acquired, plus two (2) percentage points, or in the absence of such prime rate, then at the U.S. Treasury six-month market note (or bond, if so designated) rate as published by any national financial publication selected by Landlord, plus four (4) percentage points, but in no event more than the maximum rate permitted by law, plus reasonable financing charges. (c) Payment under or for any casement, license, permit, operating, agreement, declaration, restrictive covenant or instrument relating to the Building or Project. (d) All reasonable expenses and rental related to services and costs ---------- of supplies, materials and equipment used in operating, managing and maintaining the Premises, Building and Project, the equipment therein and the adjacent sidewalks, driveways, parking and service areas, including, without limitation, expenses related to service agreements regarding security, fire and other alarm systems, janitorial services, window cleaning, elevator maintenance, Building exterior maintenance, landscaping and expenses related to the administration, management and operation of the Project, including without limitation salaries, wages and benefits and management office rent. (e) The cost of supplying any services and utilities which benefit all or a portion of the Premises, Building or Project, including without limitation services and utilities provided pursuant to Paragraph 15 hereof. (f) Legal expenses and the cost of audits by certified public accountants; provided, however, that legal expenses chargeable as Operating Expenses shall not include the cost of negotiating leases, collecting rents, evicting tenants nor shall it include costs incurred in legal proceedings with or against any third party, including any -------------------------- tenant or to enforce the provisions of any lease. (g) A management and accounting cost recovery fee equal to five percent (5%) of the sum of the Project's base rents and Operating Expenses to the extent not included in such base rents (other than such management and accounting fee). If the rentable area of the Building and/or Project is not fully occupied during any fiscal year of the Term as determined by Landlord, an adjustment may be made in Landlord's discretion in computing the Operating Expenses for such year so that Tenant pays an equitable portion of all variable items (e.g., utilities, janitorial services and other component expenses that are affected by variations in occupancy levels) of Operating Expenses, as reasonably determined by Landlord; provided, however, that in no event shall Landlord be entitled to collect in excess of one hundred percent (100%) of the total Operating Expenses from all of the tenants in the Building or Project, as the case may be, and in no instance shall Tenant pay more than its proportionate share of - ------------------------------------------------------------------------ operating expenses. - ------------------ Operating Expenses shall not include the cost of providing tenant improvements or other specific costs incurred for the account of, separately billed to and paid by specific tenants of the Building or Project, the initial construction cost of the Building, or debt service on any mortgage or deed of trust recorded with respect to the Project other than pursuant to Paragraph 7.A.(3)(b) above. Additional exclusions from operating expenses: - --------------------------------------------- 1. Costs of repairing major and/or latent defects in construction. ----------------------------------------------------------------- 2. Costs for which Landlord is reimbursed by any other tenant of occupant of ---------------------------------------------------------------------------- the Building or Project. ----------------------- 6 3. Fines penalties and interest on late payments. --------------------------------------------- 4. Expenses in connection with services and/or other benefits which are not ------------------------------------------------------------------------ offered to Tenant or are provided to Tenant at a direct charge but which ------------------------------------------------------------------------ are provided to another tenant of the Project without separate charge. --------------------------------------------------------------------- 5. Costs arising from Landlord's political or charitable contributions. ------------------------------------------------------------------- 6. Costs, other than those incurred in ordinary maintenance and repair, for ------------------------------------------------------------------------ sculpture, paintings, fountains or other objects of art. ------------------------------------------------------- 7. Costs to remove or otherwise remediate Hazardous Materials or comply with ------------------------------------------------------------------------- laws relating to Hazardous Materials. ------------------------------------ 8. Reserves for future expenses beyond current year anticipated expenses. --------------------------------------------------------------------- 9. Repairs or replacements to any utility systems which are dedicated to the ------------------------------------------------------------------------- use of a single tenant. ---------------------- Notwithstanding anything herein to the contrary, in any instance wherein Landlord, reasonably deems Tenant to be responsible for any amounts greater than Tenant's Proportionate Share, Landlord shall have the right to reasonably ---------- allocate such costs. ---- - The above enumeration of services and facilities shall not be deemed to impose an obligation on Landlord to make available or provide such services or facilities except to the extent if any that Landlord has specifically agreed elsewhere in this Lease to make the same available or provide the same. Without limiting the generality of the foregoing, Tenant acknowledges and agrees that it shall be responsible for providing adequate security for its use of the Premises, the Building and the Project and that Landlord shall have no obligation or liability with respect thereto, except to the extent if any that Landlord has specifically agreed elsewhere in this Lease to provide the same. B. Payment of Estimated Operating Expenses. "Estimated Operating Expenses" for any particular year shall mean Landlord's estimate of the Operating Expenses for such fiscal year made with respect to such fiscal year as hereinafter provided. Landlord shall have the right from time to time to revise its fiscal year and interim accounting periods so long as the periods as so revised are reconciled with prior periods in a reasonable manner. During the last month of each fiscal year during the Term, or as soon thereafter as practicable, Landlord shah give Tenant written notice of the Estimated Operating Expenses for the ensuing fiscal year. Tenant shall pay Tenant's Proportionate Share of the difference between Estimated Operating Expenses and Base Year Operating Expenses with installments of Base Rent for the fiscal year to which the Estimated Operating Expenses applies in monthly installments on the first day of each calendar month during such year, in advance. Such payment shall be construed to be Additional Rent for all purposes hereunder. If at any time during the course of the fiscal year, Landlord determines that Operating Expenses are projected to vary from the then Estimated Operating Expenses by more than five percent (5%), Landlord may, by written notice to Tenant, revise the Estimated Operating Expenses for the balance of such fiscal year, and Tenant's monthly installments for the remainder of such year shall be adjusted so that by the end of such fiscal year Tenant has paid to Landlord Tenant's Proportionate Share of the revised difference between Estimated Operating Expenses and Base Year Operating Expenses for such year, such revised installment amounts to be Additional Rent for all purposes hereunder. C. Computation of Operating Expense Adjustment. "Operating Expense Adjustment" shall mean the difference between Estimated Operating Expenses and actual Operating Expenses for any fiscal year, over Base Year Operating Expenses, determined as hereinafter provided. Within one hundred twenty (120) days after the end of each fiscal year, or as soon thereafter as practicable, Landlord shall deliver to Tenant a statement of actual Operating Expenses for the fiscal year just ended, accompanied by a computation of Operating Expense Adjustment. If such statement shows that Tenant's payment based upon Estimated Operating Expenses is less than Tenant's Proportionate Share of actual increases in Operating Expenses over the Base Year Operating Expenses, then Tenant shall pay to Landlord the difference within thirty (30) days after receipt of such ---------------- statement, such payment to constitute Additional Rent for all purposes hereunder. If such statement shows that Tenant's payments of Estimated Operating Expenses exceed Tenant's Proportionate Share of actual increases in Operating Expenses over the Base Year Operating Expenses, Landlord shall pay to Tenant the difference within twenty (20) days after delivery of such statement to Tenant. If this Lease has been terminated or the Term hereof has expired prior to the date of such statement, then the Operating Expense Adjustment shall be paid by the appropriate party within thirty (30) days after the date of delivery of the ---------------- statement. Tenant's obligation to pay increases in Operating Expenses over the Base Year Operating Expenses shall commence on January 1 of the year succeeding the Base Year. Should this Lease terminate at any time other than the last day of the fiscal year, Tenant's Proportionate Share of the Operating Expense Adjustment shall be prorated based on a month of 30 days and the number of calendar months during such fiscal year that this Lease in effect. Tenant shall in no event be entitled to any credit if Operating Expenses in any year are less than Base Year Operating Expenses. Notwithstanding anything to the contrary contained in Paragraph 7.A or 7.B, Landlord's failure to provide any notices or statements within the time periods specified in those paragraphs shall in no way excuse Tenant from its obligation to pay Tenant's Proportionate Share of increases in Operating Expenses. D). Gross Lease. This shall be a gross Lease; however, it is intended that Base Rent shall be paid to Landlord absolutely net of all costs and expenses other than Operating Expenses each year equal to Tenant's Proportionate Share of Base Year Operating Expenses, except as otherwise specifically provided to the contrary in this Lease. The provisions for payment of increases in Operating Expenses and the Operating Expense Adjustment are intended to pass on to Tenant and reimburse Landlord for all costs and expenses of the nature described in Paragraph 7.A. incurred in connection with the ownership, management, maintenance, repair, preservation, replacement and operation of the Building and/or Project and its supporting facilities and such additional facilities, in excess of the Base Year Operating Expenses, now and in subsequent years as may be determined by Landlord to be necessary or desirable to the Building and/or Project. E. Tenant Audit. If Tenant shall dispute the amount set forth in any statement provided by Landlord under Paragraph 7.B. or 7.C. above, Tenant shall have the right, not later than forty-five (45) days following receipt of such statement --------------- and upon the condition that Tenant shall first deposit with Landlord the full amount in dispute, to cause Landlord's books and records with respect to Operating Expenses for such fiscal year to be audited by certified public accountants selected by Tenant and subject to Landlord's reasonable right of approval. The Operating Expense Adjustment shall be appropriately adjusted on the basis of such audit. If such audit discloses a liability for a refund in excess of five percent (5%) of Tenant's Proportionate Share of the Operating ---- - Expenses previously reported, the cost of such audit shall be borne by Landlord; otherwise the cost of such audit shall be paid by Tenant. If Tenant shall not request an audit in accordance with the provisions of this Paragraph 7.E. within forty-five (45) days after receipt of Landlord's statement provided pursuant to - --------------- Paragraph 7.B or 7.C., such statement shall be final and binding for all purposes hereof. 8. INSURANCE AND INDEMNIFICATION A. Landlord's Insurance. All insurance maintained by Landlord shall be for the sole benefit of Landlord and under Landlord's sole control (1) Property Insurance. Landlord agrees to maintain property insurance insuring the Building against damage or destruction due to risk including fire, vandalism, and malicious mischief in an amount not less than the replacement cost thereof, in the form and with deductibles and endorsements as selected by Landlord. At its election, Landlord may instead (but shall 7 have no obligation to) obtain "All Risk" coverage, and may also obtain earthquake, pollution, and/or flood insurance in amounts selected by Landlord. 2) Optional Insurance. Landlord, at Landlord's option, may also (but shall have no obligation to) carry insurance against loss of rent, in an amount equal to the amount of Base Rent and Additional Rent that Landlord could be required to abate to all Building tenants in the event of condemnation or casualty damage for a period of twelve (12) months. Landlord may also (but shall have no obligation to) carry such other insurance as Landlord may deem prudent or advisable, including, without limitation, liability insurance in such amounts and on such terms as Landlord shall determine. Landlord shall not be obligated to insure, and shall have no responsibility whatsoever for any damage to, any furniture, machinery, goods, inventory or supplies, or other personal property or fixtures which Tenant may keep or maintain in the Premises, or any leasehold improvements, additions or alterations within the Premises. B. Tenant's Insurance. (1) Property Insurance. Tenant shall procure at Tenant's sole cost and expense and keep in effect from the date of this Lease and at all times until the end of the Term, insurance on all personal property and fixtures of Tenant and all improvements, additions or alterations made by or for Tenant to the Premises on an "All Risk" basis, insuring such property for the full replacement value of such property. (2) Liability Insurance. Tenant shall procure at Tenant's sole cost and expense and keep in effect from the date of this Lease and at all times until the end of the Term Commercial General Liability insurance covering bodily injury and property damage liability occurring in or about the Premises or arising out of the use and occupancy of the Premises and the Project, and any part of either, and any areas adjust thereto, and the business operated by Tenant or by any other occupant of the Premises. Such insurance shall include contractual liability insurance coverage insuring all of Tenant's indemnity obligations under this Lease. Such coverage shall have a minimum combined single limit of liability of at least Two Million Dollars ($2,000,000.00), and a minimum general aggregate limit of Three Million Dollars ($3,000,000.00), with an "Additional Insured - Managers or Lessors of Premises Endorsement." All such policies shall be written to apply to all bodily injury (including death), property damage or loss, personal and advertising injury and other covered loss, however occasioned, occurring during the policy term, shall be endorsed to add Landlord and any party holding an interest to which this Lease may be subordinated as an additional insured, and shall provide that such coverage shall be "primary" and non-contributing with any insurance maintained by Landlord, which shall be excess insurance only. Such coverage shall also contain endorsements including employees as additional insureds if not covered by Tenant's Commercial General Liability Insurance. All such insurance shall provide for the severability of interests of insureds; and shall be written on an "occurrence" basis, which shall afford covered for all claims based on acts, omissions, injury and damage, which occurred or arose (or the onset of which occurred or arose) in whole or in during the policy period. (3) Workers' Compensation and Employers' Liability Insurance. Tenant shall carry Workers' Compensation Insurance as required by any Regulation, throughout the Term at Tenant's sole cost and expense. Tenant shall also carry Employers Liability Insurance in amounts not less than One Million Dollars ($1,000,000) each accident for bodily injury by accident; One Million Dollars ($1,000,000) policy limit for bodily injury by disease; and One Million Dollars ($1,000,000) each employee for bodily injury by disease, throughout the Term at Tenant's sole cost and expense. (4) General Insurance Requirements. All coverages described in this Paragraph 8.B. shall be endorsed to (i) provide Landlord with thirty (30) days' notice of cancellation or change in terms; and (ii) waive all rights of subrogation by the insurance carrier against Landlord. If at any time during the amount or coverage of insurance which Tenant is required to carry under this Paragraph 8.B. is, in Landlord's reasonable judgment, materially less than the amount or type of insurance coverage typically carried by owners or tenants of properties located in the general area in which the Premises are located which are similar to and operated for similar purposes as the Premises or if Tenant's use of the Premises should change with or without Landlord's consent, Landlord shall have the right to require Tenant to increase the amount or change the types of insurance coverage required under this Paragraph 8.B. All insurance policies required to be carried by Tenant under this Lease shall be written by companies rated A X or better in "Best's Insurance Guide" and authorized to do business in the State of California. In any event deductible amounts under all insurance policies required to be carried by Tenant under this Lease shall not exceed Five Thousand Dollars ($5,000.00) per occurrence. Tenant shall deliver to Landlord on or before the Term Commencement Date, and thereafter at least thirty (30) days before the expiration dates of the expired policies, certified copies of Tenant's insurance policies, or a certificate evidencing the same issued by the insurer thereunder; and, if Tenant shall fail to procure such insurance, or to deliver such policies or certificates, Landlord may, at Landlord's option and in addition to Landlord's other remedies in the event of a default by Tenant hereunder, procure the same for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Rent. C. Indemnification. Tenant shall indemnify, defend by counsel reasonably acceptable to Landlord, protect and hold Landlord harmless from and against any and all claims, liabilities, losses, costs, loss of rents, liens, damages, injuries or expenses, including reasonable attorneys' and consultants' fees and court costs, demands, causes of action, or judgments, directly or indirectly arising out of or related to: (1) claims of injury to or death of persons or damage to property occurring or resulting from the use or occupancy of the Premises, Building or Project by Tenant or Tenant's Parties, (2) claims arising from work or labor performed, or for materials or supplies furnished to or at the request or for the account of Tenant in connection with performance of any work done for the account of Tenant within the Premises or Project; (3) claims arising from any breach or default on the part of Tenant in the performance of any covenant contained in this Lease; and (4) claims arising from the negligence or willful misconduct of Tenant or Tenant's Parties. The foregoing indemnity by --------------------- Tenant shall not be applicable to claims to the extent arising from the negligence or willful misconduct of Landlord. Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury or damage to any person or property in or about the Premises, Building or Project by or from any cause whatsoever (other than Landlord's negligence or willful misconduct) and, without limiting the generality of the foregoing, whether caused by water leakage of any character from the roof, walls, basement or other portion of the Premises, Building or Project, or caused by gas, fire, oil or electricity in, on or about the Premises, Building or Project. The provisions of this Paragraph shall survive the expiration or earlier termination of this Lease. 9. WAIVER OF SUBROGATION To the extent permitted by law and without affecting the coverage provided by insurance to be maintained hereunder or any other rights or remedies, Landlord and Tenant each waive any right to recover against the other for: (a) damages for injury to or death of persons; (b) damages to property, including personal property; (c) damages to the Premises or any part thereof; and (d) claims arising by reason of the foregoing due to hazards covered by insurance maintained or required to be maintained pursuant to this Lease to the extent of proceeds recovered therefrom, or proceeds which would have been recoverable therefrom in the case of the failure of any party to maintain any insurance coverage required to be maintained by such party pursuant to this Lease. This provision is intended to waive fully, any rights and/or claims arising by reason of the foregoing, but only to the extent that any of the foregoing damages and/or claims referred to above are covered or would be covered, and only to the extent of such coverage, by insurance actually carried or required to be maintained pursuant to this Lease by either Landlord or Tenant. This provision is also intended to waive fully, and for the benefit of each party, any rights and/or claims which might give rise to a right of subrogation on any insurance carrier. Subject to all qualification of this Paragraph 8 9. Landlord waives its rights as specified in this Paragraph 9 with respect to any subtenant that it has approved pursuant to Paragraph 21 but only in exchange for the written waiver of such rights to be given by such subtenant to Landlord upon such subtenant taking possession of the Premises or a portion thereof. Each party shall cause each insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against either party in connection with any damage covered by any policy. 10. LANDLORD'S REPAIRS AND MAINTENANCE Landlord shall at Landlord's expense maintain in good repair, reasonable wear and tear excepted, the roof, foundations, and exterior walls of the Building. The term "exterior walls" as used herein shall not include windows, glass or plate glass, doors, special store fronts or office entries. Any damage caused by or repairs necessitated by any negligence or act of Tenant or Tenant's Parties may be repaired by Landlord at Landlord's option and Tenant's expense. Tenant shall immediately give Landlord written notice of any defect or need of repairs in such components of the Building for which Landlord is responsible, after which Landlord shall have a reasonable opportunity and the right to enter the Premises at all reasonable times to repair same. Landlord's liability with respect to any defects, repairs, or maintenance for which Landlord is responsible under any of the provisions of this Lease shall be limited to the cost of such repairs or maintenance, and there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of repairs, alterations or improvements in or to any portion of the Premises, the Building or the Project or to fixtures, appurtenances or equipment in the Building, except as provided in Paragraph 24. By taking possession of the Premises, Tenant accepts them "as is," as being in good order, condition and repair and the condition in which Landlord is obligated to deliver them and suitable for the Premises Use and Tenant's intended operations in the Premises, whether or not any notice of acceptance is given. 11. TENANT'S REPAIRS AND MAINTENANCE Tenant shall at all times during the Term at Tenant's expense maintain all parts of the Premises and such portions of the Building as are within the exclusive control of Tenant in a first-class, good, clean and secure condition and promptly make all necessary repairs and replacements, as determined by Landlord, with materials and workmanship of the same character, kind and quality as the original. Notwithstanding anything to the contrary contained herein, Tenant shall, at its expense, promptly repair any damage to the Premises or the Building or Project resulting from or caused by any negligence of Tenant or Tenant's Parties. 12. ALTERATIONS A. Tenant shall not make, or allow to be made, any alterations, physical additions, improvements or partitions, including without limitation the attachment of any fixtures or equipment, in, about or to the Premises ("Alterations") without obtaining the prior written consent of Landlord, which consent shall not be unreasonably withheld with respect to proposed Alterations which: (a) comply with all applicable Regulations; (b) are, in Landlord's reasonable opinion, compatible with the Building or the Project and its - ---------- mechanical, plumbing, electrical,heating/ventilation/air conditioning systems, and will not cause the Building or Project or such systems to be required to be modified to comply with any Regulations (including, without limitation, the Americans With Disabilities Act); and (c) will not interfere with the use and occupancy of any other portion of the Building or Project by any other tenant or its invitees. Specifically, but without limiting the generality of the foregoing, Landlord shall have the right of written consent for all plans and specifications for the proposed Alterations, construction means and methods, all appropriate permits and licenses, any contractor or subcontractor to be employed on the work of Alterations, and the time for performance of such work, and may impose reasonable rules and regulations for contractors and subcontractors ---------- performing such work. Tenant shall also supply to Landlord any documents and information reasonably requested by Landlord in connection with Landlord's consideration of a request for approval hereunder. Tenant shall cause all Alterations to be accomplished in a first-class, good and workmanlike manner, and to comply with all applicable Regulations and Paragraph 27 hereof. Tenant shall at Tenant's sole expense, perform any additional work required under applicable Regulations due to the Alterations hereunder. No review or consent by Landlord of or to any proposed Alteration or additional work shall constitute a waiver of Tenant's obligations under this Paragraph 12, nor constitute any warranty or representation that the same complies with all applicable Regulations, for which Tenant shall at all times be solely responsible. Tenant shall reimburse Landlord for all reasonable out of pocket costs which Landlord ------------------------ may incur in connection with granting approval to Tenant for any such Alterations, including any costs or expenses which Landlord may incur in electing to have outside architects and engineers review said plans and specifications, and shall pay Landlord an administration fee of five percent of the cost of the Alterations as Additional Rent hereunder. All such Alterations shall remain the property of Tenant until the expiration or earlier termination of this Lease, at which time they shall be and become the property of Landlord; provided, however, that Landlord may, if Landlord has made predetermined request ------------------------------------------ (at the time of the approval of the installation), require that Tenant, at - ------------------------------------------------- Tenant's expense, remove any or all Alterations made by Tenant and restore the Premises by the expiration or earlier termination of this Lease, to their condition existing prior to the construction of any such Alterations. All such removals and restoration shall be accomplished in a first-class and good and workmanlike manner so as not to cause any damage to the Premises or Project whatsoever. If Tenant fails to remove such Alterations or Tenant's trade fixtures or furniture or other personal property, Landlord may keep and use them or remove any of them and cause them to be stored or sold in accordance with applicable law, at Tenant's sole expense. In addition to and wholly apart from Tenant's obligation to pay Tenant's Proportionate Share of Operating Expenses, Tenant shall be responsible for and shall pay prior to delinquency any taxes or governmental service fees, possessory interest taxes, fees or charges in lieu of any such taxes, capital levies, or other charges imposed upon, levied with respect to or assessed against its fixtures or personal property, on the value of Alterations within the Premises, and on Tenant's interest pursuant to this Lease, or any increase in any of the foregoing based on such Alterations. To the extent that any such taxes are not separately assessed or billed to Tenant, Tenant shall pay the amount thereof as invoiced to Tenant by Landlord. Notwithstanding the foregoing, at Landlord's option (but without obligation), all or any portion of the Alterations shall be performed by Landlord for Tenant's account and Tenant shall pay Landlord's estimate of the cost thereof (including a reasonable charge for Landlord's overhead and profit) prior to commencement of the work. In addition, at Landlord's election and notwithstanding the foregoing, however, Tenant shall pay to Landlord the cost of removing any such Alterations and restoring the Premises to their original condition such cost to include a reasonable charge for Landlord's overhead and profit as provided above, and such amount may be deducted from the Security Deposit or any other sums or amounts held by Landlord under this Lease. B. In compliance with Paragraph 27 hereof, at least then (10) business days before beginning construction of any Alteration, Tenant shall give Landlord written notice of the expected commencement date of that construction to permit Landlord to post and record a notice or non-responsibility. Upon substantial completion of construction, if the law so provides, Tenant shall cause a timely notice of completion to be recorded in the office of the recorder of the county in which the Building is located. 13. SIGNS Tenant shall not place, install affix, paint or maintain any signs, notices, graphics or banners whatsoever or any window decor which is visible in or from public view or corridors, the common areas or the exterior of the Premises or the Building, in or on any exterior window or window fronting upon any common areas or service area without Landlord's prior written approval which Landlord shall have the right to withhold in it absolute and sole discretion; provided that Tenant's name shall be included in any Building-standard door and directory signage, if any, in accordance with Landlord's Building signage program, including without limitation, payment by Tenant of any fee charged by Landlord for maintaining such signage, which fee shall constitute Additional Rent hereunder. Any installation of signs, notices graphics or banners on or about the Premises or Project approved by Landlord shall be subject to any Regulations and to any other requirements imposed by Landlord. Tenant shall remove all such signs or graphics by the expiration or nay earlier termination of this 9 Lease. Such installations and removals shall be made in such manner as to avoid injury to or defacement of the Premises, Building or Project and any other improvements contained therein, and Tenant shall repair any injury or defacement including without limitation discoloration caused by such installation or removal. 14. INSPECTION/POSTING NOTICES After reasonable notice, except in emergencies where no such notice shall be required, Landlord and Landlord's agents and representatives, shall have the right to enter the Premises to inspect the same, to clean, to perform such work as may be permitted or required hereunder, to make repairs, improvements or alterations to the Premises, Building or Project or to other tenant spaces therein, to deal with emergencies, to post such notices as may be permitted or required by law to prevent the perfection of liens against Landlord's interest in the Project or to exhibit the Premises to prospective tenants, purchasers, encumbrances or to others, or for any other purpose as Landlord may deem necessary or desirable; provided, however, that Landlord shall use reasonable efforts not to unreasonably interfere with Tenant's business operations. Tenant shall not be entitled to any abatement of Rent by reason of the exercise of any such right of entry. Tenant waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. Landlord shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Premises, excluding Tenant's vaults and safes or special security areas (designated in advance), and Landlord shall have the right to use any and all means which Landlord may deem necessary or proper to open said doors in an emergency, in order to obtain entry to any portion of the Premises, and any entry to the Premises or portions thereof obtained by Landlord by any of said means, or otherwise, shall not be construed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises or any portions thereof. At any time within six (6) months prior to the expiration of the Term or following any earlier termination of this Lease or agreement to terminate this Lease, Landlord shall have the right to erect on the Premises, Building and/or Project a suitable sign indicating that the Premises are available for lease. 15. SERVICES AND UTILITIES A. Subject to the provisions elsewhere herein contained and to the rules and regulations of the Building, Landlord shall furnish to the Premises during ordinary business hours of generally recognized business days, to be determined by Landlord (but exclusive, in any event, of Saturdays, Sundays and legal holidays), water for lavatory and drinking purposes and electricity, head and air conditioning as usually furnished or supplied for use of the Premises for reasonable and normal office use as of the date Tenant takes possession of the Premises as determined by Landlord (but not including above-standard or continuous cooling for excessive hear-generating machines, excess lighting or equipment), janitorial services during the times and in the manner that such services are, in Landlord's judgement; customarily furnished in comparable office buildings in the immediate market area, and elevator service, which shall mean service either by nonattended automatic elevators or elevators with attendants, or both, at the option of Landlord. Landlord shall have no obligation to provide additional or after-hours electricity, heating or air conditioning, but if Landlord elects to provide such services at Tenant's request, Tenant shall pay to Landlord a reasonable charge for such services as determined by Landlord. Tenant agrees to keep and cause to be kept closed all window covering when necessary because of the sun's position, and Tenant also agrees at all times to cooperate fully with Landlord and to abide by all of the regulations and requirements which Landlord may prescribe for the proper functioning and protection of electrical, heating, ventilating and air conditioning systems. Wherever heat-generating machines, excess lighting or equipment are used in the Premises which affect the temperature otherwise maintained by the air conditioning system, Landlord reserves the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. B. Tenant shall not without written consent of Landlord use any apparatus, equipment or device in the Premises, including without limitation, computers, electronic data processing machines, copying machines, and other machines, using excess lighting or using electric current, water, or any other resource in excess of or which will in any way increase the amount of electricity, water, or any other resource being furnished or supplied for the use of the Premises for reasonable and normal office use, in each case as of the date Tenant takes possession of the Premises as determined by Landlord, or which will require additions or alterations to or interfere with the Building power distribution systems; nor connect with electric current, except through existing electrical outlets in the Premises or water pipes, any apparatus, equipment or device for the purpose of using electrical current, water, or any other resource. If Tenant shall require water or electric current or any other resource in excess of that being furnished or supplied for the use of the Premises as of the date Tenant takes possession of the Premises as determined by Landlord, Tenant shall first procure the written consent of Landlord which Landlord may refuse, to the use thereof, and Landlord may cause a special meter to be installed in the Premises so as to measure the amount of water, electric current or other resource consumed for any such other use. Tenant shall pay directly to Landlord as an addition to and separate from payment of Operating Expenses the cost of all such additional resources, energy, utility service and meters (and of installation, maintenance and repair thereof and of any additional circuits or other equipment necessary to furnish such additional resources, energy, utility or service). Landlord may add to the separate or metered charge a recovery of additional expense incurred in keeping account of the excess water, electric current or other resource so consumed. Landlord shall not be liable for any damages directly or indirectly resulting from nor shall the Rent or any monies owed Landlord under this Lease herein reserved be abated by reason of: (a) the installation, use or interruption of use of any equipment used in connection with the furnishing of any such utilities or services, or any change in the character or means of supplying or providing any such utilities or services or any supplier thereof; (b) the failure to furnish or delay in furnishing any such utilities or services when such failure or delay is caused by acts of God or the elements, labor disturbances of any character, or any other accidents or other conditions beyond the reasonable control of Landlord or because of any interruption of service due to Tenant's use of water, electric current or other resource in excess of that being supplied or furnished for the use of the Premises as of the date Tenant takes possession of the Premises; (c) the inadequacy, limitation, curtailment, rationing or restriction on use of water, electricity, gas or any other form of energy or any other service or utility whatsoever serving the Premises or Project, whether by Regulation or otherwise; or (d) the partial or total unavailability of any such utilities or services to the Premises or the Building, whether by Regulation or otherwise; nor shall any such occurrence constitute an actual or constructive eviction of Tenant. Landlord shall further have not obligation to protect or preserve any apparatus, equipment or device installed by Tenant in the Premises, including without limitation by providing additional or after-hours heating or air conditioning. Landlord shall be entitled to cooperate voluntarily and in a reasonable manner with the efforts of national, state or local governmental agencies or utility suppliers in reducing energy or other resource consumption. The obligation to make services available hereunder shall be subject to the limitations of any such voluntary, reasonable program. In addition, Landlord reserves the right to change the supplier or provider of any such utility or service from time to time. Tenant shall have no right to contract with or otherwise obtain any electrical or other such service for or with respect to the Premises or Tenant's operations therein from any supplier or provider of such service. Tenant shall cooperate with Landlord and any supplier or provider of such services designated by Landlord from time to time to facilitate the delivery of such services to Tenant at the Premises and to the Building and Project, including without limitation allowing Landlord and Landlord's suppliers or providers, and their respective agents and contractors, reasonable access to the Premises for the purpose of installing, maintaining, repairing, replacing or upgrading such service or any equipment or machinery associated therewith. The --- rent for a pro-rata portion of the premises obviously and directly affected by - ------------------------------------------------------------------------------ an occurrence or event that is the Landlord's responsibility for maintenance, - ---------------------------------------------------------------------------- for five days or greater with a written notice provided to Landlord, will be - ---------------------------------------------------------------------------- abated beginning the sixth day until remedied. - --------------------------------------------- 10 C. Tenant shall pay, upon demand, for all utilities furnished to the Premises, or if not separately billed to or metered to Tenant, Tenant's Proportionate Share of all charges jointly serving the Project in accordance with Paragraph 7. All sums payable under this Paragraph 15 shall constitute Additional Rent hereunder. 16. SUBORDINATION Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, this Lease shall be and is hereby declared to be subject and subordinate at all times to: (a) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Premises and/or the land upon which the Premises and Project are situated, or both; and (b) any mortgage or deed of trust which may now exist or be placed upon the Building, the Project and/or the land upon which the Premises or the Project are situated, or said ground leases or underlying leases, or Landlord's interest or estate in any of said items which is specified as security. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this lease. If any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination, attornment to and become the Tenant of the successor in interest to Landlord provided that Tenant shall not be disturbed in its possession under this Lease by such successor in interest so long as Tenant is not in default under this Lease. Within ten (10) business days after request by Landlord, -------- Tenant shall execute and deliver any additional documents evidencing Tenant's attornment or the subordination of this Lease with respect to any such ground leases or underlying leases or any such mortgage or deed of trust, in the form requested by Landlord or by any ground landlord, mortgagee, or beneficiary under a deed of trust, subject to such nondisturbance requirement. If requested in writing by Tenant, Landlord shall use commercially reasonable efforts to obtain a subordination, nondisturbance and attornment agreement for the benefit of Tenant reflecting the foregoing from any ground landlord, mortgagee or beneficiary, at Tenant's expense, subject to such other terms and conditions as the ground landlord, mortgagee or beneficiary may require. 17. FINANCIAL STATEMENTS Landlord will be provided with full and complete financial statements representing recent reports for the entity signing this lease. 18. ESTOPPEL CERTIFICATE Tenant agrees from time to time, within ten (10) business days after request of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel certificate stating that this Lease is in full force and effect, that this Least has not been modified (or stating all modifications, written or oral, to this Lease), the date to which Rent has been paid, the unexpired portion of this Lease, that them are no current defaults by Landlord or Tenant under this Lease (or specifying any such defaults), that the leasehold estate granted by this Lease is the sole interest of Tenant in the Premises and/or the land at which the Premises are situated, and such other matters pertaining to this Lease as may be reasonably requested by Landlord or any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or Project or any may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or Project or any interest therein. Landlord and Tenant intend that any statement delivered pursuant to this Paragraph may be relied upon by any mortagee, beneficiary, purchaser or prospective purchaser of the Building or Project or any interest therein. The parties agree that Tenant's obligation to furnish such estoppel certificates in a timely fashion is a material inducement for Landlord's execution of thus Lease, and shall be an event of default (without any curt period that might be provided under Paragraph 26.A(3) of this Lease) if Tenant fails to fully comply or makes any material misstatement in any such certificate. 19. SECURITY DEPOSIT Tenant agrees to deposit with Landlord upon execution of this Lease, a security deposit as stated in the Basic Lease Information (the "Security Deposit"), which sum shall be held and owned by Landlord, without obligation to pay interest, as security for the performance of Tenant's covenants and obligations under this Lease. The Security Deposit is not an advance rental deposit or a measure of damages incurred by Landlord in case of Tenant's default. Upon the occurrence of any event of default by Tenant, Landlord may from time to time, without prejudice to any other remedy provided herein or by law, use such fund as a credit to the extent necessary to credit against any arrears of Rent or other payments due to Landlord hereunder, and any other damage, injury, expense or liability caused by such event of fault, and Tenant shall pay to Landlord, on demand, the amount so applied in order to restore the Security Deposit to its original amount. Although the Security Deposit shall be deemed the property of Landlord, any remaining balance of such deposit shall be returned by Landlord to Tenant at such time after termination of this Lease that all of Tenant's obligations under this Lease have been fulfilled, reduced by such amounts as may be required by Landlord to remedy defaults on the part of Tenant in the payment of Rent or other obligations of Tenant under this Lease, to repair damage to the Premises, Building or Project caused by Tenant or any Tenant's Parties and to clean the Premises. Landlord may use and commingle the Security Deposit with other funds of Landlord. 20. LIMITATION OF TENANT'S REMEDIES The obligations and liability of Landlord to Tenant for any default by Landlord under the terms of this Lease are not personal obligations of Landlord or of the individual or other partners of Landlord or its or their partners, directors, officers, or shareholders, and Tenant agrees to look solely to Landlord's interest in the Project for the recovery of any amount from Landlord, and shall not look to other assets of Landlord nor seek recourse against the assets of the individual or other partners of Landlord or its or their partners, directors, officers or shareholders. Any lien obtained to enforce any such judgment and any levy of execution thereon shall be subject and subordinate to any lien, mortgage or deed of trust on the project. Under no circumstances shall Tenant have the right to offset against or recoup Rent or other payments due and to become due to Landlord, hereunder except as expressly provided in Paragraph 23.B below, which Rent and other payments shall be absolutely due and payable hereunder in accordance with the terms hereof. 21. ASSIGNMENT AND SUBLETTING A. (1) General. This Lease has been negotiated to be and is granted as - -- an accommodation to Tenant. Accordingly, this Lease is personal to Tenant, and Tenant's rights granted hereunder do not include the right to assign this Lease or sublease the Premises, or to receive any excess, either in installments or lump sum, over the Rent which is expressly reserved by Landlord as hereinafter provided, except as otherwise expressly hereinafter provided. Tenant shall not assign or pledge this Lease or sublet the Premises or any part thereof, whether voluntarily or by operation of law, or permit the use or occupancy of the Premises or any part thereof by anyone other than Tenant, or suffer or permit any such assignment, pledge, subleasing or occupancy, without Landlord's prior written consent except as provided herein. If Tenant desires to assign this Lease or sublet any or all of the Premises, Tenant shall give Landlord written notice (the "Transfer Notice") at least thirty (30) days prior to the anticipated ----------- effective date of the proposed assignment or sublease, which shall contain all of the information reasonably requested by Landlord to address Landlord's decision criteria specified hereinafter. Landlord shall then have a period of fifteen (15) days following receipt of the Transfer ------------ Notice to notify Tenant in writing that Landlord elects either: (i) to terminate this Lease as to the space so affected as of the date so requested by Tenant; or (ii) to consent to the proposed assignment or sublease, 11 subject, however, to Landlord's prior written consent of the proposed assignee or subtenant and of any related documents or agreements associated with the assignment or sublease. If Landlord should fail to notify Tenant in writing of such election within said period, Landlord shall be deemed to have waived option (i) above, but written consent by Landlord of the proposed assignee or subtenant shall still be required. Landlord's consent to a proposed assignment or sublease shall not be unreasonably withheld. Consent to any assignment or subletting shall not constitute consent to any --------------------------------------------------------------------------- subsequent transaction to which this paragraph 21 applies. A transfer of --------------------------------------------------------------------------- this lease to an affiliate that owns more than or is owned more than 51% by --------------------------------------------------------------------------- the Tenant will not require approval as described above, but will require --------------------------------------------------------------------------- written notice prior to a thirty (30) day period before the transfer. -------------------------------------------------------------------- (2) Conditions of Landlord's Consent. Without limiting the other instances in which it may be reasonable for Landlord to withhold Landlord's consent to an assignment or subletting, Landlord and Tenant acknowledge that it shall be reasonable for Landlord to withhold Landlord's consent in the following instances: if the proposed assignee does not agree to be bound by and assume the obligations of Tenant under this Lease in form and substance satisfactory to Landlord; the use of the Premises by such proposed assignee or subtenant would not be a Permitted Use or would violate any exclusivity or other arrangement which Landlord has with any other tenant or occupant or any Regulation or would increase the Occupancy Density or Parking Density of the Building or Project, or would otherwise result in an undesirable tenant mix for the Project as determined by Landlord; the proposed assignee or subtenant is not of sound financial condition as determined by Landlord in Landlord's sole discretion; the proposed assignee or subtenant is a governmental agency; the proposed assignee or subtenant does not have a good reputation as a tenant of property or a good business reputation; the proposed assignee or subtenant is a person with whom Landlord is negotiating to lease space in the Project or is a present tenant of the Project; the assignment or subletting would entail any Alterations which would lessen the value of the leasehold improvements in the Premises or use of any Hazardous Materials or other noxious use or use which may disturb other tenants of the Project. Failure by or refusal of Landlord to consent to a proposed assignee or subtenant shall not cause a termination of this Lease. Upon a termination under Paragraph 2l.A.(1)(i), Landlord may lease the Premises to any party, including parties with whom Tenant has negotiated an assignment or sublease, without incurring any liability to Tenant. At the option of Landlord, a surrender and termination of this Lease shall operate as an assignment to Landlord of some or all subleases or subtenancies. Landlord shall exercise this option by giving notice of that assignment to such subtenants on or before the effective date of the surrender and termination. In connection with each request for assignment or subletting, Tenant shall pay to Landlord Landlord's standard fee for approving such requests, as well as all costs reasonably incurred ---------- by Landlord or any mortgagee or ground lessor in approving each such request and effecting any such transfer, including, without limitation, reasonable attorneys' fees. Landlord costs will not exceed $500.00 if ----------------------------------------- complete and accurate information is provided within the one submission of -------------------------------------------------------------------------- all documents. ------------- B. Bonus Rent. Any Rent or other consideration realized by Tenant under any such sublease or assignment in excess of the Rent payable hereunder, after amortization of a reasonable brokerage commission incurred by Tenant, shall be divided and paid, fifty percent (50%) to Tenant, fifty percent (50%) ----- --- ----- --- to Landlord. In any subletting or assignment undertaken by Tenant, Tenant shall diligently seek to obtain the maximum rental amount available in the marketplace for comparable space available for primary leasing. C. Corporation. If Tenant is a corporation, a transfer of corporate shares by sale, assignment, bequest, inheritance, operation of law or other disposition (including such a transfer to or by a receiver or trustee in federal or state bankruptcy, insolvency or other proceedings) resulting in a change in the present control of such corporation or any of its parent corporations by the person or persons owning a majority of said corporate shares shall constitute an assignment for purposes of this Lease. D. Unincorporated Entity. If Tenant is a partnership, joint venture, unincorporated limited liability company or other unincorporated business form, a transfer of the interest of persons, firms or entities responsible for managerial control of Tenant by sale, assignment, bequest, inheritance, operation of law or other disposition, so as to result in a change in the present control of said entity and/or of the underlying beneficial interests of said entity and/or a change in the identity of the persons responsible for the general credit obligations of said entity shall constitute an assignment for all purposes of this Lease. E. Liability. No assignment or subletting by Tenant, permitted or otherwise, shall relieve Tenant of any obligation under this Lease or alter the primary liability of the Tenant named herein for the payment of Rent or for the performance of any other obligations to be performed by Tenant, including obligations contained in Paragraph 25 with respect to any assignee or subtenant. Landlord may collect rent or other amounts or any portion thereof from any assignee, subtenant, or other occupant of the Premises, permitted or otherwise, and apply the net rent collected to the Rent payable hereunder, but no such collection shall be deemed to be a waiver of this Paragraph 21, or the acceptance of the assignee, subtenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of the obligations of Tenant under this Lease. Any assignment or subletting which conflicts with the provisions hereof shall be void. 22. AUTHORITY Landlord represents and warrants that it has full right and authority to enter into this Lease and to perform all of Landlord's obligations hereunder and that all persons signing this Lease on its behalf are authorized to do. Tenant and the person or persons, if any, signing on behalf of Tenant, jointly and severally represent and warrant that Tenant has full right and authority to enter into this Lease, and to perform all of Tenant's obligations hereunder, and that all persons signing this Lease on its behalf are authorized to do so. 23. CONDEMNATION A. Condemnation Resulting in Termination. If the whole or any substantial part of the Premises should be taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, and the taking would prevent or materially interfere with the Permitted Use of the Premises, either party shall have the right to terminate this Lease at its option. If any material portion of the Building or Project is taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, Landlord may terminate this Lease at its option. In either of such events, the Rent shall be abated during the unexpired portion of this Lease, effective when the physical taking of said Premises shall have occurred. B. Condemnation Not Resulting in Termination. If a portion of the Project of which the Premises are a part should be taken or condemned for any public use under any Regulation, or by right of eminent domain, or by private purchase in lieu thereof, and the taking prevents or materially interferes with the Permitted Use of the Premises, and this Lease is not terminated as provided in Paragraph 23.A. above, the Rent payable hereunder during the unexpired portion of this Lease shall be reduced, beginning on the date when the physical taking shall occurred, to such amount as may be fair and reasonable under all of the circumstances, but only after giving Landlord credit for all sums received or to be received by Tenant by the condemning authority. Notwithstanding anything to the contrary contained in this Paragraph, if the temporary use or occupancy of any part of the Premises shall be taken or appropriated under power of eminent domain during the Term, this Lease shall be and remain unaffected by such taking or appropriation and Tenant shall continue to pay in full all Rent payable hereunder by Tenant during the Term; in the event of any such temporary appropriation or taking, Tenant shall be entitled to receive that portion of any award which represents compensation for the use of or occupancy of the Premises during the Term, and Landlord shall be entitled to receive that portion of any award which represents the cost of restoration of the Premises and the use and occupancy or the Premises. 12 C. Award. Landlord shall be entitled to (and Tenant shall assign to Landlord) any and all payment, income, rent, award or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance and Tenant shall have no claim against Landlord or otherwise for any sums paid by virtue of such proceedings, whether or not attributable to the value of any unexpired portion of this Lease, except as expressly provided in this Lease. Notwithstanding the foregoing, any compensation specifically and separately awarded Tenant for Tenant's personal property and moving costs, shall be and remain the property of Tenant. D. Waiver of CCP(S)1265.130 Each party waives the provisions of California Civil Code Procedure Section 1265.130 allowing either party to petition the superior court to terminate this Lease as a result of a partial taking. 