-----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, PjXz59eg2AD2OpUeLdoSEQYzf8oR5G8A/AS4gn1McFHrOgUpto11P3Q6K68ISgMA ctKk6JOcNICjpXB4VoR1og== 0000944209-01-500390.txt : 20010522 0000944209-01-500390.hdr.sgml : 20010522 ACCESSION NUMBER: 0000944209-01-500390 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20010518 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MULTILINK TECHNOLOGY CORP CENTRAL INDEX KEY: 0001114068 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 954522566 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-47376 FILM NUMBER: 1643951 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/A 1 ds1a.txt FORM S-1 AMENDMENT NO. 3 As filed with the Securities and Exchange Commission on May 18, 2001 Registration No. 333-47376 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- AMENDMENT NO. 3 TO 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 1901 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 Proposed Maximum Securities to be Amount to be Maximum Price Aggregate Offering Amount of Registered Registered Per Unit(1) Price(1)(2) Registration Fee(3) - ------------------------------------------------------------------------------------------ Class A Common Stock, $0.0001 par value...... 9,200,000 $10.00 $92,000,000 $24,288 - ------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act. (2) Includes proceeds from the sale of shares which the Underwriters have the option to purchase to cover over-allotments, if any. (3) Previously paid. 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 MAY 18, 2001 8,000,000 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 $8.00 and $10.00 per share. We have applied to list our Class A common stock on The Nasdaq National Market under the symbol "MLTC." The underwriters have an option to purchase a maximum of 1,200,000 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 , 2001. 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 , 2001. [inside front cover] The inside front cover page of the prospectus starts with the Multilink name and logo in the upper left corner of the page. The logo is a square with a squiggly line across it. The name is printed in two lines to the right of the square, with "Multilink" on the first line and "Technology Corporation" on the second. The background of the page is an enlarged picture of a circuit on a daughter board. In front of the board are three globes of the Earth each slightly overlapping the next, placed horizontally across the middle of the page. Running vertically near the right side of the page are four ovals, each containing a photograph(s) of a Multilink product. Starting from the top, the first oval has two pictures of integrated circuits of different sizes, the second a daughter board, the third two modules of different sizes, the fourth and last another daughter board of a different design than the previous daughter board. Toward the bottom left of the page and overlapping the leftmost of the globes is a depiction of a fiber optic strand. Above that, and somewhat to the left of the center of the page, are the words "Advanced Component Solutions for High-Speed Optical Networks" divided into three horizontal lines. Below this phrase and close to the horizontal center of the page is the following sentence, divided into six lines and in a font approximately half the size of the previous phrase: "Multilink designs, develops and markets advanced integrated circuits, modules and higher-level assemblies that enable next generation optical networking systems." ------------ 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
Page ---- Management................................................................. 43 Certain Transactions....................................................... 55 Principal Shareholders..................................................... 57 Description of Capital Stock............................................... 59 Shares Eligible for Future Sale............................................ 60 U.S. Federal Tax Considerations for Non-U.S. Holders....................... 63 Underwriting............................................................... 66 Notice to Canadian Residents............................................... 69 Legal Matters.............................................................. 70 Experts.................................................................... 70 Additional Information..................................................... 70 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 , 2001 (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 advanced integrated circuits, modules and higher-level assemblies that enable next generation optical networking systems. Our products address the markets for DWDM and SONET/SDH optical transport equipment. We focus exclusively on the fastest commercially available speeds of OC-192, or 10 gigabits, or billions of bits per second, or higher and 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 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. 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, Marconi, ONI, Optimight, Qtera (acquired by Nortel), Sycamore and TyCom. DWDM, or dense wavelength division multiplexing, is a technology 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. SONET/SDH, or Synchronous Optical Network/Synchronous Digital Hierachy, are the standards, or protocols, for the transmission of communications traffic over optical fiber. 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 we address communications equipment manufacturers' current needs by providing 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. GaAs, CMOS and SiGe are 1 semiconductor process technologies used to manufacture different products and enable product functions, based upon matching different material compositions to the needs of particular products. 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 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 . addressing both the core and metropolitan portions 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....................... 8,000,000 shares Common stock to be outstanding after this offering: Class A common stock........................ 37,165,150 shares Class B common stock........................ 28,000,000 shares ---------- Total................................... 65,165,150 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. After this offering, holders of Class B common stock will control 88.3% of the outstanding voting power of our capital stock. 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 57,165,150 shares outstanding as of January 31, 2001 and excludes: . 38,074,450 shares of Class A common stock issuable upon exercise of outstanding stock options at a weighted average exercise price of $1.60 per share; . 8,876,800 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)
Year Ended December 31, -------------------------------------------- 1996 1997 1998 1999 2000 ------- ------- ------- ------- -------- Statement of Operations Data: Total revenues................. $ 1,010 $ 1,541 $ 3,852 $20,395 $ 72,721 Gross profit, including deferred stock compensation... 281 363 2,005 13,628 44,855 Total operating expenses....... 480 1,106 3,303 13,641 51,690 Operating loss................. (199) (743) (1,298) (13) (6,835)* Net income (loss).............. $ (186) $ (805) $(1,488) $ 25 $ (3,582)* ======= ======= ======= ======= ======== Dividend related to warrant issuances..................... -- -- -- -- (6,375) ------- ------- ------- ------- -------- Net income (loss) attributable to common shareholders........ $ (186) $ (805) $(1,488) $ (23) $(10,052)* ======= ======= ======= ======= ======== Net income (loss) per share, basic and diluted............. $ (0.01) $ (0.03) $ (0.05) $ -- $ (0.34)* ======= ======= ======= ======= ======== Weighted average shares, basic and diluted................... 30,000 30,000 30,000 30,000 30,000 ======= ======= ======= ======= ======== Pro forma net loss per share: Basic and diluted............ $ -- $ (0.18) ======= ======== Weighted average shares...... 39,520 54,226 ======= ========
-------------------- * Excluding the non-cash charges described below, for 2000, operating income would have been $6.5 million, net income would have been $7.1 million, net income attributable to common shareholders would have been $7.0 million and basic and diluted net income per share would have been $.23 and $.09, respectively. For 2000, operating loss and net loss included non-cash charges of $6.8 million related to deferred stock compensation and $6.5 million related to warrant issuances. Additionally, for 2000 net loss attributable to common shareholders and basic and diluted net loss per share included the above mentioned non-cash charges and $6.4 million in connection with a dividend related to warrant issuances. These measures of earnings are not in accordance with, or an alternative for, measures of financial performance or liquidity under generally accepted accounting principles and may not be consistent with measures used by other companies. However, we believe these measures of earnings provide a better understanding of our underlying operating results and we use these measures internally to evaluate our underlying operating performance. 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 December 31, 2001 ----------------------------- Pro Forma Actual Pro Forma As Adjusted ------- --------- ----------- (unaudited) Balance Sheet Data: Cash and cash equivalents........................ $29,159 $29,159 $ 95,200 Working capital.................................. 41,648 41,648 106,608 Total assets..................................... 90,211 90,211 155,171 Long-term obligations--net of current portion.... 1,018 1,018 1,018 Redeemable convertible preferred stock........... 55,073 -- -- Total shareholders' equity....................... 9,036 64,109 129,069
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 8,000,000 shares of Class A common stock in this offering at an assumed initial public offering price of $9.00 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 73% of our revenues in 2000 and 74% of our revenues in 1999. Our top three customers in 2000 were Lucent, Alcatel and Cisco, representing approximately 34%, 28% and 11% 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. 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 $3.6 million in 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. 5 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, and our failure to hire and retain such personnel would be harmful to our ongoing operations and business prospects. 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, and the loss of any of these key executives could adversely affect our business and operating results. 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. Our failure to integrate these individuals could adversely affect our business. Several of our key personnel have recently joined us, including Eric M. Pillmore, our Chief Financial Officer, who joined us in July 2000, Ron Krisanda, our Senior Vice President of Operations, who joined us in November 2000 and Craig S. Lewis, our Senior Vice President of Sales, who joined us in January 2001. 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. 6 We sell substantially all of our products based on individual purchase orders, and we cannot predict the size or timing of our orders. Our failure to effectively plan production levels and inventory could materially harm our business and operating results. 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 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 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; 7 . 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 products could result in financial or other damages to our customers or could negatively affect market acceptance for our products. We compete in highly competitive markets, against competitors with longer operating histories, greater name recognition, greater resources or larger market capitalizations. Our failure to compete effectively would 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 Agere, Applied Micro Circuits, Conexant, Giga (acquired by Intel), Infineon, JDS Uniphase, 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. 8 We must incur substantial research and development expenses. If we do not have sufficient resources to invest in research and development, our business could be seriously harmed. 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 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 may not be able to effectively 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 27% of our revenues in 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; 9 . 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; . 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 are denominated 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. GaAs HBT is an advanced process technology used to manufacture a semiconductor device that allows a bipolar transistor to be fabricated on a GaAs material. 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 of 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. 10 Our dependence upon third parties that manufacture, assemble, package or supply components for 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; . 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 11 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. 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. If adequate amounts of raw materials or advanced process technologies are unavailable, our operating results would be adversely affected. 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 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. This recent slowdown has caused our revenues and backlog to grow less rapidly than they otherwise would have. 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 12 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. 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. 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, and any downturns in the industry could materially and adversely effect our business and operating results. 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. 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 13 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. Our failure to protect our intellectual property adequately could adversely affect our business. 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. 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 U.S. and foreign government regulations that could harm our business. Our failure to timely comply with regulatory requirements, or obtain and maintain regulatory approvals, could materially 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. 14 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. 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 January 31, 2001, upon completion of this offering, we will have 65,165,150 shares of common stock outstanding. 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, approximately 57,165,150 shares, as well as additional shares issuable upon exercise of options, will become immediately eligible for sale in the public market, subject to holding periods under applicable law. 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. 15 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 $9.00 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 $5.53 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. 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, with each share entitling the holder to one vote. 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 55.80% 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 48.15% 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 94.61% 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 $64,960,000, assuming an initial public offering price of $9.00 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 $75,004,000. 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 December 31, 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 8,000,000 shares of Class A common stock in this offering at an assumed initial public offering price of $9.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses.
As of December 31, 2000 ------------------ Pro Forma Actual Pro Forma As Adjusted ------- --------- ----------- (in thousands, except share data) Cash and cash equivalents....................... $29,159 $29,159 $ 95,200 ======= ======= ======== Long-term obligations, net of current portion... $ 1,018 $ 1,018 $ 1,018 ------- ------- -------- Redeemable convertible preferred stock: Series A, $.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............................ 15,073 -- -- Series B, $.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, 2,048,750 shares issued and outstanding, actual; 200,000,000 shares authorized, 29,165,150 shares issued and outstanding pro forma; 200,000,000 shares authorized, 37,165,150 shares issued and outstanding pro forma as adjusted............................ -- 3 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 3 Additional paid-in-capital.................... 32,592 87,662 152,622 Deferred stock compensation................... (11,174) (11,174) (11,174) Accumulated deficit........................... (12,400) (12,400) (12,400) Accumulated other comprehensive income........ 15 15 15 ------- ------- -------- Total shareholders' equity.................. 9,036 64,109 129,069 ------- ------- -------- Total capitalization.................... $65,127 $65,127 $130,087 ======= ======= ========
The share information above excludes the following as of January 31, 2001: . 38,074,450 shares of Class A common stock issuable upon exercise of outstanding stock options at a weighted average exercise price of $1.60 per share; . 8,876,800 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 December 31, 2000 was $63,983,000, or $2.19 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 8,000,000 shares of Class A common stock in this offering at an assumed initial public offering price of $9.00 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 December 31, 2000 would have been $129,069,000, or $3.47 per share. This represents an immediate increase in pro forma net tangible book value of 1.28 per share to existing shareholders and an immediate dilution of $5.53 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.......................... $9.00 Pro forma net tangible book value at December 31, 2000....... $2.19 Increase attributable to new investors....................... 1.28 ----- Pro forma as adjusted net tangible book value after this offering...................................................... 3.47 ----- Dilution to new investors...................................... $5.53 =====
The following table shows on a pro forma basis, as of December 31, 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 $9.00 per share.
Shares Purchased Total Consideration ------------------ -------------------- Average Price Number Percent Amount Percent Per Share ---------- ------- ------------ ------- ------------- Existing Class A shareholders........... 29,165,150 45% $ 55,433,000 43% $1.90 Existing Class B shareholders........... 28,000,000 43 125,300 1 .01 New Class A investors... 8,000,000 12 72,000,000 56 9.00 ---------- --- ------------ --- Total................. 65,165,150 100% $127,558,300 100% ========== === ============ ===
The above table and calculations exclude: . 36,358,450 shares of Class A common stock issuable upon exercise of outstanding stock options at a weighted average exercise price of $1.41 per share; . 5,641,550 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. At December 31, 2000, assuming exercise and payment of all outstanding options and warrants and including offering proceeds, the pro forma as adjusted net tangible book value per share would be $2.52, representing dilution of $6.48 per share to new investors. At December 31, 2000, assuming exercise and payment of all outstanding options and warrants, the percentage of shares purchased and total consideration paid by new investors would be 7% and 36%, respectively. 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, 1998, 1999 and 2000 and the balance sheet data as of December 31, 1999 and 2000 are derived from, and qualified by reference to, our audited consolidated financial statements included in this prospectus. Historical results are not necessarily indicative of results that may be expected for any future period.