24. CASUALTY DAMAGE A. General. If the Premises or Building should be damaged or destroyed by fire, tornado, or other casualty (collectively, "Casualty"), Tenant shall give immediate written notice thereof to Landlord. Within thirty (30) days after Landlord's receipt of such notice, Landlord shall notify Tenant whether in Landlord's estimation material restoration of the Premises can reasonably be made within ninety (90) days from the date of such notice and receipt of ----------- required permits for such restoration. Landlord's determination shall be binding on Tenant. B. Within 180 Days. If the Premises or Building should be damaged by Casualty to such extent that material restoration can in Landlord's estimation be reasonably completed within ninety (90) days after the date of such notice ----------- and receipt of required permits for such restoration, this Lease shall not terminate. Provided that insurance proceeds are received by Landlord to fully repair the damage, Landlord shall proceed to rebuild and repair the Premises in the manner determined by Landlord, except that Landlord shall not be required to rebuild, repair or replace any part of the Alterations which may have been placed on or about the Premises by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be abated proportionately, but only to the extent of rental abatement insurance proceeds received by Landlord during the time and to the extent the Premises are unfit for occupancy. C. Greater than 180 Days. If the Premises or Building should be damaged by Casualty to such extent that rebuilding or repairs cannot in Landlord's estimation be reasonably completed within ninety (90) days after the date of ----------- such notice and receipt of required permits for such rebuilding or repair, then Landlord shall have the option of either: (1) terminating this Lease effective upon the date of the occurrence of such damage, in which event the Rent shall be abated during the unexpired portion of this Lease; or (2) electing to rebuild or repair the Premises diligently and in the manner determined by Landlord. Landlord shall notify Tenant of its election within thirty (30) days after Landlord's receipt of notice of the damage or destruction. Notwithstanding the above, Landlord shall not be required to rebuild, repair or replace any part of any Alterations which may have been placed, on or about the Premises by Tenant. If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be abated proportionately, but only to the extent of rental abatement insurance proceeds received by Landlord during the time and to the extent the Premises are unfit for occupancy. D. Tenant's Fault. Notwithstanding anything herein to the contrary, if the Premises or any other portion of the Building are damaged by Casualty resulting from the fault, negligence, or breach of this Lease by Tenant or any of Tenant's Parties, Base Rent and Additional Rent shall not be diminished during the repair of such damage and Tenant shall be liable to Landlord for the cost and expense of the repair and restoration of the Building caused thereby to the extent such cost and expense is not covered by insurance proceeds. E. Insurance Proceeds. Notwithstanding anything herein to the contrary, if the Premises or Building are damaged or destroyed and are not fully covered by the insurance proceeds received by Landlord or if the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises requires that the insurance proceeds be applied to such indebtedness, then in either cast Landlord shall have the right to terminate this Lease by delivering written notice of termination to Tenant within thirty (30) days after the date of notice to Landlord that said damage or destruction is not fully covered by insurance or such requirement is made by any such holder, as the case may be, whereupon this Lease shall terminate. F. Waiver. This Paragraph 24 shall be Tenant's sole and exclusive remedy in the event of damage or destruction to the Premises or the Building. As a material inducement to Landlord entering into this Lease, Tenant hereby waives any rights it may have under Sections 1932, 1933(4), 1941 or 1942 of the Civil Code of California with respect to any destruction of the Premises, Landlord's obligation for tenantability of the Premises and Tenant's right to make repairs and deduct the expenses of such repairs, or under any similar law, statute or ordinance now or hereafter in effect. G. Tenant's Personal Property. In the event of any damage or destruction of the Premises or the Building, under no circumstances shall Landlord be required to repair any injury or damage to, or make any repairs to or replacements of, Tenant's personal property. 25. HOLDING OVER Unless Landlord expressly consents in writing to Tenant's holding over, Tenant shall be unlawfully and illegally in possession of the Premises, whether or not Landlord accepts any rent from Tenant or any other person while Tenant remains in possession of the Premises without Landlord's written consent. If Tenant shall retain possession of the Premises or any portion thereof without Landlord's consent following the expiration of this Lease or sooner termination for any reason, then Tenant shall pay to Landlord for each day of such retention 150% the amount of daily rental as of the last month prior to the date of - --- expiration or earlier termination. Tenant shall also indemnify, defend, protect and hold Landlord harmless from any loss, liability or cost, including consequential and incidental damages and reasonable attorneys fees, incurred by Landlord resulting from delay by Tenant in surrendering the Premises, including, without limitation, any claims made by the succeeding tenant founded on such delay. Acceptance of Rent by Landlord following expiration or earlier termination of this Lease, or following demand by Landlord for possession of the Premises, shall not constitute a renewal of this Lease, and nothing contained in this Paragraph 25 shall waive Landlord's right of reentry or any other right. Additionally, if upon expiration or earlier termination of this Lease, or following demand by Landlord for possession of the Premises, Tenant has not fulfilled its obligation with respect to repairs and cleanup of the Premises or any other Tenant obligations as set forth in this Lease, then Landlord shall have the right to perform any such obligations as it deems necessary at Tenant's sole cost and expense, and any time required by Landlord to complete such obligations shall be considered a period of holding over and the terms of this Paragraph 25 shall apply. The provisions of this Paragraph 25 shall survive any expiration or earlier termination of this Lease. 26. DEFAULT A. Events of Default. The occurrence of any of the following shall constitute an event of default on the part of Tenant: (i) Abandonment. Abandonment or vacation of the Premises for a continuous period in excess of five (5) days. Tenant waives any right to notice Tenant may have under Section 1951.3 of the Civil Code of the State of California, the terms of this Paragraph 26.A. being deemed such notice to Tenant as required by said Section 1951.3. (2) Nonpayment of Rent: Failure to pay any installment of Rent or any other amount due and payable hereunder within seven (7) business days ----------------------- of the date when said payment is due, as to which time is of the -- essence. 13 (3) Other Obligations. Failure to perform any obligation, agreement or covenant under this Lease other than those matters specified in subparagraphs (1) and (2) of this Paragraph 26.A., such failure continuing for fifteen (15) days after written notice of such failure, as to which time is of the essence. (4) General Assignment. A general assignment by Tenant for the benefit of creditors. (5) Bankruptcy. The filing of any voluntary petition in bankruptcy by Tenant, or the filing of an involuntary petition by Tenant's creditors, which involuntary petition remains undischarged for a period of thirty (30) days. If under applicable law, the trustee in bankruptcy or Tenant has the right to affirm this Lease and continue to perform the obligations of Tenant hereunder, such trustee or Tenant shall, in such time period as may be permitted by the bankruptcy court having jurisdiction, cure all defaults of Tenant hereunder outstanding as of the date of the affirmance of this Lease and provide to Landlord such adequate assurances as may be necessary to ensure Landlord of the continued performance of Tenant's obligations under this Lease. (6) Receivership. The employment of a receiver to take possession of substantially all of Tenant's assets or Tenant's leasehold of the Premises, if such appointment remains undismissed or undischarged for a period of thirty (30) days after the order therefor. ----------- (7) Attachment. The attachment, execution or other judicial seizure of all or substantially all of Tenant's assets or Tenant's leasehold of the Premises, if such attachment or other seizure remains undismissed or undischarged for a period of thirty (30) days after the levy thereof. ----------- (8) Insolvency. The admission by Tenant in writing of its inability to pay its debts as they become due. B. Remedies Upon Default. (1) Termination. In the event of the occurrence of any event of default, Landlord shall have the right to give a written termination notice to Tenant, and on the date specified in such notice, Tenant's right to possession shall terminate, and this Lease shall terminate unless on or before such date all Rent in arrears and all costs and expenses incurred by or on behalf of Landlord hereunder shall have been paid by Tenant and all other events of default of this Lease by Tenant at the time existing shall have been fully remedied to the satisfaction of Landlord. At any time after such termination, Landlord may recover possession of the Premises or any part thereof and expel and remove therefrom Tenant and any other person occupying the same, including any subtenant or subtenants notwithstanding Landlord's consent to any sublease, by any lawful means, and again repossess and enjoy the Premises without prejudice to any of the remedies that Landlord may have under this Lease, or at law or equity by any reason of Tenant's default or of such termination. Landlord hereby reserves the right, but shall not have the obligation, to recognize the continued possession of any subtenant. The delivery or surrender to Landlord by or on behalf of Tenant of keys, entry codes, or other means to bypass security at the Premises shall not terminate this Lease. (2) Continuation After Default. Even though an event of default may have occurred, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession under Paragraph 26.B.(l) hereof, and Landlord may enforce all of Landlord's rights and remedies under this Lease and at law or in equity, including without limitation, the right to recover Rent as it becomes due, and Landlord, without terminating this Lease, may exercise all of the rights and remedies of a landlord under Section 1951.4 of the Civil Code of the State of California or any successor code section. Acts of maintenance, preservation or efforts to lease the Premises or the appointment of a receiver under application of Landlord to protect Landlord's interest under this Lease or other entry by Landlord upon the Premises shall not constitute an election to terminate Tenant's right to possession. C. Damages After Default. Should Landlord terminate this Lease pursuant to the provisions of Paragraph 26.B.(1) hereof, Landlord shall have the rights and remedies of a Landlord provided by Section 1951.2 of the Civil Code of the State of California, or any successor code sections. Upon such termination, in addition to any other rights and remedies to which Landlord may be entitled under applicable law or at equity, Landlord shall be entitled to recover from Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts which had been earned at the time of termination, (2) the worth at the time of award of the amount by which the unpaid Rent and other amounts that would have been earned after the date of termination until the time of award exceeds the amount of such Rent loss that Tenant proves could have been reasonably avoided; (3) the worth at the time of award of the amount by which the unpaid Rent and other amounts for the balance of the Term after the time of award exceeds the amount of such Rent loss that the Tenant proves could be reasonably avoided; and (4) any other amount and court costs necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease or which, in the ordinary course of things, would be likely to result therefrom. The "worth at the time of award" as used in (1) and (2) above shall be computed at the Applicable Interest Rate (defined below). The "worth at the time of award" as used in (3) above shall be computed by discounting such amount at the Federal Discount Rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). If this Lease provides for any periods during the Term during which Tenant is not required to pay Base Rent or if Tenant otherwise receives a Rent concession, then upon the occurrence of an event of default, Tenant shall owe to Landlord the full amount of such Base Rent or value of such Rent concession, plus interest at the Applicable Interest Rate, calculated from the date that such Base Rent or Rent concession would have been payable. D. Late Charge. In addition to its other remedies, Landlord shall have the right without notice or demand to add to the amount of any payment required to be made by Tenant hereunder, and which is not paid and received by Landlord on or before the first day of each calendar month, an amount equal to five percent (5%) of the delinquency for each month or portion thereof that the delinquency remains outstanding to compensate Landlord for the loss of the use of the amount not paid and the administrative costs caused by the ????, the parties agreeing that Landlord's damage by virtue of such delinquencies would be extremely difficult and impracticable to compute and the amount stated herein represents a reasonable estimate thereof. Any waiver by Landlord of any late charges or failure to claim the same shall not constitute a waiver of other late charges or any other remedies available to Landlord. E. Interest. Interest shall accrue on all sums not paid when due hereunder at the lesser of twelve percent (12%) per annum or the maximum interest rate ------ ----- allowed by law ("Applicable Interest Rate") from the due date until paid. F. Remedies Cumulative. All rights, privileges and election or remedies of the parties are cumulative and not alternative, to the extent permitted by law and except as otherwise provided herein. 27. LIENS Tenant shall at all times keep the Premises and the Project free from liens arising out of or related to work or services performed, materials or supplies furnished or obligations incurred by or on behalf of Tenant or in connection with work made, suffered or done by or on behalf of Tenant in or on the Premises or Project. If Tenant shall not, within ten (10) days following the imposition of any such lien, cause the 14 same to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause the same to be released by such means as Landlord shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord on behalf of Tenant and all expenses incurred by Landlord in connection therefor shall be payable to Landlord by Tenant on demand with interest at the Applicable Interest Rate as Additional Rent. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper, for the protection of Landlord, the Premises, the Project and any other party having an interest therein, from mechanics' and materialmen's liens, and Tenant shall give Landlord not less than ten (10) business days prior written notice of the commencement of any work in the Premises or Project which could lawfully give rise to a claim for mechanics' or materialmen's liens to permit Landlord to post and record a timely notice of non-responsibility, as Landlord may elect to proceed or as the law may from time to time provide, for which purpose, if Landlord shall so determine, Landlord may enter the Premises. Tenant shall not remove any such notice posted by Landlord without Landlord's consent, and in any event not before completion of the work which could lawfully give rise to a claim for mechanics' or materialmen's liens. 29. TRANSFERS BY LANDLORD In the event of a sale or conveyance by Landlord of the Building or a foreclosure by any creditor of Landlord, the same shall operate to release Landlord from any liability upon any of the covenants or conditions, express or implied, herein contained in favor of Tenant, to the extent required to be performed after the passing of title to Landlord's successor-in-interest. In such event, Tenant agrees to look solely to the responsibility of the successor- in-interest of Landlord under this Lease with respect to the performance of the covenants and duties of "Landlord" to be performed after the passing of title to Landlord's successor-in-interest. This Lease shall not be affected by any such sale and Tenant agrees to attorn to the purchaser or assignee. Landlord's successor(s)-in-interest shall not have liability to Tenant with respect to the failure to perform any of the obligations of "Landlord," to the extent required to be performed prior to the date such successor(s)-in-interest became the owner of the Building. 30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of Rent. If Tenant shall fail to pay any sum of money, other than Base Rent, required to be paid by Tenant hereunder or shall fail to perform any other act on Tenant's part to be performed hereunder, including Tenant's obligations under Paragraph 11 hereof, and such failure shall continue for fifteen (15) days after notice thereof by Landlord, in addition to the other rights and remedies of Landlord, Landlord may make any such payment and perform any such act on Tenant's part. In the case of an emergency, no prior notification by Landlord shall be required. Landlord may take such actions without any obligation and without releasing Tenant from any of Tenant's obligations. All sums so paid by Landlord and all incidental costs incurred by Landlord and interest thereon at the Applicable Interest Rate, from the date of payment by Landlord, shall bc paid to Landlord on demand as Additional Rent. 31. WAIVER If either Landlord or Tenant waives the performance of any term, covenant or condition contained in this Lease, such waiver shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition contained herein, or constitute a course of dealing contrary to the expressed terms of this Lease. The acceptance of Rent by Landlord shall not constitute a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, regardless of Landlord's knowledge of such preceding breach by the time Landlord accepted such Rent. Failure by Landlord to enforce any of the terms, covenants or conditions of this Lease for any length of time shall not be deemed to waive or decrease the right of Landlord to insist thereafter upon strict performance by Tenant. Waiver by Landlord of any term, covenant or condition contained in this Lease may only be made by a written document signed by Landlord, based upon full knowledge of the circumstances. 32. NOTICES Each provision of this Lease or of any applicable governmental laws, ordinances, regulations and other requirements with reference to sending, mailing, or delivery of any notice or the making of any payment by Landlord or Tenant to the other shall be deemed to be complied with when and if the following steps are taken: A. Rent. All Rent and other payments required to be made by Tenant to Landlord hereunder shall be payable to Landlord at Landlord's Remittance Address set forth in the Basic Lease Information, or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. Tenant's obligation to pay Rent and any other amounts to Landlord under the terms of this Lease shall not be deemed satisfied until such Rent and other amounts have been actually received by Landlord. B. Other. All notices, demands, consents and approvals which may or are required to be given by either party to the other hereunder shall be in writing and either personally delivered, sent by commercial overnight courier, mailed, certified or registered, postage prepaid or sent by facsimile with confirmed receipt (and with an original sent by commercial overnight courier), and in each case addressed to the party to be notified at the Notice Address for such party as specified in the Basic Lease Information or to such other place as the party to be notified may from time to time designate by at least fifteen (15) days notice to the notifying party. Notices shall be deemed served upon receipt or refusal 13 accept delivery. Tenant appoints as its agent to receive the service of all default notices and notice of commencement of unlawful detainer proceedings the person in charge of or apparently in charge of occupying the Premises at the time, and, if there is no such person, then such service may be made by attaching the same on the main entrance of the Premises. C. Required Notices. Tenant shill immediately notify Landlord in writing of any notice of a violation or a potential or alleged violation of any Regulation that relates to the Premises or the Project, or of any inquiry, investigation, enforcement or other action that is instituted or threatened by any governmental or regulatory agency against Tenant or any other occupant of the Premises, or any claim that is instituted or threatened by any third party that relates to the Premises or the Project. 15 33. ATTORNEYS' FEES If Landlord places the enforcement of this Lease, or any part thereof, or the collection of any Rent due, or to become due hereunder, or recovery of possession of the Premises in the hands of an attorney, Tenant shall pay to Landlord, upon demand, Landlord's reasonable attorneys' fees and court costs, whether incurred without trial, at trial, appeal or review. In any action which Landlord or Tenant brings to enforce its respective rights hereunder, the unsuccessful party shall pay all costs incurred by the prevailing party including reasonable attorneys' fees, to be fixed by the court, and said costs and attorneys' fees shall be a part of the judgment in said action. (This is a ---------- mutual right) - ------------- 34. SUCCESSORS AND ASSIGNS This Lease shall be binding upon and inure to the benefit of Landlord, its successors and assigns, and shall be binding upon and inure to the benefit of Tenant, its successors, and to the extent assignment is approved by Landlord as provided hereunder, Tenant's assigns. 35. FORCE MAJEURE If performance by a party of any portion of this Lease is made impossible by any prevention, delay, or stoppage caused by strikes, lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes for those items, government actions, civil commotions, fire or other casualty, or other causes beyond the reasonable control of the party obligated to perform, performance by that party for a period equal to the period of that prevention, delay, or stoppage is excused. Tenant's obligation to pay Rent, however, is not excused by this Paragraph 35. 36. SURRENDER OF PREMISES Tenant shall, upon expiration or sooner termination of this Lease, surrender the Premises to Landlord in the same condition as existed on the date Tenant originally took possession thereof, including, but not limited to, all interior walls cleaned, all holes in walls repaired, all carpets shampooed and cleaned, and all floors cleaned, waxed, and free of any Tenant-introduced marking or painting, all to the reasonable satisfaction of Landlord. Tenant shall remove all of its debris from the Project. At or before the time of surrender, Tenant shall comply with the terms of Paragraph 12.A. hereof with respect to Alterations to the Premises and all other matters addressed in such Paragraph. If the Premises are not so surrendered at the expiration or sooner termination of this Lease, the provisions of Paragraph 25 hereof shall apply. All keys to the Premises or any part thereof shall bc surrendered to Landlord upon expiration or sooner termination of the Term. Tenant shall give written notice to Landlord at least thirty (30) days prior to vacating the Premises and shall meet with Landlord for a joint inspection of the premises at the time of vacating, but nothing contained herein shall be construed as an extension of the Term or as a consent by Landlord to any holding over by Tenant. In the event of Tenant's failure to give such notice or participate in such joint inspection, Landlord's inspection at or after Tenant's vacating the Premises shall conclusively be deemed correct for purposes of determining Tenant's responsibility for repairs and restoration. Any delay caused by Tenant's failure to carry out its obligations under this Paragraph 36 beyond the term hereof, shall constitute unlawful and illegal possession of Premises under Paragraph 25 hereof. 37. PARKING So long as Tenant is occupying the Premises, Tenant and Tenant's Parties shall have the right to use up to the number of parking spaces, if any, specified in the Basic Lease Information on an unreserved, nonexclusive, first come, first served basis, for passenger-size automobiles, in the parking areas in the Project designated from time to time by Landlord for use in common by tenants of the Building. Tenant may request additional parking spaces from time to time and if Landlord in its sole discretion agrees to make such additional spaces available for use by Tenant, such spaces shall be provided on a month-to-month unreserved and nonexclusive basis (unless otherwise agreed in writing by Landlord), and subject to such parking charges as Landlord shall determine, and shall otherwise be subject to such terms and conditions as Landlord may require. Tenant shall at all times comply and shall cause all Tenant's Parties and visitors to comply with all Regulations and any rules and regulations established from time to time by Landlord relating to parking at the Project, including any keycard, sticker or other identification or entrance system, and hours of operation, as applicable. Landlord shall have no liability for any damage to property or other items located in the parking areas of the Project, nor for any personal injuries or death arising out of the use of parking areas in the Project by Tenant or any Tenant's Parties. Without limiting the foregoing, if Landlord arranges for the parking areas to be operated by an independent contractor not affiliated with Landlord, Tenant acknowledges that Landlord shall have no liability for claims arising through acts or omissions of such independent contractor. In all events, Tenant agrees to look first to its insurance carrier and to require that Tenant's Parties look first to their respective insurance carriers for payment of any losses sustained in connection with any use of the parking areas. Landlord reserves the right to assign specific spaces, and to reserve spaces for visitors, small cars, disabled persons or for other tenants or guests, and Tenant shall not park and shall not allow Tenant's Parties to park in any such assigned or reserved spaces. Tenant may validate visitor parking by such method as Landlord may approve, at the validation rate from time to time generally applicable to visitor parking. Landlord also reserves the right to alter, modify, relocate or close all or any portion of the parking areas in order to make repairs or perform maintenance service, or to restripe or renovate the parking areas, or if required by casualty, condemnation, act of God, Regulations or for any other reason deemed reasonable by Landlord. Tenant shall pay to Landlord (or Landlord's parking contractor, if so directed in writing by Landlord), as Additional Rent hereunder, the monthly charges established from time to time by Landlord for parking in such parking areas (which shall initially bc the charge specified in the Basic Lease Information, as applicable). Such parking charges shall be payable in advance with Tenant's payment of Basic Rent. No deductions from the monthly parking charge shall be made for days on which the Tenant does not use any of the parking spaces entitled to be used by Tenant. 38. MISCELLANEOUS A. General. The term "Tenant" or any pronoun used in place thereof shall indicate and include the masculine or feminine, the singular or plural number, individuals, firms or corporations, and their respective successors, executors, administrators and permitted assigns, according to the context hereof. B. Time. Time is of the essence regarding this Lease and all of its provisions. C. Choice of Law. This Lease shall in all respects be governed by the laws of the State of California. D. Entire Agreement. This Lease, together with its Exhibits, addenda and attachments and the Basic Lease information, contains all the agreements of the parties hereto and supercedes any previous negotiations. There have been no representations made by the 16 Landlord or understandings made between the parties other than those set forth in this Lease and its Exhibits, addenda and attachments and the Basic Lease Information. E. Modification. This Lease may not be modified expect by a written instrument signed by the parties hereto. Tenant accepts the area of the Premises as specified in the Basic Lease Information as the approximate area of the Premises for all purposes under this Lease, and acknowledges and agrees that no other definition of the area (rentable, usable or otherwise) of the Premises shall apply. Tenant shall in no event be entitled to a recalculation of the square footage of the Premises, rentable, usable or otherwise, and no recalculation, if made, irrespective of its purpose, shall reduce Tenant's obligations under this Lease in any manner, including without limitation the amount of Base Rent payable by Tenant or Tenant's Proportionate Share of the Building and of the Project. F. Severability. If, for any reason whatsoever, any of the provisions hereof shall be unenforceable or ineffective, all of the other provisions shall be and remain in full force and effect. G. Recordation. Tenant shall not record this Lease or a short form memorandum hereof. H. Examination of Lease. Submission of this Lease to Tenant does not constitute an option or offer to lease and this Lease is not effective otherwise until execution and delivery by both Landlord and Tenant. I. Accord and Satisfaction. No payment by Tenant of a lesser amount than the total Rent due nor any endorsement on any cheek or letter accompanying any cheek or payment of Rent shall be deemed an accord and satisfaction of full payment of Rent, and Landlord may accept such payment without prejudice to Landlord's right to recover the balance of such Rent or to pursue other remedics. All offers by or on behalf of Tenant of accord and satisfaction are hereby rejected in advance. J. Easements. Landlord may grant easements on the Project and dedicate for public use portions of the Project without Tenant's consent; provided that no such grant or dedication shall materially interfere with Tenant's Permitted Use of the Premises. Upon Landlord's request, Tenant shall execute, acknowledge and deliver to Landlord documents, instruments, maps and plats necessary to effectuate Tenant's covenants hereunder. K. Drafting and Determination Presumption. The parties acknowledge that this Lease has been agreed to by both the parties, that both Landlord and Tenant have consulted with attorneys with respect to the terms of this Lease and that no presumption shall be created against Landlord because Landlord drafted this Lease. Except as otherwise specifically set forth in this Lease, with respect to any consent, determination or estimation of Landlord required or allowed in this Lease or requested of Landlord, Landlord's consent, determination or estimation shall be given or made solely by Landlord in Landlord's good faith opinion, whether or not objectively reasonable. If Landlord fails to respond to any request for its consent within the time period, if any, specified in this Lease, Landlord shall be deemed to have disapproved such request. L. Exhibits. The Basic Lease Information, and the Exhibits, addenda and attachments attached hereto are hereby incorporated herein by this reference and made a part of this Lease as though fully set forth herein. M. No Light, Air or View Easement. Any diminution or shutting off of light, air or view by any structure which may be crected on lands adjacent to or in the vicinity of the Building shall in no way affect this Lease or impose any liability on Landlord. N. No Third Party Benefit. This Lease is a contract between Landlord and Tenant and nothing herein is intended to create any third party benefit. O. Quiet Enjoyment. Upon payment by Tenant of the Rent, and upon the observance and performance of all of the other covenants, terms and conditions on Tenant's part to be observed and performed, Tenant shall peaceably and quietly hold and enjoy the Premises for the term hereby demised without hindrance or interruption by Landlord or any other person or persons lawfully or equitably claiming by, through or under Landlord, subject, nevertheless, to all of the other terms and conditions of this Lease. Subject to Landlord's obligation to make reasonable efforts to enforce all applicable rules and regulations, Landlord shall not be liable for any hindrance, interruption, interference or disturbance by other tenants or third persons, nor shall Tenant be released from any obligations under this Lease because of such hindrance, interruption, interference or disturbance. P. Counterparts. This Lease may be executed in any number of counterparts, each of which shall be deemed an original. Q. Multiple Parties. If more than one person or entity is named herein as Tenant, such multiple parties shall have joint and several responsibility to comply with the terms of this Lease. R. Prorations. Any Rent or other amounts payable to Landlord by Tenant hereunder for any fractional month shall be prorated based on a month of 30 days. As used herein, the term "fiscal year" shall mean the calendar year or such other fiscal year as Landlord may deem appropriate. 39. ADDITIONAL PROVISIONS A) Tenant, at its sole cost and expense and in compliance with all regulations and safeguards and assuming all liability for such use, shall be allowed to use one (at a time) compressed nitrogen cylinder in the facility for research and development purposes. In Addition, tenant shall be allowed to remove the vinyl tile in the two large rooms (see Exhibit D) at its sole cost and expense and will immediately install a custom ESD tile floor in white vinyl, at its sole cost and expense. With Landlord's prior written approval of colors, Tenant will be allowed to paint the walls at its sole cost and expense. B) No other provisions. 40. JURY TRIAL WAIVER EACH PARTY HERETO (WHICH INCLUDES ANY ASSIGNEE, SUCCESSOR HEIR OR PERSONAL REPRESENTATIVE OF A PARTY) SHALL NOT SEEK A JURY TRIAL, HEREBY WAIVES TRIAL BY JURY, AND HEREBY FURTHER WAlVES ANY OBJECTION TO VENUE IN THE COUNTY IN WHICH THE BUILDING IS LOCATED, AND AGREES AND CONSENTS TO PERSONAL JURISDICTION OF THE COURTS OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IN ANY ACTION OR 17 PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY STATUTE, EMERGENCY OR OTHERWISE, WHETHER ANY OF THE FOREGOING IS BASED ON THIS LEASE OR ON TORT LAW. EACH PARTY REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL CONCERNING THE EFFECT OF THIS PARAGRAPH 40. THE PROVISIONS OF THIS PARAGRAPH 40 SHALL SURVIVE THE EXPIRATION OR EARLIER TERMINATION OF THIS LEASE. IS WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and the year first above written. LANDLORD Spieker Properties, L.P., a California limited partnership By: Spieker Properties, Inc., a Maryland corporation, its general partner By: /s/ Jeffrey K. Nickell ----------------------------------------- Jeffrey K. Nickell Its: Vice President Date: 3/22/99 TENANT Multilink Technology Corporation a California Corporation By: /s/ Richard Nottenberg --------------------------------------------- Richard Nottenberg Its: President Date: EXHIBIT A Rules and Regulations 1. Driveways, sidewalks, halls, passages, exits, entrances, elevators, escalators and stairways shall not be obstructed by tenants or used by tenants for any purpose other than for ingress to and egress from their respective premises. The driveways, sidewalks, halls, passages, exits, entrances, elevators and stairways are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence, in the judgment of Landlord, shall be prejudicial to the safety, character, reputation and interests of the Building, the Project and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of such tenant's business unless such persons are engaged in illegal activities. No tenant, and no employees or invitees of any tenant, shall go upon the roof of any Building, except as authorized by Landlord. No tenant, and no employees or invitees of any tenant shall move any common area furniture without Landlord's consent. 2. No sign, placard, banner, picture, name, advertisement or notice, visible from the exterior of the Premises or the Building or the common areas of the Building shall be inscribed, painted, affixed, installed or otherwise displayed by Tenant either on its Premises or any part of the Building or Project without the prior written consent of Landlord in Landlord's sole and absolute discretion. Landlord shall have the right to remove any such sign, placard, banner, picture, name, advertisement, or notice without notice to and at the expense of Tenant, which were installed or displayed in violation of this rule. If Landlord shall have given such consent to Tenant at any time, whether before or after the execution of Tenant's Lease, such consent shall in no way operate as a waiver or release of any of the provisions hereof or of the Lease, and shall be deemed to relate only to the particular sign, placard, banner, picture, name, advertisement or notice so consented to by Landlord and shall not be construed as dispensing with the necessity of obtaining the specific written consent of Landlord with respect to any other such sign, placard, banner, picture, name, advertisement or notice. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person or vendor approved by Landlord and shall be removed by Tenant at the time of vacancy at Tenant's expense. 3. The directory of the Building or Project will be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to charge for the use thereof and to exclude any other names therefrom. 4. No curtains, draperies, blinds, shutters, shades, screens or other coverings, awnings, hangings or decorations shall be attached to, hung or placed in, or used in connection with, any window or door on the Premises without the prior written consent of Landlord. In any event with the prior written consent of Landlord, all such items shall be installed inboard of Landlord's standard window covering and shall in no way be visible from the exterior of the Building. All electrical ceiling fixtures hung in offices or spaces along the perimeter of the Building must be fluorescent or of a quality, type, design, and bulb color approved by Landlord. No articles shall be placed or kept on the window sills so as to be visible from the exterior of the Building. No articles shall be placed against glass partitions or doors which Landlord considers unsightly from outside Tenant's Premises. 5. Landlord reserves the right to exclude from the Building and the Project, between the hours of 6 p.m. and 8 am. and at all hours on Saturdays, Sundays and legal holidays, all persons who are not tenants or their accompanied guests in the Building. Each tenant shall be responsible for all persons for whom it allows to enter the Building or the Project and shall be liable to Landlord for all acts of such persons. Landlord and its agents shall not be liable for damages for any error concerning the admission to, or exclusion from, the Building or the Project of any person. During the continuance of any invasion, mob, riot, public excitement or other circumstance rendering such action advisable in Landlord's opinion, Landlord reserves the right (but shall not be obligated) to prevent access to the Building and the Project during the continuance of that event by any means it considers appropriate for the safety of tenants and protection of the Building, property in the Building and the Project. 6. All cleaning and janitorial services for the Building and the Premises shall be provided exclusively through Landlord. Except with the written consent of Landlord, no person or persons other than those approved by Landlord shall be permitted to enter the Building for the purpose of cleaning the same. Tenant shall not cause any unnecessary labor by reason of Tenant's carelessness or indifference in the preservation of good order and cleanliness of its Premises. Landlord shall in no way be responsible to Tenant for any loss of property on the Premises, however occurring, or for any damage done to Tenant's property by the janitor or any other employee or any other person. 7. Tenant shall see that all doors of its Premises are closed and securely locked and must observe strict care and caution that all water faucets or water apparatus, coffee pots or other heat-generating devices are entirely shut off before Tenant or its employees leave the Premises, and that all utilities shall likewise be carefully shut off, so as to prevent waste or damage. Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the Building or Project or by Landlord for noncompliance with this rule. On multiple-tenancy floors, all tenants shall keep the door or doors to the Building corridors closed at all times except for ingress and egress. 8. Tenant shall not use any method of heating or air-conditioning other than that supplied by Landlord. As more specifically provided in Tenant's lease of the Premises, Tenant shall not waste electricity, water or air- conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the Building's heating and air-conditioning, and shall refrain from attempting to adjust any controls other than room thermostats installed for Tenant's use. 9. Landlord will furnish Tenant free of charge with two keys to each door in the Premises. Landlord may make a reasonable charge for any additional keys and Tenant shall not make or have made additional keys. Tenant shall not alter any lock or access device or install a new or additional lock or access device or bolt on any door of its Premises, without the prior written consent of Landlord. If Landlord shall give its consent, Tenant shall in each cast furnish Landlord with a key for any such lock. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys for all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor. 1O. The restrooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown into them. The expense of any breakage, stoppage, or damage resulting from violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused the breakage, stoppage, or damage. Exhibit A - Page 1 11. Tenant shall not use or keep in or on the Premises, the Building or the Project any kerosene, gasoline, or inflammable or combustible fluid or material. 12. Tenant shall not use, keep or permit to be used or kept in its Premises any foul or noxious gas or substance. Tenant shall not allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors and/or vibrations or interfere in any way with other tenants or those having business therein, nor shall any animals or birds be brought or kept in or about the Premises, the Building, or the Project. 13. No cooking shall be done or permitted by any tenant on the Premises, except that use by the tenant of Underwriters' Laboratory (UL) approved equipment, refrigerators and microwave ovens may be used in the Premises for the preparation of coffee, tea, hot chocolate and similar beverages, storing and heating food for tenants and their employees shall be permitted. All uses must be in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulation and the Lease. 14. Except with the prior written consent of Landlord, Tenant shall not sell, or permit the sale, at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise in or on the Premises, nor shall "Tenant carry on, or permit or allow any employee or other person to carry on, the business of stenography, typewriting or any similar business in or from the Premises for the service or accommodation of occupants of any other portion of the Building, nor shall the Premises be used for the storage of merchandise or for manufacturing of any kind, or the business of a public barber shop, beauty parlor, nor shall the Premises be used for any illegal, improper, immoral or objectionable purpose, or any business or activity other than that specifically provided for in such Tenant's Lease. Tenant shall not accept hairstyling, barbering, shoeshine, nail, massage or similar services in the Premises or common areas except as authorized by Landlord. 15. If Tenant requires telegraphic, telephonic, telecommunications, data processing, burglar alarm or similar services, it shall first obtain, and comply with, Landlord's instructions in their installation. The cost of purchasing, installation and maintenance of such services shall be borne solely by Tenant. 16. Landlord will direct electricians as to where and how telephone, telegraph and electrical wires are to be introduced or installed. No boring or cutting for wires will be allowed without the prior written consent of Landlord. The location of burglar alarms, telephones, call boxes and other office equipment affixed to the Premises shall be subject to the prior written approval of Landlord. 17. Tenant shall not install any radio or television antenna, satellite dish, loudspeaker or any other device on the exterior walls or the roof of the Building, without Landlord's consent. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building, the Project or elsewhere. 18. Tenant shall not mark, or drive nails, screws or drill into the partitions, woodwork or drywall or in any way deface the Premises or any part thereof without Landlord's consent. Tenant may install nails and screws in areas of the Premises that have been identified for those purposes to Landlord by Tenant at the time those walls or partitions were installed in the Premises. Tenant shall not lay linoleum, tile, carpet or any other floor covering so that the same shall be affixed to the floor of its Premises in any manner except as approved in writing by Landlord. The expense of repairing any damage resulting from a violation of this rule or the removal of any floor covering shall be borne by the tenant by whom, or by whose contractors, employees or invitees, the damage shall have been caused. 19. No furniture, freight, equipment, materials, supplies, packages, merchandise or other property will be received in the Building or carried up or down the elevators except between such hours and in such elevators as shall be designated by Landlord. Tenant shall not place a load upon any floor of its Premises which exceeds the load per square foot which such floor was designed to carry or which is allowed by law. Landlord shall have the right to prescribe the weight, size and position of all safes, furniture or other heavy equipment brought into the Building. Safes or other heavy objects shall, if considered necessary by Landlord, stand on wood strips of such thickness as determined by Landlord to be necessary to properly distribute the weight thereof. Landlord will not be responsible for loss of or damage to any such safe, equipment or property from any cause, and all damage done to the Building by moving or maintaining any such safe, equipment or other property shall be repaired at the expense of Tenant. Business machines and mechanical equipment belonging to Tenant which cause noise or vibration that may be transmitted to the structure of the Building or to any space therein to such a degree as to be objectionable to Landlord or to any tenants in the Building shall be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the Building must be acceptable to Landlord. 20. Tenant shall not install, maintain or operate upon its Premises any vending machine without the written consent of Landlord. 21. There shall not be used in any space, or in the public areas of the Project either by Tenant or others, any hand trucks except those equipped with rubber tires and side guards or such other material handling equipment as Landlord may approve. Tenants using hand trucks shall be required to use the freight elevator, or such elevator as Landlord shall designate. No other vehicles of any kind shall be brought by Tenant into or kept in or about its Premises. 22. Each tenant shall store all its trash and garbage within the interior of the Premises. Tenant shall not place in the trash boxes or receptacles any personal trash or any material that may not or cannot be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the city, without violation of any law or ordinance governing such disposal. All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes and at such times as Landlord shall designate. If the Building has implemented a building-wide recycling program for tenants, Tenant shall use good faith efforts to participate in said program. 23. Canvassing, soliciting, distribution of handbills or any other written material and peddling in the Building and the Project are prohibited and each tenant shall cooperate to prevent the same. No tenant shall make room-to-room solicitation of business from other tenants in the Building or the Project, without the written consent of Landlord. 24. Landlord shall have the right, exercisable without notice and without liability to any tenant, to change the name and address of the Building and the Project. 25. Landlord reserves the right to exclude or expel from the Project any person who, in Landlord's judgment, is under the influence of alcohol or drugs or who commits any act in violation of any of these Rules and Regulations. Exhibit A - Page 2 26. Without the prior written consent of Landlord, Tenant shall not use the name of the Building or the Project or any photograph or other likeness of the Building or the Project in connection with, or in promoting or advertising, Tenant's business except that Tenant may include the Building's or Project's name in Tenant's address. 27. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 28. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 29. The requirements of Tenant will be attended to only upon appropriate application at the office of the Building by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employees of Landlord will admit any person (tenant or otherwise) to any office without specific instructions from Landlord. 30. Landlord reserves the right to designate the use of the parking spaces on the Project. Tenant or Tenant's guests shall park between designated parking lines only, and shall not occupy two parking spaces with one car. Parking spaces shall be for passenger vehicles only; no boats, trucks, trailers, recreational vehicles or other types of vehicles may be parked in the parking areas (except that trucks may be loaded and unloaded in designated loading areas). Vehicles in violation of the above shall be subject to tow-away, at vehicle owner's expense. Vehicles parked on the Project overnight without prior written consent of the Landlord shall be deemed abandoned and shall be subject to tow-away at vehicle owner's expense. No tenant of the Building shall park in visitor or reserved parking areas. Any tenant found parking in such designated visitor or reserved parking areas or unauthorized areas shall be subject to tow-away at vehicle owner's expense. The parking areas shall not be used to provide car wash, oil changes, detailing, automotive repair or other services unless otherwise approved or furnished by Landlord. Tenant will from time to time, upon the request of Landlord, supply Landlord with a list of license plate numbers of vehicles owned or operated by its employees or agents. 31. No smoking of any kind shall be permitted anywhere within the Building, including, without limitation, the Premises and those areas immediately adjacent to the entrances and exits to the Building, or any other area as Landlord elects. Smoking in the Project is only permitted in smoking areas identified by Landlord, which may be relocated from time to time. 32. If the Building furnishes common area conferences rooms for tenant usage, Landlord shall have the right to control each tenant's usage of the conference rooms, including limiting tenant usage so that the rooms are equally available to all tenants in the Building. Any common area amenities or facilities shall be provided from time to time at Landlord's discretion. 33. Tenant shall not swap or exchange building keys or cardkeys with other employees or tenants in the Building or the Project. 34. Tenant shall be responsible for the observance of all of the foregoing Rules and Regulations by Tenant's employees, agents, clients, customers, invitees and guests. 35. These Rules and Regulations are in addition to, and shall not be construed to in any way modify, alter or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of any premises in the Project. 3G. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all tenants of the Building. Landlord will be non-discriminatory as to the enforcement of the rules and -------------------------------------------------------------------------- regulations for Tenant's of comparable size (square footage) within the ----------------------------------------------------------------------- project. ------- 37. Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for safety and security, for care and cleanliness of the Building and the Project and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations herein stated and any additional rules and regulations which are adopted. Exhibit A - Page 3 EXHIBIT B [SITE PLAN - SANTA MONICA BUSINESS PARK] EXHIBIT C TENANT IMPROVEMENTS ------------------- 1. In consideration of the mutual covenants contained in the Lease of which this Exhibit C is a part, Landlord agrees to perform the following initial tenant improvement work in the Premises ("Tenant Improvements NONE 2. All the Tenant Improvements described above shall be performed by Landlord at its cost and expense using Building Standard materials and in the Building Standard manner. As used herein, "Building Standard" shall mean the standards for a particular item selected from time to time by Landlord for the Building or such other standards as may be mutually agreed upon between Landlord and Tenant in writing. 3. Without limiting the "as-is" provisions of the Lease, Tenant accepts the Premises in its "as-is" condition and acknowledges that Landlord has no obligation to make any changes or improvements to the Premises or to pay any costs expended or to be expended in connection with any such changes or improvements, other than the Tenant Improvements specified in Paragraph 1 of this Exhibit C. Landlord represents that building systems are in good working ------------------------------------------------------------- order and primary latent defect will be the responsibility of the Landlord. - -------------------------------------------------------------------------- 4. Tenant shall not perform any work in the Premises (including, without limitation, cabling, wiring, fixturization, painting, carpeting, replacements or repairs) except in accordance with Paragraphs 12 and 27 of the Lease. 2850 OCEAN PARK GARDEN LEVEL 4681 SQ. FT. [EXHIBIT D] [PLAN APPEARS HERE] LEASE AMENDMENT NUMBER ONE to Lease dated March 10, 1999, between SPIEKER PROPERTIES, L.P., a California limited partnership, as Landlord, and Multilink Technology Corporation, a California corporation, as Tenant, for the Premises commonly known as 2850 Ocean Park Blvd., Santa Monica, California 90405. Effective April 23, 1999, the above-described Lease shall be modified as follows for Tenant's expansion into Suite 330 and Suite 335: TERM: The term for Suites 330 and 335 shall commence May 15, 1999, or when the - ---- improvements are substantially completed, whichever is earlier, and shall be coterminous with the initial Garden Level space, which is September 30, 200O. RENTABLE AREA. The rentable area shall include that portion of the 3/rd/ floor - ------------- designated as Suite 330 (approximately 2,361 rentable square feet) and Suite 335 (approximately 2,635 rentable square feet) as shown cross hatched on the attached Exhibit B. Tenant's total rentable square area shall be increased to 9,677 rentable square feet. BASIC MONTHLY RENTAL - -------------------- The base rental amount for Suite 330 is as follows: Commencement Date - September 30, 2000 $4,840.05 per month (%2.05/rsf) The base rental amount for Suite 335 is as follows Commencement Date- September 30,200O $5,401.75 per month (%2.05/rsf) IMPROVEMENTS, - ------------- Tenant agrees to lease Suite 330 in its "as is" condition, except for the following: Landlord agrees at Landlord's sole cost and expense to remove panic hardware on the three (3) exterior corridor doors and install building standard hardware; remove two (2) sets of interior doors and frame the doorways; remove the display walls, patch and paint walls; remove the vertical blinds and replace with building standard mini blinds on exterior windows; remove two (2) white boards; remove verticals blinds along west wall. Tenant agrees to lease Suite 335 in its "as is" condition, except for the following: Landlord agrees at Landlord's sole cost and expense to install additional electrical wall outlet every six (6) feet in the open area of the suite; touch up paint as required; install suite door frame. OPTION TO RENEW, Tenant shall, provided this Lease is in full force and effect - ---------------- and Tenant is not and has not been in default under any of the terms and conditions of this Lease, have one (1) option to renew this Lease for a term of six (6) months for the Premises (Suite 330, Suite 335, and Garden Level Suite) in "as is" condition and on the same terms and conditions set forth in this Lease, except as modified by the terms, covenants and conditions set forth below: (1) If Tenant elects to exercise such option, then Tenant shall provide Landlord with written notice no later than 5:00 p.m. (Pacific Standard Time) on the date which is six (6) months prior to the expiration of the then current term of this Lease. If Tenant fails to provide such notice, Tenant shall have no further or additional right to extend or renew the term of this Lease. (2) The Base Rent in effect at the expiration of the then current term of this Lease shall be increased to $2.22 per square foot, per month. (3) Tenant's right to exercise any option to renew under this Paragraph shall be conditioned upon Tenant occupying the entire Premises and the same not being occupied by any assignee, subtenant or licensee other than Tenant or its affiliate at the time of exercise of any option and commencement of the renewal term. Tenant's exercise of any option to renew shall constitute a representation by Tenant to Landlord that as of the date of exercise of the option and the commencement of the applicable renewal term, Tenant does not intend to seek to assign this Lease in whole or in part, or sublet all or any portion of the Premises. (4) Any exercise by Tenant of any option to renew under this Paragraph shall be irrevocable. If requested by Landlord, Tenant agrees to execute a lease amendment or, at Landlord's option, a new lease agreement on Landlord's then standard lease form for the Building, reflecting the foregoing terms and conditions, prior to the commencement of the renewal term. The option to renew granted under this Paragraph is not transferable; the parties hereto acknowledge and agree that they intend that the option to renew this Lease under this Paragraph shall be "personal" to the specific Tenant named in this Lease and that in no event: will any assignee or sublessee have any rights to exercise such option(s) to renew SECURITY DEPOSIT. Security: deposit shall increase by $10.241.80 to reflect the - ----------------- inclusion of Suites 330 ($4,840.05) and 335 ($5,401.75). PARKING, Tenant shall be allowed an additional twenty (20) parking spaces at - -------- the prevailing market rate. Ten (10) unreserved surface parking spaces at the prevailing market rate of $60/month/space, not including taxes; and Four (4) reserved tandem spaces (8 spaces total) at the prevailing market rate of $60/month/space, not including taxes; and Two (2) single reserved spaces at the prevailing market rate of $120/month/space, not including taxes. IN WITNESS WHEREOF, the parties hereto have signed and sealed this Lease Amendment Number One as dated below. LANDLORD: SPIEKER PROPERTIES, L.P., a California limited partnership By: Spieker Properties, Inc., a Maryland corporation Its: General Partner By: /s/ Mark Valentine -------------------------- Mark Valentine Vice President Date: 05/19/99 ------------------------ TENANT: MULTILINK TECHNOLOGY CORPORATION a California corporation By: /s/ Richard N. Nottenburg ------------------------- Its: President ------------------------- Date: 4/30/99 ------------------------ EXHIBIT B [PICTURE OF SITE PLAN-SANTA MONICA BUSINESS PARK APPEARS HERE] Site Plan-Santa Monica Business Park [LOGO OF SPIKER PROPERTIES APPEARS HERE] [LOGO OF SANTA MONICA BUSINESS PARK APPEARS HERE] 2850 OCEAN PARK BOULEVARD SUITE 330 Santa Monica, California RENTABLE SQ. FT. 2,361 [SITE PLAN APPEARS HERE] 2850 OCEAN PARK BLVD. Santa Monica, California Building W SUITE 335 RENTABLE SQ. FT.: 2,664 [SITE PLAN APPEARS HERE] EX-10.8 11 0011.txt FACILITIES USE AGREEMENT Exhibit 10.8 FACILITIES USE AGREEMENT This Facilities Use Agreement ("Agreement") is effective as of the 5/th/ day of April 1999 between Multilink Technology Corporation, a corporation organized under the laws of the State of California, with offices located at 2601 Ocean Park, Suite 108, Santa Monica, California 90405 (hereinafter called "Multilink") and TRW Inc., a corporation organized under the laws of the State of Ohio, acting through its Telecommunications business unit, having an office at 1800 Glenn Curtiss Street, Carson, California 90746 (hereinafter called "TRW"). ARTICLE 1 SUBJECT AND TERM Original Term Section 1.01. The term of this Agreement shall commence at 12:01 A.M. on April 5, 1999, and end at 12:0l A.M. August 31, 2000, unless terminated sooner as provided in this Agreement. Holding Over Section 1.02. If Multilink holds over and continues in the Premises after termination of the term of this Agreement, including any extended term, Multilink's continued use of the Premises shall be a breach of this Agreement and Multilink shall be liable to TRW for any and all costs it incurs as a result of such holdover, including charges assessed against TRW by its landlord under TRW's lease for the premises. Premises Section 1.03. TRW shall lease to Multilink, subject to the terms of this Agreement, the space known as Room 1849 (Lab) and 1384 (Office) in a building designated as "DH1" located in the TRW office complex at 1800 Glenn Curtiss Street, Carson, California consisting of a total of approximately 3214 square feet of space, more or less, together with the fixtures thereon (the "Premises"), as set forth on Exhibit "B" attached hereto. The Premises are part of a building that is leased by TRW from Watson Land Company (the "Landlord") which lease, if not extended, expires on August 31, 2000. TRW shall provide Multilink with access to the Premises. Products and Services Section 1.04. TRW shall also provide to Multilink, subject to the terms of this Agreement, the products and services identified in Exhibit A. All prices and costs to be paid by Multilink are net of taxes, duties, fees or charges assessed by any governmental authority. ARTICLE 2 Payments Section 2.01. (a) Interim Payments. Multilink agrees to pay to TRW during the term of this Agreement specified in Section 1.01. ARTICLE 3 REPAIRS AND MAINTENANCE Present Condition of Premises Section 3.01. Multilink agrees and hereby stipulates with TRW that the Premises are in good and acceptable condition on the date of this Agreement and that the improvements on the premises have been constructed by TRW and made available to Multilink in good and acceptable condition and in accordance with plans and specifications approved by Multilink. Repairs by TRW Section 3.02. During the term of this Agreement and any renewal or extension of the term of this Agreement, TRW shall, at TRW's own cost and expense, keep the exterior roof, sidewalls, structural portions, and foundation of the building in which the Premises are located (the "Building"), and the building systems and equipment in good order and repair; provided, however, TRW shall not: (a) Be required to make any repairs that are rendered necessary by the negligence of or abuse of that property by Multilink or any employees or agents of Multilink; or (b) Be liable for any damages resulting from TRW's failure to make any repairs required by this section to be made by TRW, unless Multilink gives written notice to TRW specifying the need for the repairs and TRW fails to make the repairs or to commence making the repairs within thirty (30) days after Multilink gives notice or TRW fails to thereafter diligently pursue the completion of the repairs. TRW shall not materially interfere with Multilink's use of or access to the Premises in performing any repairs or maintenance under this Agreement. Repairs by Multilink Section 3.03. Except as provided in Section 3.02 of this Agreement, Multilink shall, at Multilink's own cost and expense, during the term of this Agreement or any extension of the term of this Agreement: (a) Keep and maintain the interior, non-structural portions of the Premises in good order, repair, and tenantable condition, except to the extent caused by the negligence or willful misconduct of TRW or its employees or agents; and (b) Repair any defects in the exterior roof, sidewalls, structural portions, and foundations of the Building caused by the negligence of or abuse of the Building by Multilink or any employees, agents or subtenants of Multilink. 2 Multilink Improvements and Trade Fixtures Section 3.04. (a) On expiration or earlier termination of this Agreement, Multilink shall surrender the Premises and all improvements thereon to TRW in good, sanitary, and neat order, condition, and repair, excluding ordinary wear and tear and casualty damage. Multilink shall have the right to remove its trade fixtures from the Premises at the expiration or earlier termination of this Agreement term provided that Multilink shall repair any damage to the Premises caused by that removal. Liens Section 3.05. (a) Multilink agrees to keep the Premises and every part thereof and the Building and other improvements at any time located on the Premises free and clear of any and all mechanics', materialmen's, and other liens for or arising out of or in connection with work or labor done, services performed, or materials or appliances used or furnished for or in connection with any operations of Multilink, any alteration, improvement, or repairs or additions that Multilink may make or permit or cause to be made, or any work or construction by, for, or permitted by Multilink on or about the Premises, or any obligations of any kind incurred by Multilink. Multilink further agrees to pay promptly and fully and discharge any and all claims on which any such lien may or could be based, and to save and hold TRW and its Landlord and the Premises and the Building and any other improvements on the Premises free and harmless from any and all such liens and claims of liens and suits or other proceedings pertaining thereto. (b) If Multilink desires to contest any such lien, it shall notify TRW of its intention so to do within ten (10) days after the filing of that lien. In -------- such a case, and provided that Multilink on demand of TRW protects TRW by a good and sufficient surety bond against any such lien and any costs, liability, or damage arising our of that contest, Multilink shall not be in default hereunder until five (5) days after the final determination of the -------- validity thereof, within which time Multilink shall satisfy and discharge that lien to the extent held valid. The satisfaction and discharge of any such lien shall not, in any case, be delayed until execution is had on any judgment rendered on the lien, and that delay shall be a default of Multilink under this Agreement. In the event of any such contest Multilink shall protect and indemnify TRW and its Landlord against all loss, cost, expense, and damage resulting from the contest. TRW's Right of Inspection Section 3.06. TRW or TRW's duly authorized agents may enter the Premises at any and all reasonable times during the term of this Agreement, including any extended term, to determine whether Multilink is complying with the terms and conditions of this Agreement or to perform any other acts authorized by this Agreement to be performed by TRW or reasonably necessary to protect TRW's rights under this Agreement. Surrender of Premises Section 3.07. On expiration or earlier termination of this Agreement, Multilink shall promptly surrender possession of the Premises to TRW in as good condition as the Premises are on the date of this Agreement, reasonable wear and tear and casualty damage excepted. 3 ARTICLE 4 USE OF PREMISES Permitted and Prohibited Use of Premises Section 4.01. Multilink shall use the Premises for operating and conducting business for the design, development or manufacture of telecommunication equipment and for no other purpose without the prior written consent of TRW. TRW may withhold consent for any reason. Under no circumstances during the term of this Agreement shall Multilink use or cause to be used in the business operated on the Premises any hazardous or toxic substances or materials, as defined by the State of California or store or dispose of any such substances or materials on the Premises, except for incidental amounts thereof. Compliance with Laws Section 4.02. The Premises shall not be used or permitted by Multilink to be used in violation of any law or ordinance. Multilink shall maintain the Premises in a clean and sanitary manner and shall comply with: (a) All laws, ordinances, rules, and regulations related to Multilink's specific use of the Premises, now in effect or subsequently enacted or promulgated by any public or governmental authority or agency having jurisdiction over the Premises (and specifically excluding any such laws and requirements which would pertain to any lawful use and occupancy of the Premises in contrast to Multilink's specific use); and (b) The recorded restrictions governing the Dominguez Technology Center, in which the Premises are located, a copy of which are attached as Exhibit "C", as amended from time to time, provided Multilink is given a copy of any such amendment. TRW shall comply with all laws, ordinances, rules and regulations with respect to the Building which are not Multilink's obligation under Section 4.02(a) above. Signs Section 4.03. Multilink may not erect and maintain any signs on the Premises relating to Multilink's business on the Premises without TRW consent not unreasonably withheld. ARTICLE 5 INSURANCE Liability Insurance Section 5.01. Multilink shall, at Multilink's own cost and expense, secure and maintain during the entire term of this Agreement and any extended term of this Agreement, public liability, property damage, and products liability insurance, insuring Multilink and Multilink's employees against all bodily injury, property damage, personal injury, and other loss or liability caused by or connected with Multilink's occupation and use of the Premises under this Agreement in amounts not less than: 4 (a) $1,000,000 for injury to or death of one person and, subject to the limitation for the injury or death of one person, of not less than $2,000,000 for injury to or death of two or more persons as a result of any one accident or incident; and (c) $1,000,000 for property damage. TRW shall be named as an additional insured and the policy or policies shall contain cross-liability endorsements. Multilink's Personal Property Section 5.02. Multilink shall at all times during the term of this Agreement and at Multilink's sole expense, keep all of Multilink's personal property, including trade fixtures and equipment and all merchandise of Multilink that may be in the Premises from time to time, insured against loss or damage by fire and by any peril included within fire and extended coverage insurance for an amount reasonably determined by Multilink. Workers' Compensation Insurance Section 5.03. Multilink shall maintain in effect throughout the term of this Agreement, at Multilink's sole expense, Workers' compensation insurance in accordance with the laws of California and employer's liability insurance with a limit of not less than $1 million per employee and $1 million per occurrence. Cancellation Clause Section 5.04. Any policy of insurance required under this Article shall be written by insurance companies authorized to do business in California. Each policy of insurance procured by Multilink pursuant to this Article shall expressly provide that it cannot be canceled for any reason or altered in any manner unless at least thirty (30) days prior written notice has been given by the insurance company issuing the policy to TRW in the manner specified in this Agreement for service of notices on TRW by Multilink. Deposit of Insurance Policies with TRW Section 5.05. Promptly on the issuance or renewal of any insurance policy required by this Agreement, including fire and liability insurance policies, Multilink shall cause a duplicate copy of the policy or a certificate evidencing the policy and executed by the insurance company issuing the policy or its authorized agent to be given to TRW. Blanket Insurance Policy Section 5.06. To satisfy its obligations under this Article, Multilink may at any time during the term of this Agreement, have in full force and effect a "blanket" policy of insurance insuring the Premises as well as other property owned or occupied by Multilink provided the blanket policy does not in any way diminish the amount or coverage of the insurance required under this 5 Article, and further provided that the blanket policy otherwise meets all requirements of this Article. TRW's Right to Procure Insurance Section 5.07. If at anytime Multilink fails to procure or maintain the insurance required by this Article, then following fifteen (15) days prior written notice to Multilink, TRW may obtain that insurance and pay the premiums on it for the benefit of Multilink. Any amounts paid by TRW to procure or maintain insurance pursuant to this section shall be immediately due and repayable to TRW by Multilink with the next then due installment of rent under this Agreement; failure to repay at that time any amount expended by TRW shall be considered a default by Multilink under this Agreement. TRW's Insurance Section 5.08. TRW's Fire and Casualty Insurance. TRW shall carry commercial general liability insurance with respect to the Building during the term of this Agreement, and shall further insure the Building during the term of this Agreement against loss or damage due to fire and other casualties covered within the classification of fire and extended coverage, vandalism coverage and malicious mischief, sprinkler leakage, water damage and special extended coverage, Such coverage shall be in such amounts, from such companies, and on such other terms and conditions as TRW may from time to time reasonably determine. Subrogation Section 5.09 TRW and Multilink agree to have their respective insurance companies issuing property damage insurance waive any rights of subrogation that such companies may have against TRW or Multilink, as the case may be, so long as the insurance carried by TRW and Multilink, respectively, is not invalidated thereby. As long as such waivers of subrogation are contained in their respective insurance policies, TRW and Multilink hereby waive any right that either may have against the other on account of any loss or damage to their respective property to the extent such loss or damage is insurable under policies of insurance for fire and all risk coverage, theft, public liability, or other similar insurance. ARTICLE 6 DESTRUCTION OF PREMISES Duty to Repair or Restore Section 6.01. If the Premises or any improvements therein are damaged or destroyed during the term of this Agreement or any renewal or extension thereof, the damage shall be repaired as follows: (a) TRW shall repair that damage as soon as reasonably possible and restore the Premises and improvements to substantially the same condition as existed before the damage or destruction, regardless of whether the insurance proceeds are sufficient to cover the actual cost of repair and restoration. (b) Multilink expressly waives any right under California Civil Code Sections 1931 - 1933 to terminate this Agreement for damage or destruction to the Premises. 6 Termination of Agreement for Certain Losses Section 6.02. (a) Notwithstanding any other provision of this Agreement, if the Premises are damaged or destroyed to such an extent it will cost more than $50,000 to repair or replace them, and the damage or destruction is caused by a peril against which insurance is not carried, TRW may terminate this Agreement by giving Multilink written notice of the termination, which termination shall not be effective for at least three (3) months following the delivery of the notice of termination, unless the Premises are substantially damaged, in which event such termination shall be effective sooner. The notice must be given within thirty (30) days after occurrence of the damage or destruction. (a) Multilink or TRW shall have the right to terminate this Agreement under either of the following circumstances: (1) If the Building is damaged or destroyed from any cause whatsoever, insured or uninsured, and the laws then in existence do not permit the repair or restoration of the Building; or (2) If the Building is destroyed from any cause whatsoever, insured or uninsured, during the last year of the term of this Agreement. (b) In the event the damage or destruction is caused by a peril not insured against, either party may terminate this Agreement by giving written notice of termination to the other not later than 14 days after occurrence of the event giving rise to terminate and termination shall be effective as of the date set forth in the notice of termination, which termination shall not be effective for at least three (3) months following the delivery of the notice of termination, unless the Premises are substantially damaged, in which event such termination shall be effective sooner. In the event of a termination, Multilink shall not be entitled to collect any insurance proceeds attributable to insurance policies covering the Building or improvements, except those proceeds attributable to Multilnk's personal property, equipment, merchandise and trade fixtures. (d) If this Agreement is terminated pursuant to either subsection (a) or (b) above, rent, taxes, assessments, and other sums payable by Multilink to TRW under this Agreement shall be prorated as of the termination date. If any taxes, assessments, or rent has been paid in advance by Multilink, TRW shall refund it to Multilink for the unexpired period for which the payment has been made. Time for Construction of Repairs Section 6.03. Any and all repairs and restoration of improvements required by this Article shall be commenced by TRW within a reasonable time after occurrence of the damage or destruction requiring the repairs or restoration; shall be diligently pursued after being commenced; and shall be completed within a reasonable time after the loss. If TRW is required under this Agreement to perform the repairs and restoration, TRW shall cause the repairs and restoration to be completed not later than 90 days after occurrence of the event causing destruction [or Multilink shall have the right to terminate this Agreement]. 7 Abatement of Fees Payable by Multilink Section 6.04. If any casualty shall have damaged the Premises or Multilink's access thereto, TRW shall allow Multilink a proportionate abatement of the fees payable by Multilink for the Premises during the time and to the extent the Premises are unfit for occupancy for the purposes permitted under this Agreement, and not occupied by Multilink as a result thereof; provided that if the Premises are damaged such that the remaining portion of the Premises is not sufficient to allow Multilink to conduct its business operations therefrom, then TRW shall allow Multilink a total abatement of such fees during the time and to the extent that the entire Premises are unfit for occupancy for the purposes permitted under this Agreement, and not occupied by Multilink as a result of the subject damage. ARTICLE 7 CONDEMNATION Total Condemnation Defined Section 7.01. The term "total condemnation" as used in this Article shall mean the taking by eminent domain ("condemnation") by a public or quasi-public agency or entity having the power of eminent domain ("condemnor") of (a) More than thirty-five (35) percent of the ground area of the Premises; or (b) Less than thirty-five (35) percent of the ground area of the Premises at a time when the remaining buildings or improvements on the Premises cannot reasonably be restored to a condition suitable for Multilink" occupancy for the uses permitted by this Agreement within sixty (60) normal eight-hour working days under all laws and regulations then applicable; or (c) Less than thirty-five (35) percent of the ground area of the Premises in such a manner that Multilink is substantially prevented from carrying on operations of a permitted use under this Agreement on the remaining portion of the Premises. Partial Condemnation Defined Section 7.02. The term "partial condemnation" as used in this Article shall mean any condemnation of a portion of the Premises that is not a total condemnation under Section 7.01 of this Agreement. Termination for Total Condemnation Section 7.03. In the event of a total condemnation of the Premises during the term of this Agreement, this Agreement shall terminate without further notice as of 12:01 A.M. on the date actual physical possession of the condemned property is taken by the condemnor. All amounts payable under this Agreement shall be prorated as of 12:01 A.M. on that date. Effect of Partial Condemnation Section 7.04. In the event of a partial condemnation of the Premises, this Agreement shall terminate as to the portion of the Premises taken on the date actual physical possession of that 8 portion is taken by the condemnor, and at Multilink's option may remain in full force and effect or terminate as to the remainder of the Premises; provided, however, that promptly after the taking of actual physical possession by the condemnor of the portion taken by condemnation, if Multilink elects to continue in possession of the remainder of the Premises TRW shall restore, at Multinlink's own cost and expense, the improvements on the remainder of the Premises to a condition making the Premises tenantable by Multilink for the uses permitted by this Agreement. Any rent payable under this Agreement after the date actual physical possession is taken by the condemnor of the portion of the Premises condemned shall be reduced by the percentage the ground area of the portion taken by eminent domain bears to the total ground area of the Premises on the date of this Agreement. In addition, the rent payable under this Agreement shall be further abated during the time and to the extent Multilink is prevented from occupying all of the remainder of the Premises by the work of restoration required by this section to be performed by TRW. ARTICLE 8 INDEMNIFICATION Multilink's Hold-Harmless Clause Section 8.01. Except as otherwise provided in Section 8.02, Multilink shall indemnify and hold TRW and the property of TRW, including the Premises, free and harmless from any and all liability, claims, loss, damages, or expenses, including reasonable counsel fees and costs, arising by reason of the death or injury of any person, including Multilink or any person who is an employee or agent of Multilink, or by reason of damage to or destruction of any property, including property owned by Multilink or any person who is an employee or agent of Multilink, caused by (1) any act or omission on the Premises of Multilink or any person in, on, or about the Premises with the permission and consent of Multilink; or (2) Multilink's breach of this Agreement. Section 8.02. Notwithstanding the provisions of Section 8.01 of this Agreement, Multilink shall be under no duty to indemnify and hold TRW harmless from any liability, claims, losses, expenses, or damages arising because of TRW's failure to make any repairs required by this Agreement to be made by TRW or because of any negligence or willful acts of misconduct by TRW or by any person who is an agent or employee of TRW acting in the course and scope of its agency or employment. TRW agrees to indemnify, defend, protect, and hold Multilink free and harmless from and against any liability, claims, losses, expenses, or damages, including reasonable counsel fees and costs, arising from or in connection with TRW's failure to make any repairs required by this Agreement to be made by TRW or in connection with TRW's breach of this Agreement, or because of any negligence or willful acts of misconduct by TRW or by any person who is an agent or employee of TRW acting in the course and scope of its agency or employment. ARTICLE 9 DEFAULT AND REMEDIES Remedies on Multilink's Default Section 9.01. If Multilink breaches this Agreement, TRW, in addition to any other remedy given TRW by law or equity, may 9 (a) Continue this Agreement in effect by not terminating Multilink's access to the Premises, in which case TRW shall be entitled to enforce all TRW's rights and remedies under this Agreement, including the right to recover the amounts specified in this Agreement as it becomes due under this Agreement; (b) Terminate this Agreement and recover from Multilink (1) The worth, at the time of award, of any unpaid amounts that had been earned at the time of termination of the lease; (2) The worth, at the time of award, of the amount by which the unpaid rent that would have been earned after termination of the Agreement until the time of award exceeds the amount of rental loss that Multilink proves could have been reasonably avoided; (3) The worth, at the time of award, of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss that Multilink proves could be reasonably avoided; and (4) Any other amount necessary to compensate TRW for all detriment proximately caused by Multilink's failure to perform the obligations under this Agreement; or (c) Terminate the Agreement and, in addition to any recoveries Multilink may seek under subsection (b) of this section, bring an action to reenter and regain possession of the Premises in the manner provided by the law of unlawful detainer then in effect in California. Termination by TRW Section 9.02. No act of TRW or its landlord, including but not limited to TRW's or its landlord's entry on the Premises or efforts to relet the Premises, or the giving by TRW to Multilink of a notice of default, shall be construed as an election to terminate this Agreement unless a written notice of the-TRW's election to terminate is given to Multilink or unless termination of this Agreement is decreed by a court of competent jurisdiction. Default by Multilink Section 9.03. All covenants and agreements contained in this Agreement are declared to be conditions to this Agreement and to the term hereof. The following constitute a material default and breach of this Agreement by Multilink: (a) Any failure to pay amounts when due when the failure continues for five (5) days after written notice that said amount is overdue. (b) Any failure by Multilink to perform any other covenant, condition, or agreement contained in this Agreement when the failure is not cured within thirty (30) days after written notice of the specific failure is given by TRW to Multilink unless Multilink commences to cure within such thirty (30) day period and thereafter diligently prosecutes such cure to completion. (c) The bankruptcy or insolvency of Multilink, the making by Multilink of any general assignment for the benefit of creditors; the filing by or against Multilink of a petition to have Multilink adjudged a bankrupt or of a petition for reorganization or arrangement under the Bankruptcy Act (unless, in the case of a petition filed against Multilink, it is dismissed within sixty (60) 10 days; the appointment of a trustee or receiver to take possession of substantially all of Multilink's assets located at the Premises or of Multilink's interest in this Agreement, if possession is not restored to Multilink with thirty (30) days; or the attachment, execution, or other judicial seizure of substantially all of Multilink's assets located at the Premises or of Multilink's interest in this Agreement, when that seizure is not discharged within fifteen (15) days. Cumulative Remedies Section 9.04. The remedies granted to TRW in this Article shall not be exclusive but shall be cumulative and in addition to all other remedies now or hereafter allowed by law or authorized in this Agreement. Waiver of Breach Section 9.05. The waiver by either party of any breach by the other party of any of the provisions of this Agreement shall not constitute a continuing waiver or a waiver of any subsequent default or breach by such other party either of the same or a different provision of this Agreement. ARTICLE 10 WARRANTY Warranty Section 10.01. The Products to be delivered under this Agreement are warranted only to the extent of and by the original manufacturer's warranty. Any defective part or parts must be returned to the manufacturer or vendor and not to TRW. Otherwise, all products delivered and services performed under this Agreement are provided "As Is", without warranty. Warranty Exclusion Section 10.02. THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, WHETHER ORAL, WRITTEN, EXPRESS, IMPLIED, OR STATUTORY. IMPLIED WARRANTIES OF FITNESS FOR PARTICULAR PURPOSE AND MERCHANTABILITY SHALL NOT APPLY. TRW'S WARRANTY OBLIGATIONS AND CLIENT'S REMEDIES THEREUNDER (EXCEPT AS TO TITLE) ARE SOLELY AND EXCLUSIVELY AS STATED HEREIN. IN NO CASE WILL TRW BE LIABLE FOR CONSEQUENTIAL DAMAGES, LABOR PERFORMED IN CONNECTION WITH REMOVAL AND REPLACEMENT, LOSS OF PRODUCTION, OR ANY OTHER LOSS INCURRED BECAUSE OF INTERRUPTION OF SERVICE. 11 ARTICLE 11 INTELLECTUAL PROPERTY RIGHTS Rights of Multilink Section 11.01. All right, title and interest in and to any data relating to Multilink business operations are and shall remain the exclusive property of Multilink, whether or not provided to TRW during the performance of this contract. Rights in Third Party Software Section 11.02. Use by Multilink of commercial third party software and related documentation shall be subject to the license rights accompanying that software or documentation. Multilink shall indemnify and hold harmless TRW from any and all costs, expenses, reasonable attorneys' fees and liability for any claim, settlement, and judgment based upon, arising out of or relating to Multilink's or its employee's failure to comply with any such license provisions. ARTICLE 12 MISCELLANEOUS Assignment and Subletting Section 12.01. Multilink shall not encumber, assign or otherwise transfer this Agreement, any right or interest therein, or any right or interest in the Premises or any of the improvements that may now or hereafter be constructed or installed on the Premises without first obtaining the written consent of TRW which consent shall be in the sole discretion of TRW. Multilink shall not allow any other person, other than Multilink's agents, servants, and employees, to occupy the Premises or any part of the Premises without the prior written consent of TRW. Any encumbrance, assignment, or transfer without the prior written consent of TRW, whether voluntary or involuntary, by operation of law or otherwise, is void and shall, at the option of TRW, terminate this Agreement. Force Majeure Section 12.02. With respect to the delivery of products or the performance of services under this Agreement, the date on which each party's obligations are to be fulfilled shall be extended for a period equal to any delay arising directly or indirectly from any cause beyond such party's reasonable control. Such causes include, but are not limited to, acts of God; earthquake; the laws, actions, or inactions of any governmental authority in either its sovereign or contractual capacity; civil or military conflicts; riot; revolution; fires; strikes; labor disputes; epidemics; and embargoes. Such extension shall apply whether or not there is another concurrent cause of delay. Force Majeure Termination Section 12.03. If the delays resulting from any of the causes stated in Section 12.02 extend in the aggregate for more than ninety (90) days and the parties have not agreed upon a revised basis for continuing this Agreement, including adjustment of the price, then either party, upon at least thirty (30) days written notice, may terminate this Agreement. 12 Time Section 12.04. Time is expressly declared to be of the essence in this Agreement. Headings Section 12.05. The headings and titles to the articles, sections, and paragraphs of this Agreement are inserted for convenience only and shall not be deemed a part hereof or affect the construction or interpretation of any provision hereof. Counterparts Section 12.06. This Agreement has been executed in several counterparts, each of which shall be deemed to be an original, and all such counterparts together shall constitute but one and the same instrument. Modification - Waiver Section 12.07. No cancellation, modification, amendment, deletion, addition or other change in this Agreement or any provision thereof, or waiver of any right or remedy herein provided, shall be effective for any purpose unless specifically set forth in a writing signed by the party to be bound. No waiver of any right or remedy with respect to any occurrence or event on one occasion shall be deemed a waiver of such right or remedy with respect to a similar or like occurrence or event on any other occasion. Entire Agreement Section 12.08. This Agreement supersedes all other prior agreements, whether oral or written, which may have been made with respect to the subject of this Agreement and the transactions contemplated herein, and this Agreement contains the entire agreement of the parties with respect to the subject matter hereof. Severability Section 12.09. Any provision of this Agreement which is determined to be unlawful, unenforceable, or without effect under any applicable law of any jurisdiction shall, as to such jurisdiction, be ineffective without affecting any other provision of this Agreement. To the full extent that the provisions of such applicable law may be waived, they are hereby waived, to the end that this Agreement be deemed to be a valid and binding agreement enforceable in accordance with its terms. 13 Successors and Assigns Section 12.10. The provisions of this Agreement shall be binding upon and inure to the benefits of TRW and Multilink and their respective successors and assigns. No third party is intended to or shall have any right or interest under this Agreement. Binding Arbitration Section 12.11. The parties agree that they shall negotiate in good faith to resolve any dispute which arises out of or in connection with this Agreement. In the event the parties are unable to resolve any such dispute within a reasonable time by good faith efforts, the dispute shall be settled by final binding arbitration. Such arbitration shall be referred to the American Arbitration Association in accordance with the rules thereof then in effect, and the hearing thereon shall be held at a mutually acceptable neutral site. Unless otherwise agreed to in writing, the parties shall comply with the ruling resulting from such final binding arbitration and neither party shall appeal the decision thereof. Attorney's Fees Section 12.12. Unless otherwise provided for by the arbitrator, each party in any action brought to enforce or interpret this Agreement or to seek relief for breach of this Agreement shall be responsible for its own expenses and attorney's fee incurred therefor. Governing Law Section 12.13. This Agreement shall be governed and construed in accordance with the laws of the State of California, without regard to the "choice of law" rules. Limitation of Liability Section 12.14. The total liability of TRW on any claim for use of the products, services or premise shall not exceed one Thousand Dollars. Except as otherwise expressly provided in this Agreement, in no event shall either party be liability to the other for incidental, consequential or special damages. TRW Relocation Termination Section 12.15. Notwithstanding any other provision of this Agreement, TRW may, without charge, terminate Multilink's access to the Premises and the services to be provided under this Agreement if TRW elects to vacate the building designated as "DH1", by giving Multilink 180 days prior written notice of such termination. In such event, Multilink shall pay for access to the Premises and services until the termination date. Multilink shall have the right, upon written notice to TRW, to terminate this Agreement earlier than the termination date selected by TRW. 14 Brokers Section 12.16. TRW and Multilink hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Agreement and that they know of no real restate broker or agent who is entitled to a commission in connection with this Agreement. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including without limitation reasonable attorneys' fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of the indemnifying party's dealings with any real estate broker or agent. TRW Default Section 12.17. Notwithstanding anything to the contrary set forth in this Agreement, TRW shall be in default in the performance of any obligation required to be performed by TRW pursuant to this Agreement if TRW fails to perform such obligation within thirty (30) days after the receipt of notice from Multilink specifying in detail TRW's failure to perform; provided, however, if the nature of TRW's obligation is such that more than thirty (30) days after required for its performance, then TRW shall not be in default under this Agreement if it shall commence such performance within such thirty (30) day period and thereafter diligently pursue the same to completion. Upon any such default by TRW under this Agreement, Multilink may exercise any of its rights provided at law or in equity. Abatement of Fees Section 12.18. In the event that Multilink is prevented by acts of TRW from using, and does not use, the Premises or any portion thereof for five (5) consecutive business days (the "Eligibility Period"), then the fees payable by Multilink under this Agreement shall be abated or reduced, as the case may be, after expiration of the Eligibility Period for such time that Multilink continues to be so prevented from using, and does not use, the Premises or a portion thereof, in the proportion that the area of the portion of the Premises that Multilink is prevented from using, and does not use, bears to the total area of the premises; provided, however, in the event that Multilink is prevented from using, and does not use, a portion of the Premises for a period of time in excess of the Eligibility Period and the remaining portion of the Premises is not sufficient to allow Multilink to effectively conduct its business therein, and if Multilink does not conduct its business from such remaining portion, then for such time after expiration of the Eligibility Period during which Multilink is so prevented from effectively conducting its business therein, the fees payable by Multilink under this Agreement shall be abated for such time as Multilink continues to be so prevented from using, and does not use, the Premises. To the extent Multilink is entitled to abatement without regard to the Eligibility Period, because of an event described in Article 6 above, then the Eligibility Period shall not be applicable. If Multilink is prevented from using and does not use all or a material portion of the Premises for three (3) months following the Eligibility Period, then Multilink shall thereafter have the right to terminate this Agreement upon written notice to TRW. 15 Notices Section 12.19. All notices, demands, statements or communications (collectively, "Notices") given or required to be given by either party to the other hereunder shall be in writing, shall be sent by United States certified or registered mail, postage prepaid, return receipt requested ("Mail"), delivered by a nationally recognized overnight courier, or delivered personally, to Multilink or to TRW at the addresses set forth below, or to such other place as TRW or Multilink may from time to time designate in a Notice to the other party. Any Notice will be deemed given, sent or delivered, as the case may be, (i) three (3) days after the date it is posted if sent by Mail, (ii) the date the overnight courier delivery is made, or (iii) the date personal delivery is made. TRW: TRW Inc. 1800 Glenn Curtiss Street Carson, California 90746 Multilink: Multilink Technology Corporation 2601 Ccean Park Boulevard, Suite 108 Santa Monica, California 90405 Attention: Dr. Richard Nottenburg With a copy to: Allen, Matkins, Leck, Gamble & Mallory LLP 1999 Avenue of the Stars, Suite 1800 Los Angeles, California 90067-6050 Attention: Mark Kelson, Esq. IN WITNESS WHEREOF, the parties hereto have entered into this Agreement to be effective as of the day and year first above written. Multilink Technology Corporation TRW Inc. By: /s/ Richard N Nottenburg By: /s/ Paul D. Pratt ------------------------- -------------------------- Printed: Richard N Nottenburg Printed: Paul D. Pratt ---------------------- --------------------- Title: President Title: Div Mgr. of Contracting ------------------------ ----------------------- Date: 7/28/99 Date: 7/28/99 --------------------- ------------------- 16 Exhibit "A" Summary of Premises, Products and Services, Payments, and Schedule for Access, Delivery and Performance A. The Premises, Products and Services. ----------------------------------- TRW shall provide Multilink with the following products and services access to the following Premises: Item No. Description - -------- ----------- Products and Services 1. Electronic Access to DELL PE4300 Server from the Premises 2. Use of thirteen (13) DELL PCs with 17" Monitors on the Premises 3. Telecommunications Services on the Premises to include sixteen (16) telephones with digital lines, three (3) analog lines, local and long distance telecommunications services. 4. Hardware consisting of the following: Qty Description --- ----------- One (1) HP4500 DN One (1) ScanJet 6200 CXI Four (4) HP LJ 1100 XI One (1) HP 750C Plotter One (1) LaserJet 8000N Printer One (1) 10/100 Mb Switch, Dedicated 5. Installation of the Hardware identified in 2, 3 and 4 above on the Premises. 6. Multilink Unique Operation and Maintenance Services for the Hardware identified above not included in TRW's standard service center operation and maintenance efforts. 7. Fit-up of the Premises 8. Other consulting, engineering, technical or administrative services as requested by Multilink not included above or not included in TRW's standard service center rates. 17 The Premises 9. Office Space (Room 1384) 401 sq. ft., more or less 10. Laboratory Space (Room 1849) 2813 sq. ft., more or less B. Payments. -------- Basis of Payments: Products and Services shall be paid for on the following basis. Item No. Description Basis for Payment ------- ----------- ----------------- 1. Access to DELL PE 4300 Server TRW Cost 2. Use of Thirteen (13) DELL PCs. TRW Cost 3. Telecommunications Services TRW Cost 4. Hardware Firm Fixed Price 5. Installation Services TRW Cost 6. Multilink Unique Operation and TRW Cost Maintenance Services 7. Fit-up TRW Cost 8. Other Services TRW Cost 9. Office Space TRW Cost 10. Laboratory Space TRW Cost Interim Billings ---------------- Multilink shall pay TRW for the products delivered, services performed and Premises accessed under this Agreement at the following rates until final rates are determined in accordance with this Exhibit. 18 Item No. - ------- 1. Access to Dell PE4300 Server $ 111.00/wk 2. Use of PCs $ 50.00/PC/wk 3. Telecommunications Services $ 1,075/per mo. 4. Hardware
Qty. Unit Total ---- ---- ----- HP4500 DN 1 $ 3,663 $ 3,663 SunJet 6200 CXI 1 37l 371 HP LJ 1100 XI 4 391.50 1,566 HP 75OC Plotter 1 5,454 5,454 LaserJet 8000 N Printer 1 2,479 2,479 10/100 mb Switch, Dedicated 1 1,797 1,797 Total Hardware (Fixed Price) $ 15,330 5. Acquisition & Installation Services $ 5,000 6. Multilink Unique Operation and $ 290/per wk Maintenance Services 7. Fit-up Services $ 189,000 8. Other Consulting, Engineering or TBD* Administrative Services 9. Office Space $ 887/mo 10. Laboratory Space $ 6,217/mo
C. Delivery and Performance Schedule
Item No. Delivery, Term or Performance Schedule -------- -------------------------------------- 1 May 3, 1999 to August 31, 2000 2 May 3, 1999 to August 31, 2000 3 May 3, 1999 to August 31, 2000 4 Deliver by May 12, 1999 5 Installed by May 12, 1999 6 Installation of Item No. 4 through August 31, 2000 7 Complete by May 19, 1999 8 Complete by August 31, 2000 9 April 5, 1999 to August 31, 2000 10 May 3, 1999 to August 31, 2000
*These services may only be ordered by mutual agreement of the parties. None have been ordered as part of the date of signing of this Agreement. 19 D. Invoices 1.0 Submission of Invoices. TRW may submit invoices to Multilink for items Nos. 1, 2, 3, 5, 6, 7, 8, 9 and 10 no more frequently than monthly for services actually performed, for costs actually incurred and premises access actually provided. TRW may submit invoices to Multilink for Item 4 at the fixed prices set forth in Section B of this Exhibit upon delivery and installation thereof. Invoices shall be submitted to: Multilink Technology Corporation 2850 Ocean park, Suite 335 Santa Monica, CA 90405 Attention: Alan Brunell 2.0 Payment of Invoices. Payments shall be made by Multilink so as to be received by TRW not later than thirty (30) days after Multilink's receipt of invoice. Checks shall be made payable to TRW Inc. and shall be addressed and sent to TRW as follows: TRW Space and Defense File No. 41818 Los Angeles, CA 90074-1818 USA 3.0 Set-Off. TRW may set-off amounts due under this Agreement against any amounts due by TRW to Multilink under the Spitfire Development Agreement, dated May 1999. 4.0 Final Amounts. For access to the Premises and all items of products or services for which the basis of payment is "TRW Cost", Multilink shall pay TRW the TRW Telecommunications unit's actual direct and indirect cost for such items in accordance with TRW's usual accounting practices. In the event Multilink's telecommunication usage of Item 3 under this Exhibit exceeds the standard TRW usage rate by more than ten (10) percent, Multilink shall pay TRW the standard rate plus the percentage amount by which Multilink's usage exceeded TRW's standard rate, together with the related indirect costs thereon in accordance with TRW's usual accounting practices. For items identified in Section B of this Exhibit as "Firm Fixed Price", the final amount to be paid by Multilink shall be the amount specified in Section B above. 20 EXHIBIT "B" ----------- OUTLINE OF PREMISES ------------------- [To Be Attached] ---------------- 21 EXHIBIT "C" ----------- DOMINGUEZ TECHNOLOGY CENTER RESTRICTIONS ---------------------------------------- [To Be Attached] ---------------- 22 EX-10.9 12 0012.txt SUBLEASE AGREEMENT DATED AUGUST, 1999 EXHIBIT 10.9 SUBLEASE AGREEMENT ------------------ THIS SUBLEASE AGREEMENT (this "Sublease") is entered into as of the ____ day of August, 1999, by and between IMS HEALTH INCORPORATED, a Delaware corporation, successor by merger to IMS AMERICA, LTD. ("Sublessor"), and MULTILINK TECHNOLOGY CORPORATION, a California corporation ("Sublessee"). W I T N E S S E T H: WHEREAS, Sublessor has heretofore entered into that certain Office Lease Agreement with Townsend Property Trust Limited Partnership, d/b/a TPT Limited Partnership (the "Landlord") dated February 21, 1997, (the "Master Lease"), a true and correct copy of which (except for certain economic terms which have been blacked out) is attached hereto as Exhibit B, whereby Sublessor agreed to lease from the Landlord certain premises comprised of approximately 12,663 rentable square feet located on the second floor in the building known as 300 Atrium Drive, Franklin Township, New Jersey; and WHEREAS, Sublessee desires to sublease from Sublessor the entire premises leased by Sublessor from Landlord under the Master Lease. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: ARTICLE 1 --------- DEFINITIONS ----------- All capitalized terms not otherwise defined in this Sublease shall have the meanings ascribed thereto in the Master Lease. ARTICLE 2 --------- DEMISE, DESCRIPTION, USE, AND TERM ---------------------------------- Sublessor hereby subleases to Sublessee, and Sublessee hereby subleases from Sublessor, the entire premises leased by Sublessor from Landlord under the Master Lease comprised of approximately 12,663 rentable square feet, as more fully described in the Master Lease (the "Subleased Premises"), to be used only for the purposes expressly permitted under the Master Lease and for no other purpose, for the term (the "Sublease Term") commencing on the day immediately following the date Sublessor notifies Sublessee that Landlord has consented to this Sublease (the "Commencement Date") and ending at midnight on April 27, 2007 (the "Sublease Expiration Date"). Sublessor also leases to Sublessee and Sublessee hereby subleases from Sublessor the furniture currently used by Sublessor in the Subleased Premises and more particularly described on Exhibit A attached hereto and incorporated herein by reference (the "Leased Furniture"). The Leased Furniture will be in the same condition as existed on June 10, 1999, reasonable wear and tear excepted. ARTICLE 3 --------- RENT AND SECURITY DEPOSIT ------------------------- 3.1 Base Rent. Sublessee shall pay to Sublessor with respect to both the --------- Subleased Premises and the Leased Furniture the following as base rent (the "Base Rent"): (a) for the period from the Commencement Date through and including June 30, 2000, monthly installments of $22,001.96 each; (b) for the period from July 1, 2000 through and including June 30, 2004, an aggregate annual amount of $264,023.55, payable in equal monthly installments of $22,001.96 each; and (c) for the period from July 1, 2004 through and including April 27, 2007, an aggregate annual amount of $305,178.30 payable in equal monthly installments of $25,431.53 each. The component of the annual Base Rent attributable to the Leased Furniture is $12,663.00 (or $1,055.25 as to each monthly installment). All such sums are due and payable in advance on the first day of each and every calendar month during such term, or in the case of the first month on the Commencement Date, at the main office of Sublessor at 660 West Germantown Pike, Plymouth Meeting, Pennsylvania 19462, Attention: James J. O'Brien, or at such other place as Sublessor may designate from time to time in writing. All payments shall be without set off or deduction. Base Rent payable with respect to partial months shall be prorated based on the number of days within such month falling within the Sublease Term. 3.2 Operating Expenses and Real Estate Taxes. Sublessee shall be liable ---------------------------------------- during the Sublease Term to pay to Sublessor as additional rent hereunder Sublessor's Pro Rata Share of Operating Expenses and Taxes under the Master Lease in accordance with the terms of the Master Lease, except as follows: (a) for purposes of this Sublease, the "Base Year" shall be 1999 rather than 1997; (b) for purposes of this Sublease, the "Base Tax Year" shall be 1999 rather than 1997: (c) Sublessee shall pay to Sublessor Sublessor's Pro Rata Share (as set forth in the Master Lease) of increased Operating Expenses and Tax Escalations (subject to the modified Base Year and Base Tax Year set forth herein) based on Sublessor's reasonable 2 estimates of such amounts (which will be calculated based on Landlord's estimates under Section 3(c) of the Master Lease). Sublessor will provide Sublessee with a copy of Landlord's statement and Sublessor's calculations of Sublessee's Pro Rata Share Operating Expense increase and Tax Escalation charges following Sublessor's receipt of Landlord's Statement. Any adjustments required as a result of such annual statement shall be made in accordance with the terms of the Master Lease. 3.3 Electric Charges. Sublessee shall pay amounts required to be paid by ---------------- Sublessor under the Master Lease for Tenant Electric usage, provided, however, such costs shall be prorated to the extent the commencement or expiration of the Sublease Term falls on a date other than the first and last day of the applicable billing period for Tenant Electric under the Master Lease. 3.4 Security Deposit. Within five (5) days following Landlord's approval ---------------- of this Sublease, but in any event prior to the date Sublessee takes possession of the Subleased Premises, Sublessee shall deposit with Sublessor the sum of $198,017.64 in cash (the "Security Deposit"), as security for the performance by Sublessee of its obligations under this Sublease. Such Security Deposit as held by Sublessor shall be deemed to constitute "cash collateral" within the meaning of applicable Federal and State bankruptcy and insolvency laws and regulations. In the event Sublessee defaults under this Sublease, and such default continues beyond the notice and cure period available therefor, if any, Sublessor, in addition to its right to recoup possession and control of the Subleased Premises, shall have the right to take and collect the Security Deposit as liquidated damages for Sublessee's breach in accordance with Article 12. Provided that Landlord determines on advice of counsel that the enforceability of the liquidated damages provisions of this Sublease will not be adversely impacted thereby, Sublessor agrees to apply a portion of the Security Deposit from time to time to cure Sublessee's defaults hereunder which are curable by the payment of an amount less than $5,000 for an individual default and $50,000 for all defaults in the aggregate; provided however, that Sublessor shall have no obligation to apply such funds if Sublessee fails to approve in writing such application upon written request therefor by Sublessor (but Sublessor shall have no obligation to request such approval) and provided further that within five (5) business days of Sublessee's learning of Sublessor's application of a portion of the Security Deposit to cure a default by Sublessee, Sublessee shall forward to Sublessor such amounts as are necessary to restore the Security Deposit to its full amount of $198,017.64 and failure to do so will constitute an event of default under this Sublease without any further notice, demand or opportunity to cure. The Security Deposit need not be segregated by Sublessor from other funds of Sublessor and Sublessee shall not be entitled to any interest thereon. In no event shall the Security Deposit constitute or be deemed to constitute rent payment or rent prepayment, and, if applied by Sublessor as contemplated hereunder, will not constitute or be deemed to constitute a cure of Sublessee's default. Notwithstanding the foregoing, Sublessor agrees to apply the Security Deposit as follows: (a) Provided Sublessee has made twelve (12) consecutive monthly payments of Base Rent and all additional rent required hereunder within the cure periods allowed therefor hereunder and there then exists no default hereunder or an event or circumstance which, with the giving of notice or passage of time or both would constitute a default 3 hereunder (a "Potential Default"), Sublessor agrees to apply a portion of the Security Deposit sufficient to pay Sublessor's Base Rent due hereunder for the month immediately succeeding such twelve consecutive month period; (b) Provided Sublessee has satisfied subsection (a) above and thereafter has timely made the next four (4) consecutive monthly payments of Base Rent and all additional rent required hereunder within the cure periods allowed therefor hereunder and there then exists no default or Potential Default hereunder, Sublessor agrees to apply a portion of the Security Deposit sufficient to pay Sublessor's Base Rent due hereunder for the month immediately succeeding such four (4) consecutive month period; (c) Provided Sublessee has satisfied subsections (a) and (b) above and thereafter has timely made the next four (4) consecutive monthly payments of Base Rent and all additional rent required hereunder within the cure periods allowed therefor hereunder and there then exists no default or Potential Default hereunder, Sublessor agrees to apply a portion of the Security Deposit sufficient to pay Sublessor's Base Rent due hereunder for the month immediately succeeding such four (4) consecutive month period; (d) Provided Sublessee has satisfied subsections (a), (b) and (c) above and thereafter has timely made the next four (4) consecutive monthly payments of Base Rent and all additional rent required hereunder within the cure periods allowed therefor hereunder, there then exists no default or a Potential Default hereunder, Sublessee has executed its planned initial public offering, and Sublessee delivers to Sublessor current financial statements audited by an independent certified public accountant verifying that Sublessee maintains as of the date of such financial statements a "Current Ratio" (as that term is defined according to generally accepted accounting principles) of 2.0 to 1, Sublessor agrees to apply a portion of the Security Deposit sufficient to pay Sublessor's Base Rent due hereunder for the three (3) months immediately succeeding such four (4) consecutive month period; (e) Provided Sublessee has satisfied subsections (a), (b), (c) and (d) above and has achieved a credit rating of B+ or higher with Moody's Investor Service or Standard & Poor's Rating Services, Sublessor agrees to apply the balance of the Security Deposit against Sublessee's Base Rent next becoming due hereunder until the Security Deposit shall have been completely exhausted; (f) Any obligation of Sublessor to apply the Security Deposit as contemplated under subsections (a)-(e) above shall be limited to the extent of the unapplied balance of the Security Deposit at the time of such contemplated application; and (g) Sublessee shall return the remaining unapplied balance of the Security Deposit, if any, within thirty (30) days following the Sublease Expiration Date so long as no default or Potential Default exists as of the Sublease Expiration Date and Sublessee returns the Subleased Premises to Sublessor on the Sublease Expiration Date in the condition and otherwise as required hereunder. 4 (h) In the event (i) Sublessor defaults under the Master Lease, (ii) such default under the Master Lease is unrelated to any default by Sublessee under this Sublease, and (iii) the Master Lease is terminated by Landlord as a result of such default by Sublessor, Sublessor shall return to Sublessee promptly any unapplied balance of the Security Deposit. ARTICLE 4 ---------- THE MASTER LEASE ---------------- 4.1 Subordinate to Master Lease. This Sublease is and shall be at all --------------------------- times subject and subordinate to the Master Lease, a true and correct copy of which (except for certain economic terms which have been blacked out) is attached hereto as Exhibit B. All of the terms and provisions of the Master Lease are incorporated by reference as if fully restated herein, and Sublessee shall be entitled to all of the benefits (including without limitation any parking privileges), and subject to all of the conditions and obligations, of Sublessor as tenant under the Master Lease, except as otherwise expressly provided to the contrary herein. 4.2 Conflicts with Master Lease. The terms, conditions and respective --------------------------- obligations of Sublessor and Sublessee with respect to each other under this Sublease shall be the terms and conditions of the Master Lease (including, without limitation, the insurance and indemnity provisions of the Master Lease) except for those provisions of the Master Lease which are directly contradicted by this Sublease (i.e., base rent terms, delivery of the Premises, etc.), in which event the terms of this Sublease shall control over the Master Lease. Further, the terms and conditions of this Sublease shall not include and --- Sublessee shall have no rights or obligations, as applicable, with respect to the renewal option under Section 1(g) of the Master Lease. Subject to the foregoing, for the purposes of this Sublease, wherever in the Master Lease the word "Landlord" or "Lessor" is used, it shall be deemed to mean Sublessor, and wherever in the Master Lease the word "Tenant" or "Lessee" is used, it shall be deemed to mean Sublessee. Notwithstanding the foregoing, Sublessee acknowledges and agrees that Sublessor shall not be deemed a guarantor of the performance by Landlord of Landlord's obligations under the Master Lease, and Sublessee agrees to look solely to Landlord for the performance of Landlord's obligations and Sublessor's sole obligation with respect thereto shall be to request Landlord to perform its obligations under the Master Lease; provided however, upon written request by Sublessee and as long as Sublessee advances to Sublessor in cash such amounts reasonably deemed by Sublessor from time to time to be necessary to cover the anticipated costs of causing Landlord to perform its obligations under the Master Lease, Sublessor agrees to use commercially reasonable efforts (short of litigation) to cause Landlord to perform its obligations under the Master Lease. Sublessee agrees to indemnify and hold Sublessor harmless for all costs, damages and claims suffered by Sublessor in carrying out Sublessee's request to cause Landlord to comply with the terms of the Master Lease, including without limitation, Sublessor's reasonable attorneys' fees. In no event shall Sublessor be obligated to institute any litigation or accrue any expense (other than de minimus expense) -- ------- above amounts covered by Sublessee's cash 5 advances in seeking performance by Landlord of its obligations under the Master Lease. It is likewise agreed that Sublessor shall have no liability to Sublessee for any default or other act of Landlord under the Master Lease and that Sublessor shall not be obligated to provide any services to Sublessee or otherwise perform any obligations in connection with this Sublease except as specifically set forth herein. 