Year Ended December 31, ----------------------------------------------- 1996 1997 1998 1999 2000 -------- -------- -------- --------- -------- Statement of Operations Data: Revenues: Product...................... $ -- $ 94 $ 2,126 $ 19,383 $ 72,721 Development.................. 1,010 1,447 1,726 1,012 -- ------ ------ ------- --------- -------- Total revenues............. 1,010 1,541 3,852 20,395 72,721 ------ ------ ------- --------- -------- Cost of revenues: Product and development...... 729 1,178 1,847 6,748 27,048 Deferred stock compensation.. -- -- -- 19 818 ------ ------ ------- --------- -------- Total cost of revenues..... 729 1,178 1,847 6,767 27,866 ------ ------ ------- --------- -------- Gross profit.................. 281 363 2,005 13,628 44,855 ------ ------ ------- --------- -------- Operating expenses: Research and development, excluding deferred stock compensation................ 279 650 2,219 8,779 24,624 Research and development-- warrant issuance............ -- -- -- -- 6,375 Sales and marketing, excluding deferred stock compensation................ 94 190 349 2,292 7,130 General and administrative, excluding deferred stock compensation................ 107 266 391 1,767 7,611 Deferred stock compensation.. -- -- 344 803 5,950 ------ ------ ------- --------- -------- Total operating expenses... 480 1,106 3,303 13,641 51,690 ------ ------ ------- --------- -------- Operating loss................ (199) (743) (1,298) (13) (6,835)* Other income and expenses..... 13 (61) (189) 57 1,560 ------ ------ ------- --------- -------- Income (loss) before provision (benefit) for income taxes... (186) (804) (1,487) 44 (5,275) Provision (benefit) for income taxes........................ -- 1 1 19 (1,693) ------ ------ ------- --------- -------- Net income (loss)............. $ (186) $ (805) $(1,488) $ 25 $ (3,582)* ====== ====== ======= ========= ======== Accretion of redeemable convertible preferred stock to redemption value.......... -- -- -- (48) 95 Dividend related to warrant issuance..................... -- -- -- -- $ (6,375) Net loss attributable to common shareholders.......... $ (186) $ (805) $(1,488) $ (23) $(10,052)* ====== ====== ======= ========= ======== Net income (loss) per share, basic and diluted............ $(0.01) $(0.03) $ (0.05) $ -- $ (0.34)* ====== ====== ======= ========= ======== Weighted average shares basic and diluted.................. 30,000 30,000 30,000 30,000 30,000 ====== ====== ======= ========= ======== Pro forma net loss per share: Basic and diluted............ $ (0.18) ======== Weighted average shares...... 54,226 ========
- -------------------- * Excluding the non-cash charges described below, for 2000, operating income would have been $6.5 million, net income would have been $7.1 million, net income attributable to common shareholders would have been $7.0 million and basic and diluted net income per share would have been $.23 and $.09, respectively. For 2000, operating loss and net loss included non-cash charges of $6.8 million related to deferred stock compensation and $6.5 million related to warrant issuances. Additionally, for 2000 net loss attributable to common shareholders and basic and diluted net loss per share included the above mentioned non-cash charges and $6.4 million in connection with a dividend related to warrant issuances. These measures of earnings are not in accordance with, or an alternative for, measures of financial performance or liquidity under generally accepted accounting principles and may not be consistent with measures used by other companies. However, we believe these measures of earnings provide a better understanding of our underlying operating results and we use these measures internally to evaluate our underlying operating performance. Pro forma net income (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 into 24,226 of Class A common stock at December 31, 2000. 21
Year Ended December 31, ------------------------------------------------ 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- Deferred Stock Compensation: Research and development............ $ -- $ -- $ 344 $ 216 $ 2,745 Sales and marketing..... -- -- -- 31 524 General and administrative......... -- -- -- 556 2,681 ------- ------- ------- ------- ------- Total................ $ -- $ -- $ 344 $ 803 $ 5,950 ======= ======= ======= ======= ======= As of December 31, ------------------------------------------------ 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- Balance Sheet Data: Cash and cash equivalents............ $ 281 $ 273 $ 303 $ 8,997 $29,159 Working capital (deficit).............. (287) (90) (34) 15,108 41,648 Total assets............ 783 793 1,747 22,644 90,211 Long-term obligations, net of current......... 3 926 2,189 3,926 1,018 Redeemable convertible preferred stock........ -- -- -- 14,978 55,073 Total shareholders' equity (deficit)....... (161) (856) (1,995) (714) 9,036
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 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. During 2000, we shipped our products to over 30 customers. To date, we have generated a substantial portion of our revenues from a limited number of customers. Our top three customers for the year ended December 31, 2000 were Lucent, Alcatel and Cisco, representing approximately 34%, 28% and 11% 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. During 2000, we derived 73% 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 sales representatives in North America, Germany, United Kingdom, Italy, France, Israel, China, Korea and Japan. International revenues are denominated 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. 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 during 2000, and do not expect to recognize any significant development revenues in the future. The recent slowdown in the build-out of the communications infrastructure has caused our revenues to grow less rapidly than they otherwise would have. Cost of Revenues. Cost of revenues consist of component and materials cost, direct labor, deferred stock compensation relating to manufacturing 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, third- party costs and fees related to the development and prototyping of our products and 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 $12.6 million in 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 December 31, 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) 2001......................................................... $ 6,264 2002......................................................... 3,218 2003......................................................... 1,431 2004......................................................... 261 ------- Total...................................................... $11,174 =======
Approximately $1.9 million of the remaining amortization of deferred stock compensation will be charged to cost of revenues. Net Income (Loss). In addition to the items discussed above, net income (loss) also includes interest expense, other income and a provision or benefit for income taxes. Interest expense relates predominantly to interest on the line of credit from shareholder which was paid in full in May 2000 and interest expense associated with capital leases. Other income represents investment earnings on our cash equivalents. Results of Operations Years Ended December 31, 2000 and 1999 Revenues. Revenues increased to $72.7 million in 2000, compared with $20.4 million in 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 in 2000, compared to $1.0 million of development revenues in 1999. 24 Gross Profit. Cost of revenues, including $817,708 of deferred stock compensation, increased to $27.9 million in 2000, compared with $6.8 million in 1999. Excluding deferred stock compensation, gross profit as a percentage of revenues, or gross margin, declined to 63% in 2000 compared with 67% in 1999. The decline was predominantly due to a contractual reduction in selling price during 2000 for an integrated circuit product that was first introduced in 1999 for a specific customer offset by an absence of development revenues in 2000 which have lower margins than our product revenues. In accordance with an agreement with the customer, the selling price was reduced as certain volume thresholds were attained. No further selling price reductions are required under this agreement. During 1999, gross margin for development revenues was 37%. No development revenues were recognized during 2000 and we do not expect development revenues to be material in the future. Gross profit including deferred stock compensation increased to $44.9 million in 2000 compared with $13.6 million in 1999 due to the items noted above coupled with increased deferred stock compensation charges. Stock based compensation expense associated with cost of revenues increased $798,677 due to stock option grants to manufacturing employees coupled with increased manufacturing headcount. Research and Development. Research and development expenses, excluding deferred stock compensation, increased to $24.6 million in 2000, compared with $8.8 million in 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 in 2000 to 34%, compared with 43% in 1999. The decrease was attributable to a higher growth in revenues. Stock based compensation expense associated with research and development increased $2.5 million due to stock option grants to engineering personnel coupled with increased headcount. Research and Development--Warrant Issuance. We incurred a non-cash charge of $6.4 million related to a warrant issuance in 2000. This charge represents the fair value of a warrant issued to a third party in conjunction with a development agreement. This warrant is fully exercisable and non-forfeitable. We have expensed the value of this warrant because there is no third party performance required with respect to the warrant, 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. Sales and Marketing. Sales and marketing expenses, excluding deferred stock compensation, increased to $7.1 million in 2000, compared with $2.3 million in 1999. The increase was due primarily to the addition of sales and marketing personnel. Sales and marketing expenses as a percentage of revenues were 10% in 2000, compared with 11% in 1999. The decrease was a result of higher growth in revenues. Stock based compensation expense associated with sales and marketing increased $493,092 due to stock option grants to sales and marketing personnel coupled with increased headcount. General and Administrative. General and administrative expenses, excluding deferred stock compensation, increased to $7.6 million in 2000, compared with $1.8 million in 1999. The increase was due primarily to the addition of personnel and the associated payroll and related costs within the areas of finance and human resources. General and administrative expenses as a percentage of revenues were 10% in 2000, compared with 9% in 1999. Stock based compensation expense associated with general and administrative expenses increased $2.1 million due to stock option grants to personnel in the areas of finance and human resources coupled with increased headcount. Deferred Stock Compensation. Operating expenses included amortization of deferred stock compensation of $6.0 million in 2000, compared with $803,551 in 1999, due to a greater number of option grants to new and existing employees. Other Income and Expenses, Net. Other income increased to $1.6 million in 2000, compared with $57,068 in 1999. The increase was due primarily to increased interest income of $1.6 million related to higher cash and cash equivalent balances due primarily to the issuances of preferred stock from March to May 2000 offset by a $83,561 increase in interest expense resulting from realizing a full year of interest expense in 2000 on a capital lease entered into in late 1999, interest expense on fixed asset additions financed in 2000 coupled with lower interest expense on the line of credit to shareholder which was paid off during 2000. 25 Net Income (Loss). Net loss increased to $3.6 million in 2000, compared with net income of $24,540 in 1999. The net loss was primarily due to increased deferred stock compensation of $6.0 million and expenses of $6.5 million associated with warrant issuances offset by an income tax benefit of $1.7 million. The provision for income taxes was not material during 1999 as we utilized a net operating loss carryforward to offset substantially all of our taxable income. The tax benefit in 2000 is the result of our recognizing a portion of our deferred tax assets because we believe that it is more likely than not that we will have sufficient income to utilize such assets. 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, including $19,031 of deferred stock compensation, increased to $6.8 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. Gross margin for product revenues increased to 68% in 1999, compared with 63% in 1998. The increase in product gross margin was due to the introduction of new products with higher gross margins. A decline in gross margin for development revenues to 37% in 1999, compared with 39% in 1998, partially offset product gross margin increases. There was no stock based compensation expense associated with cost of revenues during 1998 and $19,031 during 1999. 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 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 $803,551 in 1999 from $343,870 in 1998 due to a greater number of option grants made to new and existing employees predominantly in general and administrative functions. Other Income and Expenses, Net. Other income was $57,068 in 1999, compared with other expense of $188,417 in 1998. The increase was due primarily to increased interest income of $283,632 related to higher cash and cash equivalent balances due primarily to the issuance of preferred stock in June 1999 offset by a $38,147 increase in interest expense due primarily to higher interest on the line of credit to shareholder which had a higher average outstanding balance during 1999. Net Income (Loss). Net income increased to $24,540 in 1999, compared with a net loss of $1.5 million in 1998. The decrease in the net loss was predominantly due to improved gross profit and an increase in other income offset by the expense increases discussed above. 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, September 30, December 31, 1999 1999 1999 1999 2000 2000 2000 2000 --------- -------- ------------- ------------ --------- -------- ------------- ------------ (in thousands) Revenues: Product............... $ 2,406 $ 3,555 $ 5,322 $ 8,100 $12,347 $16,320 $18,680 $25,374 Development........... 323 623 66 -- -- -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- Total revenues........ 2,729 4,178 5,388 8,100 12,347 16,320 18,680 25,374 Cost of revenues, including deferred stock compensation.... 747 1,487 1,773 2,762 4,845 6,174 7,212 9,635 ------- ------- ------- ------- ------- ------- ------- ------- Gross profit........... 1,982 2,691 3,615 5,338 7,502 10,146 11,468 15,739 Operating expenses: Research and development, excluding deferred stock compensation... 793 1,792 2,288 3,906 3,848 5,086 6,682 9,008 Research and development--warrant issuance............. -- -- -- -- -- 6,375 -- -- Sales and marketing, excluding deferred stock compensation... 325 470 602 895 1,186 1,328 1,893 2,723 General and administrative, excluding deferred stock compensation... 207 457 509 594 1,226 884 2,198 3,303 Deferred stock compensation......... 25 36 55 685 808 1,270 1,862 2,010 ------- ------- ------- ------- ------- ------- ------- ------- Total operating expenses............. 1,350 2,755 3,454 6,080 7,068 14,943 12,635 17,044 ------- ------- ------- ------- ------- ------- ------- ------- Operating income (loss)................ 632 (64) 161 (742) 434 (4,797) (1,167) (1,305) Other income and expenses.............. (43) (72) 181 (9) (63) 190 708 725 ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) before provision for income taxes................. 589 (136) 342 (751) 371 (4,607) (459) (580) Provision (benefit) for income taxes.......... -- -- -- 19 -- 447 400 (2,540) ======= ======= ======= ======= ======= ======= ======= ======= Net income (loss)...... $ 589 $ (136) $ 342 $ (770) $ 371 $(5,054) $ (859) $ 1,960 ======= ======= ======= ======= ======= ======= ======= ======= Dividend related to warrant issuance...... -- -- -- -- -- $ 6,375 -- -- ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss) per share: Basic................. $ 0.02 $ -- $ 0.01 $ (0.03) $ 0.01 $ (0.38) $ (0.03) $ 0.07 ======= ======= ======= ======= ======= ======= ======= ======= Diluted............... $ 0.02 $ -- $ 0.01 $ (0.03) $ -- $ (0.38) $ (0.03) $ 0.03 ======= ======= ======= ======= ======= ======= ======= =======
Liquidity and Capital Resources We have funded our operations primarily through private sales of preferred stock. We also secured additional financing through capital leases and vendor financings for some of our equipment and software needs. We generated positive cash flow from operations in 2000. As of December 31, 2000, we had cash and cash equivalents of $29.2 million. Cash provided from operations increased to $661,829 in 2000 compared with cash used in operations of $5.8 million in 1999. This increase was due to our improved profitability after adjusting for non-cash items such as warrant issuances, deferred stock compensation and depreciation and amortization. Cash used for investing activities increased to $17.4 million in 2000 from $695,491 in 1999. The increase was due to the purchase of $15.0 million of property and equipment as we continued to expand our infrastructure and to $2.4 million of purchases of non-marketable securities. 27 Cash generated from financing activities increased to $36.9 million in 2000 compared with $15.2 million in 1999. This increase was due primarily to the sale of $40.0 million of Series B preferred stock in March through May 2000. Cash and cash equivalents, increased to $29.2 million on December 31, 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 $16.0 million over the lease periods of our operating leases, with $4.7 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. At December 31, 2000, we did not have any derivative instruments that would result in a transition adjustment upon the adoption of this standard on January 1, 2001. However, during the quarter ending March 31, 2001, we entered into certain foreign forward contracts, which will be accounted for in accordance with this standard. 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 reviewed these criteria and believe our policies for revenue recognition are in accordance with SAB 101. 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. The adoption of FIN 44 did not have a material impact on our financial position or results of operations. 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 made or denominated in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets. Although we recognize our revenues in U.S. dollars, we incur expenses in currencies other than U.S. dollars. During 1999, we were exposed to exchange rate fluctuations in the German mark and the Lithuanian lita. No revenues were denominated in foreign currencies. Total expenses denominated in both the mark and lita were approximately $1.2 million or 5.7% of total expenses. Expenses denominated in the mark represented approximately $1.1 million of the $1.2 million. 28 We were exposed to fluctuations in the mark, lita and the Israeli shekel during 2000. Total expenses denominated in the mark, lita and shekel were $6.1 million or 4.9% of total expenses. Expenses denominated in the mark and shekel represented approximately $3.7 million and approximately $2.3 million, respectively, of foreign expenses. Total foreign denominated expenses are currently not material to our consolidated statement of operations. We expect that our foreign expenses will increase as we expand our research and development efforts and manufacturing capabilities in foreign countries. During 2000, we did not engage in currency hedging activities. During the quarter ending March 31, 2001, we entered into foreign forward contracts for 6.9 million Euros with a notional amount of $6.6 million. The contracts mature throughout 2001 and were entered into to hedge a portion of the expenses of our German subsidiary whose functional currency is the German mark. 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 advanced integrated circuits, modules and higher-level assemblies that enable next generation optical networking systems. Our products address the markets for DWDM and SONET/SDH optical networking equipment. We focus exclusively on the fastest commercially available speeds of OC-192, or 10 gigabits per second, or higher and 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 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. 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, Marconi, ONI, Optimight, Qtera (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 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 MTC1224 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 or SiGe, for a particular function or product. We are also exploring the use of other technologies, including InP, 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 MTC1215 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, which is a device that converts voice and data transmissions carried as electrical signals into optical signals for transmission over optical fiber. This solution includes a multiplexer, which combines multiple slower signals into a single high-speed signal, a limiting amplifier, which amplifies electrical pulses, and a modulator driver, which amplifies and conditions signals used by another portion of the optical transmitter. We have further reduced the component count to two, by integrating the limiting amplifier into the modulator driver. This new modulator driver, the MTC5525, achieves superior performance by replacing numerous discrete components with a single, highly integrated module. 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. Addressing Both the Core and Metropolitan Portions of the Optical Transport Network We focus on solutions for optical networking systems in the innovative and high-growth network core market. We will continue to build on our expertise in DWDM and long-haul applications for the core of the network. We are leveraging this expertise to address emerging metropolitan or regional optical networking systems as OC-192 begins to be deployed in this portion of the network. Customers In 2000, we shipped our products to over 30 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 list of our customers from which we recognized revenues of $300,000 or more in 2000: Alcatel ONI Ciena Optimight Cisco Qtera, acquired by Nortel JDS Uniphase Sycamore Lucent TyCom Marconi
Lucent, Alcatel and Cisco accounted for approximately 34%, 28% and 11% of our revenues in 2000. Lucent, Alcatel, and TyCom accounted for approximately 36%, 20% and 18% of our revenues in 1999. 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: [DIAGRAM 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 FEC, 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 MTC1203 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 Shipping proprietary transport systems . operates from 8.0 to 13.0 Gb/s - ------------------------------------------------------------------------------- MTC1233S3 Same as MTC1207 plus Currently . lower power consumption Sampling (sending . multifrequency operation reduces a prototype of the customer inventory stocking units product to a . operates at 9.9, 10.7 and 12.3 Gb/s customer for . lower cost packaging evaluation) . simpler integration with datalink layer devices due to IPLL 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 Same as MTC1204 plus Shipping . 4x improvement in sensitivity . input signal processing for special signal from DWDM systems . lower cost packaging . operates at 9.9 or 10.7 Gb/s - ------------------------------------------------------------------------------- MTC1210 . flexible device for proprietary Shipping transport systems . operates from 8.0 to 13.0 Gb/s - ------------------------------------------------------------------------------- MTC1234S3 Same as MTC1224 plus Currently . lower power consumption Sampling . multifrequency operation reduces customer inventory stocking units . operates at 9.9, 10.7 and 12.3 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 10.7 Gb/s Shipping - ------------------------------------------------------------------------------------------- MTC5585D Same as MTC5585 except operating at 12.3 Gb/s Shipping - ------------------------------------------------------------------------------------------- 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 Shipping performance . higher sensitivity allows operations with a wider variety of 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 MTC5525 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, the MTC6130, 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. We have entered into these strategic relationships with the objective of building and maintaining relationships with leading suppliers of semiconductor process technologies in order to diversify our product and technology base. In June 1997, we entered into a supply agreement with TRW pursuant to which TRW supplies us with a certain number of processed GaAs wafers annually for a fixed price per wafer. The agreement was amended in June 1999 to revise the wafer delivery requirement. In October 2000, we entered into a short-term foundry agreement with TRW to purchase Indium Phosphide development wafers or wafers designed using Indium Phosphide technology, for a fixed price per wafer. This agreement was amended in November 2000 and December 2000 to revise the number of development wafers to be purchased. During May 2000, we entered into a series of agreements with IBM. Our semiconductor development agreement with IBM provides us with certain models 38 and design kits for use in the fabrication process to develop new integrated circuits. We provide IBM with prototype designs, and IBM fabricates mask sets corresponding to our designs, schedules wafer starts and processes the wafers. In exchange for IBM's development efforts and access to their fabrication process, we make certain fixed payments to IBM. 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. For each joint product produced, the royalty payment obligation continues for a period of seven years after the first sale of such joint product. The terms of the IBM agreements are intended to serve our strategic objectives by providing us with access to key technologies, such as SiGe and CMOS, which are instrumental in the development of our business. Additionally, the IBM agreements allow us to pool resources and share the cost of costly development projects. 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 independent sales representatives working under the direction of our strategic account managers. As of December 31, 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 December 31, 2000, our marketing staff included 29 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. 39 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. 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, Elmo Semiconductor, a division of Kimbell Electronics and Natel. 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 December 31, 2000, we had 133 employees dedicated to research and development, of whom 80 hold advanced degrees, including 22 PhDs. We have an additional 52 engineering employees dedicated to marketing, application engineering and business development, of whom 27 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 expenses, exclusive of deferred stock compensation, for 2000, 1999 and 1998 were approximately $24.6 million, $8.8 million and $2.2 million, respectively. 40 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; . 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 Agere, Applied Micro Circuits, Conexant, Giga (recently acquired by Intel), Infineon, JDS Uniphase, Maxim, Nortel (microelectronics division), NTT Electronics, Philips, PMC-Sierra and Vitesse. In certain circumstances, most notably with respect to application specific integrated circuits, or 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 issued and two U.S. patent applications 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. 41 Employees As of December 31, 2000, we had a total of 315 employees, including 36 in sales and marketing and application engineering, 111 in manufacturing, purchasing and quality, 133 in research and development and 35 in general and administrative functions. Of these employees, approximately 239 were located in the United States, 50 were located in Europe and 26 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 36,000 square feet, is located in Somerset, New Jersey. We lease our corporate headquarters facility pursuant to a sublease agreement that expires in April 2007 for approximately 12,000 square feet and pursuant to a lease agreement that expires in October 2005 for approximately 24,000 square feet. We also lease our principal design facility, consisting of approximately 31,000 square feet, in Somerset, New Jersey, pursuant to a lease agreement that expires in June 2006. We lease approximately 29,601 square feet of design space in Santa Monica, California pursuant to a lease agreement that expires in December 2005. 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 1,100 square meter facility in Bochum, Germany, which expires in January 2011, an approximately 1,800 square meter facility in Munich, Germany, which expires in December 2005, an approximately 500 square meter facility in Berlin, Germany, which expires in December 2005, an approximately 36 square meter 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 1,200 square meter facility in Israel, of which 300 square meters expires in each of February 2003 and May 2003 and 600 square meters expires in January 2004. 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 April 30, 2001:
Name Age Position - ---- --- -------- Richard N. Nottenburg... 47 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 Ronald M. Krisanda...... 39 Senior Vice President--Operations Craig S. Lewis.......... 37 Senior Vice President--Sales G. Bradford Jones....... 46 Director(1) John Walecka ........... 41 Director(1)(2) Stephen R. Forrest ..... 50 Director(1)(2) Edward J. Zander........ 54 Director(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. 43 Ronald M. Krisanda. Mr. Krisanda has been our Senior Vice President of Operations since November 2000. From January 2000 to November 2000, he was Vice President and General Manager Asia Operations, Broadband Communications Sector of Motorola Corporation, the successor by acquisition to General Instrument Corporation, or GI, in January 2000. From May 1996 to December 1999, Mr. Krisanda worked for GI, ultimately holding the position of Vice President and General Manager of General Instrument of Taiwan Ltd. From May 1996 to June 1997, Mr. Krisanda was Director of Operations, Digital Networks Systems of GI. From February 1990 to April 1996, Mr. Krisanda worked for the Electronics Division of Ford Motor Company, ultimately holding the position of Manager Advanced Manufacturing Technology. From September 1984 to January 1990, he worked for the Climate Control Division of Ford Motor Company holding a variety of engineering, operations, and supply chain positions. Mr. Krisanda received a B.S. in Mechanical Engineering from Clarkson University, and an M.S. in Manufacturing Systems Engineering from Lehigh University. Craig S. Lewis. Mr. Lewis has been our Senior Vice President of Sales since January 2001. From April 1997 to January 2001, he worked for Cadence Design Systems, ultimately holding the title of Vice President, Worldwide Enterprise Accounts and Alliances Group. From June 1995 to April 1997, Mr. Lewis was Sales Director, Eastern Region for Sierra Semiconductor. He was the Area Sales Manager, Mid-Atlantic and Southeast US Region for Cirrus Logic from 1991 to June 1995. He received his B.S. in Computer Systems Engineering from Renssalaer Polytechnic Institute. 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, Onyx Acceptance Corporation 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 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. Edward J. Zander. Mr. Zander has served as one of our directors since October 2000, and has more than 25 years of expertise in the computer business, including extensive experience in engineering, marketing and executive management. Since April 1999, Mr. Zander has served as President and Chief Operating Officer at Sun Microsystems, or Sun, and was Vice President and Chief Operating Officer from April 1998 to April 1999. Mr. Zander runs Sun's day-to- day business operations, including: system products, storage products, software products and platforms, enterprise services, network service provider services, iPlanet, Sun's alliance with AOL's Netscape division, research and development, including the office of the CTO, customer advocacy, and worldwide manufacturing, purchasing, marketing and sales operations. In his previous positions at Sun, Mr. Zander served as president of Sun Microsystems Computer Company from February 1995 to April 1998, managing development, manufacturing and marketing for the network computing systems organization, and as president of Sun's software group from July 1991 to February 1995, developing and marketing Solaris for 44 enterprise and network computing applications. Before joining Sun in October 1987 as vice president of corporate marketing, Mr. Zander was vice president of marketing for Apollo Computer, developing marketing strategies for the emerging workstation industry. He serves on the boards of directors of the Jason Foundation for Education, Documentum Inc., Portal Software, Inc., Rhythms NetConnections Inc. and the Science Advisory Board of Rensselaer Polytechnic Institute, or R.P.I. Mr. Zander earned a B.S.E.E. from R.P.I. and an M.B.A. from Boston University. Board of Directors Our board of directors consists of six 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. Zander 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 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. 45 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, 2000 to our Chief Executive Officer and our other executive officers who earned more than $100,000 during 2000. 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 Annual Compensation Compensation Awards ----------------- ------------ Securities All Other Underlying Name and Principal Position Salary Bonus Compensation Options --------------------------- -------- -------- ------------ ------------ Richard N. Nottenburg(1)........... $250,071 $218,000 $137,573 -- Co-Chairman, President and Chief Executive Officer Jens Albers(2)..................... $235,195 $281,064 $ 6,240 -- Co-Chairman and Executive Vice President Eric M. Pillmore(3)................ $ 99,519 $100,000 -- 1,000,000 Senior Vice President, Chief Financial Officer and Secretary Ronald M. Krisanda(4).............. $ 17,308 $100,000 -- 400,000 Senior Vice President--Operations Craig S. Lewis(5).................. -- -- -- -- Senior Vice President--Sales
- --------------------- (1) All other compensation includes $135,778 paid to Mr. Nottenburg for relocation expenses and the income taxes thereon. (2) Bonus includes $99,179 that pertains to 1998 but was not paid until 2000. (3) Mr. Pillmore joined us on July 17, 2000. If Mr. Pillmore had been with us the entire year, his annualized salary in 2000 would have equaled $225,000. (4) Mr. Krisanda joined us on November 27, 2000. If Mr. Krisanda had been with us the entire year, his annualized salary in 2000 would have equaled $225,000. (5) Mr. Lewis joined us on January 17, 2001. Mr. Lewis' current annual salary is $225,000. Option Grants in 2000 During 2000, we granted options to purchase an aggregate of 14,205,200 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. 46 The following table sets forth information concerning individual grants of stock options made during 2000 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 $9.00 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.
Individual Grants Potential ------------------------------------------ Realizable Value % of Total at Assumed Rates of Number of Options Stock Price Securities Granted to Appreciation for Underlying Employees Exercise Option Term Options in Fiscal Price Per Expiration --------------------- Granted Year Share Date 5% 10% ---------- ---------- --------- ---------- ---------- ---------- Richard N. Nottenburg... -- -- -- -- -- -- Jens Albers............. -- -- -- -- -- -- Eric M. Pillmore(1)..... 1,000,000 7.11% $2.50 07/17/10 12,160,000 20,840,000 Ronald M. Krisanda(2)... 400,000 2.85% $5.75 11/27/10 3,564,000 7,036,000 Craig S. Lewis(3)....... -- -- -- -- -- --
- --------------------- (1) 333,333 of the shares subject to this option vest on the first anniversary of the date of grant. The remainder of the shares subject to this option vest at the rate of 1/24 per month commencing one month following the first anniversary of the date of grant. (2) 50,000 of the shares subject to this option vest on each of the six-month and one-year anniversaries of the date of grant. One-third of the remainder of the shares subject to this option vest each year for three years beginning with the second anniversary of the date of grant. (3) Mr. Lewis joined us on January 17, 2001. Mr. Lewis was granted an option to purchase 800,000 shares of the Company's Class A common stock at an exercise price of $5.75. 200,000 of the shares subject to this option vested immediately upon grant. One-third of the remainder of the shares subject to this option vest each year for three years beginning with the second anniversary of the date of grant. Aggregate Option Exercises in 2000 and Year-End Option Values None of our executive officers exercised any options in 2000. 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, 2000. The value of unexercised in-the-money options at 2000 year end has been calculated on the basis of an assumed initial public offering price of $9.00 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 at December 31, 2000 December 31, 2000 ------------------------- ------------------------- Exercisable Unexercisable Exercisable Unexercisable ----------- ------------- ----------- ------------- Richard N. Nottenburg....... 1,875,000 4,725,000 $16,123,750 $40,451,250 Jens Albers................. 1,600,000 4,200,000 13,747,500 35,962,500 Eric M. Pillmore............ -- 1,000,000 -- 6,500,000 Ronald M. Krisanda.......... -- 400,000 -- 1,300,000 Craig S. Lewis(1)........... -- -- -- --
- --------------------- (1) Mr. Lewis joined us on January 17, 2001. 47 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 January 31, 2001, options to purchase an aggregate of 19,411,250 shares were outstanding, 4,558,750 shares were available for option grants and 30,000 shares of Class A common stock had been issued upon exercise of options 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, August 2000 and January 2001. A total of 21,000,000 shares of Class A common stock have been authorized and reserved for issuance under the 1999 plan. As of January 31, 2001, options to purchase an aggregate of 18,663,200 shares were outstanding, 2,318,050 shares were available for option grants and 18,750 shares of Class A common stock had been issued upon exercise of options under the 1999 plan. All outstanding options under the 1999 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. 48 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 and amended in January 2001 and February 2001. 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 49,286,606 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 4,286,606 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 2002, 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; . 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 49 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 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 50 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. The amount of the base salary reduction for a particular year which the optionee elects to apply to the acquisition of an option under the Salary Investment Option Grant Program will be taxable to the optionee as ordinary income in that year, as if the optionee had received the same amount as cash compensation. The optionee will be required to satisfy all income and employment tax withholding requirements applicable to such income. Each option will be a non-statutory option under the U.S. federal income tax laws. The optionee will obtain an income tax basis in the option in an amount equal to the corresponding reduction in the optionee's base salary. The optionee will, in general, recognize ordinary income in the year in which the option is exercised in an amount equal to the excess of (i) the fair market value of the purchased shares on the date of exercise over (ii) the sum of the exercise price paid per share and the amount of the optionee's salary reduction allocable to the purchased shares. The preceding discussion is intended to be only a general description of the tax consequences of the options under the provisions of U.S. federal income tax law currently in effect and does not address any state, local or non-U.S. tax laws. 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 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 51 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 and amended in February 2001. 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 2,071,652 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 2002, 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 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. 52 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 2000, we made matching contributions of $4,306, $21,632 and $167,214, 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. 53 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. 54 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. To date, no shares of our preferred stock have been converted into shares of our Class A common stock. 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 are investors 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 wafers annually for a fixed price per wafer. The agreement was amended in 55 June 1999 to revise the wafer delivery requirement. In October 2000, we entered into a short-term foundry agreement with TRW to purchase InP development wafers for a fixed price per wafer. This agreement was amended in November 2000 and December 2000 to revise the number of development wafers to be purchased. We also have a development agreement with TRW for GaAs development materials which was entered into in June 1995 and which has been amended several times primarily to extend the term of the agreement and revise hourly time and material labor rates. In June 1997, we executed a revolving promissory note in favor of TRW, pursuant to which TRW loaned us the principal sum of $1,500,000 at an annual interest rate of 6%. This note was due in full in October 2002; however, it was paid in full in May 2000. 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 components company, 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. In January 2001, we exercised our option and purchased 833,333 shares of Series B preferred stock. 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. Internet Machines In October 2000, we entered into a stock purchase agreement with Internet Machines, an optical components company focusing on network processing and switch fabric devices. A switch fabric device is a switching element that provides network equipment vendors with a fundamental building block for creating switching platforms needed to support high-speed throughput and high density systems required for optical networks. We purchased 320,671 shares of Internet Machines Series B preferred stock at an aggregate purchase price of $1,555,254. The purpose of the transaction was to make an investment in an emerging company with promising intellectual property. The transaction was based on arms'-length negotiations between Internet Machines and the lead investor in the Series B preferred stock financing round. We received the same rights, privileges and preferences as the lead investor and other minority investors. The other investors in the transaction included Redpoint Ventures and Meritech Capital Partners and certain of their respective affiliates. Dr. Richard Nottenburg, our Co-Chairman of the Board, President and Chief Executive Officer, and John Walecka, one of our directors, are each directors of Internet Machines. Additionally, Mr. Walecka and G. Bradford Jones are founding partners of entities affiliated with Redpoint Ventures, and Redpoint Ventures is an investor in Meritech Capital Partners. 56 PRINCIPAL SHAREHOLDERS The following table, which assumes the conversion of our outstanding preferred stock into our Class A common stock, sets forth certain information regarding the beneficial ownership of our shares of Class A common stock and Class B common stock as of January 31, 2001, 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 January 31, 2001 there were 45,491,548 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 January 31, 2001 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 Beneficial Class A Class B Before After Owners Shares Shares(1) Offering Offering - --------------------------- ---------- ---------- --------- --------- Directors And Executive Officers Richard N. Nottenburg(2)....... 2,375,000 15,820,000 33.49% 48.15% Jens Albers(3)................. 2,050,000 8,480,000 * * Eric M. Pillmore............... -- -- * * Ronald M. Krisanda............. -- -- * * Craig S. Lewis................. 200,000 -- * * G. Bradford Jones(4)........... 23,139,200 -- 36.17 6.94 John Walecka(5)................ 23,139,200 -- 36.17 6.94 Stephen R. Forrest(6).......... 50,000 -- * Edward J. Zander(7)............ 60,417 -- * All directors and executive officers as a group (6 persons)................... 27,874,617 15,820,000 70.15 55.80 5% Shareholders Entities associated with Brentwood Venture Capital(8).. 21,139,200 -- 35.75 6.34 Matthias Bussmann.............. -- 6,480,000 13.51 19.43 International Business Machines Corporation(9)................ 5,000,000 -- 1.04 1.50 TRW, Inc....................... 1,250,000 5,700,000 12.15 17.47 Entities associated with Meritech Capital Partners(10).................. 3,750,000 -- * 1.12