4.3 Assumption of Obligations. During the term of this Sublease, Sublessee ------------------------- does hereby expressly assume and agree to perform and comply with, for the benefit of Sublessor and Landlord, the obligations of Sublessor under the Master Lease including, without limitation, the maintenance of the Subleased Premises, the maintenance of insurance coverages, and compliance with all affirmative and negative covenants. Notwithstanding the foregoing, the obligation to pay rent to the Landlord shall be considered performed by Sublessee to the extent and in the amount rent is paid to Sublessor in accordance with Article 3 of this Sublease. 4.4 Termination of Master Lease. If the Master Lease terminates through --------------------------- any event that is not caused by a default of Sublessee or Sublessor under this Sublease, this Sublease shall terminate and the parties hereto shall be relieved of any further liability or obligation under this Sublease, except that any prepaid portion of Base Rent not yet earned by Sublessor and the Security Deposit, to the extent not heretofore applied by Sublessor to Sublessee's obligations under this Sublease, shall be promptly returned to Sublessee. If the Master Lease terminates, in no event shall Sublessor be required to act beyond its obligations as tenant in the Master Lease. 4.5 Sublessor's Representations. Sublessor represents, warrants and --------------------------- covenants as follows: (a) Provided that Sublessee pays all Base Rent, additional rent and other charges required under this Sublease within any applicable cure period, Sublessor shall take such action and perform such acts as are necessary to keep the Master Lease in full force and effect except with respect to those obligations under the Master Lease which Sublessee has agreed to perform hereunder. If Sublessor shall fail to perform any obligations under the Master Lease (other than those Sublessee has agreed to perform hereunder), Sublessee, in addition to all other available rights and remedies, shall have the right to perform such obligations on behalf of Sublessor, including without limitation the payment of Base Rent and Additional Rent due hereunder directly to Landlord rather than to Sublandlord hereunder, and such action by Sublessee shall not constitute a default under this Sublease. (b) The Master Lease attached hereto as Exhibit B is a true and correct copy thereof (except for certain economic terms which have been blacked out), has not been modified except as set forth in Exhibit B, and is in full force and effect. (c) To Sublessor's actual knowledge there currently exists no uncured default under the Master Lease on the part of either Landlord or Sublessor. (d) Sublessor shall not modify the Master Lease in a manner which would adversely affect Sublessee's rights under this Sublease without first obtaining Sublessee's written consent. 6 ARTICLE 5 --------- INSURANCE AND RISK OF LOSS -------------------------- 5.1 Insurance Requirements. (a) All personal property belonging to ---------------------- Sublessee or to any other person, located in or about the Subleased Premises or the surrounding building and premises, shall be at the sole risk of Sublessee or such other person, and neither Sublessor nor its agents shall be liable for the theft or misappropriation thereof, or for any damage or injury thereto, or for any damage or injury to Sublessee or other persons or to any of their respective property caused by fire, water, snow, frost, steam, heat, cold, dampness, falling plaster, sewers or sewage, gas, odors, noise, the bursting or leaking of pipes, plumbing, electrical wiring or equipment or fixtures of any kind, or of any other extended coverage perils, or by any act or neglect of any other tenant or occupant of the building, or of any other person or caused in any manner whatsoever. (b) Sublessee will protect, indemnify and save harmless the Landlord and Sublessor from all losses, costs or damages sustained by reason of any act or other occurrence causing injury or harm to any person or property whatsoever, resulting directly or indirectly from the Sublessee's use of the Premises or any part thereof. 5.2 Casualty. If the Premises or the building in which it is situated -------- become untenantable due to fire, flood or other casualty, and if the Landlord terminates the Master Lease, then this Sublease shall terminate. If the Landlord does not terminate the Lease, but undertakes to repair, restore or rehabilitate the building or the Premises, this Sublease shall continue in full force and effect and the rent payable hereunder during the restoration period shall not be abated unless Sublessor's rent under the Master Lease is abated. If Sublessor's rent under the Master Lease is so abated, Sublessee's rent under this Sublease Agreement shall be abated during the restoration period by an amount equal to the Base Rent otherwise required to be paid under this Sublease times the percentage of the base rent under the Master Lease for which Sublessor receives abatement under the Master Lease. If as a result of any casualty, Sublessor has the right to terminate the Master Lease, Sublessor agrees to carry out Sublessee's written direction to terminate the Master Lease; provided however, that Sublessee shall indemnify and hold Sublessor harmless from any and all costs, losses and damage suffered by Sublessee as a result of carrying out Sublessee's direction to terminate the Master Lease. Sublessor shall have no obligation to pursue any such termination if such termination right is contested by Landlord unless Sublessee advances sufficient funds determined by Sublessor from time to time to be necessary to cover the costs of such pursuit. In no event, however, shall Sublessor be obligated to institute any litigation or accrue any expenses (other than de minimus expense) above amounts covered by -- ------- Sublessee's cash advances in pursuing the termination of the Lease. 7 ARTICLE 6 --------- WASTE AND NUISANCE ------------------ Sublessee shall not commit, or suffer to be committed, any waste on the Subleased Premises, nor shall it maintain, commit, or permit the maintenance or commission of any nuisance on the Subleased Premises or use the Subleased Premises for any unlawful purpose. ARTICLE 7 --------- POSSESSION AND QUIET ENJOYMENT ------------------------------ 7.1 Quiet Enjoyment. Sublessor shall, on the Commencement Date, deliver to --------------- Sublessee possession of the Subleased Premises and, provided Sublessee fulfills all of Sublessee's obligations hereunder in accordance with the terms hereof, Sublessor shall secure Sublessee in the quiet enjoyment thereof against all persons lawfully claiming the same under Sublessor during the entire Sublease Term. 7.2 Subordination. This Sublease shall be subordinate in all respects to ------------- the Master Lease and shall be subordinate, at the option of either the Landlord or Sublessor, to any mortgages or underlying land leases in accordance with the terms of Section 14 of the Master Lease, whether placed by the Landlord upon the building or land of which of the Subleased Premises is a part or placed by Sublessor upon its leasehold interest. Sublessee agrees to execute a subordination and attornment agreement consistent with the requirements of the Master Lease, provided, however, that any such agreement must be delivered by Sublessee to Sublessor at least five (5) days prior to the date Sublessor is required to deliver any subordination and attornment agreement to Landlord under the Master Lease. 7.3 Early Termination Option. Provided there then exists no default or ------------------------ Potential Default under this Sublease, Sublessor agrees to exercise Sublessor's early termination rights under Section 1(h) of the Master Lease at the request of Sublease in order to effect a simultaneous early termination of this Sublease (the "Early Termination") subject to and in accordance with the following terms and conditions: (a) Sublessee shall provide Sublessor with written notice (the "Early Termination Notice") of its desire to effect the Early Termination on or before June 28, 2003; (b) the Early Termination Notice shall be accompanied by (i) the full cancellation payment required in connection with the early termination of the Master Lease under Section 1(g) of the Master Lease, plus (ii) $25,326 in consideration of the early acquisition of the Leased Furniture (collectively, the "Early Termination Consideration"); (c) Landlord shall recognize in writing the effective exercise by Sublessor of its early termination rights under the Master Lease. 8 Upon the effective Early Termination, the Sublease Expiration Date hereunder shall be modified to the effective Early Termination date. Provided that Sublessor provides Landlord with timely notice of its desire to terminate the Master Lease early under Section 1(h) of the Master Lease following timely receipt of Sublessee's Early Termination Notice and Sublessor forwards to Landlord with such notice the Early Termination Consideration delivered by Sublessee to Sublessor, Sublessor shall have no liability if Landlord, for any reason, refuses to recognize the early termination of the Master Lease and in no event shall the Early Termination be effective as to this Sublease unless and until such early termination is acknowledged by Landlord to be effective as to the Master Lease. Sublessor agrees not to exercise Sublessor's early termination rights under Section 1(h) of the Master Lease except as requested by Sublessee pursuant to an Early Termination Notice. ARTICLE 8 --------- [INTENTIONALLY DELETED] ARTICLE 9 --------- SURRENDER OF LEASED PREMISES AND HOLDOVER ----------------------------------------- 9.1 Removal of Property. Sublessee shall, without demand therefor and at ------------------- its own cost and expense, prior to the expiration or sooner termination of the term hereof, (a) remove all property required by the Master Lease to be removed, including the Leased Furniture acquired under Article 11 hereof, (b) repair all damage to the Subleased Premises caused by such removal, (c) restore the Subleased Premises to the condition it was in prior to the installation of the property so removed, and (d) leave all improvements and fixtures in the Premises as and if required by the Master Lease. 9.2 Surrender. Sublessee agrees to and shall, on the expiration or sooner --------- termination of the Sublease Term, promptly surrender and deliver the Subleased Premises to Sublessor without demand therefor in good condition, ordinary wear and tear and casualty damage and repairs for which Sublessor has no responsibility hereunder excepted. 9.3 Holding-Over. If Sublessee fails to surrender and deliver the ------------ Subleased Premises in accordance with this Article 9, Sublessee, in addition to being liable to Sublessor for any loss or damage arising from such failure (including inability to deliver the Subleased Premises to a successor subtenant and any holdover liability of Sublessor under the Master Lease), shall be considered a tenant at will and shall be required to pay Sublessor holdover rent in an amount equal to one hundred fifty percent (150%) of all Base Rent, additional rent and other amounts otherwise payable by Sublessee under this Sublease immediately prior to the expiration of the term hereof, (b) all other costs, including reasonable attorneys' fees, incurred by Sublessor as a direct or indirect result of such holdover. 9 ARTICLE 10 ---------- CONDEMNATION ------------ The terms of the Master Lease shall apply to any taking of all or a portion of the Subleased Premises for any public or quasi-public use under any law, ordinance, or regulation or by right of eminent domain, or upon the sale of all or a portion of the Subleased Premises to the condemning authority under threat of condemnation; and this Sublease shall terminate upon any termination of the Master Lease arising from any such taking. ARTICLE 11 ---------- LEASED FURNITURE ---------------- 11.1 Maintenance of Leased Property. Sublessee shall properly use and shall ------------------------------ be solely responsible for the maintenance of the Leased Furniture during the Sublease Term, and to the extent not acquired by Sublessee pursuant to Section 11.2 below, shall return possession of the Leased Furniture to Sublessor on the Sublease Expiration Date in as good or better condition than existed on the Commencement Date, reasonable wear and tear excepted. 11.2 Title to Leased Property. Provided that there then exists no uncured ------------------------ default under this Sublease (or Sublessor shall have waived any such default solely in connection with the operation of this Section 11.2), title to the Leased Furniture shall automatically vest with Sublessee on the Sublease Expiration Date. Sublessee agrees to pay Sublessor $25,326 for the Leased Furniture in connection with Sublessee's exercise of its Early Termination option under Section 7.3. ARTICLE 12 ---------- DEFAULTS AND REMEDIES --------------------- If Sublessee (a) shall allow the rent or any other sum of money owed by Sublessee hereunder to be in arrears more than five (5) days after written notice of such delinquency is given to Sublessee, or (b) shall remain in default under the terms of the Master Lease beyond any applicable grace period set forth herein or therein, or (c) shall remain in default under any other condition of this Sublease for a period of thirty (30) days after written notice of such default is given to Sublessee, or (d) should any person other than Sublessee secure possession of the Subleased Premises or any part thereof by reason of any receivership, bankruptcy proceedings, or other operation of law in any manner whatsoever, Sublessor in addition to any other remedies available to Landlord under the Master Lease or available at law or in equity, may, at its option, without notice to Sublessee, (i) terminate this Sublease or, (ii) in the alternative, Sublessor may re-enter and take possession of the Subleased Premises and remove all persons and property therefrom, without being deemed guilty of any manner of trespass, re-let the Subleased Premises or any part thereof for all or any part of the remainder of said term to a party satisfactory to Sublessor and the Landlord, and at such monthly rental as Sublessor may with reasonable diligence be able to secure, and in either case Sublessor may take and collect the Security Deposit as liquidated damages for Sublessee's breach of this Sublease, the parties hereto 10 acknowledging that actual damages arising from such default would be difficult to determine and that the Security Deposit constitutes the parties' reasonable estimate of such damages and not a penalty. Sublessor shall have no duty to mitigate damages hereunder except as may be specifically required by applicable law. The rights of Sublessor under this Article 12 are in addition to and not in lieu of any rights and remedies available to Sublessor pursuant to the terms of this Sublease (including those incorporated herein by reference from the Master Lease) or otherwise available at law or in equity; provided however, that Sublessee's affirmative election to apply the Security Deposit as liquidated damage and recoupment of possession and control of the Subleased Premises shall collectively be deemed Sublessor's exclusive remedy for such breach. Sublessor and Sublessee further agree that the Security Deposit held by Sublessor represents cash collateral (as such term is used and interpreted under applicable State and Federal bankruptcy and insolvency laws) securing Sublessee's obligations under this Sublease. Except as otherwise expressly set forth herein, all rights and remedies of Sublessor under this Sublease shall be cumulative, and none shall exclude any other right or remedy at law. Such rights and remedies may be exercised and enforced concurrently and whenever and as often as occasion therefor arises. ARTICLE 13 ---------- [INTENTIONALLY DELETED] ARTICLE 14 ---------- ASSIGNMENT AND SUBLEASE ----------------------- Notwithstanding any rights Sublessor may have as tenant under the Master Lease, without the prior written consent of Landlord and Sublessor, which consent may be withheld in their sole discretion, Sublessee shall not pledge, assign or convey this Sublease or any interest hereunder, allow any transfer hereof or any lien upon Sublessee's interest by operation of law, sublet the Subleased Premises or any part thereof, or permit the use or occupancy of the Subleased Premises or any part thereof by anyone other than Sublessee; provided however, if Sublessee executes its planned initial public offering and achieves a credit rating of B+ or higher with Moody's Investor Service or Standard & Poor's Rating Services, Sublessor agrees not to unreasonably withhold it consent to a proposed assignment or sublease. The restrictions set forth in this Article 14 are in addition to and not in lieu of any restrictions on assignment and subletting, including transfer of ownership interests in Sublessee and its constituent parts, set forth in the Master Lease. 11 ARTICLE 15 ---------- MISCELLANEOUS ------------- 15.1 Notices. All notices to be given under this Sublease shall be given ------- either personally, by a reputable commercial overnight courier service (such as Federal Express and UPS), or by certified or registered mail, return receipt requested, addressed to the proper party as follows: Sublessor: IMS Health Incorporated 660 West Germantown Pike Plymouth Meeting, Pennsylvania 19462 Attention: James J. O'Brien with a copy to: IMS Health Incorporated 200 Nyala Farms Westport, Connecticut 06880 Attention: Director of Global Real Estate Sublessee: Multilink Technology Corporation 2601 Ocean Park Boulevard Suite 108 Santa Monica, California 90405 Attention: Chief Executive Officer Notice shall be deemed given and received on the date indicated on the return receipt therefor. In the event the notice is refused or cannot be delivered due to a change of address for which no notice has been provided in accordance with this Section 15.1, such notice shall be deemed given and received on the first date of refusal or attempted delivery, as applicable. 15.2 Successors, Assigns, Etc. This Sublease shall be binding upon and ------------------------ inure to the benefit of the parties hereto and their respective heirs, executors, administrators, legal representatives, successors, and assigns when permitted hereby. 15.3 Governing Law. This Sublease shall be construed under and in ------------- accordance with the laws of the State in which the Premises are located. 15.4 Severability. In case any one or more of the provisions contained ------------ in this Sublease shall for any reason be held to be invalid, illegal, or unenforceable, no other provision hereof shall be affected thereby and this Sublease shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 15.5 Entire Agreement. This Sublease constitutes the sole and only ---------------- agreement of the parties hereto and supersedes any prior understandings or written or oral agreements between the parties respecting the subject matter hereof. 12 15.6 Amendments. No amendment, modification, or alteration of the terms ---------- hereof shall be binding unless the same shall be in writing, dated subsequent to the date hereof, and duly executed by the parties hereto. 15.7 Rights Cumulative. The rights and remedies provided by this Sublease ----------------- are cumulative and the use of any one right or remedy by either party shall not preclude or waive its right to use any or all other remedies. Said rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance, or otherwise. 15.8 No Waiver. No waiver by the parties hereto of any default or breach --------- of any term, condition, or covenant of this Sublease shall be deemed to be a waiver of any other breach of the same or any other term, condition, or covenant contained herein. 15.9 Attorneys' Fees. In the event Sublessor or Sublessee breaches any of --------------- the terms of this Sublease whereby the party not in default employs attorneys to protect or enforce its rights hereunder and prevails, then the defaulting party agrees to pay the prevailing party's reasonable attorneys' fees, including, without limitation, attorneys' fees incurred in connection with any bankruptcy or insolvency proceeding. 15.10 Force Majeure. Neither Sublessor nor Sublessee shall be required to ------------- perform any term, condition, or covenant in this Sublease so long as such performance is delayed or prevented by any acts of God, strikes, lock-outs, material or labor restrictions by any governmental authority, civil riot, floods, or any other cause not reasonably within the control of Sublessor or Sublessee and which by the exercise of due diligence such party is unable, in whole or in part, to prevent or overcome. 15.11 Landlord's Consent. Landlord's prior written consent may be required ------------------ pursuant to the terms of the Master Lease for certain actions by Sublessee whether or not Sublessor's consent is required hereunder. Sublessee agrees to refrain from taking any such action unless and until all requisite consents are obtained. 15.12 Time of the Essence. Time is of the essence of this Sublease. ------------------- 15.13 Roof Access. Sublessor agrees to cooperate with Sublessee in ----------- connection with any request or negotiation with Landlord for the use and installation of Sublessee's equipment on the roof of the building in which the Subleased Premises are situate provided that (a) such use or installation does not create any additional expense or liability for Sublessor, or (b) Sublessee posts with Sublessor such additional security as Sublessor deems necessary to cover any such increased liability. Sublessee hereby acknowledges that Sublessor has no right under the Master Lease to use or install equipment on the roof and makes no representations that such rights will be available for Sublessor's benefit. 15.14 DISCLAIMERS. SUBLESSEE HEREBY AGREES TO SUBLEASE THE SUBLEASED ----------- PREMISES ON AN "AS IS, WHERE IS, WITH ALL FAULTS" BASIS WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, ON THE 13 PART OF SUBLESSOR WITH RESPECT TO THE SUBLEASED PREMISES, INCLUDING BUT NOT LIMITED TO, WARRANTIES OR REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. SUBLESSEE REPRESENTS TO SUBLESSOR THAT SUBLESSEE IS RELYING SOLELY UPON ITS OWN INVESTIGATIONS AS TO THE FITNESS OF THE SUBLEASED PROPERTY AND THE TERMS OF THE MASTER LEASE FOR SUBLESSEE'S INTENDED PURPOSES. 15.15 Card Access System. Sublessee shall have the right to utilize the ------------------ card access security system (the "Security System") currently in place with respect to the Subleased Premises and Sublessee agrees to properly maintain at Sublessee's sole expense the Security System in good working order throughout the term of this Sublease. Sublessor agrees to make a representative of Sublessor familiar with the Security System available to Sublessee for consultation during normal business hours. Sublessee will be responsible for the cost of all supplies relating to the operation and maintenance of the Security System, including without limitation, access cards. 15.16 Additional Rent. all amounts required to be paid by Sublessee under --------------- this Sublease, except Base Rent, shall be deemed "additional rent" owed hereunder and "rent" as used herein shall mean collectively the Base Rent and the additional rent. 15.17 Brokers. Except for Huff Real Estate, Inc. and Insignia/ESG, Inc. to ------- which Sublessor has agreed to pay a commission in accordance with the terms of one or more separate written commission agreements, Sublessee has not engaged the services or otherwise negotiated with any broker in connection with this Sublease. Sublessee agrees to indemnify and hold Sublessor harmless from and against any and all claims for commission or other remuneration made by parties acting or purporting to act by or through Sublessee. 15.18 Landlord's Consent. Sublessee acknowledges and agrees that this ------------------ Sublease shall be of no force and effect unless approved by Landlord in accordance with the terms of the Master Lease. Sublessee agrees to execute any modifications to this Sublease and any additional documentation and to supply any additional information as Landlord may request provided that such request is consistent with the Master Lease or is otherwise reasonable. Furthermore, Sublessee agrees that if during the Sublease Term any action or matter requires either Landlord's consent under the Master Lease or Sublessor's consent under this Sublease, such action or matter shall be construed to require, at the option of Sublessor, the consent of both Landlord and Sublessor. Sublessor shall have no obligation to consent to any action or matter with respect to which Landlord withholds or refuses consent, regardless of Landlord's reason therefor. Sublessor agrees to submit this Sublease to Landlord for approval promptly following execution of this Sublease: Sublessee shall be entitled to terminate this Sublease if Landlord does not provide its consent to this Sublease within thirty (30) days following execution of this Sublease by all parties. 15.19 Landlord's Acknowledgment. By its approval of this Sublease Landlord ------------------------- acknowledges that notwithstanding anything to the contrary in Section 11(a) of the Master Lease and in clarification of the effect thereof, Sublessee shall have no liability for any monetary 14 obligations under the Master Lease in excess of Sublessee's monetary obligations under this Sublease. IN WITNESS WHEREOF, Sublessor and Sublessee have caused this Sublease to be executed by their duly authorized representatives as of the day and year first written above. IMS HEALTH INCORPORATED, a Delaware corporation By: ____________________________________ Name: __________________________________ Title:__________________________________ MULTILINK TECHNOLOGY CORPORATION, a California corporation By: Richard N. Nottenburg --------------------------------- Name: Richard N. Nottenburg --------------------------------- Title: President --------------------------------- 15 EXHIBIT A --------- (Description of Leased Furniture) EXHIBIT B --------- (Copy of Master Lease with Certain Economic Terms Blacked Out) 300 ATRIUM DRIVE FRANKLIN TOWNSHIP, NEW JERSEY OFFICE LEASE AGREEMENT Landlord: TOWNSEND PROPERTY TRUST LIMITED PARTNERSHIP, Doing Business in New Jersey as TPT Limited Partnership Tenant: IMS AMERICA, LTD., a New Jersey corporation Building: 300 ATRIUM DRIVE FRANKLIN TOWNSHIP, NEW JERSEY Floor(s): Portion of Second (2nd) Sq. Ft.: 12,663 Rentable Square Feet Term: Ten (10) years Extension Option: One (1) option to extend for five (5) years at 95% of market rent Termination Option: After seventh (7th) lease year TABLE OF CONTENTS -----------------
Page ---- 1. PREMISES AND TERM................................................... 2 2. RENT................................................................ 5 3. OPERATING EXPENSE ESCALATION, TAXES AND TENANT ELECTRIC............. 6 4. DELIVERY OF THE PREMISES............................................ 10 6. USE................................................................. 14 7. TENANT'S CARE OF THE PREMISES...................................... 14 8. SERVICES............................................................ 16 9. DESTRUCTION OR DAMAGE TO PREMISES................................... 18 10. DEFAULT BY TENANT; LANDLORD'S REMEDIES.............................. 20 11. ASSIGNMENT AND SUBLETTING........................................... 23 12. CONDEMNATION........................................................ 25 13. RIGHT TO ENTER...................................................... 25 14. SUBORDINATION....................................................... 26 15. INDEMNIFICATION AND HOLD HARMLESS................................... 27 16. INSURANCE........................................................... 28 17. ENTIRE AGREEMENT - NO WAIVER........................................ 29 18. HOLDING OVER........................................................ 30 19. HEADINGS............................................................ 30 20. NOTICES............................................................. 30
i 21. HEIRS, SUCCESSORS, AND ASSIGNS - PARTIES............................. 30 22. ATTORNEY'S FEES...................................................... 31 23. SECURITY DEPOSIT..................................................... 31 24. RULES AND REGULATIONS................................................ 32 25. INTENTIONALLY DELETED................................................ 32 26. LATE PAYMENTS........................................................ 32 27. ESTOPPEL CERTIFICATE................................................. 33 28. SEVERABILITY AND INTERPRETATION...................................... 33 29. MULTIPLE TENANTS...................................................... 34 30. FORCE MAJEURE......................................................... 34 31. QUIET ENJOYMENT....................................................... 34 32. BROKERAGE COMMISSION; INDEMNITY....................................... 34 33. EXCULPATION OF LANDLORD............................................... 34 34. ORIGINAL INSTRUMENT................................................... 35 35. NEW JERSEY LAW........................................................ 35 36. NO RECORDATION OF LEASE............................................... 35 37. HAZARDOUS WASTES/ENVIRONMENTAL COMPLIANCE............................. 35 38. LEASE BINDING UPON DELIVERY; NO OPTION................................ 37 39. INTENTIONALLY DELETED................................................. 37 40. JURISDICTION; SERVICE; WAIVER OF JURY TRIAL........................... 37 41. TENANT'S FINANCIAL STATEMENTS......................................... 37
ii EXHIBIT A SPACE PLAN OF PREMISE...................................... A-1 EXHIBIT B LEGAL DESCRIPTION OF THE LAND.............................. B-1 EXHIBIT C RULES AND REGULATIONS...................................... C-1 EXHIBIT D CLEANING SPECIFICATIONS.................................... D-1
iii LEASE AGREEMENT THIS LEASE AGREEMENT (the "Lease"), made as of this 21st day of February, 1997, by and between Townsend Property Trust Limited Partnership, a Maryland limited partnership, doing business in New Jersey as TPT Limited Partnership ("Landlord"), which has as its address for all purposes hereunder as follows: Townsend Property Trust Limited Partnership c/o The Townsend Company 210 West Pennsylvania Avenue, Suite 610 Towson, Maryland 21204 and IMS America, Ltd. ("Tenant"), a corporation of the State of New Jersey, which has as its address for all purposes hereunder: Prior to the Commencement Date (as hereinafter defined): IMS America, Ltd. c/o The Plymouth Group Inc. 15 Independence Boulevard Warren, New Jersey 07059 After the Commencement Date: IMS America, Ltd. 300 Atrium Drive Somerset, New Jersey 08873 All correspondence to Tenant shall be copied to: Cognizant Corporation 200 Nyala Farms Road Westport, Connecticut 06880 Attn: Director of Global Real Estate 1 WITNESSETH: 1. PREMISES AND TERM (a) Landlord hereby rents and leases to Tenant, and Tenant hereby rents and leases from Landlord, the following described space (the "Premises"): Floor(s): a portion of the second (2nd) floor Rentable Square Feet: 12,663 as shown on Exhibit "A" ----------- located at the "Building": Address: 300 Atrium Drive Franklin Township, New Jersey Total Building Rentable Square Feet: 149,359 (b) The parties agree that the Building contains 149,359 Rentable Square Feet ("RSF") and the Premises contain 12,663 RSF regardless of the actual square footage amounts. "Tenant's Pro Rata Share" shall mean 8.48%. (c) The Premises are more particularly shown and outlined on the space plans attached hereto as Exhibit "A", and made a part hereof. ----------- (d) The Building is located on a parcel of land described in the attached Exhibit "B" (the "Land"). The Land, the Building and the other ----------- improvements on the Land are hereafter called the "Property". (e) The Premises shall include the appurtenant right to use, in common with others, public lobbies, entrances, stairs, corridors, elevators, and other public portions of the Building, subject in all instances and under all circumstances to Landlord's right to alter, modify and, to the extent necessary to temporarily block off access to portions of such public areas if Landlord deems it desirable or appropriate to do so. All the windows and outside walls of the Premises, and any space in the Premises used for shafts, pipes, conduits, ducts, telephone ducts and equipment, electric or other utilities, sinks or other Building facilities, and the use thereof and access thereto through the Premises for the purposes of operation, maintenance, inspection, display and repairs are hereby reserved to Landlord. No easement for light, air or view is granted or implied hereunder, and the reduction or elimination of Tenant's light, air or view will not affect Tenant's liability or obligations under this Lease. Tenant shall have the right to use forty-one (41) spaces in the parking lot serving the Building on a non-reserved basis, and four spaces (in a location to be 2 determined by Landlord in its sole discretion) on a reserved basis, for the daily temporary parking of automobiles of employees and business invitees. The reserved spaces shall be identified by Landlord as reserved for the use of Tenant. (f) The term (the "Term") of this Lease shall commence on the date (the "Commencement Date") that the Tenant Improvement Work (defined below) is "substantially complete" (defined below), to and expiring on the date that is ten (10) years from the Commencement Date unless earlier terminated in accordance with this Lease. This Lease shall be effective and enforceable between Landlord and Tenant upon its execution and delivery, whether such execution and delivery occurs on, prior to, or after the Commencement Date. If the term of the Lease is extended, then the Expiration Date shall be the last day of this term as extended and "Term" shall mean the Term including such extension. (g) Provided there is no uncured event of default under this Lease at the time Tenant exercises the option described in this Paragraph 1(g) or at the commencement of the Renewal Term (defined below), Tenant shall have the option to renew this Lease for one additional term (the "Renewal Term") of five (5) years by giving Landlord written notice at least two hundred seventy (270) days prior to the expiration date of the Lease. The Renewal Term shall be on the same terms and conditions as set forth in this Lease, except that (i) the Base Rental shall be ninety-five percent (95%) of market rent ("Market Rent") for renewals of tenant space in comparable quality office buildings in the area in which the Premises is located, and (ii) the "Base Year" for calculating Tenant's Pro Rata Share of the increase in Operating Expenses and the "Base Tax Year" for calculating Tenant's Pro Share of the increase in Taxes, shall be 2007. Market Rent shall be determined as follows. Within thirty (30) days after Tenant exercises its option to renew, Landlord will advise Tenant of the Market Rent. If Landlord and Tenant cannot agree on the Market Rent within thirty (30) days of the date that Landlord provides Tenant with Landlord's determination of the Market Rent, then within thirty (30) days after such failure to reach agreement, Landlord shall furnish to Tenant a notice in writing ("Landlord's Notice") stating what Landlord perceives to be Market Rent. Landlord's Notice shall be accompanied by a statement from a qualified real estate appraiser stating the appraiser's opinion of Market Rent and that it has been determined in accordance with this Section. If the Tenant disagrees with the estimate of Market Rent submitted by Landlord with Landlord's Notice, then within thirty (30) days after receipt of Landlord's Notice, Tenant shall have the right to submit to Landlord an appraisal by a qualified real estate appraiser of Market Rent effective as of the commencement date of the Renewal Term. If the higher estimate is not more than 105% of the lower estimate, the Market Rent shall be established as the average of the two appraisals. If not, the two appraisers acting on behalf of Landlord and Tenant, shall, within fifteen (15) days after Tenant's appraisal has been 3 submitted, jointly appoint a third qualified real estate appraiser (the "Referee"). If the two appraisers are unable to agree upon the selection of a Referee, then the Referee shall be selected within fifteen (15) days thereafter by an arbitrator pursuant to the rules of the American Arbitration Association. The Referee shall, within thirty (30) days after appointment, render his decision which decision shall be strictly limited to choosing one of the two determinations made by the two appraisers chosen by Landlord and Tenant with respect to Market Rent. The decision of the Referee shall be binding upon Landlord and Tenant and shall constitute the Base' Rental for the Renewal Term. Landlord and Tenant shall each pay for their own appraisal, and the cost of the Referee shall be shared equally by Landlord and Tenant. In determining Market Rent, the appraisers shall each take into account the following: (a) the amount of space and length of term taken by the Tenant; (b) the credit worthiness and quality of Tenant; and (c) rent for comparable space with similar improvements to the Tenant Improvement Work (in the condition of such Tenant Improvement Work) in comparable buildings in the relevant competitive market but excluding concessions offered to new tenants such as free rent, tenant improvement allowances, moving allowances and other concessions. In determining Market Rent, the appraisers shall exclude from consideration: (i) tenant improvements installed by Tenant; (ii) alterations installed by Tenant at its expense, during the Term; and (iii) concessions offered to new tenants such as free rent, tenant improvement allowances and other concessions. Notwithstanding the foregoing to the contrary, in no event shall the Base Rental for the Renewal Term be less than the Base Rental last in effect during the original Term of this Lease. (h) Tenant shall have the option to terminate this Lease effective as of the seventh (7th) anniversary of the Commencement Date by providing Landlord with written notice not less than nine (9) months prior to the seventh (7th) anniversary of the Commencement Date, which notice shall include a cancellation payment equal to the sum of (i) three (3) months Base Rent and Additional Rent at the rates then in effect, plus (ii) an amount equal to the unamortized portion of the TI Allowance (as hereinafter defined), which amortization shall be as permitted under the Internal Revenue Code of 1986, as amended. Tenant's exercise of its option to terminate shall be effective to terminate this Lease only if, at the time of the notice and on the seventh (7th) anniversary of this Lease, Tenant is not in default under this Lease, and no event exists which with the passage of time or the giving of notice or both would ripen into a default. If Tenant fails to give timely notice of its option as provided above, said option shall be forever waived. (i) "Lease Year" as used herein shall mean (i) each and every consecutive twelve (12) month period during the Term of this Lease, or (ii) in the event of Lease expiration or termination, the period between the last complete Lease Year and said expiration or termination. The first such twelve (12) month period shall commence on the 4 Commencement Date. If the Commencement Date is any day other than the first day of a month, then the first Lease Year shall be the partial month in which the Commencement Date occurs and the next consecutive twelve (12) months. (j) "Business Days" as used herein shall mean Monday through Friday, New Jersey state holidays excepted. 2. RENT (a) Tenant shall pay to Landlord at the address of Landlord indicated herein, or at such other place as Landlord may designate in writing, without demand, deduction or setoff, an annual base rental (said rent, and as the same may be adjusted from time to time, is herein referred to as the "Base Rental"), due and payable in equal monthly installments (the "Monthly Base Rental") in advance commencing on the Commencement Date and continuing on the first (1st) day of each calendar month during the Term. The term "Rent", as used herein, shall mean Base Rental (as adjusted from time to time), and any additional rents or charges due of Tenant hereunder. (b) The annual Base Rental for Lease Years 1 through 3 shall be per RSF or and the Monthly Base Rental for Lease Years 1 through 3 shall be (c) The annual Base Rental for Lease Years 4 through 6 shall be per RSF or and the Monthly Base Rental for Lease Years 4 through 6 shall be (d) The annual Base Rental for Lease Years 7 and 8 shall be per RSF or and the Monthly Base Rental for Lease Years 7 and 8 shall be (e) The annual Base Rental for Lease Years 9 and 10 shall be per RSF or and the Monthly Base Rental for Lease Years 9 and 10 shall be (f) Should this Lease commence on other than the first (1st) day or terminate at any time other than the last day of a calendar month, the amount of Base Rental due from Tenant shall be proportionately adjusted based on that portion of the month that this Lease is in effect. (g) Tenant has deposited with Landlord a security deposit of 5 $41,154.76 (the "Security Deposit") which is governed by terms of Paragraph 23 of this Lease. 3. OPERATING EXPENSE ESCALATION, TAXES AND TENANT ELECTRIC (a) Operation Expense Escalation. ---------------------------- (i) Commencing with calendar year 1998, and for each calendar year falling wholly or partially within the Term thereafter, Tenant shall pay to Landlord as additional rent, Tenant's Pro Rata Share of the amount by which Operating Expenses for such calendar year exceed the Operating Expenses for the Base Year. (ii) For the purposes hereof, the following definitions shall apply: (A) "Base Year" shall mean calendar year 1997. (B) "Landlord's Statement" shall mean a statement furnished by Landlord to Tenant containing a computation or information relating to any additional rent asserted by Landlord to be due pursuant to the provisions of this Lease. (C) "Operating Expenses" shall mean: (1) all costs and expenses incurred and expenditures made by Landlord in the operation and management of the Building and the Property, exclusive of financing expenses, real estate taxes, and costs paid directly by individual tenants to suppliers. Operating Expenses include, without limitation, (i) costs of cleaning, security, janitorial service, rubbish removal, heating, electricity, air conditioning, utilities, tempered water, maintenance and repairs, maintenance of the grounds, snow removal and window cleaning, (ii) service contracts with independent contractors for any of the foregoing (including, but not limited to, elevator and HVAC maintenance), (iii) management fees not to exceed four percent (4%) of gross revenue from the Property, (iv) wages, salaries, benefits, payroll taxes and unemployment compensation insurance for employees of Landlord or any contractor of Landlord engaged in the cleaning, operating, maintenance or security of the Building and Property, (v) the cost of all insurance including, without limitation, casualty, liability and loss of rent insurance equal to one (1) year's rent for the gross rent roll (including Additional Rent), (vi) legal fees (except as excluded below), (vii) an allowance for depreciation over the useful life (as determined by Landlord) of any 6 items or improvements properly chargeable to the capital account; (viii) payments other than real estate taxes to the city in which the Building is located and other agencies, or other governmental agencies including, but not limited to, water and sewer charges, (ix) supplies, (x) the annual amortization over its useful life on a straight-line basis of the costs of any capital improvement made by Landlord and required by any changes in applicable laws, rules or regulations of any governmental authorities, (xi) the annual amortization over its useful life on a straight-line basis of the cost of any equipment or capital improvement made by Landlord as a labor-saving measure or to accomplish other savings in operating, repairing, managing or maintaining the Property (but only to the extent of the savings), and (xii) an administrative fee of four percent (4%) of the Operating Expenses; but excluding (I) the cost of all electricity furnished to all tenants in their leased premises (provided that the cost of electricity to common areas on the Property shall be included in Operating Expenses), (II) overtime electricity usage of other tenants, (III) legal fees relating to disputes with Tenants, based upon Landlord's negligence, or relating to the defense of Landlord's title to or interest in the Property, (IV) leasing commissions and other expenses incurred for leasing, renovating or improving space for tenants, (V) costs of a capital nature as determined under generally accepted accounting principles consistently applied, except that the annual amortization of these costs may be included in Operating Expenses to the extent permitted under subsection (a)(ii)(C)(l)(x) and (xi) of this Section 3, (VI) costs incurred because another tenant violated the terms of any lease in the Building, (VII) interest on debt or amortization payment on mortgages or any other debt or borrowed money, (VIII) advertising and promotional expenses, (IX) repairs or other work needed because of fire or other casualty insured against by Landlord, (X) any costs, fines or penalties incurred due to violations by Landlord of any governmental rule or authority, and (XI) costs for which Landlord is reimbursed by tenants of the Building (except for costs included in Operating Expenses). (2) If occupancy of the Building during the Base Year or any subsequent calendar year is less than ninety-five percent (95 %), then Operating Expenses for the Base Year or such calendar year shall be "grossed up" to the amount of Operating Expenses that, using reasonable projections, would normally be expected to be incurred during the Base Year or such succeeding calendar year if the Building was ninety-five percent (95%) occupied during the Base Year or such succeeding calendar year, as determined under generally accepted accounting principles consistently applied. (b) Tax Expense Escalation. ---------------------- (i) For purposes hereof the following Definitions shall apply: (A) "Base Tax Year" shall mean 1997. 7 (B) "Tax Year" shall mean each twelve month period following the Base Tax Year. (C) "Taxes" shall mean: (1) Payments in lieu of taxes pursuant to the Fox-Lance Act, all real estate taxes, personal property taxes, assessments (special or otherwise), sewer and water rents, rates and charges, and any other governmental levies, impositions and charges of a similar nature ("Impositions"), which may be levied, assessed or imposed on or in respect of all or any part of the Property and any improvements, fixtures and equipment of Landlord, real or personal, located in or around the Property. (2) Any reasonable and appropriate expenses incurred by Landlord in contesting any of the foregoing or the assessed valuation of all or any part of the Property. (3) If at any time during the Term the methods of taxation prevailing at the date hereof shall be altered so that in lieu of or as a substitute for the whole or any part of the Impositions now levied, assessed or imposed on all or any part of the Property, there shall be levied, assessed or imposed (i) an Imposition based on the income or rents received therefrom whether or not wholly or partially as a capital levy or otherwise, or (ii) an Imposition measured by or based in whole or in part upon all or any part of the Property and imposed on Landlord, then all Impositions shall be deemed to be Taxes. (4) "Taxes" shall not include any penalties or interest paid by the Landlord on account of taxes or any income tax (except as set forth in Subsection (b)(i)(C)(3) above), estate tax, franchise tax, transfer tax or corporate taxes due and payable in connection with the Property. (ii) If Taxes payable in any Tax Year falling wholly or substantially within the Term shall be in excess of Taxes for the Base Tax Year, Tenant shall pay to Landlord as Additional Rent for such Tax Year at the time Fixed Rent is due hereunder, a sum equal to Tenant's Proportionate Share of the amount by which Taxes for such Tax Year exceed Taxes for the Base Tax Year (the "Tax Escalation"). (c) Payment of Operating Expenses and Taxes Escalation. -------------------------------------------------- (i) At least forty-five (45) days prior to each calendar year (commencing with calendar year 1998), Landlord shall advise Tenant in writing of the estimated Tenant's Pro Rata Share of the increase in annual Operating Expenses for such 8 calendar year over the Base Year Operating Expenses and of the increase in Taxes for the Tax Year over the Base Tax Year. Commencing on the first day of each calendar year, Tenant shall pay as Additional Rent one-twelfth (1/12th) of the estimated Tenant's Pro Rata Share of such increases concurrently with the Monthly Base Rental payment. (ii) Within ninety (90) days after the close of each calendar year, Landlord shall deliver to Tenant an itemized statement ("Landlord's Statement") showing in reasonable detail the (i) actual Operating Expenses and Taxes for the previous year broken down by component expenses; (ii) Base Year Operating Expenses and Base Year Taxes; (iii) the increase, if any, in Operating Expenses and Taxes; (iv) Tenant's Pro Rata Share of such increases; (v) the amount paid by Tenant during the Expense Year towards the increase in Operating Expenses and the amount paid by Tenant during the Tax Year towards the increase in Taxes; and (vi) the amount Tenant owes to Landlord for the increase, or the amount of the refund Landlord owes to Tenant. Any such amount due from Tenant to Landlord shall be paid within ten (10) days after receipt of Landlord's Statement. Any such refund due from Landlord to Tenant shall be credited against the next due payment of the estimated Tenant's Pro Rata Share of the increase of Operating Expenses and Taxes, or, if at the end of the Term, shall be paid to Tenant within thirty (30) days of the end of the Term provided Tenant is not in default under this Lease. (iii) Landlord's failure to submit a Landlord's Statement to Tenant within ninety (90) days after the expiration of any calendar year or Tax Year shall not affect Tenant's obligations to pay Tenant's Pro Rata Share of the increase in Operating Expenses and Taxes. (d) Tenant Electric Charge. Notwithstanding the foregoing, ---------------------- Tenant shall pay for all electricity used in the Premises at the rates billed by the utility provider without mark-up, including, but not limited to, electricity for lights, office machinery and equipment, any appliances and supplemental air conditioning above building standard air conditioning ("Tenant Electric"). Landlord at its expense shall install a submeter to determine Tenant's electric usage in the Premises, and Tenant shall thereafter pay Landlord for the actual electricity consumed in the Premises as determined by such submeter monthly with its monthly installments of Monthly Base Rent. (e) Should the Term commence at any time other than the first day or terminate on other than the last day of a calendar year the amount of additional rent due from Tenant shall be proportionately adjusted based on that portion of the year that this Lease was in effect. 9 (f) Tenant's payments of Additional Rent shall not be deemed payments of base rental as that term is construed relative to governmental wage and price controls or analogous governmental actions affecting the amount of Rent which Landlord may charge Tenant for the Premises. (g) Tenant shall have the right, not more than one (1) time in each Lease Year, to audit the books and records of Landlord as they relate to Operating Expenses and Taxes, at Landlord's offices set forth in the introductory paragraph to this Lease, during Business Hours (as hereinafter defined), upon not less than fifteen (15) days prior written notice to Landlord. All information obtained during such audit shall be kept confidential by Tenant and Tenant's agents, employees and advisors. Each audit must be performed at Tenant's expense by an accounting firm reasonably acceptable to Landlord, and must conclude with the preparation of a written report detailing the auditor's findings, a copy of which shall be provided to Landlord and Landlord's accountants. In the event such report shows that Tenant has underpaid for Tenant's Share of Operating Expenses or Taxes, Tenant shall promptly remit such underpayment to Landlord. In the event Tenant's audit states that Tenant has overpaid Tenant's proportion share of Operating Expenses or Taxes, Landlord shall have thirty (30) days to review such report. If Landlord disagrees with Tenant's auditor's report, Landlord, within such thirty (30) day review period, shall notify Tenant in writing setting forth in reasonable detail its basis for disagreement, and the parties shall select a mutually acceptable third-party accountant to review the relevant information and to decide in favor of Tenant's position or Landlord's position, which decision shall be binding upon the parties. Any overpayment or underpayment as determined by such third-party auditor shall be promptly paid. The parties shall equally share the fees of the third-party auditor. 