- --------------------- * 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, 57 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. (2) Includes 2,375,000 shares subject to an option exercisable within 60 days of January 31, 2001. 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 2,050,000 shares subject to an option exercisable within 60 days of January 31, 2001. 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 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 January 31, 2001. (7) Consists of 60,417 shares subject to an option exercisable within 60 days of January 31, 2001. (8) 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. (9) Includes 2,500,000 shares subject to a currently exercisable warrant. (10) Consists of 3,690,000 shares held by Meritech Capital Partners L.P. and 60,000 shares held by Meritech Capital Affiliates. 58 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 January 31, 2001, 2,048,750 shares of Class A common stock were issued and outstanding and held by two shareholders, 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 37,165,150 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 American Stock Transfer & Trust Company. The transfer agent's address is 59 Maiden Lane, New York, NY, 10038, and its telephone number is (212) 936-5100. Nasdaq Stock Market National Market Listing We have applied to list our common shares on The Nasdaq National Market under the symbol "MLTC." 59 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 common stock by our existing shareholders or the availability of shares of our 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 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 65,165,150 shares of common stock outstanding, 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 57,165,150 shares outstanding of 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 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 16,291,287 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. As of the date of this prospectus, options to purchase 4,632,200 shares of our Class A common stock will not be subject to the lock-up period. Of these, options to purchase 349,250 shares are vested. The holders of all of these options are foreign employees. 60 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 Class A common stock, or approximately 371,652 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. As of the date of this prospectus, no shares of our Class A common stock are eligible for sale under Rule 144(k). 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. As of the date of this prospectus, no shares of our Class A common stock, which are not subject to the lock-up period, are eligible for sale under Rule 701. Stock Options and Warrants As of January 31, 2001, options to purchase a total of 38,074,450 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 January 31, 2000. An additional 6,876,800 shares of Class A common stock were available for future option grants under our existing stock plans. An additional 2,000,000 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." 61 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 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 subsequent public 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. 62 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 such non-U.S. holder's 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. 63 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 31, 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 31, 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 to a non- U.S. holder by or through a foreign office of a foreign broker not subject to the preceding sentence. 64 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 certification 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 31, 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. 65 UNDERWRITING Under the terms and subject to the conditions contained in an underwriting agreement dated , 2001, 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............................................................ 8,000,000 =========
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 1,200,000 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 66 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. 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 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 16,291,287 shares, will be released from these restrictions. The release of these shares will occur on the later of: . the 91/st/ 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 400,000 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 have applied to list the shares of Class A common stock on The Nasdaq 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; 67 . 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 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. Credit Suisse First Boston Corporation may effect an on-line distribution through its affiliate, CSFBdirect Inc., an on- line broker/dealer, as a selling group member. 68 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. 69 LEGAL MATTERS Allen Matkins Leck Gamble & Mallory LLP, Century City, California, will pass on the legality of the Class A common stock offered by this prospectus. As of the date of this prospectus, Allen Matkins and its affiliates own or have the right to purchase 481,800 shares of our Class A common stock. Cravath, Swaine & Moore, New York, New York, has represented the underwriters. EXPERTS The financial statements of Multilink Technology Corporation as of December 31, 1999 and 2000, and for each of the three years in the period ended December 31, 2000, 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. 70 MULTILINK TECHNOLOGY CORPORATION 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, 1999 and 2000, 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, 2000. 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, 1999 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP Parsippany, New Jersey February 14, 2001 F-2 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1999 and 2000
Pro Forma Shareholders' December 31, Equity ------------------------- December 31, 1999 2000 2001 ----------- ------------ ------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents............. $ 8,997,086 $ 29,158,525 Accounts receivable, net of allowance for uncollectible accounts of $51,000 and $132,570 as of December 31, 1999 and 2000, respectively............... 5,216,702 13,770,479 Inventories........................... 5,002,280 17,264,255 Prepaid expenses and other current assets............................... 346,957 6,538,018 ----------- ------------ Total current assets................ 19,563,025 66,731,277 Property and equipment, net........... 2,667,877 17,764,697 Deferred income taxes................. -- 2,517,852 Other assets.......................... 413,400 3,196,750 ----------- ------------ Total assets........................ $22,644,302 $ 90,210,576 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable...................... $ 2,691,143 $ 10,987,531 Accrued expenses...................... 1,015,741 11,287,869 Accrued warranty costs................ 254,360 785,633 Software and equipment financing-- current portion...................... -- 684,854 Lease obligations--current portion.... 493,804 636,043 Income taxes payable.................. -- 701,752 ----------- ------------ Total current liabilities........... 4,455,048 25,083,682 ----------- ------------ Lease obligations--net of current portion............................... 1,537,568 773,048 Software and equipment financing--net of current portion.................... -- 245,066 Line of credit from shareholder........ 2,387,962 -- ----------- ------------ Commitments and contingencies Redeemable convertible preferred stock: Series A; $.0001 par value; 9,000,000 shares authorized; 1,711,640 issued and outstanding as of December 31, 1999 and December 31, 2000 (actual); no shares issued and outstanding as of December 31, 2000 (pro forma)..... 14,978,163 15,073,259 -- Series B; $.0001 par value; 1,000,000 shares authorized, none issued and outstanding as of December 31, 1999; 1,000,000 issued and outstanding as of December 31, 2000 (actual); no shares issued and outstanding as of December 31, 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, 1999; 2,048,750 issued and outstanding as of December 31, 2000 (actual) 29,165,150 issued and outstanding as of December 31, 2000 (pro forma)............................... -- 205 2,917 Class B: 100,000,000 shares authorized; 30,000,000 shares issued and outstanding as of December 31, 1999; 28,000,000 issued and outstanding as of December 31, 2000 (actual and pro forma).......... 3,000 2,800 2,800 Additional paid-in-capital............ 7,077,088 32,592,406 87,662,953 Deferred stock compensation........... (5,365,749) (11,174,023) (11,174,023) Accumulated deficit................... (2,443,083) (12,400,375) (12,400,375) Accumulated other comprehensive income ..................................... 14,305 14,508 14,508 ----------- ------------ ------------ Total shareholders' equity (deficit).......................... (714,439) 9,035,521 $ 64,108,780 ----------- ------------ ============ Total liabilities and shareholders' equity (deficit)................... $22,644,302 $ 90,210,576 =========== ============
See accompanying notes to consolidated financial statements. F-3 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 1998, 1999 and 2000
Year Ended December 31, -------------------------------------- 1998 1999 2000 ----------- ----------- ------------ Revenues Product.............................. $ 2,125,748 $19,383,258 $ 72,720,505 Development.......................... 1,725,816 1,011,744 -- ----------- ----------- ------------ Total revenues..................... 3,851,564 20,395,002 72,720,505 ----------- ----------- ------------ Cost of revenues Product.............................. 793,788 6,113,690 27,047,794 Development.......................... 1,053,391 634,192 -- Deferred stock compensation.......... -- 19,031 817,708 ----------- ----------- ------------ Total cost of revenues................ 1,847,179 6,766,913 27,865,502 ----------- ----------- ------------ Gross profit.......................... 2,004,385 13,628,089 44,855,003 ----------- ----------- ------------ Operating expenses: Research and development, excluding deferred stock compensation......... 2,218,472 8,778,922 24,624,361 Research and development--warrant issuance............................ -- -- 6,375,000 Sales and marketing, excluding deferred stock compensation......... 349,180 2,291,780 7,130,192 General and administrative, excluding deferred stock compensation........................ 391,284 1,767,146 7,611,023 Deferred stock compensation.......... 343,870 803,551 5,949,899 ----------- ----------- ------------ Total operating expenses........... 3,302,806 13,641,399 51,690,475 ----------- ----------- ------------ Operating loss........................ (1,298,421) (13,310) (6,835,472) Other income and expenses Interest expense..................... (188,417) (226,564) (310,125) Other income ........................ -- 283,632 1,870,508 ----------- ----------- ------------ Income (loss) before provision for income taxes......................... (1,486,838) 43,758 (5,275,089) Provision (benefit) for income taxes.. 800 19,218 (1,692,797) ----------- ----------- ------------ Net income (loss)..................... (1,487,638) 24,540 (3,582,292) Accretion of redeemable convertible preferred stock to redemption value.. -- 47,548 95,096 Dividend related to warrant issuance.. -- -- 6,375,000 ----------- ----------- ------------ Net loss attributable to common shareholders......................... $(1,487,638) $ (23,008) $(10,052,388) =========== =========== ============ Net income (loss) per share, basic and diluted.............................. $ (0.05) $ 0.00 $ (0.34) =========== =========== ============ Weighted average shares of common stock, basic and diluted............. 30,000,000 30,000,000 30,000,000 =========== =========== ============ The composition of the amortization of deferred stock compensation is as follows: Research and development.............. $ 343,870 $ 216,404 $ 2,745,188 Sales and marketing................... -- 31,071 524,163 General and administrative............ -- 556,076 2,680,548 ----------- ----------- ------------ Total................................ $ 343,870 $ 803,551 $ 5,949,899 =========== =========== ============
See accompanying notes to consolidated financial statements. F-4 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) Years Ended December 31, 1998, 1999 and 2000
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) Total --------- ------ ---------- ------ ----------- ------------ ------------ ------------- ----------- BALANCE, JANUARY 1, 1998.......... 30,000,000 $3,000 $ 131,250 $ (979,985) $(10,258) $ (855,993) Deferred stock compensation..... 499,500 $ (499,500) -- Amortization of deferred stock compensation..... 343,870 343,870 Comprehensive income: Net loss........ (1,487,638) (1,487,638) Other comprehensive income--Foreign currency translation adjustment...... 4,839 4,839 ----------- Comprehensive loss............. (1,482,799) --------- ---- ---------- ------ ----------- ------------ ------------ -------- ----------- BALANCE, DECEMBER 31, 1998......... 30,000,000 3,000 630,750 (155,630) (2,467,623) (5,419) (1,994,922) Warrants issued in connection with the Series A preferred stock financing........ 330,549 330,549 Warrants issued in connection with equipment financing........ 130,636 130,636 Deferred stock compensation..... 6,032,701 (6,032,701) -- Amortization of deferred stock compensation..... 822,582 822,582 Accretion of redeemable convertible preferred stock.. (47,548) (47,548) Comprehensive income: Net income...... 24,540 24,540 Other comprehensive income--Foreign currency translation adjustment...... 19,724 19,724 ----------- Comprehensive income........... 44,264 --------- ---- ---------- ------ ----------- ------------ ------------ -------- ----------- BALANCE, DECEMBER 31, 1999......... 30,000,000 3,000 7,077,088 (5,365,749) (2,443,083) 14,305 (714,439) Conversion of Class B common stock to Class A common stock..... 2,000,000 $200 (2,000,000) (200) -- Stock option plan transactions including related income tax benefit.......... 48,750 5 115,277 115,282 Deferred stock compensation..... 12,575,881 (12,575,881) -- Amortization of deferred stock compensation..... 6,767,607 6,767,607 Accretion of redeemable convertible preferred stock.. (95,096) (95,096) Warrant issuances........ 6,544,256 6,544,256 Dividend related to warrant issuance......... 6,375,000 (6,375,000) -- Comprehensive income: Net loss........ (3,582,292) (3,582,292) Other comprehensive loss--Foreign currency translation adjustment...... 203 203 ----------- Comprehensive loss............. (3,582,089) --------- ---- ---------- ------ ----------- ------------ ------------ -------- ----------- BALANCE, DECEMBER 31, 2000......... 2,048,750 $205 28,000,000 $2,800 $32,592,406 $(11,174,023) $(12,400,375) $ 14,508 $ 9,035,521 ========= ==== ========== ====== =========== ============ ============ ======== ===========
See accompanying notes to consolidated financial statements. F-5 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1998, 1999 and 2000
Year Ended December 31, -------------------------------------- 1998 1999 2000 ----------- ----------- ------------ Cash flows from operating activities: Net income (loss).................... $(1,487,638) $ 24,540 $ (3,582,292) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Warrant issuances................... -- -- 6,544,256 Depreciation and amortization....... 59,737 292,628 2,647,732 Deferred stock compensation......... 343,870 822,582 6,767,607 Amortization of discount on line of credit from shareholder............ 74,375 -- -- Interest expense on line of credit from shareholder................... 161,398 226,564 61,206 Deferred income taxes............... -- -- (5,672,460) Changes in operating assets and liabilities: Accounts receivable................ (502,250) (4,555,388) (8,609,777) Inventories........................ (271,751) (4,633,683) (12,261,975) Costs and estimated earnings in excess of billings on uncompleted contracts......................... (54,519) 159,376 -- Prepaid expenses and other current assets............................ (26,753) (315,778) (3,036,453) Other assets....................... (2,106) (275,179) (438,307) Accounts payable................... 655,828 1,842,376 8,296,388 Accrued expenses................... 143,032 744,446 8,616,910 Accrued warranty costs............. (25,813) 69,988 531,273 Accrued loss on uncompleted contract.......................... (22,643) -- -- Billings in excess of costs and estimated earnings on uncompleted contracts......................... 158,702 (222,031) -- Income taxes payable............... -- -- 797,721 Customer deposit................... (95,900) -- -- ----------- ----------- ------------ Net cash (used in) provided by operating activities............. (892,431) (5,819,559) 661,829 ----------- ----------- ------------ Cash flows from investing activities: Purchases of property and equipment.. (68,538) (695,491) (15,036,147) Purchase of non-marketable securities.......................... -- -- (2,388,588) ----------- ----------- ------------ Net cash used in investing activities.......................... (68,538) (695,491) (17,424,735) ----------- ----------- ------------ Cash flows from financing activities: Issuance of preferred stock, net..... -- 15,261,164 37,550,832 Borrowings under line of credit from shareholder......................... 1,000,000 -- -- Payments on lease obligations ....... (13,984) (46,450) (622,281) ----------- ----------- ------------ Net cash provided by financing activities....................... 986,016 15,214,714 36,928,551 ----------- ----------- ------------ Effect of exchange rate changes on cash................................. 4,194 (5,214) (4,206) ----------- ----------- ------------ Net increase in cash and cash equivalents.......................... 29,241 8,694,450 20,161,439 Cash and cash equivalents, beginning of year.............................. 273,395 302,636 8,997,086 ----------- ----------- ------------ Cash and cash equivalents, end of year................................. $ 302,636 $ 8,997,086 $ 29,158,525 =========== =========== ============ Supplemental disclosures of cash flow information--Cash paid during the year for: Income taxes......................... $ 800 $ 38,800 $ 3,169,000 Interest............................. $ 1,904 $ 4,318 $ 248,919
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, 1998, 1999 AND 2000 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"), Vilnius, Lithuania ("UAB Multilink Technology") and Yavne, Israel ("MLTC Israel, Ltd.") 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 Principles of Consolidation--The accompanying consolidated financial statements include the accounts of Multilink Technology Corporation and its wholly owned subsidiaries, Multilink GmbH, UAB Multilink Technology and MLTC Israel, Ltd. 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:
Year Ended December 31, ---------------- 1998 1999 2000 ---- ---- ---- Lucent........................................................ 10% 36% 34% Alcatel....................................................... * 20% 28% TyCom......................................................... 39% 18% * Cisco......................................................... * * 11% JDS Uniphase.................................................. 12% * *
- --------------------- * 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, --------------- 1999 2000 ------ ------ Customer gross accounts receivable as a percent of total gross accounts receivable: Lucent................................................ 25% 21% Alcatel............................................... 29% 34% TyCom................................................. 23% 12%
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, UAB Multilink Technology and MLTC Israel, Ltd. 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. Research and Development--Research and development costs are expensed as incurred, except for engineering and design software, which is capitalized and amortized on a straight-line basis over the life of the software, which generally ranges from 3 to 5 years. 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. Investments--The Company's investments in which it does not have significant influence over the investee are accounted for at cost. The Company reviews such investments for any unrealized losses deemed to be other than temporary. The Company will recognize an investment loss currently when it deems that such unrealized losses are other than temporary. 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 December 31, 2000 (using the if- converted method) into an aggregate 27,116,400 shares of Class A common stock (see Note 6). Unaudited pro forma shareholders' equity at December 31, 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:
December 31, ------------------------ 1999 2000 ---------- ------------ Net loss attributable to common shareholders......... $ (23,008) $(10,052,388) Accretion of redeemable preferred stock.............. 47,548 95,096 ---------- ------------ Adjusted net income (loss) attributable to common shareholders........................................ $ 24,540 $ (9,957,292) ========== ============ Shares used in computing basic net income (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 24,225,603 ---------- ------------ Weighted average shares used in computing pro forma basic net income (loss) per share................... 39,519,532 54,225,603 ========== ============ Pro forma basic net income (loss) per share attributable to common shareholders................. $ 0.00 $ (0.18) ========== ============
Revenue Recognition--Product revenue is recognized upon shipment. 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 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." F-9 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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, ---------------------------------- 1998 1999 2000 ---------- ---------- ---------- Weighted average shares outstanding, basic................................. 30,000,000 30,000,000 30,000,000 Dilutive shares issuable in connection with stock plans...................... 843,226 7,418,485 20,943,053 Dilutive shares issuable in connection with warrants granted................. -- 194,928 984,380 Conversion of preferred stock to common stock ................................ -- 9,451,638 24,225,603 ---------- ---------- ---------- Weighted average shares outstanding, diluted............................... 30,843,226* 47,065,051* 76,153,036* ========== ========== ==========
* 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 and the software and equipment financing 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 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. At December 31, 2000, we did not have any derivative instruments that would result in a transition adjustment upon the adoption of this standard on January 1, 2001. However, during the quarter ending March 31, 2001, we entered into certain foreign forward contracts, which will be accounted for in accordance with this standard. F-10 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 adoption of FIN 44 did not have a material impact on the Company's financial position or results of operations. Reclassifications--Certain prior year amounts have been reclassified in order to conform with the current year presentation. 3. INVENTORIES Inventories consisted of the following:
December 31, ---------------------- 1999 2000 ---------- ----------- Finished goods........................................ $ 450,205 $ 2,735,721 Work-in-progress...................................... 1,900,866 5,992,908 Raw materials......................................... 2,651,209 8,535,626 ---------- ----------- Total............................................... $5,002,280 $17,264,255 ========== ===========
F-11 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. PROPERTY AND EQUIPMENT Property and equipment consisted of the following:
Estimated December 31, Useful Life ----------------------- (Years) 1999 2000 --------------------- ---------- ----------- Machinery and equipment..... 5 $2,920,192 $13,043,077 Furniture and fixtures...... 3 58,996 1,298,003 Leasehold improvements ..... shorter of asset life or lease term 107,451 462,792 Software.................... 2-5 -- 5,485,938 Construction in Progress.... -- 497,836 ---------- ----------- Total..................... 3,086,639 20,787,646 Accumulated depreciation and amortization............... (418,762) (3,022,949) ---------- ----------- Property and equipment, net........................ $2,667,877 $17,764,697 ========== ===========
Property leased under capital leases (which is included in property and equipment in the accompanying balance sheets) consists of the following:
December 31, ---------------------- 1999 2000 ---------- ---------- Machinery and equipment............................. $2,091,805 $2,091,805 Accumulated amortization............................ (177,498) (859,894) ---------- ---------- Total............................................. $1,914,307 $1,231,911 ========== ==========
5. 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 6). 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). The fair value of the option of approximately $119,000 was determined as the present value of the difference between expected future cash flows under the credit facility using the 6.0% interest rate implicit in the credit facility, compared to that using a 10.5% estimated market rate of interest. 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 to $161,398 and $387,962 as of December 31, 1998 and 1999, respectively) was due on October 31, 2002. Borrowings under the credit facility were not guaranteed or collateralized. In connection with the Series B convertible preferred stock offering F-12 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) discussed in Note 6, $2,449,168 of principal and interest outstanding under this credit facility as of such offering was forgiven by the shareholder as partial payment for the shareholder's Series B convertible preferred stock. 6. CAPITALIZATION 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 has rights and privileges substantially similar to the Series A preferred stock (discussed below), except with respect to voting rights prior to an initial public offering. 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 2,500,000 warrants exercisable at $4 per share to Series A preferred shareholders. Such grant was made in accordance with the original terms of the preferred stock investors' 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. 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 310,000,000 shares. 200,000,000 shares are Class A common stock, par value $.0001 per share; 100,000,000 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, 2000, 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. F-13 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) . 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. . 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. The Company initially records redeemable securities at their fair value. Such security is accreted each period to the ultimate contractual redemption amount on a straight-line basis, which approximates the interest method. 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 5). The Share Purchase Agreement required the Company to execute a Supply Agreement with the third party (see Note 8). 7. STOCK OPTIONS AND WARRANTS Stock Options As of December 31, 2000, the Company has two stock option plans (the "1998 Plan" and the "1999 Plan", collectively referred to as the "Plans") under which employees, consultants, and directors may be granted options to purchase common stock up to an aggregate of 42,000,000 shares. Generally, options vest under the straight-line basis 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 Plans 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, 1999 and 2000, 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 on factors including the performance of the Company and equity security transactions entered into by the Company with certain third parties was $.20, $.667 and $3.82 per share in 1998, 1999 and 2000, respectively. Accordingly, the Company recorded $499,500, F-14 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) $6,032,701 and $12,575,881 of the intrinsic value of such options as deferred stock compensation in 1998, 1999 and 2000, respectively. Deferred stock compensation of $343,870, $822,582 and $6,767,607 was amortized to expense during the years ended 1998, 1999 and 2000, respectively. At December 31, 2000, $11,174,023 of stock compensation is deferred as a component of shareholders' deficit and will be amortized to expense through 2004 as earned by the related employees. A summary of the option transactions under the Plans 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................................ 14,205,200 $3.060 $0.71--$5.75 Exercised.............................. (48,750) $0.400 $0.30--$0.55 Cancelled.............................. (509,250) $0.975 $0.30--$5.75 ---------- Outstanding, December 31, 2000......... 36,358,450 $1.405 $0.008--$5.75 ==========
As of December 31, 2000 there were 5,641,550 shares available for future grant under the plan. Additional information regarding options outstanding as of December 31, 2000 is as follows:
Outstanding Options Exercisable Options -------------------------------- ------------------------------- Weighted- Weighted- Average Average Weighted- Remaining Weighted- Remaining Number Average Contractual Number Average Contractual of Exercise Life of Exercise Life Range of Exercise Prices Shares Price (Years) Shares Price (Years) - ---------------------------- ---------- --------- ----------- --------- --------- ----------- $0.008-- $0.025 2,700,000 $0.016 7.7 2,700,000 $0.016 7.7 $0.20--$0.30 8,461,250 $0.205 8.1 2,419,515 $0.205 8.1 $0.55--$0.71 11,900,000 $0.578 8.8 2,815,000 $0.569 8.8 $1.35--$2.50 7,468,500 $ 1.82 9.4 149,990 $ 1.73 9.5 $3.90--$5.75 5,828,700 $ 4.94 9.8 147,969 $ 4.64 9.8 ---------- --------- 36,358,450 $1.405 8.8 8,232,474 $0.338 8.2 ========== =========
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, 1999 and 2000, 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 2000 ---- ---- ---- Risk-free interest rate.................................... 5.9% 6.8% 6.3% Dividend yield............................................. -- -- -- Expected life (years)...................................... 7 7 6.5 Volatility................................................. -- -- 6.5%
F-15 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The weighted-average estimated fair value of employee stock options granted during the years ended December 31, 1998, 1999 and 2000 was $0.191, $0.417 and $2.20 per share, respectively. For purposes of pro-forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro-forma information is as follows:
Year Ended December 31, ------------------------------------ 1998 1999 2000 ----------- --------- ------------ Net loss attributable to common shareholders: As reported........................ $(1,487,638) $ (23,008) $(10,052,388) Pro forma.......................... $(1,493,665) $(574,035) $(14,245,474) Net loss per share attributable to common shareholders: As reported: Basic and diluted... $ (0.05) $ 0.00 $ (0.34) Pro forma: Basic and diluted..... $ (0.05) $ (0.02) $ (0.47)
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 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. 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 as a research and development expense in the accompanying 2000 statement of operations, 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. Also during 2000, the Company granted 133,406 Class A common stock purchase warrants to certain third parties in exchange for legal and employee recruiting services. Each warrant was fully vested and exercisable on the grant date for one share of Class A common stock and will expire five years from the grant date. The weighted average exercise price of these warrants was $2.01. The fair value of the warrants was estimated at $169,256 using the Black-Scholes option- pricing model and is reflected as a general and administrative expense in the consolidated statement of operations and an increase to additional paid-in capital. 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 6). The warrants were fully vested and exercisable on the grant date for $0.30 per option share into one F-16 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 8). 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. At December 31, 2000, there are 5,000,000 Series B convertible preferred stock purchase warrants and 813,716 Class A common stock purchase warrants outstanding. During 2000, 5,133,406 of these warrants were granted with a weighted average exercise price and weighted average fair value of $3.95 and $2.52, respectively. 8. COMMITMENTS AND CONTINGENCIES Operating Leases--The Company leases its office facilities and certain equipment under operating lease agreements expiring at various dates through 2007 and thereafter. 2001............................................................. $ 4,697,839 2002............................................................. 3,611,277 2003............................................................. 2,748,374 2004............................................................. 2,411,462 2005............................................................. 2,158,778 Thereafter....................................................... 406,904 ----------- $16,034,634 ===========
Rental expense under operating leases was $264,549, $509,451 and $2,364,575 for the years ended December 31, 1998, 1999 and 2000. 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, 2000 and the fiscal years thereafter: 2001............................................................. $ 723,231 2002............................................................. 777,581 2003............................................................. 41,496 ---------- Total minimum lease payments..................................... 1,542,308 Less amount representing interest................................ 133,217 ---------- Present value of minimum lease payments.......................... 1,409,091 Less current portion of capital lease obligation................. 636,043 ---------- Long-term portion of capital lease obligation.................... $ 773,048 ==========
Software and Equipment Financing--During 2000, the Company obtained vendor financing for software and equipment purchases in the amount of $2,664,860. The Company imputed interest on these borrowings at 8.0% per annum. The financings mature as follows; 2001 $684,854, 2002 $225,776 and 2003 $19,290. F-17 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 6). 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 2000 and anticipates exceeding the minimum purchase quantities under the Supply Agreement. The Company purchased approximately $1,059,000, $4,438,000 and $9,781,000 of materials and engineering services from the shareholder during the years ended December 31, 1998, 1999 and 2000, respectively. Legal--The Company, in the ordinary course of its business, is the subject of, or party to, various pending or threatened legal actions. The Company believes that an ultimate liability arising from these actions will not have a material adverse effect on its financial position or results of operations. 9. INCOME TAXES The provision (benefit) for income taxes consists of the following:
December 31, --------------------------------- 1998 1999 2000 --------- --------- ----------- Current: State................................... $ 800 $ 1,553 $ 846,782 Federal................................. -- 17,665 2,808,239 Foreign................................. -- -- 324,642 --------- --------- ----------- Total current......................... 800 19,218 3,979,663 --------- --------- ----------- Deferred benefit.......................... (575,872) (350,661) (6,965,296) Valuation allowance....................... 575,872 350,661 1,292,836 --------- --------- ----------- Total..................................... $ 800 $ 19,218 $(1,692,797) ========= ========= ===========
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, ---------------------------- 1998 1999 2000 ------- -------- ------- Federal statutory income tax rate..................................... (35.0)% 35.0 % (35.0)% State taxes net of Federal benefit............ -- -- (8.6) Meals and entertainment....................... 0.1 17.2 0.4 Foreign income................................ (0.8) (26.1) (4.0) Research and development tax credits.......... (4.0) (342.8) (3.8) Valuation allowance........................... 42.7 363.7 24.5 Other......................................... (2.9) (3.1) (5.5) ------- -------- ------- Total....................................... 0.1 % 43.9 % (32.0)% ======= ======== =======
F-18 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The components of net deferred income taxes consist of the following:
December 31, ----------------------------------- 1998 1999 2000 --------- ----------- ----------- Current deferred income tax assets: Accounts receivable allowances...... $ 4,893 $ 21,608 $ 56,167 Accrued expenses.................... 50,006 77,618 302,284 Inventory........................... 31,708 194,273 1,471,600 Warrant expense..................... -- -- 2,772,655 Valuation allowance................. (86,607) (293,499) (1,448,098) --------- ----------- ----------- Total current deferred income tax assets........................... -- -- 3,154,608 --------- ----------- ----------- Non-current deferred income tax assets: Net operating loss carryforwards.... 630,728 191,563 -- Tax credit carryforwards............ -- 446,598 -- Depreciation........................ 94,169 30,891 472,066 Deferred stock compensation......... 148,896 348,510 3,183,136 Other............................... -- -- 18,449 Valuation allowance................. (873,793) (1,017,562) (1,155,799) --------- ----------- ----------- Total non-current deferred income tax assets....................... -- -- 2,517,852 --------- ----------- ----------- Net deferred income tax assets........ $ -- $ -- $ 5,672,460 ========= =========== ===========
The Company utilized its NOL carryforwards and tax credit carryforwards during 2000. The current deferred tax asset at December 31, 2000 is included in prepaid expenses and other current assets in the consolidated balance sheet. At each period end, the Company assesses the recoverability of its deferred tax assets by reviewing a number of factors including operating trends, future projections and taxable income, to determine whether a valuation allowance is required to reduce such deferred tax assets to an amount that is more likely than not to be realized. At December 31, 2000 the Company has reviewed its deferred tax assets and believes that the valuation allowance reduces such assets to an amount that is more likely than not to be realized. 10. 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 March 31, 2000, the Company 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 amended 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 2000, the Company made matching contributions of $4,306, $21,632 and $167,214, respectively. 11. RELATED PARTY TRANSACTIONS The Company purchases certain products from certain of its equity holders. For the years ended December 31, 1998, 1999 and 2000 purchases from such parties have been approximately $1,059,000, F-19 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) $4,438,000, and $10,748,000, respectively. At December 31, 1999 and 2000 accounts payable to these parties were approximately $714,000 and $1,244,000, respectively. 12. GEOGRAPHIC INFORMATION Revenues to geographic locations are as follows:
1998 1999 2000 ---------- ----------- ----------- North America............................. $3,350,841 $17,154,130 $53,260,280 Europe.................................... 486,840 3,179,033 19,355,407 Asia...................................... 13,883 61,839 104,818 ---------- ----------- ----------- Total................................... $3,851,564 $20,395,002 $72,720,505 ========== =========== =========== Revenues to certain geographic locations within Europe are as follows: Italy..................................... $ * $ 1,065,485 $ 7,750,734 ========== =========== =========== France.................................... $ * $ 1,372,425 $ 9,129,230 ========== =========== =========== Germany................................... $ 451,382 $ * $ * ========== =========== ===========
* Country's revenues represents less than 10% of total revenue in the respective period. Substantially all identifiable assets are located in North America. 13. INVESTMENTS AT COST In July 2000, the Company entered into a stock purchase and option agreement with ASIP, Inc ("ASIP") an optical device start-up entity, pursuant to which the Company purchased 1,666,667 shares of ASIP's Series A voting and convertible preferred stock at an aggregate purchase price of $833,334 which represents approximately 18% of ASIP's outstanding voting stock. The Company was also granted an option to purchase, and the Company granted ASIP an option to require the Company to purchase upon the attainment of certain performance goals, 833,333 shares of ASIP's Series B voting and convertible preferred stock at an aggregate purchase price of $1,666,666. In conjunction with this purchase, the Company received this option for no additional cost. Accordingly, such option is being carried at its historical cost since ASIP is not a public entity. During January 2001, the Company exercised its option and purchased 833,333 shares of Series B voting and convertible preferred stock for $1,666,666. After this additional purchase, the Company owns approximately 21% of ASIP's outstanding voting stock and will begin accounting for this investment under the equity method of accounting. The other investors in these transactions are also investors in the Company. One of the Company's directors, is a founder and director of ASIP. Additionally, the Company's President and Chief Executive Officer, and two of its directors, are each directors of ASIP. In October 2000, the Company entered into a stock purchase agreement with Internet Machines Corporation ("Internet Machines"), a privately-held optical device company, pursuant to which it purchased 320,671 shares of Internet Machines Series B voting and convertible preferred stock at an aggregate purchase price of $1,555,254. The Company's purchase represents less than 1% of Internet Machines outstanding voting stock. The Company's President and Chief Executive Officer, and one of its directors, are each directors of Internet Machines. Investments at cost are included in other assets in the accompanying consolidated balance sheet. F-20 MULTILINK TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 14. SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS During 2000, the Company granted 2,500,000 Series B convertible preferred stock purchase warrants and 133,406 Class A common stock purchase warrants. The fair value of the warrants was estimated at $6,544,256 and is reflected as a warrant issuance expense (see Note 7). 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 5). During 1998, 1999 and 2000 the Company financed the acquisition of equipment or software in the amounts of $58,011, $2,033,794 and $2,664,860, 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 7). 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 7). ****** F-21 [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................................ 95,000 Printing costs................................................... 650,000 Legal fees and expenses.......................................... 750,000 Accounting fees and expenses..................................... 550,000 Transfer Agent and Registrar Fees................................ 10,000 Miscellaneous ................................................... 89,900 ---------- Total.......................................................... $2,200,000 ==========
- --------------------- * 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, II-1 (2) advance expenses to them as they are incurred, provided that they undertake to repay the amount advanced 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. II-2 . 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. . 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 January 31, 2001, we granted stock options to purchase an aggregate of 40,465,200 shares of Class A common stock to employees and consultants with aggregate exercise prices ranging from $0.008 to $5.75 per share pursuant to our stock option plans. As of January 31, 2001, 48,750 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
II-3
Number Description ------ ----------- 10.4 2000 Stock Incentive Plan, as amended 10.5 2000 Employee Stock Purchase Plan, as amended 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., as amended 10.13+ Semiconductor Development Agreement dated May 18, 2000, between the Registrant and International Business Machines Corporation 10.14+ Joint Development Agreement effective as of May 18, 2000, between the Registrant and International Business Machines 10.15+ Development Agreement dated September 1, 1999, by and between the Registrant and Tyco Submarine Systems Ltd. 10.16** Second Amendment to Lease dated October 12, 2000 between the Registrant and Spieker Properties, L.P. 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)
- --------------------- * To be filed by amendment ** Previously filed + Confidential treatment requested for portions of these exhibits (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 II-4 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. 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 18th day of May 2001. MULTILINK TECHNOLOGY CORPORATION /s/ Richard N. Nottenburg By: _________________________________ Richard N. Nottenburg President and Chief Executive Officer 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 18th day of May 2001.