4. DELIVERY OF THE PREMISES (a) Promptly after execution of this Lease, Tenant shall consult with an architect selected by Tenant (and approved by Landlord, such approval not to be unreasonably withheld or delayed) (the "TI Architect") concerning Tenant's construction improvement needs for occupancy of the Premises, and then shall cause the TI Architect to prepare architectural, electrical and mechanical construction drawings, plans and specifications necessary to construct the Tenant Improvements, subject to approval by Landlord and Landlord's architect, which approval shall not be unreasonably withheld or delayed (as approved, the "Tenant Plans"), to be made to the Premises. Tenant agrees to use diligent efforts to work with the TI Architect to develop Tenant Plans that are acceptable to Landlord within thirty (30) days from the date hereof. Tenant shall not request, nor shall Landlord have any obligation to approve, improvements that are not consistent with the quality of tenant improvements in the Building and class "A" general office space. Upon approval of the Tenant Plans, Landlord shall promptly bid the Tenant Improvement Work to 10 not more than three (3) contractors, and Landlord and Tenant shall select a contractor and cause the selected contractor to agree to a guaranteed maximum price contract approved by Landlord and Tenant, to obtain all required permits and to construct the improvements in the Premises pursuant to the Tenant Plans with the objective of completing such work (the "Tenant Improvement Work") by April 1, 1997 (the "Target Commencement Date"). The Tenant Improvement Work shall not include furniture and similar items not customarily included in "tenant improvements". The Tenant Improvement Work shall be performed at Tenant's sole cost and expense, provided that Landlord shall contribute not more than $27.00 per RSF of the Premises (the "TI Allowance") towards the fees of the TI Architect in designing the Tenant Improvement Work and the cost of building the Tenant Improvement Work. Upon the execution of the construction contract, Tenant shall deposit with Landlord, in cash, the amount by which the guaranteed maximum price under the construction contract exceeds the TI Allowance less the fees of the TI Architect (the "Excess TI amount"), and thereafter, to the extent that they cause the cost of the Tenant Improvement work (less the TI Architect's fees) to exceed the TI Allowance or if the TI Allowance has already been exhausted, Tenant shall pay, within ten (10) days of receiving invoices therefor, additional sums relating to any increase to the guaranteed maximum price pursuant to any change orders that are issued (each, a "Change Order Amount"), and to cover reimbursable expenses under the contract ("Reimbursables"). Tenant shall respond to any requests from Landlord or Landlord's architect or contractor for approvals, authorizations to proceed or information in connection with the Tenant Improvement Work within two (2) business days of a request. Tenant shall not be obligated to remove any Tenant Improvement Work at the end of the Term. (b) The Premises shall be deemed ready for occupancy and the Tenant Improvement Work shall be deemed to have been "substantially completed" on the date: (i) the TI Architect has certified that the Tenant Improvement Work is completed except for minor or insubstantial details of construction, mechanical adjustment or decoration which remain to be performed, the non- completion of which do not materially interfere with Tenant's use of the Premises; and (ii) all certificates of occupancy necessary for Tenant's occupancy of the Premises have been issued. Landlord shall endeavor to provide Tenant with five (5) days advance notice of substantial completion. If the Tenant Improvement Work requires any specialized permits or approvals due to the nature of Tenant's use or specialized needs, Tenant shall be responsible for and shall obtain all such permits and approvals. At or prior to the Commencement Date, representatives of Landlord and Tenant shall inspect the Premises and shall cooperate in producing and signing a punch list identifying Tenant Improvement Work which has either not been completed or which has been not completed properly, and Landlord shall cause all items on such agreed punch list to be diligently completed or corrected, but such items shall not cause a postponement in the Commencement Date. 11 (c) If the occurrence of the conditions listed in subsection (b) above, and thereby making the Premises ready for occupancy, shall be delayed due to: (i) failure of Tenant to respond to any requests from Landlord or Landlord's architect or contractor for approvals, authorizations to proceed or information in connection with the Tenant Plans and the Tenant Improvement Work within three (3) business days of a request; or (ii) failure of Tenant to deposit the Excess TI Amount with Landlord within two (2) business days of Landlord's request therefor; or (iii) changes in the Tenant Improvement Work which are requested by Tenant and approved by Landlord; or (iv) any other act or omission of Tenant or any of its employees, agents or contractors, then the Premises shall be deemed substantially complete on the date when they would have been ready but for such delay (certified to Tenant in writing by Landlord's architect), and the Commencement Date shall be deemed to occur on such earlier date. (d) If and when Tenant shall take actual possession of the Premises, it shall be conclusively presumed that the same were in satisfactory condition as of the date of such taking of possession, unless within thirty (30) days after such date Tenant shall give Landlord notice specifying the respects in which the Premises were not in satisfactory condition. (e) If Landlord shall be unable to give possession of the Premises on the Target Commencement Date by reason of the holding over or retention of possession of any tenant or occupant, or if repairs, improvements or decoration of the Premises or of the Building are not completed, or for any other reason, Landlord shall not be subject to any liability for failure to give possession on said date. Instead, Landlord shall use reasonable efforts to provide possession of the as soon as possible after the Target Commencement Date and shall provide Tenant with written notice of the date on which the Premises shall be available for occupancy. No such failure to give possession on the Target Commencement Date shall in any other respect affect the validity of this Lease or the obligations of Tenant hereunder. (f) By taking possession of the Premises, Tenant shall be deemed to have accepted the Premises as being in good sanitary order, condition and repair, except for the deficiencies identified in writing by Tenant as provided in subsection (d) above. Tenant shall, at Tenant's sole cost and expense, keep the Premises and every part thereof in good 12 condition and repair, damage thereto from fire or other casualty and ordinary wear and tear, condemnation, and from the negligence from misconduct of Landlord, its agents, employees, invitees, contractors, subcontractors and others for whom Landlord is legally responsible, alone excepted. Landlord shall have no obligation whatsoever to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof except as otherwise expressly provided herein or agreed upon in writing by Landlord, and the parties hereto affirm that Landlord has made no representations to Tenant respecting the condition of the Premises, the Building or the Property except as specifically herein set forth in writing. Landlord represents and warrants to Tenant that, to the best of Landlord's knowledge, on the date hereof the Building systems are in good working condition. (g) Prior to substantial completion of the Tenant Improvement Work and delivery of the Premises to Tenant, Tenant may access the Premises at Tenant's risk and perform all work in or about the Premises which is not within the scope of the work necessary to construct and install the Tenant Improvement Work and which is necessary for Tenant's occupancy of the Premises, including g, without limitation, delivery and installation of furniture, equipment, data and telecommunicating systems, telephone equipment, wiring and office equipment ("Tenant's Work"). No such entry shall be made unless and until (i) Tenant shall have notified Landlord in writing that it desires to enter the Premises, which notice shall state in reasonable detail the work that Tenant proposes to perform, and Landlord and Landlord and Tenant have coordinated, to Landlord's reasonable satisfaction, Tenant's entry with Landlord's contractors; and (ii) prior to such entry Tenant shall have submitted to Landlord evidence that Tenant has obtained the insurance required by this Lease. Any work performed by Tenant or its agents, contractors, workers, mechanics, suppliers and invitees shall be performed in harmony with Landlord and Landlord's contractors, agents, workers, mechanics, suppliers and invitees, and if at any time the presence of Tenant or its agents, contractors, workers, mechanics, suppliers and/or invitees shall cause an interruption of, or a disruption of, or shall interfere with Landlord's performance of the Tenant Improvement Work or any other work in the Premises or the Building, Landlord shall have the right, upon twenty-four (24) hours prior notice to Tenant, to order Tenant to cease all work on the Premises, in which event such work shall be halted and shall not be recommenced until and unless the conflicts which caused to Landlord to give such notice have been resolved. Tenant is aware of the fact that Landlord will require a high-grade, first-class operation to be conducted in the Premises. Toward that end, Tenant's Work shall be performed in a first-class workman-like manner, using new and first-class quality materials; and all furniture, fixtures and equipment used or installed by Tenant in the Premises shall be new or otherwise in first-class condition. All of Tenant's Work shall be constructed and installed in accordance with all applicable laws, ordinances, codes and rules and regulations of governmental authorities; and Tenant shall promptly correct any of Tenant's Work which is not in conformance therewith. In performing Tenant's Work, Tenant shall require its contract parties and their subcontractors to furnish Landlord with 13 evidence of insurance coverage as may reasonably be required by Landlord prior to the performance of any work by Tenant's contract parties or their subcontractors. Tenant shall proceed with due diligence to complete Tenant's Work. 5. ACCEPTANCE OF THE PREMISES The taking of possession of Premises by Tenant shall be conclusive evidence that Tenant accepts the same "as is" and that said Premises and the Building were in good and satisfactory condition for the use intended at the time such possession was taken, subject to any "punch list" items agreed upon by Landlord and Tenant which must be remedied after Tenant's acceptance of the Premises. 6. USE Tenant shall use the Premises only for professional executive office purposes, generally in accordance with the manner of use by other non-retail tenants in the Building. Tenant's use of the Premises shall not violate any ordinance, law or regulation of any governmental body now or hereafter in effect or the "Rules and Regulations" of Landlord (the "Rules") as set forth in Exhibit ------- "C" attached hereto and made a part hereof (as the same may be modified or - --- supplemented by Landlord from time to time), or cause an unreasonable amount of use of any of the services provided in the Building. Tenant agrees to conduct its business in the manner and according to the generally accepted business principles of the business or profession in which Tenant is engaged. 7. TENANT'S CARE OF THE PREMISES (a) Tenant will take good care of the Premises and the fixtures and appurtenances therein, and will neither commit nor suffer any active or permissive waste or injury thereof, subject to reasonable wear and tear and loss by fire and other casualty not caused by Tenant's wilful misconduct. Tenant's responsibilities in conjunction therewith shall include, but not be limited to, the cleaning of draperies, the shampooing and/or re-stretching of the carpeting located in the Premises, and the regular painting and decorating of the Premises so as to maintain the Premises in a first-class condition and state of repair, subject to reasonable wear and tear and loss by fire and other casualty not caused by Tenant's wilful misconduct. All such repair work and maintenance and any alterations permitted by Landlord shall be done at Tenant's sole cost and expense by Landlord's employees or agents or, with Landlord's express written consent, by persons requested by Tenant and consented to in writing by Landlord, which consent Landlord shall not 14 unreasonably withhold or delay. Tenant shall, at Tenant's expense, but under the direction of Landlord and performed by Landlord's employees or agents, or with Landlord's express written consent, which consent Landlord shall not unreasonably withhold or delay, by persons requested by Tenant and consented to in writing by Landlord, promptly repair any injury or damage to the Premises or Building caused by the misuse or neglect thereof by Tenant, by Tenant's contractors, subcontractors, customers, employees, licensees, agents, or invitees permitted or invited (whether by express or implied invitation) on the Premises by Tenant, or by Tenant moving in or out of the Premises. (b) Tenant will not, without Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed, make alterations, additions or improvements in or about Premises and will not do anything to or on the Premises which will increase the rate of fire or other insurance on the Building or the Property, provided that Tenant may make minor alterations in the nature of decorating without Landlord's prior consent. All alterations, additions or improvements of a permanent nature made or installed by Tenant in the Premises shall become the property of Landlord at the expiration or early termination of this Lease. Landlord reserves the right to require Tenant to remove any improvements or additions made to the Premises by Tenant and to repair and restore the Premises to their condition prior to such alteration, addition or improvement, reasonable wear and tear, unrepaired casualty not caused by Tenant, and condemnation excepted, unless Landlord has agreed in writing, at or prior to the time Tenant requests the right to make such alteration, addition or improvement, that such item need not be removed by Tenant at the expiration or early termination of the Lease. (c) No later than the last day of the Term or earlier termination as provided herein, Tenant will remove all Tenant's personal property and repair all injury done by or in connection with installation or removal of said property and surrender the Premises (together with all keys, access cards or entrance passes to the Premises and/or Building) in as good a condition as they were at the beginning of the Term, reasonable wear and tear, unrepaired casualty not caused by the wilful misconduct of Tenant and condemnation excepted. All property of Tenant remaining in the Premises after expiration or earlier termination of the Term shall be deemed conclusively abandoned and may be removed by Landlord, and Tenant shall reimburse Landlord for the cost of removing the same, subject however, to Landlord's right to require Tenant to remove any improvements or additions made to the Premises by Tenant pursuant to the preceding Paragraph. (d) In doing any work in the Premises, Tenant will use only contractors or workers consented to by Landlord in writing prior to the time such work is commenced, which consent Landlord shall not unreasonably withhold or delay. Landlord may condition its consent upon its receipt of acceptable lien waivers from such contractors or workmen, or an agreement to provide partial releases of lien at each payment to such 15 contractors and full lien waivers and releases upon completion. Tenant shall promptly bond over or remove any lien or claim of lien for material or labor claimed against the Premises or Building, or both, by such contractors or workmen if such claim should arise, and hereby indemnifies and holds Landlord harmless from and against any and all losses, costs, damages, expenses or liabilities including, but not limited to, reasonable attorney's fees, incurred by Landlord, as a result of or in any way related to such claims or such liens. (e) All personal property brought into the Premises by Tenant, its employees, licensees and invitees shall be at the sole risk of Tenant, and Landlord shall not be liable for theft thereof or of money deposited therein or for any damages thereto, such theft or damage being the sole responsibility of Tenant. (f) Tenant, at its expense, shall comply with all applicable laws, ordinances, orders, rules and regulations of any governmental authority having jurisdiction, whether now or hereafter in effect ("Applicable Laws"), which pertain to the Premises or Tenant's use thereof, including, but not limited to the Americans with Disabilities Act and all Applicable Laws affecting the physical condition of the Premises or the particular manner in which Tenant uses the Premises, and all Applicable Laws pertaining to air or water quality, the use, storage or disposal of any hazardous substance, pollutant or other contaminant, waste disposal, air emissions and other environmental matters. 8. SERVICES (a) Landlord shall furnish the following services (the cost of which services shall be reimbursed to Landlord in accordance with Paragraph 3 herein): (i) Access to the Premises and elevator service for passenger and delivery needs, twenty-four (24) hours a day, 365 days a year except for emergencies and scheduled maintenance closures. (ii) During Business Hours, air conditioning during summer operations and heat during winter operations at temperature levels similar to other first class office buildings in the area in which the Premises is located (but at a maximum temperature of 78(degree) Fahrenheit during summer operations and a minimum temperature of 68(degree) Fahrenheit during winter operations), but consistent with and subject to all Federal and local energy conservation regulations. (iii) Public restrooms, including the furnishing of soap, paper towels, and toilet tissue, during Business Hours. 16 (iv) Either hot and cold or tempered running water for all restrooms, lavatories and pantries in the Premises, twenty-four (24) hours a day, seven (7) days a week. (v) Janitorial service will be provided in accordance with Exhibit "D", Cleaning Specification which is attached to and part of this ----------- Lease. (vi) The replacement of building standard fluorescent lamps and ballasts as needed in the Premises and Common Areas. (vii) Repairs and maintenance, for maintaining in good order at all times the exterior walls, exterior windows, exterior doors and roof and all structural components of the Building, public corridors, stairs, elevators, storage rooms, restrooms, the heating, ventilating and air conditioning systems, electrical and plumbing systems of the Building, and the walks, paving, striping and landscaping surrounding the Building. (viii) Grounds care, including the sweeping and shovelling of walks and parking areas and the maintenance of landscaping in an attractive and safe manner. (ix) General management, including supervision, inspections and management functions. (x) Electricity to operate the Building, Property and Premises twenty-four (24) hours a day, seven (7) days a week, by providing electric current in reasonable amounts necessary for normal office uses. (b) The services provided for in Paragraph 8(a) herein are predicated on and are in anticipation of certain usage of the Premises by Tenant as follows: (i) "Business Hours" shall mean the hours of 8 AM to 6 PM on Business Days and 9 AM to 1 PM Saturdays (except New Jersey state holidays). (ii) Electric power usage and consumption for the Premises shall be based on lighting of the Premises during Business Hours on a level suitable for normal office use and power for small desk-top machines and devices using no more than 110 volt, 20 amp circuits. Heavier use items shall not be used or installed, unless expressly permitted elsewhere herein or by separate written consent of Landlord. (iii) Should Tenant's total rated electrical design load per square foot in the Premises exceed the Building standard rated electrical design load, on a per Rentable Square Foot basis, as determined by Landlord from time to time, for either low 17 or high voltage electrical consumption, or if Tenant's electrical design requires low voltage or high voltage circuits in excess of Tenant's share of the Building standard circuits, as such share is determined by Landlord in Landlord's reasonable judgment, Landlord may (at Tenant's expense), if reasonably possible, install within the Building one (1) additional high voltage panel and/or one (1) additional low voltage panel with associated transformer (the "Additional Electrical Equipment") as necessary to accommodate the aforesaid requirements. If the Additional Electrical Equipment is installed because Tenant's low or high voltage rated electrical design load exceeds the applicable Building standard rated electrical design load (on a per Rentable Square Foot basis), then a meter may also be added by Landlord (at Tenant's expense) to measure the electricity provided through the Additional Electrical Equipment. (c) If Tenant uses HVAC services for a period in excess of Business Hours, Landlord also reserves the right to charge Tenant as additional rent a reasonable sum as reimbursement for the direct cost of such added services. Landlord further reserves the right to install separate metering devices for the purpose of determining such excessive periods and/or amounts at Tenant's sole cost and expense. In the event of disagreement as to the reasonableness of such additional charge, the opinion of the appropriate local utility company or an independent professional engineering firm selected b Landlord shall prevail. (d) In the event of any failure or interruption of any service or utility whether caused by breakage, accident, strikes, repairs, failure of fuel supply, or for any other cause or causes, Tenant shall not be entitled to any abatement or set off of Rent or Additional Rent payable hereunder except if, and only if, such failure or interruption in service was caused solely by the negligence or wilful misconduct of Landlord and such failure continues for five (5) business days after Landlord's receipt of written notice thereof from Tenant. However, in no event shall Landlord be liable to Tenant for any direct, indirect or consequential damages, or for damages caused directly or indirectly by any malfunction of Tenant's computer systems resulting from or arising out of the failure or malfunction of any electrical, air conditioning or other system serving the Building, and Tenant hereby expressly waives rights to make any such claim against Landlord. 9. DESTRUCTION OR DAMAGE TO PREMISES (a) Tenant shall promptly notify Landlord of any damage to the Premises or the Building occasioned by fire, the elements, casualty or any other cause. If the Premises are totally destroyed (or so substantially damaged as to be untenantable in the reasonable determination of an architect selected by Landlord ("Architect")) by storm, fire, earthquake or other casualty or any ocher cause, Landlord shall have the option to terminate this Lease. In the event such damage, in the reasonable determination of the Architect 18 cannot be repaired within one hundred eighty (180) days from the date of the Architect's determination (which shall be made not less than thirty (30) days from the date of such damage or destruction), then this Lease shall terminate. If, in Architect's reasonable determination, the damage can be repaired and the Premises restored to Tenant's use within one hundred eighty (180) days from the date of the Architect's determination, then, if Landlord elects (in Landlord's sole discretion), Landlord shall repair the damage and restore the Premises (including the Tenant Improvement Work) to its prior condition. In the event Landlord fails to complete such restoration with reasonable diligence within one hundred eighty (180) days of the date of the Architect's determination, as described above, this Lease may be terminated upon written notice from either party to the other given not more than ten (10) days following the expiration of said one hundred eighty (180) day period. In the event such notice is not given, then this Lease shall remain in force and effect and Rent shall commence upon delivery of the Premises to Tenant in a tenantable condition (evidenced by notice to Tenant that the Premises are in Landlord's judgment substantially repaired). In the event such damage or destruction occurs within six (6) months of the expiration of the Term, Tenant may, at its option on written notice to Landlord within thirty (30) days of such destruction or damage, terminate this Lease as of the date of such destruction or damage. Tenant shall not have the right to cancel this Lease if the damage to the Premises is the result of Tenant's willful misconduct. (b) Unless this Lease is terminated pursuant to Paragraph 9(a) above, Landlord shall commence and thereafter pursue diligently and as expeditiously as practicable, the repair and restoration of damage to the Premises, using standard working methods and procedures; provided, however, that for purposes of this Paragraph 9, Landlord shall not be obligated to commence any repair or restoration until insurance proceeds are actually received by Landlord and Landlord's repair obligations shall be limited to the extent of the insurance proceeds actually received by Landlord therefor which have not been required by the holder of any mortgage or deed to secure debt encumbering any portion of the Property to be applied toward the reduction of any indebtedness secured by the Property. (c) The Rent shall abate in proportion to that part of the Premises (measured in Rentable Square Feet) rendered unfit for use in Tenant's business as a result of such damage or casualty. The nature and extent of interference to Tenant's ability to conduct business in the Premises shall be considered in determining the amount of said abatement, and the abatement shall commence and continue from the date the damage occurred until ten (10) days after the date Landlord substantially completes the repair and restoration of the Premises and gives notice to Tenant that said repairs and restoration are substantially completed, or until Tenant again uses the Premises or the portions thereof rendered unusable, whichever occurs first. 19 (d) Notwithstanding anything to the contrary contained or implied elsewhere in this Lease, Landlord is not and shall not be obligated to repair or restore damage to Tenant's trade fixtures, furniture, furnishings, equipment or other personal property, or any Tenant's Work, except for the Tenant Improvement Work. (e) If during the Term of this Lease, the Building is so damaged by fire or other casualty or any other cause (regardless of whether the Premises also are damaged) such that (i) in Landlord's reasonable judgment repair and restoration of the Building is economically infeasible; (ii) the holder of any mortgage or deed to secure debt encumbering the Building or the Property shall not allow adequate insurance proceeds to be made available for repair and restoration; (iii) the damage is not covered by Landlord's insurance; or (iv) the Lease is in the last twelve (12) months of its Term, then Landlord may cancel this Lease by giving written notice thereof within thirty (30) days after Landlord knows of the damage to the Building. Any such cancellation notice must specify the cancellation date, which shall be at least thirty (30) but no more than sixty (60) days after the date notice of cancellation is given. (f) If either party cancels this Lease as permitted under this Paragraph 9, then this Lease shall end on the date specified in the cancellation notice. The Rent, including any additional rent, and other charges shall be payable up to the cancellation date, after taking into account any applicable abatement. Landlord shall promptly refund to Tenant any prepaid, unaccrued Rent and additional rent (after taking into account any applicable abatement), plus the Security Deposit, if any, less any sums then owing by Tenant to Landlord. 10. DEFAULT BY TENANT; LANDLORD'S REMEDIES (a) The occurrence of any of the following shall constitute an event of default hereunder by Tenant: (i) The Rent or any other sum of money due of Tenant hereunder is not paid (1) within five (5) days after receipt by Tenant of notice from Landlord of late payment, which notice Landlord shall be obligated to give not more than two (2) times in any calendar year; or (2) after Landlord has given two (2) late payment notices to Tenant in any calendar year, for the balance of such calendar year, within ten (10) days of the date when due; (ii) Any petition is filed by or against Tenant under any section or chapter of the National or Federal Bankruptcy Act or any other applicable Federal or State bankruptcy, insolvency or other similar law, and, in the case of a petition filed against 20 Tenant, such petition is not dismissed within sixty (60) days after the date of such filing; if Tenant shall become insolvent or transfer property to defraud creditors; if Tenant shall make an assignment for the benefit of creditors; or if a receiver is appointed for any of Tenant's assets; (iii) Tenant fails to bond off or otherwise remove any lien filed against the Premises or the Building by reason of Tenant's actions, within fifteen (15) days after Tenant has notice of the filing of such lien; (iv) Tenant fails to observe, perform and keep the covenants, agreements, provisions, stipulations, conditions, and Rules and Regulations herein contained to be observed, performed and kept by Tenant and persists in such failure after twenty (20) days written notice by Landlord requiring that Tenant remedy, correct, desist or comply (or if any such failure to comply on the part of Tenant would reasonably require more than twenty (20) days to rectify, unless Tenant commences rectification within the twenty (20) day period and thereafter promptly, effectively and continuously proceeds with the rectification of the failure to comply on the part of Tenant and, in all such events, cures such failure to comply on the part of Tenant no later than sixty (60) days after such notice); (v) If all or any part of this Lease shall be assigned, or if all or any part of the Premises shall be sublet, either voluntarily or by operation of law, except in strict accordance with the requirements of Paragraph 11 hereof; (vi) If Tenant shall default with respect to any other lease or agreement between Landlord and Tenant; (vii) Tenant or any guarantor of Tenant's obligations ("Guarantor") (if either is a corporation) is liquidated or dissolved or its charter expires or is revoked, or Tenant or Guarantor (if either is a partnership or business association) is dissolved or partitioned, or Tenant or Guarantor (if either is a trust) is terminated or expires, or if Tenant or Guarantor (if either is an individual) dies. (b) Upon the occurrence of an event of default, Landlord shall have the option to do and perform any one or more of the following: (i) Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord. If Tenant shall fail to do so, Landlord may, without further notice and without prejudice to any other remedy Landlord may have, enter upon the Premises without the requirement of resorting to the dispossessory procedures and expel or remove Tenant and Tenant's effects without being liable for any claim for trespass or damages therefor. Upon any such termination, Tenant shall remain liable to 21 Landlord for damages, due and payable monthly on the day Rent would have been payable hereunder, in an amount equal to the Rent and any ocher amounts which would have been owing by Tenant for the balance of the Term, had this Lease not been terminated, less the net proceeds, if any, of any reletting of the Premises by Landlord, after deducting all of Landlord's costs and expenses (including, without limitation, brokerage and attorneys' fees and expenses) incurred in connection with or in any way related to the termination of this Lease, eviction of Tenant and such reletting; and/or (ii) Declare the entire amount of Rent calculated on the current rate being paid by Tenant, and other sums which in Landlord's reasonable determination would become due and payable during the remainder of the Term (including, but not limited to, increases in Rent pursuant to Paragraph 2(b) and 3 herein), discounted to present value by using a reasonable discount rate selected by Landlord, to be due and payable immediately. Upon such acceleration of such amounts, Tenant agrees to pay the same at once, together with all Rent and other amounts theretofore due, at Landlord's address as provided herein; provided however, that such payment shall not constitute a penalty or forfeiture but shall constitute liquidated damages for Tenant's failure to comply with the terms and provisions of this Lease (Landlord and Tenant agreeing that Landlord's actual damages in such an event are impossible to ascertain and that the amount set forth above is a reasonable estimate thereof). Upon making such payment, Tenant shall receive from Landlord all rents received by Landlord from other tenants renting the Premises during the Term, provided that the monies to which Tenant shall so become entitled shall in no event exceed the entire amount actually paid by Tenant to Landlord pursuant to the preceding sentence, less all of Landlord's costs and expenses (including, without limitation, brokerage and reasonable attorneys' fees and expenses) incurred in connection with or in any way related to termination of this Lease, eviction of Tenant and the reletting of the Premises. The acceptance of such payment by Landlord shall not constitute a waiver of rights or remedies to Landlord for any failure of Tenant thereafter occurring to comply with any term, provision, condition or covenant of this Lease; and/or (iii) Enter the Premises as the agent of Tenant without the requirement of resorting to the dispossessory procedures and without being liable for any claim for trespass or damages therefor, and, in connection therewith, rekey the Premises, remove Tenant's effects therefrom and store the same at Tenant's expense, without being liable for any damage thereto, and relet the Premises as the agent of Tenant, with or without advertisement, by private negotiations or otherwise, for any term Landlord deems proper, and receive the rent therefor. Tenant shall pay Landlord on demand any deficiency that may arise by reason of such reletting, but Tenant shall not be entitled to any surplus so arising. Tenant shall reimburse Landlord for all costs and expenses (including, without limitation, brokerage and reasonable attorneys' fees and expenses) incurred in connection with or in any way related to the eviction of Tenant and reletting the Premises, and for the amount of any 22 other Rent which would have been due from Tenant to Landlord hereunder which is not recovered from reletting or due to inability to relet the Premises. Landlord, in addition to but not in lieu of or in limitation of any other right or remedy provided to Landlord under the terms of this Lease or otherwise (but only to the extent such sum is not reimbursed to Landlord in conjunction with any other payment made by Tenant to Landlord), shall have the right to be promptly repaid by Tenant the amount of all reasonable sums expended by Landlord and not repaid by Tenant in connection with preparing or improving the Premises to Tenant's specifications and any and all costs and expenses incurred in renovating or altering the Premises to make it suitable for reletting; and/or (iv) As agent of Tenant, do whatever Tenant is obligated to do by the provisions of this Lease, including, but not limited to, entering the Premises, without being liable to prosecution or any claims for damages in order to accomplish this purpose. Tenant agrees to reimburse Landlord immediately upon demand for any expenses which Landlord may incur in thus effecting compliance with this Lease on behalf of Tenant, and Tenant further agrees that Landlord shall not be liable for any damages resulting to Tenant from such action, whether caused by the negligence of Landlord or otherwise; and/or (v) Pursue any other right or remedy available to Landlord at law or in equity. (c) Pursuit by Landlord or any of the foregoing remedies shall not preclude the pursuit of any damages incurred, or of any of the other remedies provided herein or available, at law or in equity. (d) No act or thing done by Landlord or Landlord's employees or agents during the Term shall be deemed an acceptance of a surrender of the Premises. Neither the mention in this Lease of any particular remedy, nor the exercise by Landlord of any particular remedy hereunder, or at law or in equity, shall preclude Landlord from any other remedy Landlord might have under this Lease, or at law or in equity. Any waiver of or redress for any violation of any covenant or condition contained in this Lease or any of the Rules and Regulations now or hereafter adopted by Landlord, shall not prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord of Rent with knowledge of the breach of any covenant in this Lease shall not be deemed a waiver of such breach. 11. ASSIGNMENT AND SUBLETTING (a) Tenant shall not sublet any part of the Premises, nor assign, pledge or encumber this Lease or any interest herein, without the prior written consent of 23 Landlord. Landlord shall be entitled to deny consent to an assignment or sublease if, by way of illustration but not limitation, the rate of compensation, including, but not limited to, all rent, requested by Tenant for the portion of the Premises to be subleased or for the assignment of the Lease would materially impact upon or impair, in Landlord's reasonable judgment, Landlord's ability to rent space in the Building at the then market rate as offered by Landlord or if the financial statements of the proposed assignee or sublessee are unsatisfactory. Consent by Landlord to one assignment or sublease shall not destroy or waive this provision, and all later assignments and subleases shall likewise be made only upon prior written consent of Landlord. In the event a sublease or assignment is consented to by Landlord, any sublessees or assignees shall become liable directly to Landlord for all obligations of Tenant hereunder without relieving or in any way modifying Tenant's liability hereunder, In the event Landlord gives its consent to any such assignment or sublease, fifty percent (50%) of any rent or other cost to the assignee or subtenant for all or any portion of the Premises over and above the Rent payable by Tenant for such space shall be due and payable, and shall be paid, to Landlord. In the event a sublease or assignment is made as herein provided, Tenant shall pay Landlord a charge equal to the reasonable and customary third- party costs incurred by Landlord, in Landlord's reasonable judgment (including, but not limited to, the use and time of Landlord's personnel), for all of the necessary legal and accounting services required to accomplish such assignment or subletting, as the case may be. Any transfer, assignment or sublease of all or any portion of the Premises or Tenant's interest under this Lease made without Landlord's consent shall be void and of no force or effect. (b) The sale or transfer of Tenant's voting stock (if not a publicly traded corporation) or partnership interest (if a partnership) resulting in the transfer of control of a majority of such stock or interest, or the occupancy of the Premises by any successor firm of Tenant or by any firm into which or with which Tenant may become merged or consolidated shall be deemed an assignment of this Lease requiring the prior written consent of Landlord. Notwithstanding the foregoing to the contrary, Tenant may assign this Lease to a corporation resulting from the merger by Tenant with another entity or to a corporation acquiring all or substantially all of Tenant's assets as a going concern of the business that is conducted from the Premises without Landlord's consent provided that (i) Tenant, in advance of such assignment, provides written notice to Landlord containing such financial information regarding the surviving entity or acquiring entity as shall reasonably requested by Landlord to assess its financial condition, (ii) the net worth of such surviving entity shall be at least equal to that of Tenant on the date of execution of this Lease (adjusted for inflation), (iii) the assignee assumes the obligations of the Tenant under this Lease in writing, and (iv) Tenant remains liable under the Lease. (c) Any assignment or sublease by Tenant to any corporation or partnership that is controlled by, or is under common control with, Cognizant Corporation 24 may be made on prior notice to Landlord but shall not require the consent of Landlord, provided that IMS America, Ltd. shall remain liable under this Lease, and any further sublease or assignment shall be subject to all of the terms and conditions of this Section 11. 12. CONDEMNATION (a) If all of the Premises, or a part of such Premises such that the Premises in the commercially reasonable judgment of the Architect are untenantable, are taken by virtue of eminent domain or other similar proceeding or are conveyed in lieu of such taking, this Lease shall expire on the date when title or right of possession shall vest, and any Rent paid for any period beyond said date shall be repaid to Tenant. In the event of a partial taking where this Lease is not terminated, the Rent shall be adjusted in proportion to the Rentable Square Feet of Premises taken, as determined by the Architect, and Landlord shall restore the remaining portion of the Premises to substantially the same condition they were in prior thereto, to the extent practical, to render it reasonably suitable for Tenant's use provided, however, that Landlord shall not be obligated to expend an amount greater than the award received by Landlord in connection with such restoration, and such restoration shall be subject to zoning laws and building codes then in existence. In either event, Landlord shall be entitled to, and Tenant shall not have any right to claim, any award made in any condemnation proceeding, action or ruling relating to the Building or the Property; provided however, Tenant shall be entitled to make a claim in any condemnation proceeding, action or ruling relating to the Building for Tenant's moving expenses, loss of goodwill and the unamortized value of leasehold improvements in the Premises actually paid for by Tenant, to the extent such claim does not in any manner impact upon or reduce Landlord's claim or award in such condemnation proceeding, acting or ruling. (b) Landlord shall have, in Landlord's sole discretion, the option of terminating this Lease in the event any such condemnation, action or ruling or conveyance in lieu thereof makes continuation of Landlord's use of the Building as contemplated herein economically unfeasible. (c) Tenant shall have the right to terminate this Lease in the event that more than twenty percent (20%) of the Rental Square Footage of the Premises are taken by virtue of eminent domain during the last six (6) months of the Term. 13. RIGHT TO ENTER Landlord, its agents or employees may enter the Premises at all reasonable times (including Business Hours) with at least twenty-four (24) hours advance notice, and at 25 any time without notice in the event of an emergency, to: (a) exhibit the Premises to prospective purchasers or tenants of the Building or the Premises; (b) inspect the Premises to see that Tenant is complying with its obligations hereunder; (c) make repairs, alterations, improvements and additions required of Landlord under the terms hereof, or that are advisable in Landlord's determination to preserve the integrity, safety and good order of all or any part of the Premises or the Building, including any systems serving the Building which run through the Premises, or which may be necessary to comply with applicable laws, ordinances or other requirements of any governmental entity or agency having jurisdiction; (d) provide janitorial or other services required under this Lease; and (e) remove any alterations, additions or improvements made by Tenant in violation of Paragraph 7(b) hereof. 14. SUBORDINATION (a) This Lease shall be subject and subordinate to any underlying land leases or deed to secure debt which may now or hereafter affect this Lease, the Building or the Property and also to all renewals, modifications, extensions, consolidations, and replacements of such underlying land leases and such deeds to secure debt. Such subordination shall be effective without the necessity of any further instrument or act on the part of Tenant to effectuate such subordination, but Tenant agrees that, in confirmation of the subordination set forth in this Paragraph 14, Tenant shall, at Landlord's request, execute and deliver such further instruments as may be desired by any holder of a deed to secure debt (a "Mortgagee") or by any lessor under any such underlying land leases (a "Lessor"). Tenant shall also deliver to any such Mortgagee or Lessor within ten (10) business days of written request an attornment agreement, providing that such Tenant shall continue to abide by and comply with the terms and conditions of this Lease in the event such Mortgagee or Lessor takes title to the Property, so long as the Mortgagee or Lessor delivers to Tenant a non-disturbance agreement (which non-disturbance agreement may be a part of the above-mentioned attornment agreement), which non- disturbance agreement shall provide that so long as Tenant continues to abide by the terms and conditions of this Lease, Mortgagee or Lessor, whichever the case may be, will permit Tenant to continue to occupy the Premises. Landlord shall use reasonable efforts to obtain a non-disturbance and attornment agreement for Tenant from its existing Mortgagee, and from any future Mortgagee, provided that Tenant shall not interfere with Landlord's relationship with any such Mortgagee and the failure of such Mortgagee to provide such subordination and attornment agreement shall not affect the validity of this Lease or of the automatic subordination of this Lease to any mortgage held by such Mortgagee as provided above. (b) In the event any proceedings are brought for the foreclosure of, or in the event of exercise of the power of sale or conveyance in lieu of foreclosure under any deed to secure debt, Tenant shall at the option of the purchaser at such foreclosure or 26 other sale, attorn to such purchaser and recognize such person as Landlord under this Lease. Tenant agrees that the institution of any suit, action or other proceeding by a Mortgagee or a Lessor, a sale of the Property pursuant to the powers granted to a Mortgagee under its deed to secure debt, or a termination or cancellation of a ground lease by Lessor, shall not, by operation of law or otherwise, result in the cancellation or the termination of this Lease or of the obligations of the Tenant hereunder. (c) In the event that such purchaser requests and accepts such attornment, from and after the time of such attornment, Tenant shall have the same remedies against such purchaser for the breach of an agreement contained in this Lease that Tenant might have had against Landlord if the deed to secure debt had not been terminated or foreclosed except that such purchaser shall not be (i) liable for any act or omission of the prior Landlord; (ii) subject to any offsets or defenses which Tenant might have against the prior Landlord; (iii) bound by any Rent which Tenant might have paid more than one (1) month in advance to the prior Landlord, or (iv) bound by any Security Deposit which Tenant might have paid to Landlord, unless such Security Deposit is actually received by such purchaser. 15. INDEMNIFICATION AND HOLD HARMLESS (a) Tenant does hereby agree to defend, indemnify and hold Landlord harmless from and against any and all liability for any injury to or death of any person or persons or any damage to property in any way arising out of or in connection with the condition, use or occupancy of the Premises, or in any way arising out of any activities in or about the Premises, the Building or other portions of the Property, of Tenant, its assignees or subtenants or of the respective agents, employees, licensees, contractors or invitees of Tenant or its assignees or subtenants, and from all costs, expenses and liabilities (including, but not limited to, court costs and reasonable attorneys' fees) incurred by Landlord in connection therewith, excepting however, liability caused by or resulting from the negligence or willful misconduct of Landlord or its agents, employees, licensees or contractors. (b) Tenant covenants and agrees that Landlord shall not be liable to Tenant for any injury to or death of any person or persons or for damage to any property of Tenant, or any person claiming through Tenant, arising out of any accident or occurrence in or about the Premises or other portions of the Building or the Property, including, but not limited to, injury, death or damage caused by the Premises or other portions of the Building becoming out of repair or caused by any defect in or failure of equipment, pipes or wiring, or caused by broken glass, or caused by the backing up of drains, or caused by gas, water, steam, electricity, or oil leaking, escaping or flowing into the Premises, or caused by fire or 27 smoke or caused by the acts or omissions of other tenants and occupants of the Building. (c) Tenant agrees to report in writing to Landlord any defective condition in or about the Premises known to Tenant, and further agrees to attempt to contact Landlord by telephone immediately in such instance. (d) Landlord does hereby agree to defend, indemnify and hold Tenant harmless from and against any and all liability for any injury to or death of any person or persons or damage to property arising out of Landlord's or Landlord's agent's, employees', licensees', contractors' or invitees' negligent acts or omissions, and from all costs, expenses and liabilities (including, but not limited to, court costs and reasonable attorneys' fees) incurred by Tenant in connection therewith, excepting, however, liability caused by or resulting from the negligence or willful misconduct of Tenant, its agents, employees, licensees, contractors or invitees. 16. INSURANCE (a) Tenant shall carry (at its sole expense during the Term) (i) all-risk insurance, or its equivalent, insuring Tenant's interest in its improvements to the Premises and any and all furniture, equipment, supplies, contents and other property owned, leased, held or possessed by it and contained therein, such insurance coverage to be in an amount equal to the full insurable value of such improvements and property, as such may increase from time to time; and (ii) worker's compensation insurance as required by applicable law. Tenant shall also procure and maintain throughout the Term a policy or policies of insurance, insuring Tenant, Landlord and any other person designated by Landlord, against any and all liability for injury to or death of a person or persons and for damage to property occasioned by or arising out of any construction work being done on the Premises, or arising out of the condition, use, or occupancy of the Premises, or other portions of the Building or Property, such policy to have a combined single limit of not less than Three Million and No/100 Dollars ($3,000,000) for any bodily injury or property damage occurring as a result of or in conjunction with the above. Landlord and Tenant shall each have included in all policies of insurance respectively obtained by them with respect to the Building or the Premises a waiver by the insurer of all right of subrogation against the other in connection with any loss or damage thereby insured against. To the full extent permitted by law, Landlord and Tenant each waive all right of recovery against the other for, and agree to release the other from liability for, loss or damage to the extent such loss or damage is covered by valid and collectible insurance in effect at the time of such loss or damage; provided however, that the foregoing release by each party is conditioned upon the other party's carrying insurance with the above described waiver of subrogation, and if such coverage is not obtained or maintained by either party, then the other party's foregoing 28 release shall be deemed to be rescinded until such waiver is either obtained or reinstated. All said insurance policies shall be carried with companies licensed to do business in the State of New Jersey reasonably satisfactory to Landlord and shall be noncancelable except after thirty (30) days' written notice to Landlord. Duly executed certificates of such insurance shall be delivered to Landlord prior to the Commencement Date and at least thirty (30) days prior to the expiration of each respective policy term. Each insurance policy will contain a provision requiring thirty (30) days prior written notice to Landlord and any named insured if the policy is cancelled or not renewed. (b) Throughout the making of any alterations or improvements (other than mere decorations) by Tenant, its agent, contractors or employees, Tenant, at its expense, shall carry or cause to be carried (i) workmen's compensation insurance in statutory limits, covering all persons employed in connection with such Improvements, (ii) all-risk property insurance, completed value form, covering all physical loss (including any loss of or damage to supplies, machinery and equipment) in connection with the making of such alterations or improvements, and (iii) comprehensive liability insurance, with completed operations endorsement, covering any occurrence in or about the Property in connection with such improvements, which comprehensive liability insurance policy shall have a combined single limit of not less than Three Million and No/100 dollars ($3,000,000). Tenant shall furnish Landlord with satisfactory evidence that such insurance is in effect before the commencement of its improvements and, on request, at reasonable intervals thereafter. Duly executed certificates of such insurance shall be delivered to Landlord prior to the commencement of any such alterations or improvements. Each policy shall name Landlord and any other person designated by Landlord as an additional insured and shall contain a provision requiring thirty (30) days prior written notice to Landlord and any named insured in the policy is cancelled or not renewed. (c) Throughout the term of this Lease, Landlord shall carry commercial general public liability insurance and extended fire and casualty insurance covering the Building and Property, with such companies and in such amounts (with such deductibles) as Landlord shall reasonably determine. 17. ENTIRE AGREEMENT - NO WAIVER This Lease contains the entire agreement of the parties hereto and no representations, inducements, promises or agreements, oral or otherwise, between the parties not embodied herein shall be of any force and effect. The failure of either party to insist in any instance on strict performance of any covenant or condition hereof, or to exercise any option herein contained, shall not be construed as a waiver of such covenant, condition or option in any other instance. This Lease cannot be changed or terminated orally, and can be 29 modified only in writing, executed by each party hereto. 18. HOLDING OVER If Tenant remains in possession of the Premises after expiration of the Term, or after any permitted termination of the Lease by Landlord, with Landlord's acquiescence and without any written agreement between the parties, Tenant shall be a tenant at sufferance and such tenancy shall be subject to all the provisions hereof, except that the Monthly Base Rental for said holdover period shall be one hundred fifty percent (150%) of the amount of Rent due in the last full month of the Term. There shall be no renewal of this Lease by operation of law. Nothing in this Paragraph shall be construed as a consent by Landlord to the possession of the Premises by Tenant after the expiration or earlier termination of the Term. 19. HEADINGS The headings in this Lease are included for convenience only and shall not be taken into consideration in any construction or interpretation of any part of this Lease. 20. NOTICES (a) Any notice by either party to the other shall be valid only if in writing and shall be deemed to be duly given only if delivered personally or sent by certified mail or via reputable overnight courier that issues written receipts, addressed (i) if to Tenant, at the Premises, with a copy to Cognizant Corporation, 200 Nyala Farms Road, Westport, Connecticut 06880, Attention: Director of Global Real Estate and (ii) if to Landlord, at Landlord's address set forth above, or at such other address for either party as that party may designate by notice to the other. Notice shall be deemed given, if delivered personally, upon delivery thereof, and if mailed, upon the mailing thereof. (b) Tenant hereby appoints as its agent to receive service of all dispossessory or distraint proceedings Corporation Trust Corporation, 820 Bear Tavern Road, West Trenton, New Jersey 08628. 21. HEIRS, SUCCESSORS, AND ASSIGNS - PARTIES (a) The provisions of this Lease shall bind and inure to the benefit 30 of Landlord and Tenant, and their respective permitted successors, heirs, legal representatives and assigns, it being understood that the term "Landlord" as used in this Lease means only the owner or prime lessee (or the ground lessee) for the time being of the Property and Building of which the Premises are a part, so that in the event of any sale or sales of said Property or assignment of the prime lease (or of any ground lease thereof), Landlord named herein shall be and hereby is entirely released of all covenants and obligations of Landlord hereunder accruing thereafter, and it shall be deemed without further agreement that the purchaser, assignee, or the ground lessee, as the case may be, has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder during the period such party has possession of the Property and Building. Should the Property and the entire Building be severed as to ownership by sale and/or lease, then the owner of the entire Building or lessee of the entire Building that has the right to lease space in the Building to tenants shall be deemed "Landlord". Tenant shall be bound to any such succeeding party for performance by Tenant of all the terms, covenants, and conditions of this Lease and agrees to execute any attornment agreement not in conflict with the terms and provisions of this Lease at the request of any such party. (b) The parties "Landlord" and "Tenant" and pronouns relating thereto, as used herein, shall include male, female, singular and plural, corporation, partnership or individual, as may fit the particular parties. 22. ATTORNEY'S FEES In the event of any law suit or court action between Landlord and Tenant arising out of or under this Lease or the terms and conditions stated herein, the prevailing party in such law suit or court action shall be entitled to and shall collect from the non-prevailing party the reasonable attorney's fees and court costs actually incurred by the prevailing party with respect to said lawsuit or court action. 23. SECURITY DEPOSIT (a) Tenant has this day deposited with Landlord the Security Deposit (if any) specified in Paragraph 2 as security for the performance by Tenant of all of the terms, covenants and conditions of this Lease upon Tenant's pan to be performed. Landlord shall have no obligation to segregate such Security Deposit from any other funds of Landlord, and interest earned on such Security Deposit, if any, shall belong to Landlord. The Security Deposit shall be returned to Tenant within thirty (30) days after the expiration of the Term hereof, provided Tenant has fully performed its obligations hereunder. Landlord shall have the right to apply any party of the Security Deposit to cure any default of Tenant and if Landlord does so, Tenant shall upon demand deposit with Landlord the amount so 31 applied so that Landlord shall have the full Security Deposit on hand at all times during the Term of this Lease. In the event of a sale or lease of the Building subject to this Lease, Landlord shall transfer the Security Deposit to the vendee or lessee, and Landlord shall thereupon be released from all liability for the return of such Security Deposit. Tenant shall look solely to the successor Landlord for the return of said Security Deposit. This provision shall apply to every transfer or assignment made of the Security Deposit to a successor Landlord. The Security Deposit shall not be assigned or encumbered by Tenant without the prior written consent of Landlord and any such unapproved assignment or encumbrance shall be void. (b) Notwithstanding the foregoing, in the event that after the execution of this Lease and delivery to Landlord of the Security Deposit (i) Tenant provides Landlord with a guaranty of the Rent payments hereunder, in form and substance acceptable to Landlord in its sole discretion, signed by Cognizant Corporation, or (ii) Tenant provides Landlord with financial statements and other financial information regarding Tenant as is requested by Landlord which establishes to Landlord, in Landlord's sole discretion, that Tenant has a significant net worth, then Landlord shall return the Security Deposit to Tenant and Tenant's obligations under this Paragraph 23 shall terminate. 24. RULES AND REGULATIONS The Rules and Regulations set forth in Exhibit "C" are a part of this ----------- Lease. Landlord may from time to time amend, modify, delete or add new and additional reasonable Rules and Regulations for the use, operation, safety, cleanliness and care of the Premises and the Building. Such new or modified Rules and Regulations shall be effective upon notice thereof to Tenant. Tenant will cause its employees and agents, or any others permitted by Tenant to occupy or enter the Premises to at all times abide by the Rules and Regulations. In the event of any breach of any Rules and Regulations, Landlord shall have all remedies in this Lease provided for in the event of default by Tenant and shall, in addition, have any remedies available at law or in equity, including but not limited to, the right to enjoin any breach of such Rules and Regulations. Landlord shall not be responsible to Tenant for the nonobservance by any other tenant or person of any such Rules and Regulations. 25. INTENTIONALLY DELETED 26. LATE PAYMENTS Any payment due of Tenant hereunder not received by Landlord within five (5) days of the date when due shall be assessed a five percent (5%) charge for Landlord's 32 administrative and other costs in processing and pursuing the payment of such late payment, and shall be assessed an additional four percent (4%) charge for the aforesaid costs of Landlord for each month thereafter until paid in full. Acceptance by Landlord of a payment, and the cashing of a check, in an amount less than that which is currently due shall in no way affect Landlord's rights under this Lease and in no way be an accord and satisfaction. This provision does not prevent Landlord from declaring the non-payment of Rent when due an event of default hereunder. 27. ESTOPPEL CERTIFICATE At any time during the period beginning with the execution of this Lease and ending with the termination of this Lease, Tenant shall, within ten (10) business days of the request by Landlord, execute, acknowledge and deliver to Landlord, any Mortgagee, prospective Mortgagee, Lessor, or any prospective purchaser of the Property, the Building, or both (as designated by Landlord), or any prospective purchaser or transferee of the Building an estoppel certificate in recordable form, or in such other form as Landlord may from time to time require, evidencing whether or not (a) this Lease is in full force and effect; (b) this Lease has been amended in any way; (c) Tenant has accepted and is occupying the Premises; (d) there are any existing defaults on the part of Landlord hereunder or defenses or offsets against the enforcement of this Lease to the knowledge of Tenant (specifying the nature of such defaults, defenses or offsets, if any); (e) the date to which Rent and other amounts due hereunder, if any, have been paid; and (f) any such other information as may be reasonably requested by Landlord regarding the Lease. Each certificate delivered pursuant to this Paragraph may be relied on by Landlord, any prospective purchaser or transferee of Landlord's interest hereunder, or any Mortgagee or prospective Mortgagee, or any Lessor. 