Signature Title --------- ----- /s/ Richard N. Nottenburg President, Chief Executive Officer and ______________________________________ Director (Principal Executive Richard N. Nottenburg Officer) * Chief Financial Officer (Principal ______________________________________ Financial and Accounting Officer), Eric M. Pillmore Senior Vice President and Secretary * Executive Vice President and Director ______________________________________ Jens Albers * Director ______________________________________ G. Bradford Jones * Director ______________________________________ John Walecka * Director ______________________________________ Stephen Forrest * Director ______________________________________ Edward J. Zander /s/ Richard N. Nottenburg * ____________________________________ Attorney-in-fact
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, as amended 10.5 2000 Employee Stock Purchase Plan, as amended 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., as amended 10.13+ Semiconductor Development Agreement dated May 18, 2000, between the Registrant and International Business Machines Corporation 10.14+ Joint Development Agreement effective as of May 18, 2000, between the Registrant and International Business Machines 10.15+ Development Agreement dated September 1, 1999, by and between the Registrant and Tyco Submarine Systems Ltd. 10.16** Second Amendment to Lease dated October 12, 2000 by and between the Registrant and Spieker Properties L.P 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)
- --------------------- * To be filed by amendment ** Previously filed + Confidential treatment requested for portions of these exhibits EX-3.2 2 dex32.txt AMENDED AND RESTATED BYLAWS OF THE REGISTRANT 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 ten percent (10%) 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 of 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 other 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 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 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 of 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 designated 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, hear 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 or convicted of 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 for 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 of 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 meetings 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), judgments, 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), judgments, 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, 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 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 it 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 PURPOSE 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-10.2 3 dex102.txt 1998 STOCK OPTION PLAN, AS AMENDED 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 4 dex103.txt 1999 STOCK OPTION PLAN, AS AMENDED 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." AMENDMENT NO. 4 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 Twenty-One Million (21,000,000) Shares." -1- EX-10.4 5 dex104.txt 2000 STOCK INCENTIVE PLAN, AS AMENDED 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- AMENDMENT NO. 1 TO 2000 STOCK INCENTIVE PLAN -------------------------------------------- The third sentence of Article I Section V.A. of the 2000 Plan is hereby deleted in its entirety and replaced with the following: "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 (45,000,000 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 grants, plus (ii) an increase of 2,000,000 shares authorized by the Board but subject to shareholder approval prior to the Section 12 Registration Date." -1- AMENDMENT NO. 2 TO 2000 STOCK INCENTIVE PLAN -------------------------------------------- Section V.A. of Article I of the 2000 Plan is hereby deleted in its entirety and replaced with the following: "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 49,286,606 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 (45,000,000 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 grants, plus (ii) an increase of 4,286,606 shares authorized by the Board but subject to shareholder approval prior to the Section 12 Registration Date." Section V.B. of Article I of the 2000 Plan is hereby deleted in its entirety and replaced with the following: "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 2002, 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." EX-10.5 6 dex105.txt 2000 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED Exhibit 10.5 MULTILINK TECHNOLOGY CORPORATION -------------------------------- 2000 EMPLOYEE STOCK PURCHASE PLAN --------------------------------- I. PURPOSE OF THE PLAN This Employee Stock Purchase Plan is intended to promote the interests of Multilink Technology Corporation by providing eligible employees with the opportunity to acquire a proprietary interest in the Corporation through participation in a payroll-deduction based employee stock purchase plan designed to qualify under Section 423 of the Code. Capitalized terms herein shall have the meanings assigned to such terms in the attached Appendix. II. ADMINISTRATION OF THE PLAN The Plan Administrator shall have full authority to interpret and construe any provision of the Plan and to adopt such rules and regulations for administering the Plan as it may deem necessary in order to comply with the requirements of Code Section 423. Decisions of the Plan Administrator shall be final and binding on all parties having an interest in the Plan. III. STOCK SUBJECT TO PLAN A. The stock purchasable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares of Common Stock purchased on the open market. The number of shares of Common Stock initially reserved for issuance under the Plan shall not exceed one million five hundred thousand (1,500,000) shares. 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 one percent (1%) 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 1,000,000 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 11,500,000 shares. C. Should any change be 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 to (i) the maximum number and class of securities issuable under the Plan, (ii) the maximum number and class of securities purchasable per Participant on any one Purchase Date, (iii) the maximum number and class of securities purchasable in the aggregate on any one Purchase Date and (iv) the number and class of securities and the price per share in effect under each outstanding purchase right in order to prevent the dilution or enlargement of benefits thereunder. IV. OFFERING PERIODS A. Shares of Common Stock shall be offered for purchase under the Plan through a series of successive offering periods until such time as (i) the maximum number of shares of Common Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been sooner terminated. B. Each offering period shall be of such duration (not to exceed twenty-four (24) months) as determined by the Plan Administrator prior to the start date of such offering period. However, the initial offering period shall commence at the Effective Time and terminate on the last business day in December 2002. The next offering period shall commence on the first business day in January 2003, and subsequent offering periods shall commence as designated by the Plan Administrator. C. Each offering period shall be comprised of a series of one or more successive Purchase Intervals. Purchase Intervals shall run from the first business day in July each year to the last business day in December of the same year and from the first business day in January each year to the last business day in June of the following year. However, the first Purchase Interval in effect under the initial offering period shall commence at the Effective Time and terminate on the last business day in June 2001. D. Should the Fair Market Value per share of Common Stock on any Purchase Date within an offering period be less than the Fair Market Value per share of Common Stock on the start date of that offering period, then that offering period shall automatically terminate immediately after the purchase of shares of Common Stock on such Purchase Date, and a new offering period shall commence on the next business day following such Purchase Date. The new offering period shall have a duration of twenty (24) months, unless a shorter duration is established by the Plan Administrator within five (5) business days following the start date of that offering period . V. ELIGIBILITY A. Each individual who is an Eligible Employee on the start date of any offering period under the Plan may enter that offering period on such start date or on any subsequent Semi-Annual Entry Date within that offering period, provided he or she remains an Eligible Employee. B. Each individual who first becomes an Eligible Employee after the start date of an offering period may enter that offering period on any subsequent Semi-Annual Entry Date within that offering period on which he or she is an Eligible Employee. C. The date an individual enters an offering period shall be designated his or her Entry Date for purposes of that offering period. D. To participate in the Plan for a particular offering period, the Eligible Employee must complete the enrollment forms prescribed by the Plan Administrator (including a stock purchase agreement and a payroll deduction authorization) and file such forms with the Plan Administrator (or its designate) on or before his or her scheduled Entry Date. -2- VI. PAYROLL DEDUCTIONS A. The payroll deduction authorized by the Participant for purposes of acquiring shares of Common Stock during an offering period may be any multiple of one percent (1%) of the Cash Earnings paid to the Participant during each Purchase Interval within that offering period, up to a maximum of fifteen percent (15%). The deduction rate so authorized shall continue in effect throughout the offering period, except to the extent such rate is changed in accordance with the following guidelines: (i) The Participant may, at any time during the offering period, reduce his or her rate of payroll deduction to become effective as soon as possible after filing the appropriate form with the Plan Administrator. The Participant may not, however, effect more than one (1) such reduction per Purchase Interval. (ii) The Participant may, prior to the commencement of any new Purchase Interval within the offering period, increase the rate of his or her payroll deduction by filing the appropriate form with the Plan Administrator. The new rate (which may not exceed the fifteen percent (15%) maximum) shall become effective on the start date of the first Purchase Interval following the filing of such form. B. Payroll deductions shall begin on the first pay day following the Participant's Entry Date into the offering period and shall (unless sooner terminated by the Participant) continue through the pay day ending with or immediately prior to the last day of that offering period. The amounts so collected shall be credited to the Participant's book account under the Plan, but no interest shall be paid on the balance from time to time outstanding in such account. The amounts collected from the Participant shall not be required to be held in any segregated account or trust fund and may be commingled with the general assets of the Corporation and used for general corporate purposes. C. Payroll deductions shall automatically cease upon the termination of the Participant's purchase right in accordance with the provisions of the Plan. D. The Participant's acquisition of Common Stock under the Plan on any Purchase Date shall neither limit nor require the Participant's acquisition of Common Stock on any subsequent Purchase Date, whether within the same or a different offering period. VII. PURCHASE RIGHTS A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a separate purchase right for each offering period in which he or she participates. The purchase right shall be granted on the Participant's Entry Date into the offering period and shall provide the Participant with the right to purchase shares of Common Stock, in a series of successive installments over the remainder of such offering period, upon the terms set forth below. The Participant shall execute a stock purchase agreement embodying such terms and such other provisions (not inconsistent with the Plan) as the Plan Administrator may deem advisable. Under no circumstances shall purchase rights be granted under the Plan to any Eligible Employee if such individual would, immediately after the grant, own (within the meaning of -3- Code Section 424(d)) or hold outstanding options or other rights to purchase, stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Corporation or any Corporate Affiliate. B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be automatically exercised in installments on each successive Purchase Date within the offering period, and shares of Common Stock shall accordingly be purchased on behalf of each Participant on each such Purchase Date. The purchase shall be effected by applying the Participant's payroll deductions for the Purchase Interval ending on such Purchase Date to the purchase of whole shares of Common Stock at the purchase price in effect for the Participant for that Purchase Date. C. PURCHASE PRICE. The purchase price per share at which Common Stock will be purchased on the Participant's behalf on each Purchase Date within the offering period shall be equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of Common Stock on the Participant's Entry Date into that offering period or (ii) the Fair Market Value per share of Common Stock on that Purchase Date. D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common Stock purchasable by a Participant on each Purchase Date during the offering period shall be the number of whole shares obtained by dividing the amount collected from the Participant through payroll deductions during the Purchase Interval ending with that Purchase Date by the purchase price in effect for the Participant for that Purchase Date. However, the maximum number of shares of Common Stock purchasable per Participant on any one Purchase Date shall not exceed five thousand (5,000) shares, subject to periodic adjustments in the event of certain changes in the Corporation's capitalization. In addition, the maximum aggregate number of shares of Common Stock purchasable in the aggregate by all Participants on any one Purchase Date shall not exceed five hundred thousand (500,000) shares, subject to periodic adjustments in the event of certain changes in the Corporation's capitalization. However, the Plan Administrator shall have the discretionary authority, exercisable prior to the start of any offering period under the Plan, to increase or decrease the limitations to be in effect for the number of shares purchasable per Participant and in total by all Participants on each Purchase Date during that offering period. E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied to the purchase of shares of Common Stock on any Purchase Date because they are not sufficient to purchase a whole share of Common Stock shall be held for the purchase of Common Stock on the next Purchase Date. However, any payroll deductions not applied to the purchase of Common Stock by reason of the limitation on the maximum number of shares purchasable per Participant or in the aggregate on the Purchase Date shall be promptly refunded to the Participant. F. TERMINATION OF PURCHASE RIGHT. The following provisions shall govern the termination of outstanding purchase rights: (i) A Participant may, at any time prior to the next scheduled Purchase Date in the offering period, terminate his or her outstanding purchase right by filing the -4- appropriate form with the Plan Administrator (or its designate), and no further payroll deductions shall be collected from the Participant with respect to the terminated purchase right. Any payroll deductions collected during the Purchase Interval in which such termination occurs shall, at the Participant's election, be immediately refunded or held for the purchase of shares on the next Purchase Date. If no such election is made at the time such purchase right is terminated, then the payroll deductions collected with respect to the terminated right shall be refunded to the Participant as soon as possible. (ii) The termination of such purchase right shall be irrevocable, and the Participant may not subsequently rejoin the Plan for the Purchase Interval for which the terminated purchase right was granted or for any subsequent Purchase Interval that commences 30 days or less after the effective date of the termination. In order to resume participation in the Plan for any subsequent Purchase Interval, such individual must re-enroll in the Plan (by making a timely filing of the prescribed enrollment forms) on or before his or her scheduled Entry Date into that Purchase Interval. (iii) Should the Participant cease to remain an Eligible Employee for any reason (including death, disability or change in status) while his or her purchase right remains outstanding, then that purchase right shall immediately terminate, and all of the Participant's payroll deductions for the Purchase Interval in which the purchase right so terminates shall be immediately refunded. However, should the Participant cease to remain in active service by reason of an approved unpaid leave of absence, subject to the remaining provisions of this paragraph (iii), the Participant shall have the right, exercisable up until the last business day of the Purchase Interval in which such leave commences, to (a) withdraw all the payroll deductions collected to date on his or her behalf for that Purchase Interval or (b) have such funds held for the purchase of shares on his or her behalf on the next scheduled Purchase Date. If no such election is made by the Participant prior to the last business day of the Purchase Interval, then all of the Participant's payroll deductions for such Purchase Interval shall be immediately refunded to the Participant. In no event, however, shall any further payroll deductions be collected on the Participant's behalf during such leave. Upon the Participant's return to active service (i) within ninety (90) days following the commencement of such leave or (ii) prior to the expiration of any longer period for which such Participant's right to reemployment with the Corporation is guaranteed by either statute or contract, his or her payroll deductions under the Plan shall automatically resume at the rate in effect at the time the leave began, unless the Participant withdraws from the Plan prior to his or her return. However, should the Participant's leave of absence exceed ninety (90) days and his or her re- employment rights not be guaranteed by either statute or contract, then the Participant's status as an Eligible Employee will be deemed to terminate on the ninety-first (91st) day of that leave and such Participant's purchase right for the Purchase Interval in which that leave began shall thereupon terminate and all of the Participant's payroll deductions for the Purchase Interval in which such ninety-first (91st) day occurs shall be immediately refunded to the Participant. An individual who returns to active employment following such a leave shall be treated as a new Employee for purposes of the Plan and must, in order to resume participation in the Plan, re-enroll in the Plan (by making a timely filing of the prescribed enrollment forms) on or before the start date of the new Purchase Interval. -5- G. CHANGE IN CONTROL. Each outstanding purchase right shall automatically be exercised, immediately prior to the effective date of any Change in Control, by applying the payroll deductions of each Participant for the Purchase Interval in which such Change in Control occurs to the purchase of whole shares of Common Stock at a purchase price per share equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of Common Stock on the Participant's Entry Date into the offering period in which such Change in Control occurs or (ii) the Fair Market Value per share of Common Stock immediately prior to the effective date of such Change in Control. However, the applicable limitation on the number of shares of Common Stock purchasable per Participant shall continue to apply to any such purchase, but not the limitation applicable to the maximum number of shares of Common Stock purchasable in the aggregate. The Corporation shall use its best efforts to provide at least ten (10) days' prior written notice of the occurrence of any Change in Control, and Participants shall, following the receipt of such notice, have the right to terminate their outstanding purchase rights prior to the effective date of the Change in Control. H. PRORATION OF PURCHASE RIGHTS. Should the total number of shares of Common Stock to be purchased pursuant to outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the Plan, the Plan Administrator shall make a pro-rata allocation of the available shares on a uniform and nondiscriminatory basis, and the payroll deductions of each Participant, to the extent in excess of the aggregate purchase price payable for the Common Stock pro-rated to such individual, shall be refunded. I. ASSIGNABILITY. The purchase right shall be exercisable only by the Participant and shall not be assignable or transferable by the Participant. J. SHAREHOLDER RIGHTS. A Participant shall have no shareholder rights with respect to the shares subject to his or her outstanding purchase right until the shares are purchased on the Participant's behalf in accordance with the provisions of the Plan and the Participant has become a holder of record of the purchased shares. VIII. ACCRUAL LIMITATIONS A. No Participant shall be entitled to accrue rights to acquire Common Stock pursuant to any purchase right outstanding under this Plan if and to the extent such accrual, when aggregated with (i) rights to purchase Common Stock accrued under any other purchase right granted under this Plan and (ii) similar rights accrued under other employee stock purchase plans (within the meaning of Code Section 423) of the Corporation or any Corporate Affiliate, would otherwise permit such Participant to purchase more than Twenty-Five Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate Affiliate (determined on the basis of the Fair Market Value per share on the date or dates such rights are granted) for each calendar year such rights are at any time outstanding. B. For purposes of applying such accrual limitations to the purchase rights granted under the Plan, the following provisions shall be in effect: -6- (i) The right to acquire Common Stock under each outstanding purchase right shall accrue in a series of installments on each successive Purchase Date during the offering period on which such right remains outstanding. (ii) No right to acquire Common Stock under any outstanding purchase right shall accrue to the extent the Participant has already accrued in the same calendar year the right to acquire Common Stock under one (1) or more other purchase rights at a rate equal to Twenty-Five Thousand Dollars ($25,000) worth of Common Stock (determined on the basis of the Fair Market Value per share on the date or dates of grant) for each calendar year such rights were at any time outstanding. C. If by reason of such accrual limitations, any purchase right of a Participant does not accrue for a particular Purchase Interval, then the payroll deductions which the Participant made during that Purchase Interval with respect to such purchase right shall be promptly refunded. D. In the event there is any conflict between the provisions of this Article and one or more provisions of the Plan or any instrument issued thereunder, the provisions of this Article shall be controlling. IX. EFFECTIVE DATE AND TERM OF THE PLAN A. The Plan was adopted by the Board on September 29, 2000 and shall become effective at the Effective Time, provided no purchase rights granted under the Plan shall be exercised, and no shares of Common Stock shall be issued hereunder, until (i) the Plan shall have been approved by the shareholders of the Corporation and (ii) the Corporation shall have complied with all applicable requirements of the 1933 Act (including the registration of the shares of Common Stock issuable under the Plan on a Form S-8 registration statement filed with the Securities and Exchange Commission), all applicable listing requirements of any stock exchange (or the Nasdaq National Market, if applicable) on which the Common Stock is listed for trading and all other applicable requirements established by law or regulation. In the event such shareholder approval is not obtained, or such compliance is not effected, within twelve (12) months after the date on which the Plan is adopted by the Board, the Plan shall terminate and have no further force or effect, and all sums collected from Participants during the initial offering period hereunder shall be refunded. B. Unless sooner terminated by the Board, the Plan shall terminate upon the earliest of (i) the tenth anniversary of the Effective Time, (ii) the date on which all shares available for issuance under the Plan shall have been sold pursuant to purchase rights exercised under the Plan or (iii) the date on which all purchase rights are exercised in connection with a Change in Control. No further purchase rights shall be granted or exercised, and no further payroll deductions shall be collected, under the Plan following such termination. X. AMENDMENT/TERMINATION OF THE PLAN A. The Board may alter, amend, suspend or terminate the Plan at any time to become effective immediately following the close of any Purchase Interval. However, the Plan may be amended or terminated immediately upon Board action, if and to the extent necessary to -7- assure that the Corporation will not recognize, for financial reporting purposes, any compensation expense in connection with the shares of Common Stock offered for purchase under the Plan, should the financial accounting rules applicable to the Plan at any time require the recognition of compensation expense in the absence of such amendment or termination. B. In no event may the Board effect any of the following amendments or revisions to the Plan without the approval of the Corporation's shareholders: (i) increase the number of shares of Common Stock issuable under the Plan or the maximum number of shares purchasable per Participant or in the aggregate by all Participants on any one Purchase Date, except for permissible adjustments in the event of certain changes in the Corporation's capitalization, (ii) alter the purchase price formula so as to reduce the purchase price payable for the shares of Common Stock purchasable under the Plan or (iii) modify the eligibility requirements for participation in the Plan. XI. GENERAL PROVISIONS A. All costs and expenses incurred in the administration of the Plan shall be paid by the Corporation; however, each Plan Participant shall bear all costs and expenses incurred by such individual in the sale or other disposition of any shares purchased under the Plan. B. Nothing in the Plan shall confer upon the Participant any right to continue in the employ of the Corporation or any Corporate Affiliate for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Corporate Affiliate employing such person) or of the Participant, which rights are hereby expressly reserved by each, to terminate such person's employment at any time for any reason, with or without cause. C. The provisions of the Plan shall be governed by the laws of the State of California without resort to that State's conflict-of-laws rules. D. The Corporation and each Participating Corporation shall have the right to take whatever steps the Plan Administrator deems necessary or appropriate to comply with all applicable federal, state and local income and employment tax withholding requirements, and the Corporation's obligations to deliver shares under this Plan shall be conditioned upon compliance with all such withholding tax requirements. Without limiting the generality of the foregoing, the Corporation and each Participating Corporation shall have the right to withhold taxes from any other compensation or other amounts which it may owe to the Participant, or to require the Participant to pay to the Corporation or the Participating Corporation the amount of any taxes which the Corporation or the Participating Corporation may be required to withhold with respect to such shares. In this connection, the Plan Administrator may required the Participant to notify the Plan Administrator, the Corporation or a Participating Corporation before the Participant sells or otherwise disposes of any shares acquired under this Plan. -8- SCHEDULE A ---------- CORPORATIONS PARTICIPATING IN ----------------------------- EMPLOYEE STOCK PURCHASE PLAN ---------------------------- AS OF THE EFFECTIVE TIME ------------------------ Multilink Technology Corporation SCHEDULE A -1- APPENDIX -------- The following definitions shall be in effect under the Plan: A. BOARD shall mean the Corporation's Board of Directors. B. CASH EARNINGS shall mean the (i) base salary payable to a Participant by one or more Participating Companies during such individual's period of participation in one or more offering periods under the Plan plus (ii) all overtime payments, bonuses, commissions, current profit-sharing distributions and other incentive-type payments. Such Cash Earnings shall be calculated before deduction of (A) any income or employment tax withholdings or (B) any pre-tax contributions made by the Participant to any Code Section 401(k) salary deferral plan or any Code Section 125 cafeteria benefit program now or hereafter established by the Corporation or any Corporate Affiliate. However, Cash Earnings shall not include any contributions made on the Participant's behalf by the Corporation or any Corporate Affiliate to any employee benefit or welfare plan now or hereafter established. C. CHANGE IN CONTROL shall mean either of the following shareholder- approved transactions to which the Corporation is a party: (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, (ii) a sale, transfer or other disposition of all or substantially all of the assets of the Corporation, 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. CORPORATE AFFILIATE shall mean any parent or subsidiary corporation of the Corporation (as determined in accordance with Code Section 424), whether now existing or subsequently established. G. 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. APPENDIX -1- H. EFFECTIVE TIME shall mean the time at which the Underwriting Agreement is executed and the Common Stock priced for the initial public offering. Any Corporate Affiliate which becomes a Participating Corporation after such Effective Time shall designate a subsequent Effective Time with respect to its employee-Participants. I. ELIGIBLE EMPLOYEE shall mean any person who is employed by a Participating Corporation on a basis under which he or she is regularly expected to render more than twenty (20) hours of service per week for more than five (5) months per calendar year for earnings considered wages under Code Section 3401(a). J. ENTRY DATE shall mean the date an Eligible Employee first commences participation in the offering period in effect under the Plan. The earliest Entry Date under the Plan shall be the Effective Time. 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 the initial offering period which begins at the Effective Time, the Fair Market Value shall be deemed to be equal to the price per share at which the Common Stock is sold in the initial public offering pursuant to the Underwriting Agreement. L. 1933 ACT shall mean the Securities Act of 1933, as amended. M. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended. N. PARTICIPANT shall mean any Eligible Employee of a Participating Corporation who is actively participating in the Plan. O. PARTICIPATING CORPORATION shall mean the Corporation and such Corporate Affiliate or Affiliates as may be authorized from time to time by the Board to extend the benefits of the Plan to their Eligible Employees. The Participating Corporations in the Plan are listed in attached Schedule A. APPENDIX -2- P. PLAN shall mean the Corporation's 2000 Employee Stock Purchase Plan, as set forth in this document. Q. PLAN ADMINISTRATOR shall mean the committee of two (2) or more Board members appointed by the Board to administer the Plan. R. PURCHASE DATE shall mean the last business day of each Purchase Interval. The initial Purchase Date shall be June 30, 2001. S. PURCHASE INTERVAL shall mean each successive six (6)-month period within the offering period at the end of which there shall be purchased shares of Common Stock on behalf of each Participant. T. SEMI-ANNUAL ENTRY DATE shall mean the first business day in July and January each year on which an Eligible Employee may first enter an offering period. U. STOCK EXCHANGE shall mean either the American Stock Exchange or the New York Stock Exchange. V. UNDERWRITING AGREEMENT shall mean the agreement between the Corporation and the underwriter or underwriters managing the initial public offering of the Common Stock. APPENDIX -3- AMENDMENT NO. 1 TO 2000 EMPLOYEE STOCK PURCHASE PLAN ---------------------------------------------------- Section III.A. of the Purchase Plan is hereby deleted in its entirety and replaced with the following: "The stock purchasable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares of Common Stock purchased on the open market. The number of shares of Common Stock initially reserved for issuance under the Plan shall not exceed two million seventy-one thousand six hundred fifty-two (2,071,652) shares." Section III.B. of the Purchase Plan is hereby deleted in its entirety and replaced with the following: "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 2002, by an amount equal to one percent (1%) 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 1,000,000 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 11,500,000 shares." Section III.C. of the Purchase Plan is hereby amended by removing the period and adding the following: "and (v) the maximum number and class of securities by which the share reserve is to increase automatically each calendar year pursuant to the provisions of Section III.B. of the Plan." EX-10.12 7 dex1012.txt SUPPLY AGREEMENT DATED JUNE 29, 1997 Exhibit 10.12 SUPPLY AGREEMENT ---------------- SUPPLY AGREEMENT dated as of June 29, 1997, between Multilink Technology Corporation ("Multilink") a corporation organized in the State of California, U.S.A, with offices at 2601 Ocean Park Boulevard, Suite 108, Santa Monica California 90405 (hereinafter "Buyer") and TRW Inc., a corporation organized in the State of Ohio, U.S.A., acting through its Space & Electronics Group, with offices at One Space Park, Redondo Beach, California 90278, U.S.A. (hereinafter "TRW"). WHEREAS, Buyer desires to purchase, and TRW desires to provide, the Products (as defined below) specified in Exhibit 1A to this Agreement, and the parties desire to define the terms and conditions under which the same will be furnished; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the parties hereto agree as follows: Article 1 Definitions and Priority 1.1 Definitions: The following words and phrases shall have the meanings set ----------- forth below: Agreement: This Supply Agreement between TRW and Buyer including the following Exhibits, attached hereto and made a part hereof: Exhibit 1A: List of Products Exhibit 1B: Price, Minimum Annual Quantities and Site Exhibit 1C: HEMT and HBT Process Control Monitor Specifications Exhibit 3: Order Form Contract Price: Defined in Section 5.1. Delivery Date(s): Defined in Section 7.1. Effective Date: Defined in Article 4. Products: The products described in Exhibit 1A to be supplied by TRW. Maskset: Photolithographic plates used for precision etching and material deposition processing of monolithic integrated circuits as referenced in Exhibit 1A. Site: Buyer's facility or other location identified in Exhibit 1B as the destination to which transportation is to be arranged for deliverable items. TRW Plant: Each of the factories or establishments of TRW and its suppliers located in the United States. 1.2 Priority: In case of any inconsistencies between this Agreement and -------- any of the Exhibits, the text of this Agreement shall prevail. Article 2 Subject Matter of Agreement: Supply and Requirements ---------------------------------------------------- 2.1 Supply. TRW hereby agrees to sell to Buyer and Buyer hereby agrees to ------ buy from TRW, on and subject to the terms and conditions contained in this Agreement, the Products listed in Exhibit 1A 2.2 Requirements: Buyer shall buy from TRW no less than the annual minimum ------------ quantities of Products set forth in Exhibit 1B, and TRW agrees to sell Buyer the annual quantities of Products set forth in such Exhibit. 2.3 Deletion of Products: TRW reserves the right to discontinue the -------------------- manufacture or sale of, or otherwise render or treat as obsolete, any or all of the products covered by this Agreement upon at least one hundred eighty (180) days prior written notice to Buyer. 2.4 Exception: The deletion of any Product pursuant to Section 2.3 will --------- not relieve, however, TRW of its obligation to deliver any Product for which an Order has been accepted by TRW pursuant to Article 3, specifically including TRW's obligation to supply Products under Orders that provide for deliveries over multiple years. Article 3 Basic Ordering Agreement ------------------------ 3.1 Purchase Order: This Agreement shall serve as a basic ordering -------------- agreement under which Buyer may place orders to TRW. Buyer shall submit an order in the form attached hereto as Exhibit 3 ("Order") for each Product or Service hereunder in purchase order ("PO") form which references this Agreement. PO's shall identify the Product(s) or Service(s) to be purchased by Buyer pursuant to Exhibits 1A and 1B. If Services are to be purchased, Buyer shall also identify funding in the PO. 3.2 Acceptance of Orders: TRW shall use good faith reasonable efforts to -------------------- accept and supply all Orders for Products which Buyer submits hereunder, and unless otherwise agreed, TRW shall deliver Products so ordered on or before the delivery dates or during the performance periods specified in each Order. All preprinted terms and conditions contained in any Order are superseded by the terms and conditions of this Agreement. Notwithstanding the foregoing, TRW shall have no -2- obligation to accept and shall not be deemed to have accepted; unless signed by TRW, any Order (i) for any Products not listed in Exhibit 1A hereto or revisions thereof; or (ii) which specifies a delivery date which is less than that specified in Exhibit 1B. 3.4 Order Procedure: TRW shall give Buyer notice of its acceptance or --------------- rejection of any Order within five (5) working days after receipt of such Order. If TRW rejects any such Order, it shall specify in such notice the reasons for rejection. 3.5 Additional Products: The parties may, from time to time, amend ------------------- Exhibit 1A to add thereto any additional Products which TRW, during the term of this Agreement, generally offers for sale and Buyer may purchase same under this Agreement. 3.6 Deletion of Products: Subject to TRW's obligations under Article 2 -------------------- hereof, should TRW discontinue offering for sale any Products listed in Exhibit 1A, TRW may delete such Products from Exhibit 1A, effective one hundred eighty (180) calendar days after giving Buyer notice of such deletion. Other provisions hereof notwithstanding, the deletion of any Products pursuant to this Section 3.6 shall not relieve TRW from its obligation to deliver Products for which an Order has been accepted by TRW pursuant to Section 3.4. 