28. SEVERABILITY AND INTERPRETATION (a) If any clause or provision of this Lease shall be deemed illegal, invalid or unenforceable under present or future laws effective during the Term, the remainder of this Lease shall not be affected by such illegality, invalidity or unenforceable, and in lieu of each clause or provision of this Lease that is illegal, invalid or unenforceable, there shall be added as a part of this Lease a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable. (b) Should any provisions of this Lease require judicial interpretation, it is agreed that the court interpreting or construing the same shall not apply a presumption that the terms of any such provision shall be more strictly construed against one party or the other by reason of the rule of construction that a document is to be construed most strictly against the party who itself or through its agent prepared the same, it being agreed that the agents of all parties hereto have participated in the preparation of this Lease. 29. MULTIPLE TENANTS If more than one individual or entity comprises and constitutes Tenant, then all individuals and entities comprising Tenant are and shall be jointly and severally liable for the due and proper performance of Tenant's duties and obligations arising under or in connection with this Lease. 30. FORCE MAJEURE Landlord shall be excused for the period of any delay and shall not be deemed in default with respect to the performance of any of the terms, covenants, and conditions of this Lease when prevented from so doing by causes beyond Landlord's control, which shall include, but not be limited to, all labor disputes, governmental regulations or controls, fire or other casualty, inability to obtain any material or services, or acts of God. 31. QUIET ENJOYMENT So long as Tenant is in full compliance with terms and conditions of this Lease, Landlord shall warrant and defend Tenant in the quiet enjoyment and possession of the Premises during the Term against any and all claims made by, through or under Landlord, subject to the terms of this Lease. 32. BROKERAGE COMMISSION; INDEMNITY TENANT WARRANTS AND REPRESENTS THAT IT HAS DEALT WITH NO BROKER OR FINDER IN CONNECTION WITH THIS LEASE EXCEPT FOR KOLL REAL ESTATE SERVICES COMPANY AND THE EDWARD S. GORDON CO. OF NEW JERSEY, INC. ("BROKERS"). TENANT AGREES TO DEFEND AND INDEMNIFY LANDLORD AGAINST ANY BROKERAGE CLAIMS RELATED TO THIS LEASE OTHER THAN BY BROKERS. 33. EXCULPATION OF LANDLORD 34 Landlord's liability to Tenant with respect to this Lease shall be limited solely to Landlord's interest in the Building. Neither Landlord, nor any of the partners of Landlord, nor any officer, director, or shareholder of Landlord shall have any personal liability whatsoever with respect to this Lease. 34. ORIGINAL INSTRUMENT Any number of counterparts of this Lease may be executed, and each such counterpart shall be deemed to be an original instrument. 35. NEW JERSEY LAW This Lease has been made under and shall be construed and interpreted under and in accordance with the laws of the State of New Jersey. 36. NO RECORDATION OF LEASE Without the prior written consent of Landlord, neither this Lease nor any memorandum thereof shall be recorded or placed on public record. 37. HAZARDOUS WASTES/ENVIRONMENTAL COMPLIANCE (a) Tenant covenants and agrees that Tenant will not store, use, or dispose of any Hazardous Materials (as hereinafter defined) on or about the Premises, Building or Property. Tenant further agrees to indemnify and hold Landlord harmless from and against all claims, costs, liabilities, losses and damages, including but not limited to reasonable attorneys' fees and costs of litigation, incurred as a result of a release or threatened release of Hazardous Materials on the Premises, Building or Property caused by Tenant, its agents, employees, contractors, invitees or others for which Tenant is legally responsible. The foregoing indemnification of Landlord by Tenant includes, without limitation, all costs incurred by or imposed upon Landlord in connection with any judgments, damages, penalties, fines, liabilities or losses (including, without limitation, diminution in value of the Premises, damages for the loss or restriction on use of any space or of any amenity in or around the Building in which the Premises are located, damages arising from any adverse impact on marketing of space, and sums paid in settlement of claims, attorneys' fees, consultant fees and expert fees) or in connection with the investigation of site conditions or any clean-up, or remedial, removal or restoration work required by any federal, state or 35 local governmental agency or political subdivision occurring as a result of the presence of any Hazardous Material in the Premises caused or permitted by Tenant or for which Tenant is legally liable. Tenant's obligations under this Paragraph will survive the termination or early expiration of the Lease. Any default under this Paragraph 37 shall be a material default enabling Landlord to exercise any of the remedies set forth in this Lease. (b) Tenant agrees to comply with the provisions of the New Jersey Industrial Site Recovery Act ("ISRA"), if applicable, or any similar applicable laws, prior to its termination of any activities in the Premises or the expiration of the term of this Lease, whichever is earlier. If ISRA is not applicable, Tenant will use best efforts to obtain a Letter of Nonapplicability from the New Jersey Department of Environmental Protection by the time stated in the previous sentence. If in connection with a sale, transfer, or mortgage of the Real Property by Landlord or other transaction by the Landlord where Landlord is required or deems it desirable to comply with ISRA, Tenant will cooperate with Landlord and provide any information reasonably requested by Landlord to comply with ISRA or to obtain a Letter of Nonapplicability. (c) Landlord shall indemnify and hold harmless Tenant from any and all claims, liabilities, losses, damages or costs (including, without limitation, reasonable attorneys' fees) arising out of or related to any and all Environmental Conditions or Environmental Compliance Liability, except those caused by Tenant, or its agents, employees, contractors, invitees or others for whom Tenant is legally responsible, or arising out of Tenant's use of the Premises. (d) For the purposes of this Lease, the following terms shall be defined as follows: (i) "Environmental Conditions" shall mean all circumstances with respect to soil, surface waters, ground waters, ponds, stream sediment, air, building materials and similar environmental media, on the Property that may require remedial action and/or that may result in claims and/or demands by and/or liabilities to third-parties including, but not limited to, governmental entities. (ii) "Environmental Compliance Liability" means any and all liabilities arising under or related to compliance with any Environmental Law applicable to the Property or any operations or assets associated with the Property, including, without limitation, the Premises, which may result in claims and/or demands by and/or liability to third-parties, including, without limitation, governmental authorities. (iii) "Hazardous Materials" means any petroleum, petroleum products, fuel oil, waste oil, explosives, reactive materials, ignitable materials, corrosive materials, hazardous chemicals, hazardous waste, hazardous substances, extremely hazardous 36 substances, toxic substances, toxic chemicals, radioactive materials, pollutants, toxic pollutants, herbicides, fungicides, rodenticides, insecticides, contaminants, or pesticides including, but not limited to, any other element, compound, mixture, solution or substance which may pose or present a potential hazard to human health or to the environment, provided that in each case the foregoing are listed as "hazardous materials" or "hazardous substances" under Environmental Laws. (iv) "Environmental Laws" means any and all federal, state, local or municipal written and published laws, rules, orders, regulations, statutes, ordinances, or codes, or requirements of any governmental authority relating or imposing standards of liability or standards of conduct concerning air, water, solid waste, and other environmental, health, safety, building, land use and local government concerns. 38. LEASE BINDING UPON DELIVERY; NO OPTION Submission of this Lease for examination and negotiation does not constitute an option to lease or reservation of space for the Premises. This Lease shall be effective only when executed by both parties and received by Landlord. If this Lease has been submitted to Tenant in form already signed by Landlord, it evidences only Landlord's offer to enter into this Lease on the exact terms provided as delivered, which offer may be revoked at any time and which may additionally expire at any certain time established by Landlord in writing. 39. INTENTIONALLY DELETED 40. JURISDICTION; SERVICE; WAIVER OF JURY TRIAL Tenant hereby consents to the jurisdiction of the courts of the State of New Jersey or of the United States District Courts of New Jersey. Tenant hereby waives the requirement of service pursuant to the applicable rules of such courts, and consents to accept service by certified mail, return receipt requested, to the address set forth in Paragraph 20(b) above. It is mutually agreed that Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other as to any matters arising out of or in any way connected with this Lease. 41. TENANT'S FINANCIAL STATEMENTS If requested in writing by Landlord, Tenant shall, within ninety (90) days of the end of each fiscal year of Tenant, deliver to Landlord a current balance sheet and statement of profit and loss for the preceding year prepared and reviewed by an independent 37 certified public accountant in accordance with generally accepted accounting principal consistently applied. IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed under seal, on the day and year first above written. "TENANT": IMS AMERICA, LTD., a New Jersey corporation By: /s/ Myron E. Holugiak ------------------------------------- Name: Myron E. Holugiak -------------------------------- Title: General Manager ------------------------------- "LANDLORD": TOWNSEND PROPERTY TRUST LIMITED PARTNERSHIP, doing business in New Jersey as TPT Limited Partnership By: DWT ATRIUM. INC., its general partner By: /s/[ILLEGIBLE] ---------------------------------- Name: /s/[ILLEGIBLE] ----------------------------- Title: Vice President ---------------------------- 38 EXHIBIT A --------- SECOND FLOOR PLAN A-1 EXHIBIT B --------- ALL THAT CERTAIN TRACT, PARCEL AND LOT OF LAND LYING AND BEING SITUATE IN THE TOWNSHIP OF FRANKLIN, COUNTY OF SOMERSET, STATE OF NEW JERSEY, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEING KNOWN AS BLOCK 468.01, LOT 21.06 AS SHOWN ON A MAP ENTITLED "AMENDED SECTION TWO OF THE ATRIUM AT SOMERSET, TOWNSHIP OF FRANKLIN, SOMERSET COUNTY, NEW JERSEY" FILED IN THE SOMERSET COUNTY CLERK'S OFFICE DECEMBER 14, 1983. AS MAP NUMBER 2067. BEING FURTHER DESCRIBED AS BEGINNING AT A POINT IN THE MOST SOUTHEASTERLY LINE OF THE WHOLE TRACT OF WHICH THIS IS A PART BEING DISTANT 1050.23 FEET ALONG SAID OUTSIDE LINE ON A COURSE OF NORTH 48 DEGREES 54 MINUTES 40 SECONDS EAST FROM THE MOST SOUTHERLY CORNER OF THE WHOLE TRACT OF WHICH THIS IS A PART AND CORNER OF THE LANDS OF WORLDS FAIR ASSOCIATES AND RUNNING; THENCE 1. ALONG THE NORTHEASTERLY LINE OF LOT 21.08 AS SHOWN ON SAID MAP ON A COURSE OF NORTH 4.0 DEGREES 51 MINUTES 00 SECONDS WEST A DISTANCE OF 308.94 FEET TO A POINT; THENCE 2. STILL ALONG SAID LINE OF LOT 21.08 IN A NORTHWESTERLY DIRECTION ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF 60.00 FEET AN ARC DISTANCE OF 79.54 FEET TO A POINT; THENCE 3. ALONG THE SOUTHEASTERLY LINE OF LOT 21.07 AS SHOWN ON SAID MAP ON A COURSE OF NORTH 48 DEGREES 44 MINUTES 36 SECONDS EAST A DISTANCE OF 115.14 FEET TO A POINT; THENCE 4. ALONG THE NORTHEASTERLY LINE OF LOT 21.07 AS SHOWN ON SAID MAP IN A NORTHWESTERLY DIRECTION ALONG A CURVE TO THE LEFT HAVING A RADIUS OF 60.00 FEET AN ARC DISTANCE OF 30.17 FEET TO A POINT; THENCE 5. STILL ALONG SAID LINE OF LOT 21.07 IN A NORTHWESTERLY DIRECTION ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF 40.00 FEET AN ARC DISTANCE OF 31.82 FEET TO A POINT; THENCE 6. STILL ALONG SAID LINE OF LOT 21.07 ON A COURSE OF NORTH 40 DEGREES MINUTES 00 SECONDS WEST A DISTANCE OF 319.66 FEET TO A POINT; THENCE 7. ON A COURSE OF NORTH 48 DEGREES 49 MINUTES 16 SECONDS EAST A DISTANCE OF 58.43 FEET TO A POINT; THENCE B-1 8. STILL ALONG THE SOUTHEASTERLY LINE OF LOT 21.03 AS SHOWN ON A MAP ENTITLED "AMENDED SECTION ONE OF THE ATRIUM AT SOMERSET" FILED IN THE SOMERSET COUNTY CLERK'S OFFICE JUNE 4, 1982 AS MAP NUMBER 1963, ON A COURSE OF NORTH 48 DEGREES 35 MINUTES 40 SECONDS EAST A DISTANCE OF 324.59 FEET TO A POINT; THENCE 9. STILL ALONG SAID LINE OF LOT 21.03 IN A NORTHERLY DIRECTION ALONG A CURVE TO THE LEFT HAVING A RADIUS OF 195.00 FEET AN ARC DISTANCE OF 192.08 FEET TO A POINT; THENCE 10. STILL ALONG SAID LINE OF LOT 21.03 ON A COURSE OF NORTH 7 DEGREES 50 MINUTES 38 SECONDS WEST A DISTANCE OF 7.40 FEET TO A POINT; THENCE 11. STILL ALONG SAID LINE OF LOT 21.03 IN A NORTHERLY DIRECTION ALONG A CURVE TO THE LEFT HAVING A RADIUS OF 35.00 FEET AN ARC DISTANCE OF 48.34 FEET TO A POINT; THENCE 12. STILL ALONG A LINE OF LOT 21.03 ON A COURSE OF NORTH 3 DEGREES 00 MINUTES 57 SECONDS EAST A DISTANCE OF 60.00 FEET; THENCE 13. ALONG THE SOUTHERLY LINE OF LOT 21.04 AS SHOWN ON SAID MAP OF SECTION ONE IN AN EASTERLY DIRECTION ALONG A CURVE TO THE LEFT HAVING A RADIUS OF 250.00 FEET AN ARC DISTANCE OF 193.82 FEET TO A POINT; THENCE 14. STILL ALONG SAID LINE OF LOT 21.04 ON A COURSE OF NORTH 48 DEGREES 35 MINUTES 40 SECONDS EAST A DISTANCE OF 175.00 FEET TO A POINT; THENCE 15. ALONG THE SOUTHWESTERLY LINE OF LOT 21.05 AS SHOWN AS SAID MAP OF SECTION TWO IN AN EASTERLY DIRECTION ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF 110.00 FEET AN ARC DISTANCE OF 172.79 FEET TO A POINT; THENCE 16. STILL ALONG SAID LINE OF LOT 21.05 ON A COURSE OF SOUTH 41 DEGREES 24 MINUTES 20 SECONDS EAST A DISTANCE OF 250.00 FEET TO A POINT; THENCE 17. STILL ALONG SAID LINE OF LOT 21.05 AND THE SOUTHEASTERLY LINE OF LOT 21.09 IN A SOUTHEASTERLY DIRECTION ALONG A CURVE TO THE LEFT HAVING A RADIUS OF 40.00 FEET AN ARC DISTANCE OF 31.82 FEET TO A POINT; THENCE 18. STILL ALONG SAID LINE OF LOT 21.09 IN A SOUTHEASTERLY DIRECTION ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF 60.00 FEET AN ARC DISTANCE OF 99.02 FEET TO A POINT; THENCE 19. STILL ALONG SAID LINE OF LOT 21.09 SOUTH 55 DEGREES 57 MINUTES ??? SECONDS EAST A DISTANCE OF 290.11 FEET TO A POINT; THENCE B-2 20. ALONG AN OUTSIDE LINE OF THE WHOLE TRACT OF WHICH THIS IS A PART ON A COURSE OF SOUTH 15 DEGREES 35 MINUTES 50 SECONDS EAST A DISTANCE OF 97.02 FEET TO A POINT; THENCE 21. STILL ALONG AN OUTSIDE LINE OF THE WHOLE TRACT ON A COURSE OF SOUTH 48 DEGREES 37 MINUTES 00 SECONDS WEST A DISTANCE OF 904.26 FEET TO A POINT; THENCE 22. STILL ALONG AN OUTSIDE LINE OF THE WHOLE TRACT ON A COURSE OF SOUTH 39 DEGREES 47 MINUTES 00 SECONDS EAST A DISTANCE OF 17.16 FEET TO A POINT; THENCE 23. STILL ALONG AN OUTSIDE LINE OF THE WHOLE TRACT ON A COURSE OF SOUTH 48 DEGREES 54 MINUTES 40 SECONDS WEST A DISTANCE OF 249.51 FEET TO A POINT BEING THE POINT OR PLACE OF BEGINNING. TOGETHER WITH AN EASEMENT BEING IDENTIFIED AS FOLLOWS; TOGETHER WITH AND SUBJECT TO ALL OF THE RIGHT TITLE AND INTEREST OF S/A ASSOCIATES IN TO AND UNDER THAT CERTAIN DECLARATION OF EASEMENTS DATED APRIL 15, 1982 BY S/A ASSOCIATES RECORDED IN DEED BOOK 1457 PAGE 828 ON APRIL 20, 1982, AS AMENDED BY AMENDMENT TO DECLARATION OF EASEMENTS DATED APRIL 15, 1983 BY S/A ASSOCIATES AND RECORDED IN DEED BOOK 1488 PAGE 315 ON SEPTEMBER 16, 1983 THE ABOVE DESCRIPTION IS IN ACCORDANCE WITH A SURVEY PREPARED BY JOSEPH D. GREENAWAY, P.L.S. DATED JULY 30, 1996 AND LAST REVISED TO AUGUST 22, 1996. LOT 21.06, BLOCK 468.1, ON THE OFFICIAL TAX MAP OF FRANKLIN TOWNSHIP EXHIBIT "C" ----------- RULES AND REGULATIONS 1. Tenant shall not obstruct or encumber or use for any purpose other than ingress and egress to and from the Premises any sidewalk, entrance, passage, court, elevator, vestibule, stairway, corridor, hall or other part of the Building not exclusively occupied by Tenant. Landlord shall have the right to control and operate the public portions of the Building and the facilities furnished for common use of the tenants, in such manner as Landlord deems best for the benefit of the tenants generally. Tenant shall not permit the visit to the Premises of persons in such numbers or under such conditions as to interfere with the use and enjoyment of the entrances, corridors, elevators and other public portions or facilities of the Building by other tenants. Tenant shall coordinate in advance with Landlord's property management department all deliveries to the Building so that arrangements can be made to minimize such interference. Tenant and its employees shall not use any of the parking spaces designated for use by visitors only or the roof of the Building except as specifically authorized in the Lease. 2. Tenant shall not attach, hang or use in connection with any window or door of the Premises any drape, blind, shade or screen, without Landlord's prior written consent. All awnings, drapes projections, curtains, blinds, shades, screens and other fixtures shall be of a quality, type, design and color, and attached in a manner, approved in writing by Landlord. 3. Tenant shall not place any showcase, mat or other article in any part of the exterior of the Premises. 4. Tenant shall not use the water fountains, water and wash closets and other plumbing fixtures for any purpose other than those for which they were constructed, and Tenant shall not place any debris, rubbish, rag or other substance therein (including, without limitation, coffee grounds). 5. Tenant shall not construct, maintain, use or operate within the Premises any electrical device, wiring or apparatus in connection with a loud speaker system or other sound system without Landlord's prior written consent. Tenant shall not construct, Landlord's prior written consent. Tenant shall not construct, maintain, use or operate any such loud speaker or sound system outside of its Premises or within such Premises so that the same can be heard from outside the Premises. 6. Tenant shall not bring any bicycle, vehicle, animal, bird or pet of any kind into the Building, except seeing eye or hearing ear dogs for handicapped persons C-1 visiting the Premises. 7. Except as specifically provided to the contrary in the Lease, Tenant shall not cook or permit any cooking on the Premises, except for microwave cooking and use of coffee machines by Tenant's employees for their own consumption. Tenant shall not install any microwave oven or coffee machine in the Premises without Landlord's prior written approval of such equipment and its location within the Premises. Tenant shall not cause or permit any unusual or objectionable odor to be produced upon or permeate from the Premises. Tenant may construct a kitchen facility in the Demised Premises in accordance with plans and specifications to be approved by Landlord. Landlord shall have no responsibility for cleaning or maintaining any such kitchen facility, and Tenant shall maintain same in accordance with the terms of the Lease and this Exhibit "C". 8. Tenant shall not make any unseemly or disturbing noise or disturb or interfere with occupants of the Building. 9. Tenant shall not place on any floor a load exceeding the floor load per square foot which such floor was designed to carry. Landlord shall have the right to prescribe the weight, position and manner of installation of safes and other heavy equipment and fixtures. Landlord shall have the right to repair at Tenant's expense any damage to the Premises or the Building caused by Tenant's moving property into or out of the Premises or due to the same being in or upon the Premises or to require Tenant to do the same. Tenant shall not receive into the Building or carry in the elevators any furniture, equipment or bulky item except as approved by Landlord, and any such furniture, equipment and bulky item shall be delivered only through the designated delivery entrance of the Building and the designated freight elevator. Tenant shall remove promptly from any sidewalk adjacent to the Building any furniture, furnishing, equipment or other material there delivered or deposited for Tenant. 10. Landlord shall at all times have the right to retain and use keys to the Premises and to all locks or bolts to or within the Premises. Tenant shall not place additional locks or bolts of any kind on any of the doors or windows, and shall not make any change in any existing lock or locking mechanism therein, without Landlord's prior written approval. Tenant shall keep doors leading to a corridor or main hall closed during Business Hours except as such doors may be used for ingress or egress. Tenant shall, upon the termination of its tenancy, restore to Landlord all keys of the Premises, stores, offices, storage and toilet rooms either furnished to, or otherwise procured by, Tenant, and in the event of the loss of any keys so furnished, Tenant shall pay the replacement cost thereof. Tenant's key system shall be consistent with that for the rest of the Building. 11. Tenant shall not install or operate in the Premises any electrically operated equipment or machinery that operates on greater than 110 volt power without C-2 obtaining the prior written consent of Landlord. Landlord may condition such consent upon Tenant's payment of additional rent in compensation for the excess consumption of electricity or other utilities and for the cost of any additional wiring or apparatus that may be occasioned by the operation of such equipment or machinery. Tenant shall not install any equipment of any type or nature that will or may necessitate any changes, replacements or additions to, or changes in the use of, the water system, heating system, plumbing system, air-conditioning system or electrical system of the Premises or the Building, without obtaining Landlord's prior written consent, which consent may be granted or withheld in Landlord's sole and absolute discretion. If any machine or equipment of Tenant causes noise or vibration that may be transmitted to such a degree as to be objectionable to Landlord or any tenant in the Building, then Landlord shall have the right to install at Tenant's expense vibration eliminators or other devices sufficient to reduce such noise and vibration to a level satisfactory to Landlord or to require Tenant to do the same. 12. Landlord reserves the right to exclude from the Building at all times any person who does not properly identify himself to the Building management or watchman on duty. Landlord may require all persons admitted to or leaving the Building to register. 13. Tenant shall not permit or encourage any loitering in or about the Premises and shall not use or permit the use of the Premises for lodging or sleeping. 14. Tenant, before closing and leaving the Premises at any time, shall see that all windows are closed and all lights and equipment are turned off, including, without limitation, coffee machines. 15. Tenant shall not request Landlord's employees to perform an work or do anything outside of such employees' regular duties without Landlord's prior written consent. Tenant's special requirements will be amended to only upon application to Landlord, and any such special requirements shall be billed to Tenant in accordance with the schedule of charges maintained by Landlord from time to time or as is agreed upon in writing in advance by Landlord and Tenant. Tenant shall not employ any of Landlord's employees for any purpose whatsoever without Landlord's prior written consent. 16. Canvassing, soliciting and peddling in the Building are prohibited and Tenant shall cooperate to prevent the same. 17. There shall not be used in any space, or in the public halls of the Building, either by any tenant or by jobbers or others in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires and side guards. Tenant shall be responsible for any loss or damage resulting from any deliveries made by or for Tenant. C-3 18. Drapes (whether installed by Landlord or Tenant) which are visible, from the exterior of the Building, shall be cleaned by Tenant at least once a year, without notice from Landlord, at Tenant's own expense. 19. Tenant shall not install or permit the installation of any wiring for any purpose on the exterior of the Premises. 20. Tenant acknowledges that it is Landlord's intention that the Building be operated in a manner which is consistent with the highest standards of cleanliness, decency and morals in the community which it serves. Toward that end, Tenant shall not sell, distribute, display or offer for sale any item which, in Landlord's judgment, is inconsistent with the quality of operation of the Building or may tend to impose or-detract from the moral character or image of the Building. Tenant shall not use the Premises for any immoral or illegal purpose. 21. Unless otherwise expressly provided in the Lease, Tenant shall not use, occupy or permit any portion of the Premises to be used or occupied for the storage, manufacture, or sale of liquor. 22. Tenant shall purchase or contract for waxing, rug shampooing, Venetian blind washing, interior glass washing, furniture polishing, janitorial work, removal of any garbage from any dining or eating facility or for towel service in the Premises, only from contractors, companies or persons approved by Landlord. 23. Tenant shall not remove, alter or replace the ceiling light diffusers in any portion the Premises without the prior written consent of Landlord. 24. Tenant shah not purchase spring water, ice, coffee, soft drinks, towels, or other merchandise or services from any company or person whose repeated violation of Building regulations has caused, in Landlord's opinion, a hazard or nuisance to the Building and/or its occupants. 25. Tenant shall not place or permit the placement of any vending or dispensing machines of any kind in or about the Premises without Landlord's prior written consent. Landlord hereby consents to the placement of five (5) vending machines in the area designated as the lunchroom of the Premises to be used by Tenant's employees. 26. Landlord may, upon request of Tenant, waive Tenant's compliance with any of the rules, provided that (a) no waiver shall be effective unless signed by Landlord, (b) no waiver shall relieve Tenant from the obligation to comply with such rule in the future unless otherwise agreed in writing by Landlord, (c) no waiver granted to any tenant shall relieve any other tenant from the obligation of complying with these rules and C-4 regulations, and (d) no waiver shall relieve Tenant from any liability for any loss or damage resulting from Tenant's failure to comply with any rule. 27. In any instance under these rules and regulations where Tenant is required to obtain Landlord's consent or approval, said consent or approval shall not be unreasonably withheld, conditioned or delayed. 28. In the event of any inconsistencies between these rules and regulations and the terms and conditions of the Lease, the terms and conditions of the Lease shall govern and control. C-5 EXHIBIT "D" ----------- CLEANING SPECIFICATIONS JANITORIAL SERVICES - MONDAY THROUGH FRIDAY DAY HOURS - DAILY Lavatories - Replenish paper stock and keep neat, sanitary, clean and orderly. Water Coolers - Damp wipe with disinfectant and water. General Office Area - Damp mop spots and spills as required. Walls and Columns - Spot clean daily as required. Torpedo Cans - Change liners twice a week and empty cans daily. NIGHTLY JANITORIAL CLEANING Clean sink and countertops in pantries. Damp mop tile floors. Empty waste paper baskets. Clean laminated countertops in utility room. Spot clean walls as required. Clean water fountains. Vacuum rugs and spot clean as required. Wash and clean lavatories. WEEKLY Low dust all horizontal surfaces. MONTHLY Clean and buff vinyl tile floors. High dust all horizontal surfaces. D-1 QUARTERLY Clean windows in Premises inside and out. ANNUAL Shampoo all carpets in Premises and common areas. D-2 EX-10.10 13 0013.txt LEASE AGREEMENT DATED NOVEMBER 18, 1999 EXHIBIT 10.10 L E A S E A G R E E M E N T - - - - - - - - - - - - - - BY AND BETWEEN: FIRST INDUSTRIAL, L.P., a Delaware limited partnership, "Landlord" - and - MULTILINK TECHNOLOGY CORPORATION, a California corporation "Tenant" Premises: 155 Pierce Street Franklin Township, Somerset, New Jersey 08873 DATED: Nov. 18, 1999 PREPARED BY: ROBERT K. BROWN, ESQ. TABLE OF CONTENTS ----------------- 1. LEASED PREMISES........................................... 1 --------------- 2. TERM OF LEASE............................................. 2 ------------- 3. RENT...................................................... 3 ---- 4. PARKING AND USE OF EXTERIOR AREA.......................... 4 -------------------------------- 5. USE....................................................... 5 --- 6. CONDITION OF LEASED PREMISES.............................. 5 ---------------------------- 7. REPAIRS AND MAINTENANCE................................... 7 ----------------------- 8. UTILITIES................................................. 12 --------- 9. TAXES..................................................... 12 ----- 10. INSURANCE................................................. 14 --------- 11. SIGNS..................................................... 16 ----- 12. FIXTURES.................................................. 17 -------- 13. BROKERAGE................................................. 17 --------- 14. FIRE AND CASUALTY......................................... 18 ---------------- 15. COMPLIANCE WITH LAWS, RULES AND REGULATIONS............... 19 ------------------------------------------- 16. INSPECTION BY LANDLORD.................................... 22 --------------------- 17. DEFAULT BY TENANT......................................... 23 ----------------- 18. LIABILITY OF TENANT FOR DEFICIENCY........................ 25 ---------------------------------- 19. NOTICES................................................... 26 ------- 20. NON-WAIVER BY LANDLORD.................................... 26 ---------------------- 21. RIGHT OF TENANT TO MAKE ALTERATIONS AND IMPROVEMENTS...... 26 ---------------------------------------------------- 22. NON-LIABILITY OF LANDLORD................................. 27 ------------------------- 23. RESERVATION BY LANDLORD................................... 28 ----------------------- 24. AIR, WATER AND GROUND POLLUTION........................... 28 ------------------------------- 25. STATEMENT OF ACCEPTANCE................................... 29 ----------------------- 26. FORCE MAJEURE............................................. 29 ------------- 27. STATEMENTS BY LANDLORD AND TENANT......................... 29 --------------------------------- 28. CONDEMNATION.............................................. 30 ------------ 29. LANDLORD'S REMEDIES....................................... 31 ------------------- 30. QUIET ENJOYMENT........................................... 32 --------------- 31. SURRENDER OF PREMISES..................................... 32 --------------------- 32. INDEMNITY................................................. 33 --------- 33. LEASE CONSTRUCTION........................................ 34 ------------------ 34. BIND AND INURE CLAUSE..................................... 34 ---------------------
35. DEFINITIONS...................................... 34 ----------- 36. DEFINITION OF TERM OF "LANDLORD"................. 34 -------------------------------- 37. COVENANTS OF FURTHER ASSURANCES.................. 35 ------------------------------- 38. COVENANT AGAINST LIENS........................... 35 ---------------------- 39. SUBORDINATION.................................... 35 ------------- 40. EXCULPATION OF LANDLORD.......................... 36 ----------------------- 41. NET RENT......................................... 36 -------- 42. SECURITY......................................... 37 -------- 43. GLASS............................................ 37 ----- 44. ASSIGNMENT AND SUBLETTING........................ 37 ------------------------- 45. FINANCIAL STATEMENTS............................. 40 -------------------- 46. TENANCY REVIEW................................... 40 -------------- 47. EXECUTION AND DELIVERY........................... 40 ---------------------- 48. OPTION TO EXTEND................................. 40 ---------------- 49. RIGHT OF FIRST OFFER ON CONTIGUOUS SPACE......... 41 ----------------------------------------
SCHEDULE "A" - PLOT PLAN SCHEDULE "B" - PLAN THIS AGREEMENT, made the 18/th/ day of Nov, 1999, by and between FIRST INDUSTRIAL, L.P., a Delaware limited partnership, having an Office at 354 Eisenhower Parkway, Livingston, New Jersey 07039 (having a mailing address at P.O. Box 1639, Livingston, New Jersey 07039), hereinafter called the "Landlord"; and MULTILINK TECHNOLOGY CORPORATION, a California corporation, having an office at 2601 ocean Park Boulevard, Suite 108, Santa Monica, CA 90405, hereinafter called the "Tenant". W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Landlord intends to lease to the Tenant space in the building which is currently being constructed by Landlord and which is commonly known as 155 Pierce Street, Franklin Township, Somerset New Jersey 08873, which space contains approximately 21,000 square feet, outside outside dimensions to center line of common wall, identified on the plot plan attached hereto and made a part hereof as Schedule "A", hereinafter referred to as the "Leased Premises"; and WHEREAS, the parties hereto wish to mutually define their rights, duties and obligations in connection with the said lease, NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that for the rents reserved, the mutual considerations herein and the parties mutually intending to be legally bound hereby, the Landlord does demise, lease and let unto the Tenant and the Tenant does rent and take from the Landlord the Leased Premises as described in Article #1, and the Landlord and Tenant do hereby mutually covenant and agree as follows: 1. LEASED PREMISES. --------------- 1.1 The Leased Premises shall consist of a portion of the building commonly known as 155 Pierce Street, Franklin Township, Somerset, New Jersey (the "Building"), which space shall contain approximately 21,000 square feet, outside outside dimensions to center line of common wall, identified on the plot plan attached hereto and made a part hereof as Schedule "A", together with all improvements to be constructed thereon by the Landlord for the use of the Tenant, and all easements, improvements, tenements, appurtenances, hereditaments, fixtures and rights and privileges appurtenant thereto, and any and all fixtures and equipment which are to be installed in the Building by the Landlord for the use of the Tenant in its occupancy of the Leased Premises, in accordance with, and as more fully set forth on the Building Standard annexed hereto and made a part hereof as Schedule "B". 1.2 "Tenant's Percentage" for all lease purposes is hereby deemed to be 46%. The total area of the Building is 46,000 square feet. 2. TERM OF LEASE ------------- The Landlord leases unto the Tenant and the Tenant hires the Leased Premises for the term of five (5) years, to commence on or about January 1, 2000, and to end on December 31, 2004, the obligation of the Tenant hereunder being subject to the following proviso: 2.1 That on or about January 1, 2000, the Landlord shall have substantially completed the Building and the Leased Premises according to the Plan, as defined in Article 6.1 below, and shall deliver to the Tenant a Certificate of Occupancy issued by the authorized issuing officer of the governmental instrumentality having jurisdiction thereof. Upon the delivery by the Landlord to the Tenant of the Leased Premises, and the Certificate of Occupancy hereinabove mentioned, the lease term shall commence and the Tenant's obligation to pay rent shall begin (subject to the provisions of Article 2.2 hereof). 2.2 Subject to the terms and conditions of this lease, in the event the Leased Premises are delivered to the Tenant in the manner provided in Article 2.1 above, prior to or after January 1, 2000, the lease term of five (5) years shall commence on the first day of the next succeeding month following delivery of possession to the Tenant (hereinafter called the "Commencement Date"). The Tenant shall, however, pay to the Landlord a sum equal to the pro rata share of one (1) month's rent for that portion of the month 2 following delivery of the Leased Premises to the Tenant which is prior to the Commencement Date. During said period of partial monthly occupancy, if any, all other terms and conditions of this lease shall be applicable to the occupancy of the Leased Premises by the Tenant. 2.3 It is expressly understood and agreed that for the purpose of this lease, wherever and whenever the term "substantial completion" is used, the term "substantial completion" shall not include items of maintenance, service or guarantee, which may be required pursuant to the terms and conditions of this agreement. Substantially completed means: (i) completing the building in accordance with Schedule "B" so that (A) the Leased Premises are ready for the installation of any equipment, furniture, fixtures, or decoration that Tenant will install, and (B) the only incomplete items are minor or insubstantial details of construction, mechanical adjustments, or finishing touches like touch-up plastering or painting; (ii) securing a temporary or permanent certificate of occupancy from the local municipality; (iii) Tenant, its employees, agents, contractors, and invitees, have ready access to the Building and Leased Premises through its entranceway; (iv) the fixtures, and equipment to be installed by Landlord are installed and in good operating order; and (e) the Leased Premises are broom clean. 2.4 The within lease is contingent upon and subject to the Landlord obtaining all necessary governmental permits, approvals and consents for the construction of the Building and the Leased Premises, and upon the issuance of a Certificate of Occupancy permitting the Tenant's use and occupancy thereof. 3. RENT ---- 3.1 The Tenant covenants and agrees to pay to Landlord, in good and useable funds, the annual rent (the "Fixed Rent") in 3 the amount of TWO HUNDRED EIGHTY THREE THOUSAND FIVE HUNDRED AND 00/100 ($283,500.00) DOLLARS per annum, in equal installments of TWENTY THREE THOUSAND SIX HUNDRED TWENTY FIVE AND 00/100 ($23,625.00) DOLLARS per month. All of the foregoing monthly payments shall be made promptly in advance on the first day of each and every month during the term of the lease without demand and without offset or deduction, together with such additional rent and other charges required to be paid by Tenant as are hereinafter set forth ("Additional Rent"). 3.2 Simultaneously with the execution hereof, the Tenant has delivered to the Landlord the first monthly installment of Fixed Rent payable hereunder, together with the security deposit referred to herein. 3.3 Any installment of Fixed Rent or Additional Rent (herein collectively referred to as "rent") accruing hereunder, and any other sum payable hereunder by Tenant to Landlord which is not paid prior to the fifth (5th) day of any lease month, shall bear a late charge of five (5%) per cent of such Fixed Rent or Additional Rent, to be paid therewith, and the failure to pay such charge shall be a default. Such late charge shall be deemed to be Additional Rent hereunder. It is expressly understood and agreed that the foregoing late charge is not a penalty, but agreed upon compensation to the Landlord for administrative costs incurred by Landlord in connection with any such late payment. In addition, any payment of Fixed Rent or Additional Rent, which is not paid within thirty (30) days of the date upon which it is due shall require the payment of interest at the rate of one and one-half (1 1/2%) percent per month, calculated from the date that such payment was due through the date that any such payment is actually made. 4. PARKING AND USE OF EXTERIOR AREA -------------------------------- 4.1 The Tenant shall have the right to use the parking spaces serving the Building on a non-exclusive basis, in common with Landlord and the other tenants thereof, and to use the access 4 driveways and allocated parking spaces for its business purposes and for those of its agents, servants, employees or invitees. The Landlord reserves the right to allocate designated parking spaces if Landlord chooses, in which case, fifty three (53) parking spaces shall be allocated to Tenant, at a location reasonably convenient to the Leased Premises. The Landlord and Tenant mutually agree that they will not block, hinder or otherwise obstruct the access driveways and parking areas so as to impede the free flow of vehicular traffic to and from the Building. In connection with the use of the loading platforms, if any, both Landlord and Tenant agree that they will not use the same in connection with the conduct of their business so as to unreasonably interfere with the use of the access driveways and parking areas. 4.2 The Tenant may not utilize any portion of the land outside of the Leased Premises for outside storage of raw materials or finished products. 5. USE --- The Tenant covenants and agrees to use and occupy the Leased Premises for general offices and for research and development purposes and for any other lawful use, which use by Tenant, however, is and shall be expressly subject to all applicable zoning ordinances, rules and regulations of any governmental instrumentalities, boards or bureaus having jurisdiction thereof. 6. CONDITION OF LEASED PREMISES ---------------------------- 6.1 Anything herein contained to the contrary notwithstanding, it is expressly understood and agreed that the Tenant shall take the Leased Premises and improvements as of the Commencement Date of the within lease in accordance with plans and specifications to be prepared by Tenant (the "Plan"), which Plan shall be mutually approved by Landlord and Tenant hereunder and attached to the lease as Schedule "B". The Plan shall be submitted to Landlord by Tenant within two (2) weeks following the date of execution hereof. Such Plan shall be supplemented by HVAC, 5 sprinkler and plumbing plans coordinated with the Plan to be prepared by the Landlord's consultants as soon as is reasonably practicable following approval of the Plan. Landlord shall be responsible, at its sole cost and expense, for the cost of installation of the "drop ceiling" and all mechanical systems located above said "drop ceiling" (identified on Schedule "B" as "Base Building Work"). Landlord shall contribute the sum of $199,000.00 DOLLARS (the "Base Building Allowance") toward the cost of construction of the Base Building Work. In addition, Landlord shall contribute the sum of up to THREE HUNDRED FIFTEEN THOUSAND AND 00/100 ($315,000.00) DOLLARS (the "Tenant's Allowance") toward the cost of all leasehold improvements required by the Plan. Tenant shall be responsible for all costs in excess of Tenant's Allowance and the Base Building Allowance which are necessary in connection with the installation of said leasehold improvements, which shall be completed by the contractor selected by Landlord. Landlord and Tenant agree that their approval of the Plan and the cost of performing the work required thereby shall not be unreasonably withheld or delayed. Landlord's contractor is to obtain a minimum of three subcontractor bids for each construction section of the leasehold improvements. The itemized costs of the contractor's fee, general conditions, Base Building Work and subcontractor bids shall be provided to Tenant in writing. Tenant if it so chooses, shall be able to select subcontractors from those submitting bids to Landlord's contractor. As part of the work required by the Plan, Landlord shall close up the existing openings in the rear wall of the Leased Premises, using glass which is substantially equivalent to the "banded" glass located on the front elevation of the Building. 6.2 Anything hereinabove contained to the contrary, it is expressly understood and agreed that the Landlord's construction obligation shall be limited to the installation of all improvements set forth on the Plan. In the event that any changes or additions are required to the work to be performed by Landlord by any 6 governmental or quasi-governmental entity having jurisdiction over the Tenant or its use and occupancy of the Leased Premises, any such changes or additions shall be performed by the Landlord at the Tenant's sole cost and expense. In addition, in the event that the performance of any such changes or additions shall delay the Commencement Date hereunder, the Commencement Date shall be established as of the date that the Leased Premises would otherwise have been substantially completed by the Landlord, but for such additional requirements which are applicable to the Tenant. 6.3 During construction of leasehold improvements Tenant's vendors, including, but not limited to voice/data wiring and security system installers will be given full access to the Premises, provided that the vendors coordinate their schedules with the Landlord's contractor. Tenant shall be responsible to obtain all permits and approvals necessary for such work; copies of all of such permits and approvals to be delivered to Landlord. In the event any such work to be performed by Tenant shall delay the issuance of a certificate of occupancy for the Leased Premises, the Commencement Date hereunder shall be established as of the date said certificate of occupancy would otherwise have been issued. 7. REPAIRS AND MAINTENANCE ----------------------- 7.1 The Tenant shall take good care of the Leased Premises and, at its cost and expense, keep and maintain in good repair the interior of the Leased Premises, including all repairs to the floor, the air-conditioning and heating plant, the plumbing, pipes, sewer lines and conduits, and fixtures belonging thereto; and shall replace all air-conditioning, electrical, heating and plumbing plants, fixtures and systems, including mechanical and working parts as may be required; and shall replace all ballasts and fluorescent fixtures; and shall maintain interior water and sewer pipes and connections, and shall generally maintain and repair the interior of the Leased Premises, and shall, at the end or the expiration of the term, deliver up the Leased Premises in good order and condition, damages by fire or casualty, the elements 7 and ordinary wear and tear excepted. The Tenant expressly agrees that it shall enter into a periodic maintenance agreement with a reputable heating, ventilating and air-conditioning contractor, which contract shall provide for a minimum of two (2) inspections per year. A copy of said contract shall be forwarded to the Landlord prior to the Commencement Date and thereafter on an annual basis, and copies of inspection reports shall be delivered to the Landlord within ten (10) days of receipt thereof by Tenant. Upon written request from Tenant, Landlord agrees that it shall perform the foregoing maintenance, repair and replacement services, at Tenant's sole cost and expense, including ten (10%) percent of any such costs or expenses for Landlord's overhead. The Tenant covenants and agrees that it shall not cause or permit any waste (other than reasonable wear and tear), damage or disfigurement to the Leased Premises, or any overloading of the floors of the Building, constituting part of the Leased Premises. Tenant shall reimburse Landlord in connection with exterior maintenance and repairs as hereinafter provided in Article 7.2. 7.2 The Tenant shall pay to the Landlord, monthly, as Additional Rent, a sum equal to Tenant's Percentage of all costs incurred by the Landlord for the management, maintenance, repair and replacement of the following: (i) roof, gutters, leaders, flashings, metal gravel stops and roof drains;(ii) exterior walls, foundation and parapets; (iii) parking lot, driveways, walkways, exterior lighting; (iv) exterior sewer and utility lines; (v) lawns and shrubbery; (vi) snow removal and general ground maintenance; (vii) any signs serving the whole Building; and (viii) the standby sprinkler system. 7.3 During each calendar year of the lease term, the Landlord shall estimate the cost of all of the management, repair, maintenance and replacement services required pursuant to Article 7.2 above, as if the building were 100% rented. Landlord shall furnish such estimate to the Tenant, and Tenant shall pay Tenant's Percentage thereof in equal monthly installments, as Additional 8 Rent. At the expiration of each calendar year during the lease term, the Landlord shall furnish to Tenant a breakdown, certified by the Landlord, as to the total cost of management, maintenance, repair and replacement for such calendar year. In the event Tenant's Percentage of such costs shall be more than the aggregate paid by the Tenant during the preceding calendar year, Tenant shall pay to the Landlord, in one lump sum, any difference in such obligation, said sum to be paid within thirty (30) days after demand. In the event Tenant shall have overpaid its Tenant's Percentage of any such costs, any such overage shall be applied to the monthly management, maintenance, repair and replacement charges prospectively due under the lease. This procedure shall be followed during each calendar year during the lease term, and at the expiration of the lease, any overage or underage shall be credited or paid after computation by the Landlord, which obligation of Landlord and Tenant shall survive the expiration of the lease term. 7.4 Notwithstanding anything to contrary contained in this Lease, the Tenant shall not be charged for any of the following: (a) Costs for entertainment, dining or travel expenses. (b) Expenses, penalties, taxes or other costs resulting directly from the negligence or willful misconduct of Landlord, its agents, servants or employees or from it or their unwillingness or inability to make payments when due. (c) Costs for which Landlord is reimbursed by net insurance proceeds from its insurance carrier or for which Landlord is reimbursed by any tenant's insurance carrier. (d) Amounts paid as ground rental by Landlord. (e) The cost of any special service rendered to a tenant in the Building which is not rendered generally to all tenants. 9 (f) Any costs incurred in complying with any building code, law, regulation or ordinance enacted prior to this Lease, including the Americans with Disabilities Act and regulations governing the use of chlorofluorocarbons (known as CFCs) and related ozone depleting chemicals, except if due to Tenant's specific use and occupancy of the Leased Premises. (g) Federal, state or local income taxes, Real Estate Taxes, franchise, excess profit, gift, transfer, excise, capital stock, estate succession, of inheritance taxes, gross receipts, sales or business privilege taxes except as hereinafter set forth in Article 9, and penalties or interest for late payment of real estate taxes. (h) Leasing commissions, attorneys' fees or other costs, disbursements, and other expenses incurred for leasing, renovating, or improving space for tenants. (i) Costs, including permit, license, and inspection fees, incurred in renovating, improving, decorating, painting or redecorating vacant space or space for tenants. (j) Costs incurred due to the violation by Landlord or another tenant of the terms or conditions of any lease. (k) Overhead and profit paid to Landlord or subsidiaries or affiliates of Landlord for management or other services on or to the Property or for services on or to the Property or for supplies or other materials, to the extent that the costs of the services, supplies, or materials exceed the competitive costs of the services, supplies or materials were they not provided by the subsidiary or affiliate. (l) Interest on debt or amortization payments on mortgages or deeds of trust or ground leases or any other debt for borrowed money or any fees, interest, principal or points relating thereto. (m) Advertising and promotional expenditures, and the costs of signs in or on the Building identifying the owner of 10 the Building, the management or leasing agent or any tenant of the Building. (n) Repairs or other work needed because of fire, windstorm or other casualty or cause insured against by Landlord or to the extent Landlord's insurance required under Article 10 would have provided insurance, whichever is the greater coverage. (o) Any costs, fines, or penalties incurred because Landlord violated any governmental rule or authority. (p) "In-house" legal or accounting fees. (q) Depreciation and amortization on the Building; (r) Legal fees with respect to the Property (1) relating to disputes with tenants, (2) based on Landlord's negligence or other tortious conduct, (3) relating to enforcing any leases except for enforcing lease provisions for the benefit of the Building's tenants generally, (4) relating to the defense of . Landlord's title to, or interest in, the Property, or (5) arising from efforts to influence prospective legislation, regulations or administrative action. (s) General corporate overhead or general administrative expenses paid to the managing agent. (t) Management fees and reimbursements paid to Landlord or to its affiliates in excess of management fees and reimbursements that would be payable to outside third parties at current market rates in the same real estate market as the Building. (u) Costs for correcting defects in or inadequacy of the design or construction of the Building. (v) Any reserve for future expenditures or liabilities that would be incurred subsequent to the then current calendar year. (w) Costs incurred to test, survey, cleanup, contain, abate, remove, remediate or otherwise remedy any environmental hazard, hazardous wastes or asbestos-containing 11 materials or any other hazardous or toxic substance, unless caused by the Tenant or Tenant's agents, servants or employees. (x) Costs of a capital nature, including capital improvements or alterations, capital repairs, capital equipment and capital tools, as determined under generally accepted accounting principles ("GAAP") consistently applied, but only to the extent that such costs are incurred to improve the quality or capacity of the building, including the land, beyond its initial completed condition as opposed to maintaining the same in its initial completed condition. All costs for which Tenant shall be charged shall be customary and reasonable for the operation of the Building and Property in a first class manner. No individual cost or item expense shall be charged more than once and Landlord will not recover, from all of the tenants of the Building, more than one hundred (100%) percent of its costs. Upon request Landlord shall forward to Tenant a copy of all supporting documentation for any such charge. 8. UTILITIES --------- 8.1 The Tenant shall, at its own cost and expense, pay all utility meter and service charges applicable to the Leased Premises, including gas, sewer, electric, water, standby sprinkler, janitorial and garbage disposal services. 8.2 The Landlord is hereby granted the privilege of entering the Leased Premises for the purpose of repairing any utility lines which serve the Leased Premises. Any entry shall be upon reasonable prior oral notice except in the event of emergency. 9. TAXES ----- 9.1 The Tenant shall promptly pay to the Landlord, monthly, in advance, one-twelfth (1/12) of Tenant's Percentage of all annual ad valorem taxes assessed against the land, Building and improvements of which the Leased Premises are a part (the "Property"). Said obligation shall be prorated as of the commencement and termination of the lease. In addition to the obligation to pay real estate taxes as hereinabove set forth, the 12 Tenant shall, during the term of this lease, pay to the Landlord monthly, in advance, its Tenant's Percentage of any levy for the installation of local improvements affecting the Property assessed by any governmental body having jurisdiction thereof. 9.2 The Landlord may contest any assessment or levy of taxes on the Property. A contest conducted by the Landlord may include the Property and other land and buildings owned by the Landlord. The Tenant shall have no right to conduct a tax appeal affecting the Property. 9.3 If at any time during the term of this lease the method or scope of taxation prevailing at the commencement of the lease term shall be altered, modified or enlarged so as to cause the method of taxation to be changed, in whole or in part, so that in substitution for the real estate taxes now assessed there may be, in whole or in part, a capital levy or other imposition based on the value of the Property, or the rents received therefrom, or some other form of assessment based in whole or in part on some other valuation of the Property, then and in such event, such substituted tax or imposition shall be payable and discharged by the Tenant in the manner required pursuant to such law promulgated which shall authorize such change in the scope of taxation, and as required by the terms and conditions of the within lease. 9.4 Nothing in this lease contained shall require the Tenant to pay any franchise, estate, inheritance, succession, capital levy or transfer tax of the Landlord, or Federal Income Tax, State Income Tax, or excess profits or revenue tax, unless such taxes are in substitution for real property taxes. 9.5 The Tenant shall pay to Landlord, as Additional Rent, one-twelfth of Tenant's Percentage of annual real estate taxes and assessments to be paid by Tenant, as provided in Article 9.1 above. Landlord shall adjust Tenant's rent payment from time to time based on annual tax requirements, and Landlord shall furnish to Tenant, if requested, a computation and breakdown of Tenant's tax obligation. 13 10. INSURANCE --------- 10.1 The Tenant agrees to pay monthly, in advance, as Additional Rent, one-twelfth (1/12th) of Tenant's Percentage of the annual insurance premium or premiums charged to the Landlord for insurance coverage which insures the Property. In the event that Tenant is dissatisfied with said premiums, Landlord shall afford Tenant the right to discuss said premiums with Landlord's insurer; this will impose no obligation on Landlord to change its insurance carrier or the scope of its insurance coverage. The insurance shall be for the full replacement value of all insurable improvements with any customary extensions of coverage including, but not limited to, vandalism, malicious mischief, sprinkler damage, flood insurance and comprehensive liability. Tenant shall pay the full premium attributable to casualty rent insurance, insuring the value of one (1) year's gross rental obligation of Tenant hereunder, including taxes and insurance premiums. Any increase in the premiums hereinabove referred to due to change in rating of the Building, attributable to the use of the Leased Premises by the Tenant, shall be paid entirely by the Tenant. Landlord shall certify annually, the annual cost of such insurance premiums, and shall furnish to Tenant, if requested, a copy of all insurance premium bills for which Tenant has been charged its Tenant's Percentage. 10.2 Tenant shall provide the following insurance coverage: (a) "All Risk" property insurance on a replacement cost basis, covering all of Tenant's personal property, trade fixtures, furnishings and equipment. (b) Commercial general public liability and comprehensive automobile liability (and, if necessary to comply with any conditions of this Lease, umbrella liability insurance) covering Tenant against any claims arising out of liability for bodily injury and death and personal injury and advertising injury and property damage occurring in and about the Leased Premises, 14 and/or the Property and otherwise resulting from any acts and operations of Tenant, its agents and employees, with limits of not less than total limits of $2,000,000.00 per occurrence and $5,000,000.00 annual general aggregate, per location. The total amount of a deductible or otherwise self-insured retention with respect to such coverage shall be not more than $10,000.00 per occurrence. Such insurance shall include, inter alia: (i) "occurrence" rather than "claims made" policy forms unless such "occurrence" policy forms are not available; (ii) any and all liability assumed by Tenant under the terms of this Lease, to the extent such insurance is available; (iii) a hostile fire endorsement; (iv) Landlord and any other parties designated by Landlord or Agent (including, but not limited to, its beneficiary, its general and limited partners, and Landlord's mortgagees) shall be designated as Additional Insured(s) with respect to (x) the Leased Premises, and (y) all operations of Tenant, and (2) and Property and areas and facilities of Landlord used by Tenant, its employees, invitees, customers or guests; and (v) severability of insured parties and any cross-liability exclusion deleted so that the protection of such insurance shall be afforded to Landlord in the same manner as if separate policies had been issued to each of the insured parties. (c) Workers' compensation and employer's liability insurance with coverage in the amounts required by law. (d) Such other policy or policies as are required by insurers by reasons of a change in Tenant's use of, or activities at, the Leased Premises. All insurance policies required to be obtained by Tenant under this lease shall: (i) be issued by companies licensed to do business in the State in which the Property is located and reasonably acceptable to Landlord and any Landlord's mortgagees and any other party having any interest in the Property; (ii) not be subject to cancellation or material change or non-renewal without at least thirty (30) days' prior written notice to Landlord and its 15 mortgagee, if any; (iii) be deemed to be primary insurance in relation to any other insurance maintained by Landlord: and (iv) at the sole option and discretion of Landlord reasonably exercised, include other appropriate endorsements or extensions of coverage as would be required of. Landlord by any of Landlord's mortgagees or any other party having any interest in the Property. 10.3 The parties hereto mutually covenant and agree that each party, in connection with insurance policies required to be furnished in accordance with the terms and conditions of this lease, or in connection with insurance policies which they obtain insuring such insurable interest as Landlord or Tenant may have in its own properties, whether personal or real, shall expressly waive any right of subrogation on the part of the insurer against the Landlord or Tenant as the same may be applicable, which right to the extent not prohibited or violative of any such policy is hereby expressly waived, and Landlord and Tenant each mutually waive all right of recovery against each other, their agents, or employees for any loss, damage or injury of any nature whatsoever to property or person for which either party is required by this 1ease to carry insurance. 11. SIGNS ----- The Tenant, at its sole cost and expense shall have the right and privilege of installing on the Building directory and on the front door of the Leased Premises only such signs as are required by Tenant for the purpose of identifying the Tenant. The said signs shall comply with the applicable rules and regulations of the applicable governmental boards and bureaus having jurisdiction thereof, and shall be approved by the Landlord, which approval shall not be unreasonably withheld. The erection of such signs shall not cause any structural damage to the Building. Tenant shall have the right to use one line of the monument directory sign which serves the building, provided that Tenant shall be responsible for the cost of any sign which Landlord places 16 thereon for Tenant. No other exterior signage shall be permitted to Tenant. 12. FIXTURES -------- The Tenant is given the right and privilege of installing and removing property, machinery, equipment and fixtures in the Leased Premises during the term of the lease subject to compliance with applicable rules and regulations of governmental boards and bureaus having jurisdiction thereof at the cost and expense of Tenant. However, if the Tenant is in default and moves out, or is dispossessed, and fails to remove any property, machinery, equipment and fixtures or other property prior to such default, dispossess or removal, then and in that event, the said property, machinery, equipment and fixtures or other property shall be deemed, at the option of the Landlord, to be abandoned: or in lieu thereof, at the Landlord's option, the Landlord may remove such property and charge the reasonable cost and expense of removal, storage and disposal to the Tenant, together with an additional twenty one (21%) per cent of such costs for Landlord's overhead and profit, which total costs shall be deemed to be Additional Rent hereunder. The Tenant shall be liable for any damage which it causes in the removal of said property from the Leased Premises. 13. BROKERAGE --------- The parties mutually represent to each other that HUFF REAL ESTATE, INC. and COLLIERS HOUSTON & CO. are the sole brokers who negotiated and consummated the within lease transaction, and that neither party dealt with any other broker in connection with the within lease, it being understood and agreed that the Landlord shall be responsible, at its sole cost and expense, to pay the real estate brokerage in connection with this lease transaction. Landlord agrees to indemnify, defend and save harmless Tenant in connection with the claims of any real 17 estate broker Claiming commissions in connection with the within transaction and Claiming authority from Landlord. Tenant agrees to indemnify, defend and save harmless Landlord in connection with the claims of any real estate broker claiming commissions in connection with the within transaction and claiming authority from Tenant. 14. FIRE AND CASUALTY ----------------- 14.1 In case of any damage to the Building by fire or other casualty occurring during the term or previous thereto, which renders the Leased Premises wholly untenantable so that the same cannot be repaired within one hundred twenty (120) days from the happening of such damage, then the term hereby created shall, at the option of the Landlord or Tenant, terminate from the date of such damage. If the Landlord or Tenant elects to terminate the lease, the party electing to terminate shall notify the other party of such election within thirty (30) days of the happening of the fire or casualty, and in such event the Tenant shall immediately surrender the Leased Premises and shall pay Fixed Rent and Additional Rent only to the time of such damage and the Landlord may re- enter and re-possess the Leased Premises, discharged from this lease. In the event the Landlord can restore the Leased Premises within one hundred twenty (120) days, it shall advise the Tenant of such fact, and the lease shall remain in full force and effect during the period of Landlord's restoration, except that Fixed Rent and Additional Rent shall abate, upon the happening of fire or casualty, and while the repairs and restorations are being made, but the rent shall recommence upon restoration of the Leased Premises and delivery of the same by the Landlord to the Tenant. Landlord agrees that it will undertake reconstruction and restoration of the Leased Premises with due diligence and reasonable speed and dispatch, subject to the terms and conditions of Article 26 (Force Majeure). Landlord agrees that it shall give Tenant two (2) weeks advanced notice of the completion of such restoration. 14.2 If the Building shall be damaged, but the damage is repairable within one hundred twenty (120) days the Landlord agrees to repair the same with due diligence and reasonable speed and dispatch subject to the terms and conditions of Article (Force 18 Majeure). In such event, the rent accrued and accruing shall not abate, except for that portion of the Leased Premises that has been rendered untenantable and as to that portion the rent shall abate, based on equitable adjustments. 14.3 The Tenant shall immediately notify the Landlord in case of fire or other damage to the Leased Premises. 14.4 Notwithstanding anything contained in Article 14.1 or 14.2 above, if such repairs are for any reason not completed within one hundred fifty (150) days, then the Tenant shall have the right to terminate this lease upon written notice to the Landlord of such election, and in such event of termination Landlord and Tenant shall thereupon be released of liability one to the other, and the within lease shall be deemed null and void. 15. COMPLIANCE WITH LAWS, RULES AND REGULATIONS ------------------------------------------- 15.1 (a) The Tenant covenants and agrees that upon acceptance and occupancy of the Leased Premises, it will, during the lease term, promptly, at Tenant's cost and expense, execute and comply with all statutes, ordinances, rules, orders, regulations and requirements of the Federal, State and Municipal governments and of any and all their instrumentalities, departments and bureaus, applicable to the Leased Premises, as the same may require correction, prevention and abatement of nuisances, violations or other grievances, in, upon or connected with the Tenant's use of the Leased Premises, and/or arising from the operations of the Tenant therein. (b) The Tenant covenants and agrees, at its own cost and expense, to comply with such regulations or requests as may be required by the fire or liability insurance carriers providing insurance for the Leased Premises, and will further comply with such other requirements that may be promulgated by the Board of Fire Underwriters, in connection with the use and occupancy by the Tenant of the Leased Premises in the conduct of its business. 19 (c) The Tenant covenants and agrees that it will not commit any nuisance, nor permit the emission of any objectionable sound, noise or odors which would be violative of any applicable governmental rule or regulation or would per se create a nuisance. The Tenant further covenants and agrees that it will handle and dispose of all rubbish, garbage and waste in connection with the Tenant's operations in the Leased Premises in accordance with reasonable regulations established by the Landlord from time to time in order to keep the premises in an orderly condition and in order to avoid unreasonable emission of dirt, fumes, odors or debris which may constitute a nuisance or induce pests or vermin. (d) Landlord hereby represents and warrants that, on the Commencement Date, the Building vi11 comply with all applicable building codes, rules and regulations. Landlord shall be responsible, in the future, for any such codes, rules and regulations which are applicable to the Building generally, as an office/warehouse type building; Tenant shall be responsible for any such compliance which is required due to Tenant's particular use of the Leased Premises in the conduct of its business. 15.2 In case the Tenant shall fail or neglect to comply with the aforesaid statutes, ordinances, rules, orders, regulations and requirements or any of them, or in case the Tenant shall neglect or fail to make any necessary repairs, then the Landlord or the Landlord's agents may after ten (10) days' notice (except for emergency repairs, which may be made immediately) enter the Leased Premises and make said repairs and comply with any and all of the said statutes, ordinances, rules, orders, regulations or requirements, at the cost and expense of the Tenant and in case of the Tenant's failure to pay therefor, the said cost and expense shall be added to the next month's rent and be due and payable as such, or the Landlord may deduct the same from the balance of any sum remaining in the Landlord's hands. This provision is in addition to the right of the Landlord to terminate this lease by reason of any default on the part of the Tenant, subject to the 20 rights of the Tenant as hereinabove mentioned in the manner as in this lease otherwise provided. 15.3 Without limiting anything hereinabove contained in this Article 15, Tenant expressly covenants and agrees to fully comply with the provisions of the New Jersey Industrial Site Recovery Act (N.J.S.A. 13:1K-6, et seq.) hereinafter referred to as "ISPA", and all regulations promulgated thereto (or under its predecessor statute, the New Jersey Environmental Cleanup Responsibility Act) prior to the expiration or earlier termination of the within lease or at any time that any action of the Tenant triggers the applicability of ISRA. In particular, the Tenant agrees that it shall comply with the provisions of ISRA in the event of any "closing, terminating or transferring" of Tenant's operations, as defined by and in accordance with the regulations which have been promulgated pursuant to ISRA. In the event evidence of such compliance is not delivered to the Landlord prior to surrender of the Leased Premises by the Tenant to the Landlord, it is understood and agreed that the Tenant shall be liable to pay to the Landlord an amount equal to one and one-half (1 1/2) times the annual Fixed Rent then in effect, prorated on a monthly basis, together with all applicable additional rent from the date of such surrender until such time as evidence of compliance with ISRA has been delivered to the Landlord, and together with any costs and expenses incurred by Landlord in enforcing Tenant's obligations under this Article 15.3. Evidence of compliance, as used herein, shall mean a "letter of non-applicability" issued by the New Jersey Department of Environmental Protection, hereinafter referred to as "NJDEP", or an approved "no further action letter" or a "remediation action workplan" which has been fully implemented and approved by NJDEP. Evidence of compliance shall be delivered to the Landlord, together with copies of all submissions made to, and received from, the NJDEP, including all environmental reports, test results and other supporting documentation. In addition to the above, Tenant hereby agrees that it shall cooperate with Landlord 21 in the event of the termination or expiration of any other lease affecting the Property, or a transfer of any portion of the property indicated on Schedule "A", or any interest therein, which triggers the provisions of ISRA. In such case, Tenant agrees that it shall fully cooperate with Landlord in connection with any information or documentation which may be requested by the NJDEP. In the event that any remediation of the Property is required in connection with the conduct by Tenant of its business in the Leased Premises, Tenant expressly covenants and agrees that it shall be responsible for that portion of said remediation which is attributable to the Tenant's use and occupancy thereof. Tenant hereby represents and warrants that its Standard Industrial Classification No. is 3599, and that Tenant shall not generate, manufacture, ---- refine, transport, treat, store, handle or dispose of "hazardous substances" as the same are defined under ISRA and the regulations promulgated pursuant thereto. Tenant hereby agrees that it shall promptly inform Landlord of any change in its SIC number or the nature of the business to be conducted in the Leased Premises. The within covenants shall survive the expiration or earlier termination of the lease term. 16. INSPECTION BY LANDLORD ---------------------- The Tenant agrees that the Landlord's agents, and other representatives, shall have the right, during normal business hours, to enter into and upon the Leased Premises, or any part thereof, with prior notice at all reasonable hours for the purpose of examining the same, or for exhibiting the same to prospective tenants (within the last twelve (12) months of the term of this lease or at any time during which the Tenant is in default under the terms and conditions of this lease) and purchasers (at all times) in the presence of a representative of Tenant (except in the event of emergency) or making such repairs or alterations therein as may be necessary for the safety and preservation thereof, without unduly or unreasonably disturbing the operations of the Tenant (except in the event of emergency). 22 17. DEFAULT BY TENANT ----------------- 17.1 Each of the following shall be deemed a default by Tenant and a breach of this lease: (1) (a) filing of a petition by the Tenant for adjudication as a bankrupt, or for reorganization, or for an arrangement under any federal or state statute, except in a Chapter 11 Bankruptcy where the rent and additional rent stipulated herein is being paid and the terms of the lease are being complied with; (b) dissolution or liquidation of the Tenant; (c) appointment of a permanent receiver or a permanent trustee of all or substantially all of the property of the Tenant, if such appointment shall not be vacated within sixty (60) days, provided the Fixed Rent and Additional Rent stipulated herein is being paid and the terms of the lease are being complied with, during said sixty (60) day period; (d) taking possession of the property of the Tenant by a governmental officer or agency pursuant to statutory authority for dissolution, rehabilitation, reorganization or liquidation of the Tenant if such taking of possession shall not be vacated within sixty (60) days, provided the Fixed Rent and Additional Rent stipulated herein is being paid and the terms of the lease are being complied with, during said sixty (60) day period; (e) making by the Tenant of an assignment for the benefit of creditors; (f) abandonment, desertion or vacation of the Leased Premises by the Tenant, unless Tenant gives Landlord written notice of the proposed extent and duration of any such vacation. If any event mentioned in this subdivision (1) shall occur, Landlord may thereupon or at any time thereafter elect to cancel this lease by ten (10) days' notice to the Tenant and this lease shall terminate on the day in such notice specified with the same force and effect as if that date were the date herein fixed for the expiration of the term of the lease. (2) (a) Default in the payment of the Fixed Rent or Additional Rent herein reserved or any part thereof for a period of seven (7) days after the same is due and payable as in this lease required. (b) A default in the performance of any other covenant or condition of this lease on the part of the Tenant to be performed for a period of thirty (30) days after notice. For purposes of this subdivision (2) (ii) hereof, no default on the part of Tenant in performance of work required to be performed or acts to be done or conditions to be modified shall be deemed to exist if steps shall have been commenced by Tenant diligently after notice to rectify the same and shall be prosecuted to completion with reasonable diligence, and if 23 the Landlord is indemnified against loss or liability arising from the default. 17.2 In case of any such default under Article 17.1 (2), at any time following the expiration of the respective grace periods above mentioned, Landlord may serve a notice upon the Tenant electing to terminate this lease upon a specified date not less than seven (7) days after the date of serving such notice and this lease shall then expire on the date so specified as if that date had been originally fixed as the expiration date of the term herein granted; however, a default under Article 17.1 (2), hereof shall be deemed waived if such default is made good before the date specified for termination in the notice of termination served on the Tenant. 17.3 In case this lease shall be terminated as hereinbefore provided, or by summary proceedings or otherwise, Landlord or its agents may, immediately or any time thereafter, re-enter and resume possession of the Leased Premises or such part thereof, and remove all persons and property therefrom, either by summary proceedings or by a suitable action or proceeding at law, without being liable for any damages therefor. No re-entry by Landlord shall be deemed an acceptance of a surrender of this lease. 17.4 In case this lease shall be terminated as hereinafter provided, or by summary proceedings or otherwise, Landlord may, in its own name and in its own behalf, relet the whole or any portion of the Leased Premises, for any period equal to or greater or less than the remainder of the then current terms, for any sum which it may deem reasonable, to any tenant which it may deem suitable and satisfactory, and for any use and purpose which it may deem appropriate, and in connection with any such lease Landlord may make such changes in the character of the improvements on the Leased Premises as Landlord may determine to be appropriate or helpful in effecting such lease and may grant concessions or free rent. However, in no event shall Landlord be 24 under any obligation to relet the Leased Premises. Landlord shall not in any event be required to pay Tenant any surplus of any sums received by Landlord on a reletting of the Leased Premises in excess of the rent reserved in this lease. 17.5 (1) In case this lease be terminated by summary proceedings or otherwise, as provided in this Article 17, and whether or not the Leased Premises be relet, Landlord shall be entitled to recover from the Tenant, the following: (a) a sum equal to all expenses, if any, including reasonable counsel fees, incurred by Landlord in recovering possession of the Leased Premises, and all reasonable costs and charges for the care of the Leased Premises while vacant, which damages shall be due and payable by Tenant to Landlord at such time or times as such expenses shall have been incurred by Landlord; and (b) a sum equal to all damages set forth in this Article 17 and in Article 18. (2) Without any previous notice or demand, separate actions may be maintained by Landlord against Tenant from time to time to recover any damages which, at the commencement of any such action, have then or theretofore become due and payable to the Landlord under this Article 17 and subsections hereof without waiting until the end of the then current term. (3) All sums which Tenant has agreed to pay by way of adjustments to rent or equitable adjustments in utility charges shall be deemed rent reserved in this lease within the meaning of this Article 17 and subsections hereof. (4) Notwithstanding anything in this lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord under this lease, whether or not expressly denominated as rent, shall constitute rent for the purposes of section 502(b)(6) of the Bankruptcy Code, 11 U.S.C. Section 502(b)(6), or any successor statute. 18. LIABILITY OF TENANT FOR DEFICIENCY ----------------------------------- In the event that the relation of the Landlord and Tenant may cease or terminate by reason of the default by the Tenant and the re-entry of the Landlord as permitted by the terms and 25 conditions contained in this lease or by the ejectment of the Tenant by summary proceedings or other judicial proceedings, it is hereby agreed that the Tenant shall remain liable to pay in monthly payments the rent which shall accrue subsequent to the re-entry by the Landlord, and the Tenant expressly agrees to pay as damages for the breach of the covenants herein contained the difference between the rent reserved and the rent collected and received, if any, by the Landlord, during the remainder of the unexpired term, as the amount of such difference or deficiency shall from time to time be ascertained. 19. NOTICES ------- 19.1 All notices required or permitted to be given to the Landlord shall be given by certified mail, return receipt requested, or by reputable commercial overnight courier service, at the address hereinbefore set forth on the first page of this lease, and/or such other place as the Landlord may designate in writing. 19.2 All notices required or permitted to be given to the Tenant shall be given by certified mail, return receipt requested, or by reputable commercial overnight courier service, at the address hereinbefore set forth on the first page of this lease, and/or such other place as the Tenant may designate in writing. 20. NON-WAIVER BY LANDLORD ---------------------- The failure of the Landlord to insist upon strict performance of any of the covenants or conditions of this lease, or to exercise any option of the Landlord herein conferred in any one or more instances, shall not be construed as a waiver by the Landlord of any of its rights or remedies in this Lease, and shall not be construed as a waiver, relinquishment or failure of any such covenants, conditions, or options, but the same shall be and remain in full force and effect. 21. RIGHT OF TENANT TO MAKE ALTERATIONS AND IMPROVEMENTS ---------------------------------------------------- 21.1 The Tenant may make alterations, additions or improvements to the Leased Premises (other than as set forth on the Plan) only with the prior written consent of the Landlord, which 26 consent shall not be unreasonably withheld, provided such alterations, additions or improvements do not require structural changes in the Leased Premises, or do not lessen the value of the Building or the Leased Premises. Any consent which Landlord may give shall be conditioned upon Tenant furnishing to Landlord, detailed plans and specifications with respect to any such changes, to be approved by Landlord in writing. As a condition of such consent, Landlord reserves the right to require Tenant to remove, at Tenant's sole cost and expense, any such alterations or additions prior to the expiration of the lease term, provided that any such election shall be made by Landlord at the time it grants its consent to any such alterations or additions. If Landlord does not require such removal, any such alterations or additions shall be deemed to be part of the realty upon installation. All such alterations, additions or improvements shall be only in conformity with applicable governmental and insurance company requirements and regulations applicable to the Leased Premises. Tenant shall hold and save Landlord harmless and indemnify Landlord against any claim for damage or injury in connection with any of the foregoing work which Tenant may make as hereinabove provided. 21.2 Nothing herein contained shall be construed as a consent on the part of the Landlord to subject the estate of the Landlord to liability under the Construction Lien Law of the State of New Jersey, it being expressly understood that the Landlord's estate shall not be subject to such liability. 22. NON-LIABILITY OF LANDLORD ------------------------- 22.1 It is expressly understood and agreed by and between the parties to this agreement that the Tenant shall assume all risk of damage to its property, equipment and fixtures occurring in or about the Leased Premises, whatever the cause of such damage or casualty. 22.2 It is expressly understood and agreed that in any event, the Landlord shall not be liable for any damage or injury to property or person caused by or resulting from steam, electricity, 27 gas, water, rain, ice or snow, or any leak or flow from or into any part of the Building, or from any damage or injury resulting or arising from any other cause or happening whatsoever, except for the negligence or willful misconduct of the Landlord or Landlord's agents, servants or employees. 23. RESERVATION BY LANDLORD ----------------------- 23.1 The Landlord reserves the right, easement and privilege to enter on the Property and the Leased Premises in order to install, at its own cost and expense, any storm drains and sewers and/or utility lines in connection therewith as may be required by the Landlord. It is understood and agreed that if such work as may be required by Landlord requires an installation which may displace any paving, lawn, seeded area or shrubs the Landlord, shall, at its own cost and expense, restore said paving, lawn, seeded area or shrubs. The Landlord covenants that the foregoing work shall not unreasonably interfere with the normal operation of Tenant's business, and the Landlord shall indemnify and save the Tenant harmless in connection with such installations. 23.2 Landlord also reserves the right, during the last ninety (90) days of the term if, during or prior to that time, Tenant vacates the Leased Premises (with no intent to return), to decorate, remodel, repair, alter or otherwise prepare the Leased Premises for re-occupancy. 24. AIR, WATER AND GROUND POLLUTION ------------------------------- The Tenant expressly covenants and agrees to indemnify, defend, and save the Landlord harmless against any claim, damage, liability, costs, penalties, or fines which the Landlord may suffer as a result of air, water or ground pollution caused by the Tenant in its use of the Leased Premises. The Tenant covenants and agrees to notify the Landlord immediately of any claim or notice served upon it with respect to any such claim the Tenant is causing water, air or ground pollution; and the Tenant, in any event, will take immediate steps to halt, remedy or cure any pollution of air, water or ground caused by the Tenant by its use of the Leased Premises. 28 The within covenant on the part of the Tenant shall survive the expiration or earlier termination of this lease. 25. STATEMENT OF ACCEPTANT ---------------------- Upon the delivery of the Leased Premises to the Tenant, pursuant to the terms and conditions of this lease, the Tenant covenants and agrees that it will furnish to the Landlord a statement that, subject to latent defects and "punch list" items, it accepts the Leased Premises and agrees to pay rent from the date of acceptance, subject to the terms and conditions of the lease as herein contained, which statement may be in recordable form if required by the Landlord, and which statement shall set forth the Date of Commencement and the date of expiration of the lease term. 26. FORCE MAJEURE ------------- Except for the obligation of the Tenant to pay rent and other charges as in this lease provided, the period of time during which the Landlord or Tenant is prevented from performing any act required to be performed under this lease by reason of fire, catastrophe, strikes, lockouts, civil commotion, acts of God or the public enemy, government prohibitions or preemptions, embargoes, inability to obtain material or labor by reason of governmental regulations or prohibitions, the act or default of the other party, or other events beyond the reasonable control of Landlord or Tenant, as the case may be, shall be added to the time for performance of such act provided, however, that the party claiming a force majeure delay shall have given written notice of the force majeure delay to the other party within five (5) days after such party has knowledge of said delay. 27. STATEMENTS BY LANDLORD AND TENANT --------------------------------- Landlord and Tenant agree at any time and from time to time upon not less than ten (10) days' prior notice from the other to execute, acknowledge and deliver to the party requesting same, a statement in writing, certifying that this lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating 29 the modifications) that it is not in default (or if claimed to be in default, stating the amount and nature of the default) and specifying the dates to which the Fixed Rent, Additional Rent and other charges have been paid in advance, if any; it being intended that any such statement delivered pursuant to this Article may be relied upon as to the facts contained therein. 28. CONDEMNATION ------------ 28.1 If due to the condemnation or taking or seizure by any authority having the right of eminent domain, (i) more than fifteen (15%) percent of the Leased Premises is taken or rendered untenantable, or (ii) in the event that more than twenty-five (25%) percent of the ground is taken (including the parking areas, but exclusive of front, side and rear set back areas), or (iii) if access to the Leased Premises be denied, which taking in the manner hereinabove referred to and in excess of the foregoing percentage amounts shall unreasonably or unduly interfere with the use of the building, ground area, parking area, or deny access to these premises, then and in either of such events as hereinabove provided, the lease term created shall, at the option of the Tenant, terminate, cease and become null and void from the date when the authority exercising the power of eminent domain takes or interferes with the use of the building on the Leased Premises, its use of the ground area, parking area, or area of access to the Leased Premises. The Tenant shall only be responsible for the payment of rent until the time of surrender. In any event, no part of the Landlord's condemnation award shall belong to or be claimed by the Tenant. Without diminishing Landlord's award, the Tenant shall have the right to make a claim against the condemning authority for such independent claim which it may have and as may be allowed by law, for costs and damages due to relocating, moving and other similar costs and charges directly incurred by the Tenant and resulting from such condemnation. 28.2 In the event of any partial taking which would not be cause for termination of the within lease or in the event of any 30 partial taking in excess of the percentages provided in Article 28.1, and in which event the Tenant shall elect to retain the balance of the Leased Premises remaining after such taking, then and in either event, the rent shall abate in an amount mutually to be agreed upon between the Landlord and Tenant based on the relationship that the character of the property prior to the taking bears to the property which shall remain after such condemnation. In any event, no part of the Landlord's condemnation award shall belong to or be claimed by the Tenant. However, the Landlord shall, to the extent permitted by applicable law and as the same may be practicable on the site of the Leased Premises, at the Landlord's sole cost and expense, promptly make such repairs and alterations in order to restore the Building and/or improvements to usable condition to the extent of the condemnation award. 29. LANDLORD REMEDIES ----------------- 29.1 The rights and remedies given to the Landlord in this lease are distinct, separate and cumulative remedies, and no one of them, whether or not exercised by the Landlord, shall be deemed to be in exclusion of any of the others. 29.2 In addition to any other legal remedies for violation or breach by or on the part of the Tenant or by any undertenant or by anyone holding or claiming under the Tenant or any one of them, of the restrictions, agreements or covenants of this lease on the part of the Tenant to be performed or fulfilled, such violation or breach shall be restrainable by injunction at the suit of the Landlord. 29.3 No receipt of money by the Landlord from any receiver, trustee or custodian or debtors in possession shall reinstate, continue or extend the term of this lease or affect any notice theretofore given to the Tenant, or to any such receiver, trustee, custodian or debtor in possession, or operate as a waiver or estoppel of the right of the Landlord to recover possession of the Leased Premises for any of the causes therein enumerated by any lawful remedy; and the failure of the Landlord to enforce any 31 covenant or condition by reason of its breach by the Tenant shall not be deemed to void or affect the right of the Landlord to enforce the same covenant or condition on the occasion of any subsequent default or breach. 29.4 Tenant agrees that it shall reimburse Landlord for Landlord's reasonable attorney's fees incurred in enforcing the terms and conditions of this lease on the part of the Tenant to be performed. Tenant further agrees to reimburse Landlord for Landlord's attorney's fees incurred in connection with the review by Landlord of any Landlord's waiver, assignment or sublet agreement or any other documentation reviewed by Landlord at Tenant's request. 30. QUIET ENJOYMENT --------------- The Landlord further covenants that the Tenant, on paying the rental and performing the covenants and conditions contained in this lease, shall and may peaceably and quietly have, hold and enjoy the Leased Premises for the term aforesaid. 31. SURRENDER OF PREMISES --------------------- On the last day, or earlier permitted termination of the lease term, Tenant shall quit and surrender the Leased Premises in good and orderly condition and repair (reasonable wear and tear, and damage by fire or other casualty excepted) and shall deliver and surrender the Leased Premises to the Landlord peaceably, together with all alterations, additions and improvements in, to or on the Leased Premises made by Tenant as permitted under the lease. The Landlord reserves the right, however, to require the Tenant at its cost and expense to remove any alterations or improvements installed by the Tenant subsequent to Tenant's initial fit out, and provided that Landlord informs Tenant in writing, at the time, that Landlord approves any such alteration or improvement that Landlord will require removal at the termination of the Lease. This covenant shall survive the surrender and the delivery of the Leased Premises as provided hereunder. Prior to the expiration of the lease term the Tenant shall remove all of its property, fixtures, 32 equipment and trade fixtures from the Leased Premises. The Landlord shall have the right to remove all alterations or improvements, which were installed by the Tenant and not removed prior to the surrender of the Leased Premises, as hereinabove required and all property not removed by Tenant shall be deemed abandoned by Tenant, and Landlord reserves the right to charge the reasonable cost of removal of the same to the Tenant, together with an additional 21% of such costs for Landlord's overhead and profit, which obligation shall survive the lease termination and surrender hereinabove provided. If the Leased Premises be not surrendered at the end of the lease term, Tenant shall indemnify Landlord against loss or liability resulting from delay by Tenant in surrendering the Leased Premises, including, without limitation any claims made by any succeeding tenant founded on the delay. 32. INDEMNITY --------- Anything in this lease to the contrary notwithstanding, and without limiting the Tenant's obligation to provide insurance pursuant to Article 10 hereunder but subject to the provisions of Article 10.4, the Tenant covenants and agrees that it will indemnify, defend and save harmless the Landlord against and from all liabilities, obligations, damages, penalties, claims, costs, charges and expenses, including without limitation reasonable attorneys' fees, which may be imposed upon or incurred by Landlord by reason of any of the following occurring during the term of this lease: (a) Any matter, cause or thing arising out of Tenant's use, occupancy, control or management of the Leased Premises and any part thereof; (b) Any negligence on the part of the Tenant or any of its agents, contractors, servants, employees, licensees or invitees; (c) Any accident, injury, damage to any person or property occurring in, or about the Leased Premises. (d) Subject to the provisions of Article 22.1, the foregoing shall not require indemnity by Tenant in the event of damage or injury occasioned by the negligence or acts of commission or omission of the Landlord, its agents, servants or employees. 33 Landlord shall promptly notify Tenant of any such claim asserted against it and shall promptly send to Tenant copies of all papers or legal process served upon it in connection with any action or proceeding brought against Landlord by reason of any such claim. 33. LEASE CONSTRUCTION ------------------ This lease shall be construed pursuant to the laws of the State of New Jersey. 34. BIND AND INURE CLAUSE --------------------- The terms, covenants and conditions of the within lease shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. 35. DEFINITIONS ----------- The neuter gender, when used herein and in the acknowledgment hereafter set forth, shall include all persons and corporations, and words used in the singular shall include words in the plural where the text of the instrument so requires. 36. DEFINITION OF TERM OF "LANDLORD" -------------------------------- When the term "Landlord" is used in this lease it shall be construed to mean and include only the owner of the title to the Property. Upon the transfer by the Landlord of title to the Property, the Landlord shall advise the Tenant in writing by certified mail, return receipt requested, of the name of the Landlord's transferee. In such event, the Landlord shall be automatically freed and relieved from and after the date of such transfer of title of all personal liability thereafter arising with respect to the performance of any of the covenants and obligations on the part of the Landlord herein contained to be performed, provided that Landlord shall have transferred the Security Deposit hereunder to such transferee, and provided any such transfer and conveyance by the Landlord is expressly subject to the assumption by the grantee or transferee of the obligations of the Landlord to be performed pursuant to the terms and conditions of the within lease. 34 37. COVENANTS OF FURTHER ASSURANCES ------------------------------- If, in connection with obtaining financing for the improvements on the Property, the Mortgage Lender shall request reasonable modifications in this lease as a condition to such financing, Tenant will not unreasonably withhold, delay or refuse its consent thereto, provided that such modifications do not in Tenant's reasonable judgment increase the obligations of Tenant hereunder, materially decrease Tenant's rights hereunder, or materially adversely affect the leasehold interest hereby created or Tenant's use and enjoyment of the Leased Premises. 38. COVENANT AGAINST LIENS ---------------------- Tenant agrees that it shall not encumber, or suffer or permit to be encumbered, the Property or the fee thereof by any lien, charge or encumbrance, and Tenant shall have no authority to mortgage or hypothecate this lease in any way whatsoever. Any violation of this Article shall be considered a material breach of this lease. 39. SUBORDINATION ------------- This lease shall be subject and subordinate at all times to the lien of any mortgages or ground leases or other encumbrances now or hereafter placed on the Property without the necessity of any further instrument or act on the part of Tenant to effectuate such subordination, but Tenant covenants, and agrees to execute and deliver upon demand such further instrument or instruments evidencing such subordination of the lease to the lien of any such mortgage or ground lease or other encumbrances as shall be desired by a mortgagee or proposed mortgagee or by any person. Tenant appoints Landlord the attorney in fact of the Tenant irrevocably, to execute and deliver any such instrument or instruments for and in the name of Tenant, provided, however, that any such mortgagee shall not disturb Tenant and Tenant's possession of the Premises so long as Tenant is not in default hereunder. Landlord hereby agrees that it shall obtain, for the benefit of Tenant, a Subordination, Non-Disturbance and Attornment Agreement from all mortgagees of the 35 Property, it being understood that any such Subordination, Non-Disturbance and Attornment Agreement shall be written upon the applicable mortgagee's customary form. Tenant shall have the right to negotiate the form of such agreement with Landlord's mortgagee, but the mortgagees, failure to agree to any changes requested by Tenant shall not alter Tenant's obligations hereunder. 40. EXCULPATION OF LANDLORD ----------------------- Neither Landlord nor its principals shall have any personal obligation for payment of any indebtedness or for the performance of any obligation under this lease but the payment of the indebtedness and the performance of obligations expressed herein may be enforced only against the Property, and the rents, issues and profits thereof, and the Tenant agrees that no deficiency judgment or other judgment for money damages shall in any event be entered by it against the Landlord or its principals personally in any action; provided, however, that the provisions of this paragraph shall in no way affect Tenant's other remedies for the payment of any indebtedness or for the enforcement of Landlord's covenants under this lease. 41. NET RENT -------- It is the purpose and intent of the Landlord and Tenant that the rent shall be absolutely net to Landlord, so that this lease shall yield, net, to Landlord, the Fixed Rent specified in Article 3 and all Additional Rent, in each month during the term of the lease, and that all costs, expenses and obligations of every kind and nature whatsoever relating to the Leased Premises which may arise or become due during or out of the term of this lease, shall be paid by the Tenant, except for such obligations and charges as have otherwise expressly been assumed by the Landlord in accordance with the terms and conditions of the lease. 36 42. SECURITY -------- Upon execution of this lease, the Tenant shall deposit with the Landlord the sum of FORTY SEVEN THOUSAND TWO HUNDRED FIFTY AND 00/100 ($47,250.00) DOLLARS as security for the full and faithful performance of this lease upon the part of the Tenant to be performed. Upon termination of this lease, and providing the Tenant is not in default hereunder and has performed all of the conditions of this lease, the Landlord shall return the said sum of FORTY SEVEN THOUSAND TWO HUNDRED FIFTY AND 00/100 ($47,250.00) DOLLARS to the Tenant. Anything herein contained to the contrary notwithstanding, it is expressly understood and agreed that the said security deposit shall not bear interest. Tenant covenants and agrees that it will not assign, pledge, hypothecate, mortgage or otherwise encumber the aforementioned security during the term of this lease. It is expressly understood and agreed that the Landlord shall have the right to co-mingle the security funds with its general funds and said security shall not be required to be segregated. 43. GLASS ----- The Tenant expressly covenants and agrees to replace any broken glass in the windows or other apertures of the Leased Premises which may become damaged or destroyed at its cost and expense. 44. ASSIGNMENT AND SUBLETTING ------------------------- 44.1 Tenant shall neither assign this lease nor sublet all or any portion of the Leased Premises without Landlord's prior consent, which consent shall not be unreasonably withheld, subject to Landlord's rights hereinafter provided in Article 44.4. Landlord may withhold such consent if, in the reasonable exercise of its judgment, it determines that any of the following enumerated conditions are applicable: (a) the proposed assignee's financial condition is not sufficient to meet its obligations undertaken in such assignment or sublease: 37 (b) the proposed use of the Leased Premises is not appropriate for the Building or in keeping with the character of its existing tenancies; (c) such assignee's or subtenant's occupancy will cause an excessive density of traffic or make excessive demands on the Building's services, maintenance or facilities; (d) such assignee or subtenant is a tenant of and is vacating premises in the Building or any other building owned by Landlord and located in World's Fair Corporate Center; (e) the rental obligation of such assignee or subtenant would be less than eighty (80%) percent of Tenant's rental obligations hereunder; or (f) Landlord wishes to accept the offer as provided in Article 44.4. 44.2 Any request by Tenant for Landlord's consent to an assignment of the lease shall state the proposed assignee's address and be accompanied by a profit and loss and balance statements of the proposed assignee for the prior three (3) years, as well as duplicate original of the instrument of assignment (wherein the assignee assumes, jointly and severally with Tenant, the performance of Tenant's obligations hereunder). 44.3 Any request by Tenant for Landlord's consent to a sublease shall state the proposed subtenant's address and be accompanied by profit and loss and balance statements of the proposed subtenant for the prior three (3) years, as well as a duplicate original of the instrument of sublease (wherein Tenant and the proposed subtenant agree that such sublease is subject to the lease and such subtenant agrees that, if the lease is terminated because of Tenant's default, such subtenant shall, at Landlord's option, attorn to Landlord). 44.4 Any request by Tenant for Landlord's consent to an assignment of the lease or a sublease of all or substantially all of the Leased Premises shall clearly set forth the proposed terms of such proposed assignment or sublease and shall constitute Tenant's offer to cancel the lease. Landlord may accept such offer by notice to Tenant within fifteen (15) days after Landlord's receipt thereof, in which event, the lease shall terminate as of 38 the end of the month following the month in which such notice is sent (with the same effect as if such date were the date fixed herein for the natural expiration of the term), Fixed Rent and Additional Rent shall be apportioned to such date, Tenant shall surrender the Leased Premises on such date as herein provided, and subject to payment of required lease adjustments, the parties shall thereafter have no further liability one to the other. If Landlord fails to send such notice, Tenant, within twenty (20) days after the expiration of such fifteen (15) business day period, may assign the lease or sublet all or substantially all of the Leased Premises to the proposed assignee or subtenant and upon the terms specified in such request, subject, however, to Landlord's rights under Article 44.1(a) through (e). 44.5 In the event of a permitted assignment, Landlord may collect Fixed Rent and Additional Rent directly from the assignee. In the event of a permitted sublease, Landlord may, if Tenant defaults hereunder, collect Fixed Rent and Additional Rent directly from the subtenant. In either such event, Landlord may apply any amounts so collected to the Fixed Rent and Additional Rent hereunder without thereby waiving any provisions hereof or releasing Tenant from liability for the performance of its obligations hereunder. In any event, Tenant shall pay to Landlord, as Additional Rent, one half (1/2) of all amounts received by Tenant from any assignee or subtenant, in excess of the pro rata (per square foot) Fixed Rent and Additional Rent payable by Tenant hereunder, after first deducting therefrom all costs and expenses incurred by the Tenant in connection with such assignment or subletting. 44.6 Landlord's consent to any assignment or sublease hereunder shall not be deemed a consent to any further proposed assignment or sublease by Tenant or any one claiming under or through the Tenant, except in accordance with this Article 44. 44.7 It is expressly understood and agreed that Tenant's Option to Extend, as hereinafter set forth in Article 48, shall be 39 personal to Tenant only, and may not be exercised by any permitted assignee or subtenant hereunder. It is understood and agreed that Tenant's Option to Extend shall be null and void in the event that fifty (50%) percent or more of the Leased Premises have been sublet by the Tenant prior to the date set for the exercise by Tenant of the Option to Extend hereinafter set forth. 45. FINANCIAL STATEMENTS -------------------- The Tenant agrees, at the request of the Landlord, to be made not more than once during any lease year, to furnish its latest current income and balance statements, certified to by an officer of the corporation. 46. TENANCY REVIEW -------------- The within lease is conditioned upon and subject to the approval of the Tenant's use and occupancy of the Leased Premises by the Township of Franklin. In the event said approval is not obtained, the within lease shall be deemed to be null and void. 47. EXECUTION AND DELIVERY ---------------------- The submission of the within lease by Landlord to Tenant for review and approval shall not be deemed an option to lease, an offer to lease, or a reservation of the Leased Premises in favor of Tenant, it being intended that no rights or obligations shall be created by Landlord or Tenant until the execution and delivery of the within lease by Landlord and Tenant, one to the other. 48. OPTION TO EXTEND ---------------- Provided the Tenant is not in default pursuant to the terms and conditions of this lease, the Tenant is hereby given the right and privilege to extend the within lease, for two (2) successive extension periods the first (1/st/) extension term for three (3) years and the second (2/nd/) extension term for five (5) years, to commence at the end of the initial term of this lease and the first extension term, as applicable, which extensions shall be upon the same terms and conditions as in this lease contained, except as follows: 40 (1) During the first (1/st/) three (3) year extension period, Tenant shall pay Fixed Rent in the amount of THREE HUNDRED TWENTY SIX THOUSAND ONE HUNDRED THIRTY AND 00/100 ($326,130.00) DOLLARS per annum payable in equal installments of TWENTY SEVEN THOUSAND ONE HUNDRED SEVENTY SEVEN AND 50/100 ($27,177.50) DOLLARS per month in the same manner as hereinabove provided in Article 3. (1) During the second (2/nd/) five (5) year extension period, Tenant shall pay Fixed Rent in the amount of THREE HUNDRED SIXTY FIVE THOUSAND FOUR HUNDRED AND 00/100 ($365,400.00) DOLLARS per annum payable in equal installments of THIRTY THOUSAND FOUR HUNDRED FIFTY AND 00/100 ($30,450.00) DOLLARS per month in the same manner as hereinabove provided in Article 3. (2) The right, option, and privilege of the Tenant to extend this lease as hereinabove set forth is expressly conditioned upon the Tenant delivering to the Landlord, in writing, by certified mail, return receipt requested, twelve (12) months' prior notice of its intention to extend, which notice shall be given to the Landlord by the Tenant no later than twelve (12) months prior to the date fixed for termination of the original term of this lease or the first extension term, as the case may be. (3) The obligation to pay the Fixed Rent as hereinabove provided shall be in addition to the obligation to pay all Additional Rent and other charges required by the terms and conditions of this lease. 49. RIGHT OF FIRST OFFER ON CONTIGUOUS SPACE ---------------------------------------- It is understood and agreed that in the event any space contiguous to the Leased Premises is to become available (after the initial leasing thereof) during the term of the within lease agreement, as extended, the Landlord shall give written notification of such availability to the Tenant, which notice shall set forth the rental and other terms upon which Landlord is willing to lease said space to the Tenant. Tenant shall then have a period of ten (10) days within which to accept Landlord's offer to lease said space to the Tenant, which election by Tenant shall be made by 41 written notice to Landlord within said ten (10) day period. In the event Tenant elects not to lease said space, or fails to notify Landlord of its election within said ten (10) day period, Landlord shall then be free to lease said contiguous space to any third party free and clear of Tenant's rights under this Article. If Tenant elects to take such contiguous space, Tenant shall enter into an amendment to this lease agreement incorporating the contiguous space into the premises leased hereunder within thirty (30) days after Landlord's written notice to Tenant. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals or caused these presents to be signed by its proper corporate officers and caused its proper corporate seal to be hereunto affixed, the day and year first above written. WITNESS: FIRST INDUSTRIAL, L.P. By: FIRST INDUSTRIAL REALTY TRUST, INC. /s/ Mary Ann E. Russell By: /s/ Hayden Tiger - ----------------------------- ------------------------------------ Hayden Tiger, Regional Director ATTEST: MULTILINK TECHNOLOGY CORPORATION _____________________________ By: /s/ Richard N. Nottenburg ------------------------------------ (Affix Corporate Seal) 42 STATE OF NEW JERSEY ) )ss.: COUNTY OF ESSEX ) BE IT REMEMBERED, that on this 29/th/ day of December 1999, before me, the subscriber, MARY ANN E. RUSSELL, personally appeared HAYDEN TIGER, who, I am satisfied, is the person who signed the within Instrument as Regional Director, of FIRST INDUSTRIAL REALTY TRUST, INC., a Delaware corporation, a General Partner of FIRST INDUSTRIAL, L.P., the Landlord named therein, and he thereupon acknowledged that the said instrument made by the corporation and sealed with its corporate seal, was signed and sealed with the corporate seal and delivered by him as such officer, and is the voluntary act and deed of the corporation, made by virtue of authority from its Board of Directors. /s/ Mary Ann E. Russell ----------------------------------- MARY ANN E. RUSSELL Notary Public State of New Jersey My Commission Expires July 20, 2003 STATE OF NEW JERSEY ) ) ss.: COUNTY OF SOMERSET ) BE IT REMEMBERED, that on this 17/th/ day of December 1999, before me, the subscriber, Richard Nottenburg personally appeared , who, I am satisfied, is the person who signed the within Instrument as of MULTILINK TECHNOLOGY CORPORATION, a California corporation, the Tenant named therein, and he thereupon acknowledged that the said instrument made by the corporation and sealed with its corporate seal, was signed and sealed with the corporate seal and delivered by him as such officer, and is the voluntary act and deed of the corporation, made by virtue of authority from its Board of Directors. /s/ Richard N Nottenburg ------------------------------------ /s/ Ronald K Robinson ----------------------- Notary Public NJ Commission Expires 18/1/03 Ronald K Robinson "EXHIBIT A" [MAP APPEARS HERE] LEASE AGREEMENT BY AND BETWEEN: FIRST INDUSTRIAL, L.P., a Delaware limited partnership, "Landlord" - -and- MULTILINK TECHNOLOGY CORPORATION a California corporation, "Tenant" - ----------------------------------------- DATED: 12/29/99 - ----------------------------------------- LAW OFFICES EPSTEIN, BROWN, MARKOWITZ & GIOIA A Professional Corporation 245 Green Village Road P.O. Box 901 Chatham Township, NJ 07928-0901 (973) 593-4900 Fax (973) 593-4966 U:\USERS\IN\FIRST\165l0.139\LEASE.005 (mf) EX-10.11 14 0014.txt MASTER LEASE AGREEMENT DATED SEPTEMBER 14, 1999 EXHIBIT 10.11 MASTER LEASE AGREEMENT DATED AS OF SEPTEMBER 14, 1999 This MASTER LEASE AGREEMENT ("Master Lease"), is entered into as of September 14, 1999, between Imperial Bank Equipment Leasing Division, a division of Imperial Bank (hereinafter called "Lessor"), having its principal place of business at 9920 La Cienega Boulevard, Inglewood, California 90301, and Multilink Technology Corporation, a Corporation (hereinafter called "Lessee"), having its principal place of business at 2850 Ocean Park Boulevard, Suite 335, Santa Monica, California 90405. I. LOCATION OF DEFINED TERMS
--------------------------------------------------------------------------------------------------------------- Lease Sub-Section Lease Sub-Section ----- ----------- ----- ----------- Defined Term Section Defined Term Section ------------ ------- ------------ ------- Acceptance Date II D Interim Rent IV A Assignee X A Interim Rental Term III C Casualty Value VII C Item of Equipment II A Certificate of Acceptance II D Lease Rate Factor IV A Claims IX Lease Term III D Damage VII A Lien VIII C Daily Lease Rate Factor IV A Loss VII A End of Term Notice XII A Master Lease Introduction Equipment II A Purchase Documents II C Event of Default XI A Rent IV A Fair Market Value XII C Rent Due Date IV B Improvement V C Renewal Term XII D Initial Term III B Rental Period Option IV B Equipment Repair Notice XIII B Schedule II B Equipment Inspection Fee XIII B Seller II C ---------------------------------------------------------------------------------------------------------------
II. LEASE OF EQUIPMENT (A) Lease. Lessor agrees to lease to Lessee, and Lessee agrees to lease from ----- Lessor, subject to the terms and conditions of this Master Lease, the equipment and related operating systems and other software (collectively, together with all substitutions and replacements, the "Equipment," and individually, an "Item of Equipment") described in the equipment schedules (each a "Schedule") executed from time to time pursuant to this Master Lease. (B) Schedules. Each Schedule substantially in the form of that attached, when --------- executed by Lessor and Lessee, shall constitute a separate lease and shall incorporate by reference the terms and conditions of this Master Lease and any additional terms and conditions agreed upon by the parties. In the event of a conflict between the provisions of this Master Lease and a Schedule, the provisions of the Schedule shall control. (C) Equipment Procurement. Provided that no Event of Default or event which --------------------- with notice or lapse of time or both would constitute an Event of Default has occurred and is continuing and subject to the representations and warranties set forth in Section VII, Lessor may from time to time procure equipment requested by Lessee and lease it to Lessee pursuant to this Master Lease and a Schedule; provided, however, Lessor shall not purchase any Equipment unless Lessee is unconditionally bound to lease it under the terms of this Master Lease and a Schedule. Lessee authorizes Lessor, in reliance on Lessee's request, to enter into purchase orders, contracts or other documents ("Purchase Documents") for acquisition of the Equipment with the seller of the Equipment ("Seller"). (D) Delivery Installation and Acceptance. Lessor or its designated ------------------------------------ representative shall arrange for delivery and installation of the Equipment at the location specified in the applicable Schedule. Lessee shall pay all costs associated with packing, transportation, taxes, duties, insurance, delivery, installation, testing and support of the Equipment. Lessor will have no liability for any delay or failure of the Seller to deliver or service the Equipment or license any software. Acceptance shall be deemed to occur upon the date of execution by Lessee of a Certificate of Acceptance in the form of that attached. Lessee hereby authorizes Lessor to insert in any Schedule the date of acceptance (the "Acceptance Date") for any Item of Equipment as well as such items as serial numbers and the Equipment description and cost resulting from any orders or change orders occurring after the Schedule is executed. In the event of replacement by the supplier or manufacturer of any Equipment that is determined after acceptance to be defective, the Equipment list and serial numbers on the applicable Schedule shall be deemed amended to reflect the substitute Equipment. III. TERM (A) Master Lease Term. Unless otherwise extended by the parties hereto, the ----------------- term of this Master Lease shall begin upon execution hereof by Lessor and Lessee and continue through the last date on which any Schedule entered into pursuant to this Master Lease remains in effect. (B) Initial Term. The initial term under each Schedule shall begin on the first ------------ Rent Due Date occurring after the Acceptance Date under such Schedule and shall continue through the end of the month of the number of months set forth in the Schedule as the initial term ("Initial Term"). (C) Interim Rental Term. Prior to the commencement of the Initial Term under ------------------- each Schedule, Rent shall be due and payable to Lessor for the period beginning on the Acceptance Date and continuing to the first Rent Due Date of the Initial Term ("Interim Rental Term"). (D) Lease Term. "Lease Term" shall mean for each Schedule the Interim Rental ---------- Term, the Initial Term, and all Renewal Terms. IV. RENT (A) Rent. Rent for the Equipment under each Schedule for each Rental Period ---- ("Rent") shall be an amount equal to the product of the percentage ("Lease Rate Factor") set forth in such Schedule multiplied by the total cost of the Equipment, as set forth in such Schedule. Rent for the Interim Rental Term ("Interim Rent") or any other partial rent period will be prorated on a daily basis in an amount equal to l/30/th/ of the monthly Rent ("Daily Lease Rate Factor"). Rent is payable in immediately available funds to Lessor at the address or in accordance with the wire transfer instructions set forth in such Schedule or as otherwise directed by Lessor. Page 1 of 6 (B) Rent Due Date. Rent under each Schedule (other than Rent for the Interim ------------- Rental Term) shall be payable in advance, on each rent due date ("Rent Due Date") of the period ("Rental Period"), as set forth in such Schedule. Rent for the Interim Rental Term shall be due and payable on the first Rent Due Date of the Initial Term. (C) Past Due Amounts. To the extent permitted by applicable law, Lessee will ---------------- pay on demand a late charge as stipulated under each schedule on each installment of Rent and any other sums payable hereunder which remain unpaid for more than ten days after the due date thereof. (D) NONCANCELABLE RENT AND LEASE OBLIGATIONS. ALL LEASES HEREUNDER SHALL BE NET ---------------------------------------- LEASES. LESSEE'S OBLIGATION TO PAY RENT AND OTHER AMOUNTS DUE UNDER THIS MASTER LEASE AND EACH SCHEDULE SHALL BE ABSOLUTE AND UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO ANY SET OFF, COUNTERCLAIM, ABATEMENT, REDUCTION, RECOUPMENT, INTERRUPTION OR DEFENSE FOR ANY REASONS WHATSOEVER. THIS AGREEMENT SHALL NOT TERMINATE NOR SHALL THE OBLIGATIONS OF LESSEE BE AFFECTED BY REASON OF ANY DEFECT IN OR DAMAGE TO, OR LOSS OF USE OR POSSESSION OF, OR DESTRUCTION OF, ANY EQUIPMENT FROM ANY CAUSE WHATSOEVER. IT IS THE INTENTION OF THE PARTIES THAT, RENTS AND OTHER AMOUNTS DUE HEREUNDER SHALL CONTINUE TO BE PAYABLE IN ALL EVENTS IN THE MANNER AND AT THE TIMES SET FORTH HEREIN UNLESS THE OBLIGATION IS TERMINATED PURSUANT TO THE EXPRESS TERMS HEREOF. THIS MASTER LEASE AND THE SCHEDULES CANNOT BE PREPAID OR TERMINATED BY LESSEE DURING THE TERM THEREOF UNLESS AGREED TO IN WRITING BY LESSOR. V. EQUIPMENT OWNERSHIP, USE, MAINTENANCE AND PROTECTION (A) Ownership and Use. Lessee shall use the Equipment in a manner which will ----------------- not disqualify it for manufacturer maintenance, and in compliance with all laws, rules and regulations of every governmental authority having jurisdiction over the Equipment and within the provisions of all policies of insurance carried by Lessee. Lessee shall obtain all permits, licenses or other authorizations necessary for the operation and use of the Equipment. Lessee shall pay all costs, expenses, fees and charges incurred in connection with the use and operation of the Equipment. Upon Lessors request, Lessee will affix and maintain, in a prominent place on each Item of Equipment, plates, tags or other identifying markings indicating Lessor's ownership of the Equipment. Lessee shall not move any Item of Equipment from the location set forth on the applicable Schedule without the prior written consent of Lessor, which consent shall not be unreasonably withheld. Lessor may upon reasonable prior notice to Lessee and during regular business hours inspect the Equipment. (B) Lessor's Entitlement to Tax Benefits. Lessee acknowledges that Lessor is ----------------------------------- the only party entitled to claim tax benefits provided by federal, state and local income tax law to the owner of the Equipment ("Tax Benefits"), and Lessee agrees to characterize the relationship herein established as a lease. If requested by Lessor, Lessee shall furnish Lessor with records and other information necessary to claim such Tax Benefits. Lessee shall not, and shall not permit any permitted sub-lessee or assignee to, take or omit to take any action that may result in the disqualification of the Equipment for, or any recapture of all or any portion of the Tax Benefits afforded the Equipment. (C) Improvements. Lessee shall have the right, or the right to cause the Seller ------------ or another nationally recognized and experienced maintenance provider, to affix or install any accessory, feature, device, improvement, modification, addition, accession or upgrade ("Improvement") that is compatible with the Equipment. In the event an Improvement is financed, a party other than Lessor may not finance it. If Lessor finances any Improvement, it will be leased under the Schedule covering the related Equipment, and the lease term for the Improvement will be coterminous with such Schedule. Prior to the return of the Equipment, Lessee may (if it so chooses and if the Improvement is not financed by Lessor) and shall (if Lessor so requests) remove the Improvements or cause the Improvements to be removed by the Seller or another nationally recognized and experienced maintenance provider, and restore or cause to be restored the Equipment to its original state, ordinary wear and tear excepted. Lessee shall not remove any original parts from the Equipment without Lessor's prior written consent. Any Improvements not removed from the Equipment upon its return or upon the occurrence of an Event of Default shall, at Lessor's option, become the property of Lessor. (D) Maintenance. Lessee shall, at its own cost and expense and at all times ----------- during the Lease Term, take all actions necessary to maintain or cause to be maintained by the Seller, manufacturer or a third party maintenance provider reasonably acceptable to Lessor, the Equipment and all Improvements in good working order, condition and repair, at the Equipment manufacturer's most current engineering levels (including replacement of all parts which become damaged or worn out), and in compliance with such maintenance and repair standards as are set forth in the manufacturer's manual pertaining to the Equipment, and as otherwise may be required to enforce warranty claims against each vendor and manufacturer of each item of Equipment, and in compliance with all requirements of law. Lessee will not discriminate such maintenance between owned and leased equipment. Lessee shall comply with all instructions issued by the manufacturer of the Equipment, and Lessee assumes and agrees to pay any cost necessary to have the manufacturer re-certify that the Equipment will be eligible upon resale or release by Lessor, for the manufacturer's maintenance contract at the manufacturer's standard rates as required under Section XII(B). (E) Insurance. (1) Lessee will insure for the following risks with insurers of --------- recognized responsibility: (a) All risk of loss and physical damage to the Equipment in an amount not less than the greater of (i) the fair market replacement value or (ii) the aggregate Casualty Value of all Equipment from time to time and; (b) Comprehensive public liability and property damage insurance with respect to the condition, possession, maintenance, operation and use of the Equipment, in an amount not less than $1,000,000 for each occurrence. Such insurance shall be in full force and effect by not later than the Installation Date for each item of Equipment and shall remain in effect until such time as each item of Equipment has been returned to, and accepted by, Lessor in accordance with the provisions of Section XII(B) hereof. (F) Delivery of Insurance Certificates. Lessee shall deliver to Lessor and any ---------------------------------- Assignee(s) a valid Certificate of Insurance for each such insurance policy upon the execution thereof and a Certificate of Insurance for each renewal policy not less than 30 days prior to the expiration of the original policy or any renewal policy. Such insurance shall (1) include as additional parties insured and loss payees Lessor and any Assignee(s), (2) provide that such insurance shall not be materially changed or canceled without at least 30 days prior notice to Lessor and such Assignees, and (3) provide that such policy shall not be invalidated by any negligence of, or breach of warranty by, Lessee. Upon the request of Lessor, Lessee shall provide any additional data related to the insurance as Lessor reasonably requests. VI. DISCLAIMER OF WARRANTIES; LIMITATION OF REMEDIES LESSOR IS NOT A MANUFACTURER, SUPPLIER OR DEALER OF THE EQUIPMENT AND HAS NOT INSPECTED THE EQUIPMENT PRIOR TO DELIVERY TO AND ACCEPTANCE BY LESSEE. LESSOR HAS NOT MADE AND DOES NOT MAKE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE EQUIPMENT, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY AS TO TITLE, CONDITION, QUALITY, DESIGN, CAPACITY, VALUE, DURABILITY, SUITABILITY, SAFETY, OR COMPLIANCE WITH ANY LAW, RULE, REGULATION OR SPECIFICATION, AS TO MERCHANTABILITY OR FITNESS FOR USE OR FITNESS FOR A PARTICULAR PURPOSE, OR AS TO PATENT, COPYRIGHT OR TRADEMARK INFRINGEMENT, IT BEING AGREED THAT THE EQUIPMENT IS LEASED "AS IS" AND THAT Page 2 of 6 ALL SUCH RISKS, AS BETWEEN LESSOR AND LESSEE, ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT FROM THE VENDOR THEREOF ON THE BASIS OF LESSEE'S JUDGMENT AND EXPRESSLY DISCLAIMS ANY RELIANCE UPON ANY STATEMENT MADE BY LESSOR OR ITS AGENTS. LESSOR SHALL NOT IN ANY EVENT BE LIABLE FOR ANY INDIRECT, CONSEQUENTIAL OR SPECIAL DAMAGES, EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. VII. RISK OF LOSS (A) Risk of Loss. Lessee shall bear the entire risk of the Equipment if ------------ damaged, destroyed or rendered permanently unfit or unavailable for use after its shipment to Lessee and until it is accepted by Lessor in accordance with Section XII(B) hereof. (B) Damage/Event of Loss. (1) In the event any item of Equipment is damaged to -------------------- a material extent by any occurrence whatsoever, Lessee shall promptly notify Lessor and shall determine within 15 days of the date of such notice whether such item of Equipment can be repaired. If such Equipment can be repaired, Lessee shall at its cost and expense repair such Equipment to its original condition. (2) In the event any item of Equipment shall be lost, stolen, destroyed, damaged beyond repair, or rendered permanently unfit or unavailable for use (through a governmental taking or any other event), for any reason whatsoever (any such occurrence being referred to as an "Event of Loss"), Lessee shall promptly notify Lessor and pay to Lessor, on the first day of the month immediately following such Event of Loss, an amount equal to the Casualty Value applicable to such item of Equipment calculated as of the immediately preceding Rent Due Date plus any unpaid Rent and the installment of Rent for such item of Equipment due on the Rent Due Date following the Event of Loss. After the payment of such amounts, Lessee's obligation to pay further Basic Rent for such item of Equipment shall cease, but Lessee's obligation to pay Interim Rent, if any, for such item of Equipment, and to pay Rent for all other items of Equipment shall remain unchanged. (3) Following payment of the Casualty Value and Rent for an item of Equipment in accordance with the provisions of sentence 2 of this Section VII(B), Lessor shall transfer title to such item of Equipment to Lessee on an AS IS, WHERE IS basis without representation or warranty. (C) Casualty Value. The Casualty Value from time to time for any item of -------------- Equipment subject to a Schedule shall be an amount equal to the greater of (1) the item of Equipment's installed/in-place fair market value at the time of the Casualty Value determination, or (2) 110% of the Item(s) of Equipment cost as of the Acceptance Date, declining in even monthly steps to 20% at expiration and remaining at that value thereafter. (D) Disposition of Insurance and Other Proceeds. The proceeds of insurance or ------------------------------------------- any condemnation of an item of Equipment for which an Event of Loss has occurred shall be paid to Lessor (to the extent that Lessor has not previously received all Casualty Value and other payments required to be made by Lessee pursuant to the Lease), and the remainder, if any, shall be paid to Lessee. The proceeds of insurance with respect to damage to an item of Equipment, the repair of which, in the opinion of Lessee, is practicable shall unless an Event of Default hereunder has occurred and is continuing be applied either to such repair or to the reimbursement of Lessee for the cost of such repair. VIII. LESSEE'S REPRESENTATIONS, WARRANTIES AND COVENANTS (A) Representations and Warranties. Lessee represents, warrants and covenants ------------------------------ to Lessor, as of the date of this Master Lease and as of the date of each Schedule, that: (1) Lessee's execution, delivery and performance of this Master Lease and each Schedule have been duly authorized by all necessary action on the part of Lessee, and this Master Lease and each Schedule constitute legal, valid and binding obligations of Lessee; (2) the execution and delivery by Lessee of this Master Lease and each Schedule and the performance of its obligations thereunder do not conflict with or result in a material breach of Lessee's organizational documents or applicable law, or any judgment order, writ, injunction, decree, rule or regulation of any court, administrative agency or other governmental authority, or any agreement or other instrument to which Lessee is a party or by which it is bound; (3) there are no pending or, to the knowledge of Lessee, threatened actions or proceedings that could materially adversely affect the ability of Lessee to perform its obligations under this Master Lease and the Schedules; (4) there has been no material adverse change in Lessee's financial condition since the date of this Master Lease; and (5) Lessee has obtained the proper licenses to use, or ownership of, any software which is or may be used in connection with the Equipment. (B) Assignment and Transfer. LESSEE SHALL NOT, WITHOUT THE PRIOR WRITTEN ----------------------- CONSENT OF LESSOR, SELL, TRANSFER, ASSIGN, SUBLEASE (EXCEPT, UPON PRIOR WRITTEN NOTICE TO LESSOR, A SUBLEASE TO A WHOLLY OWNED OR CONTROLLED SUBSIDIARY OR TO ITS PARENT), PLEDGE OR HYPOTHECATE THIS MASTER LEASE, ANY SCHEDULE, THE EQUIPMENT OR ANY PART THEREOF OR ANY INTEREST THEREIN. Lessee shall not, without the prior written consent of Lessor, which shall not be unreasonably withheld, merge or consolidate with any corporation or other entity (unless Lessee is the surviving entity or the surviving entity continues the business of Lessee and assumes this Master Lease and all Schedules) and shall not sell, transfer or otherwise dispose of all or any substantial part of Lessee's assets. (C) No Liens. Lessee shall not directly or indirectly create, incur, assume or -------- allow to exist any lien, mortgage, pledge, security interest, charge, encumbrance, right, or claim of any kind ("Lien") on or with respect to this Master Lease, any Schedule or any Item of Equipment. Lessee will promptly notify Lessor in writing of the existence of any Lien and will promptly, at Lessee's expense, cause any such Lien to be duly discharged. (D) Payment of Taxes. Lessee shall reimburse Lessor for, and indemnify and hold ---------------- Lessor harmless from, all sales, use, personal property, stamp or other taxes, and all levies, imposts, duties, charges, fees, assessments or withholdings of any nature whatsoever (other than those measured by Lessors net income), together with any penalties, fines or interest thereon which are at any time levied, assessed or imposed on the Equipment or any interest of Lessor or Lessee therein or on the sale, purchase, delivery, ownership, possession, use or operation of the Equipment or the rentals or other amounts payable under this Agreement or any Schedule. If requested by Lessor or if filing by Lessee is required by law, Lessee shall prepare and file, or cause to be prepared and filed, all necessary forms for the assessment of such taxes and shall promptly send to Lessor a copy of such filing. (E) Financial Reports. Lessee shall upon execution hereof, and for the term of ----------------- this agreement and any schedules, amendments, extensions and addendums thereto, furnish or caused to be furnished to Lessor the following: (1) the audited annual financial statements of Lessee within 120 days after the close of each fiscal year; (2) quarterly financial statements in a form reasonably acceptable to Lessor within 60 days after the close of each fiscal quarter; and (3) monthly financial statements in a form reasonably acceptable to Lessor within 30 days after the close of each fiscal month. (F) Further Assurances: Payment of Lessor's Expenses. Lessee shall promptly ------------------------------------------------ execute and deliver, or cause to be executed and delivered, to Lessor such further documents and take such further action as Lessor may from time to time request in order to more effectively carry out the intent and purpose of this Master Lease and each Schedule, protect the rights and remedies of Lessor created or intended to be created thereunder and perfect and protect Lessor's interest in the Equipment. Lessee shall pay all reasonable costs (including reasonable legal fees and costs) and expenses incurred by Lessor in the consummation or interpretation of this Master Lease or any Schedule; in collecting or attempting to collect any sums owed under this Master Lease or any Schedule; or in enforcing any of Lessor's rights or remedies under this Master Lease or any Schedule. Lessee shall also pay all filing fees, Lien search fees recordation fees and related expenses reasonably incurred by Lessor in connection with this Master Lease or any Schedule. (G) Notification. Lessee shall notify Lessor within 10 days of any material ------------ changes in the management, ownership or control of Lessee. IX. GENERAL INDEMNITY (A) LESSEE SHALL INDEMNIFY, HOLD HARMLESS AND DEFEND LESSOR AND ITS SUCCESSORS AND ASSIGNS AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS AGAINST ALL CLAIMS DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THE EQUIPMENT, THIS MASTER LEASE OR ANY SCHEDULE, EXCEPT FOR CLAIMS RESULTING SOLELY FROM LESSOR'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. "CLAIMS" REFERS TO ALL LOSSES, LIABILITIES, DAMAGES, PENALTIES, EXPENSES (INCLUDING REASONABLE LEGAL FEES AND COSTS), CLAIMS, ACTIONS AND SUITS, WHETHER IN CONTRACT OR IN TORT AND WHETHER BASED ON A THEORY OF STRICT LIABILITY OF LESSOR OR OTHERWISE, AND INCLUDES, BUT IS NOT LIMITED TO, MATTERS RELATING TO: (1) THE SELECTION, MANUFACTURE, PURCHASE, ACCEPTANCE, REJECTION, OWNERSHIP, DELIVERY, LEASE, POSSESSION, STORAGE, MAINTENANCE, USE, CONDITION, RETURN OR OPERATION OF THE EQUIPMENT; (2) ANY LATENT DEFECTS OR OTHER DEFECTS IN ANY EQUIPMENT, WHETHER OR NOT DISCOVERABLE BY LESSOR OR LESSEE; (3) ANY PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT; AND (4) THE CONDITION OF ANY EQUIPMENT ARISING OR EXISTING DURING LESSEE'S USE. (B) LESSOR SHALL PROMPTLY NOTIFY LESSEE OF ANY CLAIM AFTER RECEIPT OF A WRITTEN NOTICE OF SUCH CLAIM BY LESSOR, AND LESSEE SHALL HAVE THIRTY (30) DAYS TO ELECT TO DEFEND, COMPROMISE OR SETTLE THE CLAIM. IF LESSEE ELECTS TO DEFEND THE CLAIM, (1) LESSOR SHALL HAVE THE RIGHT TO APPROVE LESSEE'S SELECTION OF COUNSEL, WHICH APPROVAL SHALL NOT BE UNREASONABLY WITHHELD, AND SHALL HAVE THE RIGHT AT ITS ELECTION TO PARTICIPATE IN SUCH DEFENSE, AND (2) LESSEE SHALL NOT BE RESPONSIBLE FOR ANY LEGAL FEES OR OTHER EXPENSES RELATING TO DEFENSE OF THAT CLAIM THAT LESSOR MAY THEREAFTER ELECT TO INCUR. LESSEE SHALL NOT CONSENT TO ENTRY OF ANY JUDGMENT OR ENTER INTO ANY SETTLEMENT WITHOUT THE EXPRESS WRITTEN CONSENT OF LESSOR. THIS INDEMNIFICATION OBLIGATION SHALL SURVIVE TERMINATION OR EXPIRATION OF THIS MASTER LEASE OR ANY SCHEDULE. X. LESSOR RIGHTS (A) Assignment. Lessor (and any assignee of Lessor) shall have the right to ---------- sell, assign, transfer, pledge, mortgage or otherwise convey its interest in this Master Lease, one or more Schedules, any or all of the Equipment or any of its rights, interests or obligations with respect thereto, in whole or in part, to one or more persons or entities (each, an "Assignee") without notice to, or consent of, Lessee. Notwithstanding such assignment, Lessor shall not be relieved of its obligations hereunder except to the extent of such assignment. Lessee agrees that if any Schedule is assigned, (1) Lessee shall, if instructed by Lessor, pay all amounts due under such Schedule to the Assignee, (2) Lessee shall execute such acknowledgments to such assignment as are reasonably required by the Assignee to perfect and protect its right, title and interest in and to the Equipment, the applicable Schedule and the Rent due thereunder, and (3) Lessee shall not require the Assignee to perform any obligation of Lessor, other than those that are expressly assumed by such Assignee, and shall not assert against any Assignee any claim, defense, counterclaim or set-off that Lessee may at any time have against Lessor. LESSEE ACKNOWLEDGES THAT ANY ASSIGNMENT OR TRANSFER IN ACCORDANCE WITH THIS SECTION BY LESSOR OR AN ASSIGNEE WILL NOT MATERIALLY CHANGE LESSEE'S DUTIES OR OBLIGATIONS UNDER THIS MASTER LEASE OR THE ASSIGNED SCHEDULE NOR MATERIALLY INCREASE THE BURDENS OR RISKS IMPOSED ON LESSEE. (B) Lessor's Performance of Lessee's Obligations. If Lessee fails to perform -------------------------------------------- its obligations under this Master Lease or any Schedule, Lessor shall have the right but not the obligation, without releasing Lessee from any obligation hereunder or under any Schedule, to perform any act or make any payment that Lessor reasonably deems necessary for the maintenance and protection of the Equipment and Lessor's interests in the Equipment and in this Master Lease and the Schedules, and in exercising any such rights, incur any liability and expend any amounts reasonably necessary to protect such interests. All sums so incurred and expended by Lessor, together with expenses (including reasonable legal fees and costs) incurred in connection therewith, shall be immediately due and payable by Lessee and shall bear interest at the interest rate for late payments set forth in the applicable Schedule (or such lesser rate or amount as may then be the maximum permitted by applicable law), from the date so incurred or expended by Lessor to the date payment is received by Lessor. (C) Financing Statements. Lessor may, at its option, file with such authorities -------------------- and in such locations, as it may deem appropriate, Uniform Commercial Code financing statements relating to the Equipment, this Master Lease, the Schedules and the rents payable thereunder. Lessee agrees to promptly execute and deliver to Lessor any such financing statements requested by Lessor: provided that Lessor may, at its option, file Uniform Commercial Code financing statements signed by Lessor only, and if Lessee's signature is required by law, Lessee appoints Lessor as Lessee's attorney-in-fact to execute such financing statements or file a copy of this Master Lease or any Schedule as a financing statement. Lessee will promptly notify Lessor of any change in the location of its principal place of business or chief executive office. XI. DEFAULT AND REMEDIES (A) Events of Default. An "Event of Default" shall occur hereunder and under ----------------- all Schedules if Lessee (1) fails to pay any installment of Rent or other payment required hereunder or under any Schedule within the time period set forth in a Schedule; (2) is in default subject to the terms of any other loan or lease agreement with Imperial Bank or any other party; (3) fails to timely perform or observe any covenant, condition or agreement set forth in this Master Lease or any Schedule; (4) experiences a material adverse change in its financial condition as reasonably determined by Lessor; (5) becomes insolvent or makes an assignment for the benefit of creditors, or institutes or has instituted against it bankruptcy, reorganization or insolvency proceedings (and, in the case of any such proceedings instituted against Lessee, such proceeding is not stayed or dismissed within thirty (30) days), or a trustee, administrator or receiver shall be appointed for Lessee or for a substantial part of its property; or (6) makes any statement, representation or warranty in this Master Lease or any Schedule that is false or misleading in any material respect when made. (B) Remedies. (1) If an Event of Default occurs under the Lease, Lessor may -------- give Lessee notice of the Event of Default and upon the giving of such notice or at any time thereafter do any or all of the following (as Lessor in its sole discretion elects): (a) proceed by appropriate court action or actions to enforce performance by Lessee of the applicable covenants and terms of the Lease or to recover damages for the breach thereof; (b) take possession (by summary proceedings or otherwise) of any or all items of Equipment subject to the Lease without prejudice to any other remedy or claim herein referred to; (c) hold, sell, lease, or otherwise dispose of, any or all items of Equipment subject to the Lease, in any manner Lessor (in its sole discretion) elects: (d) receive from Lessee upon demand for any or all Equipment subject to the Lease the following amounts which Lessee shall be obligated to pay: (i) any unpaid Rent past due, (ii) as liquidated damages for loss of bargain and not as a penalty, the aggregate Casualty Value for such Equipment under the Lease in effect as of the date on which such Event of Default occurred, (iii) all costs and expenses incurred in searching for, taking, removing, keeping, storing, repairing, and restoring such items of Equipment, (iv) all other amounts then owing by Lessee hereunder; and (v) all costs and expenses, including (without limitation) reasonable legal fees and expenses, incurred by Lessor as a result of an Event of Default, or the exercise by Page 4 of 6 Lessor of its remedies under this Section XI(A) or in connection with any bankruptcy proceeding of the Lessee (including, without limitation, fees and expenses incurred in connection with relief from stay motions relating to the Equipment, cash collateral disputes, assumption/rejection motions relating to the Equipment and disputes relating to any proposed plan and/or disclosure statement); (e) by notice to Lessee, declare the Lease (for any or all Equipment) canceled without prejudice to Lessor's rights in respect of all obligations set forth in this Section XI(A) and any other obligations under the Lease then accrued and remaining unsatisfied; or (f) avail itself of any other remedy or remedies provided for by any statute or otherwise available by law, in equity or in bankruptcy or insolvency proceedings; or (g) terminate any other Lease that Lessor may have with Lessee. (C) The remedies set forth in this Section XI(A), (Remedies), are not intended to be exclusive, and each shall be cumulative. The amounts to be paid to Lessor under clause (d) of Section XI(A) shall be increased by interest, at the Overdue Rate, to the date of receipt by Lessor of the amount payable under said clause, from the respective due dates of such amounts or (with respect to costs, expenses, and losses for which Lessor is entitled to payment or reimbursement under said clause) from the respective dates incurred by Lessor. (D) Any amounts received by Lessor as the result of its sale, lease during the original term hereof, or other disposition of the Equipment hereunder shall be paid or applied in the following order: (1) to any remaining obligation of Lessee under clause (d) of Section XI(A), (2) to reimburse Lessee for the Casualty Value previously paid as liquidated damages, and (3) to Lessor, any remaining balance. XII. END OF LEASE TERM (A) End of Term Notice. Lessee shall give Lessor no less than ninety (90) days ------------------ and no more than 365 days written notice prior to the expiration of the Lease Term under any Schedule, as to whether it will purchase, return or extend the term of the leased Equipment on the applicable Schedule at expiration of the Lease Term ("End of Term Notice"). If Lessee fails to give timely notice or fails to return the Equipment to Lessor upon expiration of the Lease Term as provided herein, the Schedule shall continue in full force and effect and will extend on a month to month basis at the applicable Rent, until Lessee provides Lessor with ninety (90) days prior written notice of Lessee's intent to purchase, return or extend the term of the leased Equipment on the applicable Schedule. Such notice once given shall be irrevocable. (B) Return. (l) Upon the expiration or other permitted termination of this ------ Schedule or any extension thereof, Lessee, at its sole cost, risk, and expense, will return to Lessor all, (but not less than all), of the Equipment then subject to the Schedule to a location in the Continental United States specified by Lessor. Lessee shall be responsible at its sole cost and expense, for (a) the de-installation, removal and packaging of the Equipment (including, but not limited to, any and all software, all manuals, maintenance records, maintenance record jackets, repair orders and all other similar documents) in a manner suitable for cartage by a common commercial carrier acceptable to Lessor, and (b) the transportation of the Equipment, upon written notification by Lessor, as to the date and destination of the shipping. Such Equipment, upon return, shall be free and clear of all mortgages, liens, security interest, charges, encumbrances and claims. If Lessor shall so require, Lessee shall provide free and safe storage, as well as maintain sufficient insurance coverage (as specified in the Master Lease) for such Equipment for a period not to exceed 120 days from the expiration date or the last day of any extension period therefor. (2) Upon return of such Equipment, Lessor or its agent shall inspect the Equipment. If any item of Equipment is not returned to Lessor, it shall be deemed to be a casualty and an Event of Loss during the Lease Term. In the event Lessor determines that repairs, additions or replacements are necessary to place the Equipment in the same condition as when originally leased to Lessee (reasonable wear and tear excepted), which at a minimum will require that the Equipment be in complete and running condition with no missing or damaged components and/or certified as being eligible for the Seller's or the manufacturer's generally available maintenance contract at then prevailing prices. (3) If Lessor determines that the Equipment (after inspection) is damaged or worn beyond normal wear and tear, Lessor or Lessor's agent will prepare an invoice which fully describes the repairs and the estimated cost required to place the Equipment in complete and running condition, and certified as being eligible for the Seller's or the manufacturer's generally available maintenance contract ("Equipment Repair Notice"). Lessee shall pay such invoiced costs in addition to an inspection fee equal to one-tenth (.1%) percent of the applicable Equipment's Cost ("Equipment Inspection Fee"), within ten (10) days of the date of such notice. (4) In the event Lessee fails to remit payment to Lessor within ten (10) days of receiving such Equipment Repair Notice, Lessee shall pay to Lessor, Interim Rent equal to the Daily Lease Rate Factor, multiplied by the Equipment cost as set forth in the applicable Schedule, for each day in excess of the Lease Term, until such Equipment Repair Notice payment is made. (C) Purchase Option. Provided that no Event of Default has occurred and the --------------- applicable Equipment Schedule has not been previously terminated, Lessee shall have the right at its option, upon not less than 90 days and no more than 365 days written notice to Lessor prior to the Expiration Date, to purchase all (but not less than all) of the Equipment subject to the applicable Equipment Schedule on its Expiration Date. In such case, Lessee's purchase price shall be payable to Lessor on the Expiration Date and shall be an amount equal to the Equipment's fair market value as determined by Lessor in good faith. Lessor shall transfer to Lessee, "AS IS" "WHERE IS," without recourse or warranty, expressed or implied, of any nature (except to warrant to those claiming by, under or through Lessee, the absence of any liens created by Lessor), all of Lessor's right, title and interest in and to the Item(s) of Equipment with respect to which such payment has been received. (D) Renewal Option. Provided that no Event of Default has occurred and the -------------- applicable lease Schedule has not been earlier terminated, Lessee shall have the right at its option, upon not less than ninety (90) days and no more than 365 days written notice to Lessor prior to the Expiration Date, to renew all (but not less than all) of the Equipment subject to the applicable Equipment Schedule for a firm term renewal period not less than six months. XIII. MISCELLANEOUS (A) Captions: Counterparts: Integration: Entire Agreement. The captions ----------------------------------------------------- contained in this Master Lease are for convenience only and shall not affect the interpretation of this Master Lease. This Master Lease and the Schedules may be executed by the parties in one or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement. Only one counterpart of this Master Lease and each Schedule shall be marked "Original," and all other counterparts shall be marked "Duplicate." To the extent, if any, that this Master Lease or any Schedule constitutes chattel paper (as such term is defined in the Uniform Commercial Code in effect in any applicable jurisdiction), no security interest in this Master Lease or any such Schedule may be created through the transfer or possession of any counterpart other than the Original. THIS AGREEMENT, TOGETHER WITH ALL SCHEDULES, ANNEXES AND EXHIBITS THERETO, CONSTITUTES THE ENTIRE AGREEMENT OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF. NO VARIATION OR MODIFICATION OF THIS AGREEMENT OR ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF EACH OF THE PARTIES HERETO. (B) Notices. All notices under this Master Lease and the Schedules shall be in ------- writing and shall be delivered to the parties by certified mail, return receipt requested, by courier service or by facsimile transmission, at their respective addresses or facsimile numbers set forth in the Schedules (or such other address or number as either party may designate in writing from time to time). Notice shall be deemed to have been given (1) on the third day after being deposited in the United States mail, by certified mail, return receipt requested, properly addressed and with postage prepaid; or (2) on the day delivered by courier service or transmitted by facsimile. Page 5 of 6 (C) No Waiver: Lessor Approval. Any failure of Lessor to require strict -------------------------- performance by Lessee or any written waiver by Lessor of any provision of this Master Lease or any Schedule shall not constitute consent to or waiver of any other breach of the same or any other provision of this Master Lease or any Schedule. This Master Lease and each Schedule shall not be binding upon Lessor unless and until executed by Lessor. (D) Governing Law: Severability. THIS MASTER LEASE AND EACH SCHEDULE SHALL BE --------------------------- GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF THE STATE OF CALIFORNIA. If any provision of this Master Lease or any Schedule is illegal, invalid or unenforceable under any applicable law of any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent such laws apply without invalidating the remaining provisions of this Master Lease or such Schedule or causing such provision to be ineffective or unenforceable under the laws of any other jurisdiction. (E) Quiet Enjoyment. So long as no Event of Default has occurred and is --------------- continuing, neither Lessor nor any Assignee will interfere with Lessee's quiet enjoyment and use of the Equipment. (F) Survival. All obligations of Lessee to make payments to Lessor under this -------- Master Lease or any Schedule or to indemnify Lessor pursuant to the terms of this Master Lease or any Schedule, and all rights of Lessor under this Master Lease and each Schedule shall survive the expiration or termination of this Master Lease and each Schedule. (G) Software. Any software or other licensed products attached to or provided -------- in connection with the Equipment shall at all time remain property of the owner thereof, and Lessee shall not obtain title to any such software. (H) Export Laws. Lessee shall not export or re-export, directly or indirectly, ----------- any software or technology received by it in connection with this Master Lease or any Schedule, or allow the direct product thereof to be exported or re- exported directly or indirectly, in violation of applicable law, including without limitation the regulations of the United States Department of Commerce. (I) Present Value. In the event it is necessary to determine the present value ------------- of rentals under any Schedule, the parties agree that the discount rate to be used in determining such present values shall be the then prevailing Federal Reserve Bank Discount Rate as published in the Wall Street Journal as of the date of discounting. (J) Foreign Corrupt Practices Act. The parties shall comply with all applicable ----------------------------- laws affecting this Agreement and the performance of this Agreement. The parties shall maintain all registrations with governmental agencies, commercial registries chambers of commerce, or other offices which may required under local law in order to conduct their commercial business. The parties shall also comply with United States laws applicable to the sale of the Equipment, including the Foreign Corrupt Practices Act (which prohibits certain payments to governmental officials or political parties). (K) True Lease: Maximum Rate. This Master Lease and the Schedules are intended ------------------------ to be a "Finance Lease," as defined in Article 2A of the Uniform Commercial Code, unless otherwise indicated in a Schedule. Lessor hereby informs Lessee that (i) the identity of the Seller is set forth in the applicable Schedule, (ii) the Lessee is entitled under Article 2A to the promises and warranties, including those of any third party, provided to Lessor in connection with, or as part of, the contract by which Lessor acquired the Equipment, and (iii) Lessee may communicate with the Seller and receive an accurate and complete statement of the promises and warranties, including any disclaimers and limitations of them or of remedies. As a precaution in the event that, notwithstanding the express intention of the parties hereto to enter into a true lease, this Master Lease or any Schedule is ever deemed to be other than a true lease, or in the event that the parties hereto intend to enter into a lease intended as security, if so indicated on the applicable Schedule, Lessee hereby grants Lessor a security interest in the Equipment and all proceeds thereof, including, without limitation, insurance proceeds. In any such event, notwithstanding any provisions contained herein or in any Schedule, neither Lessor nor any Assignee shall be entitled to receive, collect or apply as interest any amount in excess of the maximum rate or amount permitted by applicable law. In the event Lessor or any Assignee ever receives, collects or applies as interest any amount in excess of the maximum amount permitted by applicable law, such excess amount shall be applied to the unpaid principal balance and any remaining excess refunded to Lessee. In determining whether the interest paid or payable under any specific contingency exceeds the maximum rate or amount permitted by applicable law, Lessor and Lessee shall, to the maximum extent permitted under applicable law, characterize any non principal payment as an expense or fee rather than interest, exclude voluntary prepayments and the effect thereof, and spread the total amount of interest over the entire term of this Master Lease and the Schedules. (L) Waiver of Jury Trial, Etc. The Lessee and the Lessor each hereby waives any ------------------------- right to trial by jury in any litigation in any court with respect to, in connection with, or arising out of this master lease or any schedule entered into in connection therewith, or any other claim or dispute howsoever arising, between the Lessor and the Lessee. LESSEE, BY THE SIGNATURE BELOW OF ITS AUTHORIZED REPRESENTATIVE, ACKNOWLEDGES THAT IT HAS READ THIS MASTER LEASE, UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS TERMS AND CONDITIONS. LESSEE: MULTILINK TECHNOLOGY LESSOR: IMPERIAL BANK EQUIPMENT LEASING CORPORATION DIVISION, A Division of Imperial Bank Signature: /s/ Richard N. Nottenburg Signature:_____________________________ ---------------------------- Name: Richard N. Nottenburg Name: _____________________________ ---------------------------- Title: President Title _____________________________ ---------------------------- Page 6 of 6 SCHEDULE NO. 001 Dated as of September 14, 1999 A Schedule Made Pursuant to Master Lease Agreement Dated as of September 14, 1999, - Between Imperial Bank Equipment Leasing Division, a division of Imperial Bank, as Lessor, and Multilink Technology Corporation, as Lessee The terms and conditions of this Schedule incorporate the terms and conditions of the Master Lease Agreement identified above. Capitalized terms not defined in this Schedule shall have the meanings assigned to them in the Master Lease Agreement. I. EQUIPMENT The Equipment covered by this Schedule is described on Schedule A, attached. II. ADDRESSES FOR LESSEE AND LESSOR: (A) Lessee's Address(es): -------------------- (1) Chief Executive Office Address: 2850 Ocean Park Boulevard, Suite 335 Santa Monica, CA 90405 (2) Lessee's Address to Receive Invoices: 2850 Ocean Park Boulevard, Suite 335 Santa Monica, CA 90405 Contact Name: Mr. Alan Brunell, Director of Finance Contact Phone Number: (310) 309-3600 Contact Facsimile Number: (310) 581-6449 (3) Lessee's Address to Receive Notices: Same Contact Name: Same Contact Phone Number: Contact Facsimile Number: (B) Lessor's Addresses: ------------------ (1) Chief Executive Office: Imperial Bank Equipment Leasing Division 9920 South La Cienega Boulevard, Suite 903 Inglewood, CA 90301 (2) Address for Payments: Imperial Bank Equipment Leasing Division Payment Processing 9920 South La Cienega Boulevard, Suite 903 Inglewood, CA 90301 III. FINANCIAL TERMS (A) Equipment Acquisition Cost: $2,000,000.00 (B) Equipment Location: 2850 Ocean Park Blvd., Suite 335 Santa Monica, CA 90405 (C) Initial Term Commencement Date: 1/st/ day of the month following Acceptance Date (D) Acceptance Date: TBD (E) Initial Term (number of months): 36 Months (F) Lessee's Federal Tax ID: TBD (G) Seller: TBD (H) Lease Rate Factor: Float to Fund: ------------- Upon acceptance of the equipment, the monthly lease rate factor of 0.03175 may be adjusted by .00012 for every 25 basis point (0.25%) increase or decrease in the yield of the Like Term U.S. Treasury Note ("T-Note"). The Like Term T-Note is defined as that security issued by the U.S. Department of Treasury with a maturity most closely matching the maturity of the proposed lease as quoted in the Wall Street Journal. The Like Term T-Note as of the date of the proposal yields 5.77%. The monthly lease rate factor shall be fixed as of the date of acceptance and will remain constant throughout the term of the lease. (I) Daily Lease Rate Factor: 0.001058 (Refer to item H) (J) Casualty Value: See Master Lease Agreement para VII(c) (K) Security Deposit: On a per Schedule basis, equal to one month rent plus applicable tax to be applied to the last initial term rental (L) Purchase Option: On a per Schedule basis, Fair Market Value in continued use not less than 10% of the Equipment Acquisition Cost (M) Restocking Fee On a per Schedule basis, there will be a restocking fee of 10% of the Equipment Acquisition Cost for all returned equipment (N) Documentation Fee: $2,500.00 IV. RENT AND TERM (A) Rent: On a per Schedule basis, monthly rent will be based upon the Lease Rate Factor(s) multiplied by the Equipment Acquisition Cost. (B) Due with Documentation: On a per Schedule basis, First Month Rent (including tax), and Security Deposit (including tax). (C) Rent Due Date: 1/st/ of the month (D) Rent past due after: 10 days (E) Late Payment Fee: 1.5% (Not to exceed maximum rate permitted by applicable law) (F) Rental Period: Monthly in advance (G) Required Notice: No less than 90 days or no more than 365 days prior to Lease Termination LESSEE, BY THE SIGNATURE BELOW OF ITS AUTHORIZED REPRESENTATIVE, ACKNOWLEDGES THAT IT HAS READ THIS LEASE, UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS TERMS AND CONDITIONS. LESSEE: MULTILINK TECHNOLOGY LESSOR: IMPERIAL LEASING CORPORATION A Division of Imperial Bank Signature: /s/ Richard N. Nottenburg Signature: _____________________________ --------------------------- Name: Richard N. Nottenburg Name: ______________________________ --------------------------- Title: President Title ______________________________ --------------------------- SCHEDULE "A" TO EQUIPMENT SCHEDULE NO. 001 TO MASTER LEASE AGREEMENT (THE "MASTER LEASE") DATED AS OF SEPTEMBER 14, 1999 BETWEEN IMPERIAL BANK EQUIPMENT LEASING DIVISION, A DIVISION OF IMPERIAL BANK, AS LESSOR, AND MULTILINK TECHNOLOGY CORPORATION, AS LESSEE EQUIPMENT LIST Equipment Description - --------------------- Computer hardware (to include servers, PC's, HP printers), electronic test equipment (to include HP and Tektrinix), furniture, and other miscellaneous equipment Up to 12% of the lease line may be used for software and soft costs. Total Lease Line for Multilink Technology Corporation $2,000,000.00 Lessor Initials: ______________________ Lessee Initials: R.N.N. ---------------------- SCHEDULE "B" TO EQUIPMENT SCHEDULE NO. 001 TO MASTER LEASE AGREEMENT (THE "MASTER LEASE") DATED AS OF SEPTEMBER 14, 1999 BETWEEN IMPERIAL BANK EQUIPMENT LEASING DIVISION, A DIVISION OF IMPERIAL BANK, AS LESSOR, AND MULTILINK TECHNOLOGY CORPORATION, AS LESSEE EQUIPMENT RETURN PROVISIONS Upon the expiration or other permitted termination of this Schedule or any extension thereof, Lessee, at its sole cost, risk, and expense, will return to Lessor all, (but not less than all), of the Equipment then subject Schedule to a location in the continental United States specified by Lessor. Lessee shall be responsible at its sole cost and expense, for (a) the de-installation, removal and packaging of the Equipment (including, but not limited to, any and all applicable software, all manuals, maintenance records, maintenance record jackets, repair orders and all other similar documents) in a manner suitable for cartage by a common commercial carrier acceptable to Lessor, and (b) the transportation of the Equipment, upon written notification by Lessor, as to the date and destination of the shipping. Such Equipment, upon return, shall be free and clear of all mortgages, liens, security interest, charges, encumbrances and claims. If Lessor shall so require, Lessee shall provide free and safe storage, as well as maintain sufficient insurance coverage (as specified in the Master Lease) for such Equipment for a period not to exceed 120 days from the expiration date or the last day of any extension period therefor. Upon return of such Equipment, Lessor or its agent shall inspect the Equipment. If any item of Equipment is not returned to Lessor, it shall be deemed to be a casualty and an Event of Loss during the Lease Term. In the event Lessor determines that repairs, additions or replacements are necessary to place the Equipment in the same condition as when originally leased to Lessee (reasonable wear and tear excepted), which at a minimum will require that the Equipment be in complete and running condition with no missing or damaged components and certified as being eligible for the Seller's or the manufacturer's generally available maintenance contract at then prevailing prices. If Lessor determines that the Equipment (after inspection) is damaged or worn beyond normal wear and tear, Lessor or Lessor's agent will prepare an Equipment Repair Notice ("ERN") which fully describes the repairs and the estimated cost required to place the Equipment in complete and running condition, and certified as being eligible for the Seller's or the manufacturer's generally available maintenance contract. Lessee shall pay such invoiced costs which shall include an Equipment Inspection Fee equal to one-tenth (.1%) percent of the applicable Equipment Schedule's "first cost," within ten (10) days of the date of the Equipment Repair Notice. In the event Lessee fails to remit payment to Lessor within ten (10) days of receiving such Equipment Repair Notice, Lessee shall pay to Lessor, interim Rent equal to the Daily Lease Rate Factor, multiplied by the Equipment Cost as specified in the applicable Schedule, for each day in excess of Lease Term of the applicable Equipment Schedule, until such payment is made. At the time of return, the Equipment shall be (I) in compliance with all applicable federal, state and local laws: and (II) free of all advertising or insignia thereon by Lessee. Hold Harmless. Lessee agrees that Lessor will be held harmless for any damages - ------------- to disassembly site if Lessee or Lessee's agent causes disassembly. Insurance on Equipment during return. Lessee will obtain and pay for a policy of - ------------------------------------ transit insurance for the delivery period in an amount equal to the higher of Replacement Value or Casualty Value of the Equipment and Lessor shall be named as loss payee on such policies. Any further Return Instructions more specifically related to the Equipment (if applicable) shall be attached as Exhibit "C" Additional Return Provisions. Lessor Initials: _______________________ Lessee Initials: R.N.N ------------------ LESSEE REQUEST FOR PROJECT FUNDING PRIOR TO PROJECT COMPLETION DATE Ladies/Gentlemen: Reference is made to Master Lease Agreement dated September 14, 1999 ("Master Agreement") by and between Imperial Bank Equipment Leasing Division, a division of Imperial Bank ("Lessor") and Multilink Technology Corporation, as Lessee, and to Equipment Schedule No. 001 the ("Schedule") and all related subsidiary documents under the Master Agreement and Schedule (collectively, the "Lease"). Notwithstanding anything to the contrary contained therein, and to the limited extent hereof, this Letter Agreement amends and supersedes the Lease and is hereby incorporated by reference herein. Lessor has received a request from Lessee to advance funds to supplier/manufacturer(s) for certain Equipment, including amounts for deposits and/or progress payments ("Project Funding Services"), prior to Lessee's certification in writing to Lessor, that all of the Equipment under the Schedule has been deemed delivered, accepted by Lessee and subject to the terms and conditions of the Lease ("Project Funding Period"). As adequate and valuable consideration for Lessor providing project funding services and advancing funds to supplier/manufacturer(s) on behalf of Lessee prior to Lessee's written certification of receipt and acceptance of all of the subject Equipment, Lessee agrees that the following terms and conditions mutually binding under the Lease: Lessee will pay to Lessor rent ("Daily Supplemental Rent") calculated from the installation date of each Item of Equipment, (as defined in Section II. (A) of the Master Agreement). If Lessor has advanced funds either as a deposit or a progress payment on items of Equipment not yet installed, the Daily Supplemental Rent will be calculated from the date of Lessor's disbursement. The Daily Supplemental Rent will be calculated as follows: (.0125 X (the cost of each item of installed Equipment + amount of progress payments and deposits made)/30). Daily Supplemental Rent will be billed monthly in arrears and will continue until the date ("Project Completion Date"), on which the "final" Item of Equipment on the Schedule shall be deemed delivered, accepted by Lessee and subject to the terms and conditions of the Lease. Upon Lessor's request, Lessee will promptly execute and deliver a Certificate of Acceptance (prepared by Lessor), confirming such Project Completion Date. Lessor may complete information, on Lessee's behalf, on the Certificate of Acceptance if it is returned incomplete by Lessee. Lessor will not be required to advance funds on any Item of Equipment not installed, tested and ready for use by Lessee on or before December 14, 1999 (the "Funding Cut-Off Date"). If all of the Equipment to be included in the above-referenced Lease is not certified in writing to Lessor to be installed, tested and ready for use by Lessee and a certificate of acceptance on or before the Funding Cut-Off Date, or if in the sole opinion of Lessor there has been a deterioration in the credit worthiness of Lessee, Lessor may, at its sole option, pursue one of the following alternatives: (a) Lessor may commence the Lease (using the Funding Cut-Off Date or the date Lessor determines that there is a deterioration in the credit worthiness of Lessee, as the Acceptance Date) based on the portion of the Equipment which has been certified by Lessee to be installed, tested and ready for use and paid for by Lessor, and demand that Lessee pay to Lessor an amount equal to that which Lessor has paid to vendor(s) on behalf of Lessee for Items of Equipment not yet installed, tested and ready for use, plus all Daily Supplemental Rent, fees, taxes, late fees, and other charges which are due and owing; (b) Lessor may, at its sole and absolute discretion, extend the allowed Project Funding Period and establish a new Funding Cut-Off Date; or (c) Lessor may demand that Lessee pay to Lessor a total amount equal to that which Lessor has paid to supplier/manufacturer(s) on behalf of Lessee, plus all Daily Supplemental Rent, taxes, late fees, and other charges which are due and owing under the terms of the above-referenced Lease. Should such a demand be made by Lessor, Lessee hereby unconditionally agrees to reimburse said funds to Lessor in full within ten business days of said demand, and Lessor upon receipt of such payment in full, shall release Lessee from further payment obligations under the Lease Lessee shall provide Lessor with updated financial information as periodically requested by Lessor. Irrespective of this Letter Agreement, all other terms and conditions including, without limitation, all payment obligations by Lessee under the Lease shall remain absolute and unconditional without regard in any manner whatsoever to the Daily Supplemental Rent obligations and/or Project Funding Period set forth herein. The Daily Supplemental Rent under this Letter Agreement does not apply to, or offset rentals due after the Project Completion Date. The certification in writing to Lessor that all Items of Equipment have been deemed delivered, accepted by Lessee and subject to the terms and conditions of the Lease, is not a pre-condition to Lessee's performance of any of its obligations under the Lease, including all rental and other payment obligations. The Lease is hereby duly amended to incorporate the foregoing revisions. Please acknowledge your acceptance of the same by your authorized signature below and return the original of this Letter Agreement to Lessor within five days of the date hereof, retaining the enclosed copy for your records.
"LESSOR" "LESSEE" IMPERIAL BANK, EQUIPMENT LEASING DIVISION MULTILINK TECHNOLOGY CORPORATION By:__________________________________ By: /s/ Richard N Nottenburg -------------------------------------------- Print Name: _________________________ Print Name: Richard N Nottenburg ------------------------------------ Title:_______________________________ Title: President ----------------------------------------- Federal I.D. Number: 95-4522566 ___________________________
EX-21.1 15 0015.txt SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 Subsidiaries State or other Jurisdiction of Subsidiary Incorporation or Organization - ---------- ------------------------------ Multilink Technology GmbH Germany MLTC Israel, Ltd. Israel UAB Multilink Technology Lithuania UAB Multilink Technology Kaunas Lithuania EX-23.1 16 0016.txt CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the use in this Registration Statement of Multilink Technology Corporation on Form S-1 of our report dated June 15, 2000, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the headings "Experts" in such Prospectus. /s/ Deloitte & Touche LLP Los Angeles, California October 4, 2000 EX-27.1 17 0017.txt FINANCIAL DATA SCHEDULE
5 12-MOS 6-MOS DEC-31-1999 JUN-30-2000 JAN-01-1999 JAN-01-2000 DEC-31-1999 JUN-30-2000 8,997,086 52,357,911 0 0 5,216,702 3,279,827 51,000 51,000 5,002,280 6,726,867 19,563,025 63,632,786 2,667,877 4,102,295 418,762 974,431 22,644,302 69,405,451 4,455,048 9,856,732 2,031,372 1,947,520 14,978,163 55,025,711 0 0 3,000 3,000 (717,439) 3,233,461 22,644,302 69,405,451 20,395,002 28,667,129 20,395,002 28,667,129 6,747,882 10,858,689 20,408,312 33,030,096 283,632 327,333 0 0 226,564 131,210 43,758 (4,235,496) 19,218 446,782 24,540 (4,682,278) 0 0 0 0 0 0 24,540 (4,682,278) 0.00 (0.37) 0.00 (0.37)
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