3.7 Sales Forecasts: Buyer shall submit to TRW on the Effective Date and --------------- thereafter at thirty (30) days before the start of each calendar quarter during the term hereof a written forecast of its best estimate of its requirements for Products during the next four (4) calendar quarters. Such forecast shall list separately for each quarter during the period covered by the forecast the amount of Products which Buyer expects to require during such quarter. Such forecasts are not intended to be binding on Buyer. Article 4 Effective Date and Term ----------------------- This Agreement shall be effective and binding on the parties as of the first date noted above when signed by Buyer and TRW (the "Effective Date") and shall remain in force and effect until December 31, 2002. Article 5 Contract Price Taxes. -------------------- Transportation, Expenses and Charges ------------------------------------ 5.1 Price: Buyer shall pay TRW for the performance of TRW's obligations ----- hereunder, the prices for Products and Services stated in Exhibit 1B in accordance with the provisions of this Article 5. The aforementioned price is hereinafter referred to as the "Contract Price." 5.2 Taxes for Orders: Buyer will pay TRW the amount of any sales or use ---------------- taxes, or similar taxes, assessments or charges imposed by any governmental entity -3- and paid by TRW in respect of any Order. Buyer will pay such taxes with the purchase price for Products, provided such taxes are separately stated by TRW in invoices submitted pursuant to the provisions hereof. Buyer's liability hereunder does not extend to taxes based on possession prior to delivery of Products, or to income or corporate excise taxes assessed against TRW. Buyer also will be responsible for the payment of any penalties charged TRW for the late payment of taxes caused by Buyer's late payment. Buyer will provide TRW with its resale certificate number. 5.4 Resale Certificate: Where a resale certificate or document indicating ------------------ that Products are purchased for resale provides an exemption from liability of either party for any taxes, assessments, or other charges incurred under this Agreement, the other party will provide such certificate or evidence to the first party in timely fashion and proper form if the second party wishes to take the benefit of such exemption, and thereupon, the second party will have no obligation hereunder to pay or reimburse the first party for any such exempted taxes, assessment or charges. 5.5 Transportation Expenses: TRW shall pay for all expenses of handling, ----------------------- freight, and other transportation expenses including, without limiting the foregoing, all packing and special handling charges for air shipment incurred in connection with the delivery of the Products from the TRW Plant to the Site. Article 6 Payment ------- Payment for Products and Services and all other obligations hereunder shall be in United States dollars (U.S.D.) and shall be due and payable in the amounts and at the time(s) as set forth as follows. Payment terms for Products and Services are net thirty (30) days upon receipt of TRW's invoice. Payment of other charges, if any, provided for in this Agreement shall be due and payable within thirty (30) days after receipt of TRW's invoice thereof. Payments to TRW shall be made to TRW's electronic funds transfer account which is as follows: Bank of America Telex - MCI #67652 ABA 121000358 TRW Space & Defense TRW Account # 06005-04132 or via mail to: TRW Space & Defense File No. ______ Los Angeles, CA 90074-1818 Outstanding invoices remaining unpaid after thirty (30) days shall be subject to a charge of one percent (1%) of the amount of the invoice per month or prorated for a partial month. -4- Article 7 Shipment, Title, and Risk of Loss --------------------------------- 7.1 Delivery of Products: TRW shall arrange for and place the Products in ------------------- the possession of a common carrier on or before the period specified in Exhibit 1B for delivery to Buyer F.O.B. docks at the TRW Plant. TRW shall arrange for shipment of the items by common carrier to the Site. 7.2 Protection and Packing of the Products: TRW shall arrange to have all -------------------------------------- Products suitably packaged in accordance with good commercial practices. Unless otherwise provided, all packing containers used by TRW shall be non-returnable. 7.3 Risk of Loss and Title: Risk of loss to Products shall pass to Buyer ---------------------- on delivery to the carrier at the TRW Plant, notwithstanding any provisions for payment of freight or insurance by TRW, or the form of shipping documents, or the breach or default by TRW at the time of loss. Risk of loss of Products sent to TRW for adjustment shall remain with Buyer until such are received by TRW at the TRW Plant. 7.4 Shipping Documents: After Products have been shipped, TRW shall ------------------ deliver to Buyer one (1) copy of the waybill. 7.5 Access by Buyer: Subject to United States law and security --------------- regulations, Buyer's representatives shall have the right, during reasonable business hours, to enter the TRW Plant in order to inspect visually the manufacturing progress of Products. Article 8 Factory Testing --------------- Prior to delivery, TRW or its suppliers shall perform standard quality control inspections and tests of Products as specified in Exhibit A. Records of such tests shall be retained by TRW and remain available for review by Buyer for at least one (1) year after the date(s) of delivery. Article 9 Warranty -------- 9.1 Warranty: TRW warrants that immediately upon delivery but not -------- thereafter, each Product shall comply in all material respects with the PCM test protocol, as it relates thereto. Promptly after receipt of written notice from Buyer that any Products are non-conforming, TRW shall replace such non- conforming Products. Any non-conforming Products must be returned for inspection to the TRW Plant. Buyer shall repay all freight charges to return any such products to TRW. TRW shall deliver replaced Products freight prepaid to the Site. -5- 9.2 Exclusion: THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, WHETHER --------- STATUTORY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY EXCLUDED. TRW'S WARRANTY OBLIGATIONS AND BUYER'S REMEDIES ARE SOLELY AND EXCLUSIVELY AS STATED IN THIS ARTICLE 9. Article 10 Delays ------ 10.1 Force Majeure: The date on which each party's obligations (except the ------------- payment of money) 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; the laws, actions, or inactions of any governmental authority in either its sovereign or contractual capacity; civil or military conflicts; riot; revolution; fires; floods; earthquakes; walkouts; strikes; labor disputes; material shortages; epidemics; and embargoes. Such extension shall apply whether or not there is another concurrent cause of delay. 10.2 Termination: If the delays resulting from any of the causes stated in ----------- Section 10.1 extend in the aggregate for more than one hundred eighty (180) days and the parties have not agreed upon a revised basis for continuing work on a PO at the end of such delays, including adjustment of the Contract Price, then either party, upon thirty (30) days written notice, may terminate such PO with respect to the unexecuted portion of the work whereupon Buyer shall pay TRW its termination charges as provided in Section 10.3 below. 10.3 Termination Charges: Buyer may terminate a PO for any reason upon ten ------------------- (10) days written notice to TRW. In this event, TRW shall promptly submit to Buyer a detailed written statement and supporting documentation (such as TRW incurred cost report and vendor invoices) of TRW's total costs incurred in the performance of work on such PO and the total cost resulting from such termination as determined in accordance with TRW's standard accounting practices and, if requested by Buyer, verified to Buyer by TRW's independent auditors at Buyer's expense (hereinafter referred to as the "Total Verified Termination Cost"). The Total Verified Termination Cost for a PO shall include the following: (1) one hundred percent (100%) of the total termination costs incurred by TRW, including but not limited to any committed and/or termination costs incurred by TRW's suppliers and vendors, less the amounts previously paid by Buyer pursuant to the PO; (2) the list price of any completed Products and Services under the PO pursuant to Exhibit B; (3) TRW's costs incurred in performing uncompleted work under the PO, plus profit in the amount of fifteen percent (15%) of these Products and Services, and; (4) any other appropriate charges incurred. -6- The Total Verified Termination Cost shall be paid by Buyer within thirty (30) days after receipt of TRW's invoice therefor. Article 11 Transfers and Assignments ------------------------- 11.1 Transfer by TRW: Neither party shall, without the consent in writing --------------- of the other party, which shall not be unreasonably withheld, assign or transfer this Agreement or any PO hereunder or the benefits or obligations thereof or any part thereof to any other person other than a subsidiary wholly owned by such party, provided that this shall not affect any right of such party to assign, either absolutely or by way of charge, any moneys due or to become due to it or which may become payable to it under this Agreement. 11.2 Release of Obligations: No assignment or transfer of any right or duty ----------------------- hereunder by either party shall constitute a novation or otherwise release or relieve such party of its obligations hereunder. Article 12 Default ------- 12.1 Event of Default: An Event of Default on the part of either party ---------------- shall exist under this Agreement or any PO hereunder if: (a) Such party fails to pay the other party any amount required to be paid when due and payable and such failure continues for ten (10) days after written notice to such party; or (b) Such party fails to perform any other material obligation required to be performed by it under any provision of this Agreement or a within thirty (30) days after notice from the other party that such performance has become due; provided, however, Buyer shall have no right to terminate this Agreement or a PO for TRW's default so long as corrective action is being diligently pursued by TRW in a manner that demonstrates that TRW's obligations hereunder shall be completed in sufficient time to allow Buyer to meets its end-use requirements for the Products. 12.2 Remedies Available for Default: Subject to other provisions hereof ------------------------------ which expressly limit the remedies available hereunder, if an Event of Default as defined in Section 12.1 exists on the part of either party, then the other party may terminate this Agreement and/or the applicable PO hereunder upon giving written notice of termination and pursue any other remedies available at law or in equity. -7- Article 13 Limitation of Liability ----------------------- 13.1 Infringement: TRW agrees that it shall to the extent its GaAs HBT ------------ and HEMT process and associated monolithic components are concerned, at its own expense and at its option, defend or settle any claim, suit, or proceeding brought against Buyer, based on an allegation that a Product furnished under this Agreement constitutes a direct or a contributory infringement of any claim of any patent, mask work, or copyright, which exists, or for which application exists, as of the date of this Agreement. This obligation shall be effective only if Buyer shall have made all payments then due and if TRW is notified of said allegation promptly in writing and given authority, information, and assistance for the settlement or defense of such claim, suit, or proceeding. TRW shall pay all damages and costs assessed in such suit or proceedings. In the event of a final adjudication by a court of competent jurisdiction that its Product infringes or violates any third party intellectual property right or if the use or sale thereof is enjoined, or if the provisions of any negotiated settlement agreement prohibit the use of the Product, TRW shall at its sole option and its own expense, either: (a) procure for Buyer the right to continue using the Product; or (b) replace it with a substantially equivalent non- infringing product; or (c) modify it so it becomes non-infringing but substantially equivalent; or (d) if none of the above is reasonably available (i.e., if the costs/damages/royalties relating to (a) through (c) above exceed eighty percent (80%) of the purchase price of the Products concerned), terminate Buyer's right to use the Product and return to Buyer the price originally paid by Buyer to TRW. 13.2 Limitation of Liability: The total liability of TRW on all claims ----------------------- in total whether in contract, tort (including sole or concurrent negligence), or otherwise, arising out of, connected with, or resulting from the manufacture, sale, delivery, resale, repair, replacement, or use of Products or Services shall not exceed in the aggregate [*] dollars ($ [*] ) or the Contract Price for the Product or Services, whichever is less; provided, however, the limitation on liability set forth in this Section 13.2 shall not apply to a material breach of this Agreement resulting from a failure by TRW to honor its obligation to accept and supply all Orders for Products from Buyer in accordance with Article 3 hereof, but shall, as noted herein, apply to claims by Buyer resulting from TRW's manufacture, sale and delivery of Products as contemplated herein. 13.3 Damages: In no event shall TRW be liable for any special, indirect, ------- incidental or consequential damages under this Agreement or any PO, however caused, whether by TRW's sole or concurrent negligence or otherwise, including, but not limited to costs and expenses incurred in connection with labor, overhead, transportation, installation, or removal of the Products or substitute facilities or supply sources. 13.4 Indemnification: Buyer hereby agrees to defend, protect, hold --------------- harmless, and otherwise indemnify TRW against any and all causes of action or claims based on or arising out of infringement or alleged infringement by Buyer of the copyright, mask works or patent laws and/or claims of unfair competition, including, but Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. -8- not limited to, damages for past infringement and payment of royalties for future use, and all costs incurred in preparing for and conducting the defense of such litigation, including attorneys' fees, incurred by TRW by reason of, or attributable to, directly or indirectly the manufacture of Products to Buyer's design or specifications. Article 14 Notices ------- All notices, requests, consents, and other communications required or permitted to be given under this Agreement must be in writing and mailed by registered or certified mail to the other party at its respective business address as follows: If to TRW: TRW Inc. Space & Electronics Group Electronics Systems & Technology Division One Space Park Redondo Beach, California 90278 Attention: Mr. Chris Johnson Mail Station: E2/5085 Phone: (310) 814-2001 FAX: (310) 813-6402 If to Buyer: Multilink Technology Corp. 2601 Ocean Park Boulevard, Suite 108 Santa Monica, CA 90405 Attention: Dr. Richard Nottenburg Phone: (310) 581-6448, -6444 Fax: (310) 581-6449 Article 15 Contract Change Procedure ------------------------- 15.1 Changes: Any changes to this Agreement after the effective date ------- hereof which relate to: (i) the deletion of Products or Services; (ii) adding additional Products, or Services; (iii) changing or modifying Products or Services; or (iv) making other changes which do not materially alter the scope of this Agreement shall be made in accordance with the procedures set forth in this Article 15. 15.2 Contract Changes Requests: Either party hereto may, from time to ------------------------- time, and at any time during the term hereof request a change, as defined in Section 15.1, in this Agreement. (The party requesting the change is hereinafter referred to as the "Requesting Party.") Requests for changes shall be in writing and shall be addressed and delivered to the other party (the "Notified Party"). Such writing shall be identified as a "Contract Change Request" (or "CCR"), shall carry a sequential number for ease of tracking, shall set forth in detail the nature of the change requested, and shall identify the Products to be changed. -9- 15.3 Procedure: As soon as practical after receipt by the Notified Party --------- of copies of the CCR, the parties shall as necessary meet to discuss the change and to ascertain its cost and schedule impacts, if any. 15.4 Contract Change Notice: If the parties decide to implement a change ---------------------- request, a standard form Contract Change Notice ("CCN") shall be prepared, which CCN shall describe the change, delineate the cost, schedule, and other impacts of the change and the payment terms for any price increase. Execution of a CCN by both parties shall constitute a modification hereof and shall be binding on both parties hereto. 15.5 Exception: Substitutions relative to Products which are purchased --------- items not manufactured by TRW may be made by TRW without the consent of Buyer if such substitutes are of like quality. Article 16 Proprietary Information ----------------------- 16.1 Proprietary Information: For the purpose of this Agreement: ----------------------- (a) "Proprietary Information" shall mean all drawings, documents, ideas, know-how and other information supplied by one Party ("Disclosing Party") to another ("Recipient") (whether disclosed orally, or in documentary form, by demonstration or otherwise) for the purpose of achieving the objectives of this Agreement. (b) "Proper Use" shall mean use of the Proprietary Information solely by the recipient for the objectives of this Agreement. 16.2 Nondisclosure: All Proprietary Infomation furnished shall remain the ------------- property of the Disclosing Party and shall be treated by the Recipient in strict confidence, shall not be used except for Proper Use, shall be disclosed by the Recipient only to persons within the Recipient's company (including companies directly or indirectly more than fifty percent (50%) owned or controlled by the Recipient) who are directly concerned in the Proper Use, and shall not be disclosed to consultants or by the Recipient to any other party without the Disclosing Party's prior written consent, except for Proprietary Information which the Recipient can show was: (a) In the public domain at the time it was disclosed; or (b) Known to the Recipient without restriction at the time of receipt as evidenced by written records; or (c) Published or becomes available to others without restriction through no act or failure to act on the part of the Recipient; or (d) Disclosed inadvertently despite the exercise of the same degree of -10- care as the Recipient takes to preserve and safeguard its own proprietary information; or (e) Known to the Recipient from a source other than the Disclosing Party without breach of this Agreement by the Recipient; or (f) Subsequently designated by the Disclosing Party in writing as no longer proprietary; or (g) Independently developed by the Recipient prior to the date of disclosure; or (h) Disclosed or in a proposal submitted to a customer in the performance of the obligations of a party under this Agreement; provided, however, that any such Proprietary Information disclosed to a customer in a proposal shall be marked with a restrictive legend limiting use thereof to evaluation of such Proposal; or (i) Disclosed after five (5) years from the date of delivery by the Disclosing Party to the Recipient, which five (5) year period shall survive the termination of this Agreement. If any portion of Proprietary Information falls within any one of these exceptions, the remainder shall continue to be subject to the foregoing prohibitions and restrictions. The Recipient of Proprietary Information shall inform its employees of the confidential nature of the Proprietary Information and shall prohibit them from making copies of any of it except where such copies are necessary for the purposes of Proper Use, unless agreed upon by the Disclosing Party. 16.3 Marking: Proprietary Information made available in written form by ------- one party to another party shall be marked with the legend: "MULTILINK PROPRIETARY INFORMATION" or - "TRW PROPRIETARY INFORMATION" as the case may be, or an equivalent conspicuous legend. No sheet or page of any written material shall be so labeled which is not, in good faith, believed by the Disclosing Party to contain Proprietary Information. A Recipient of Proprietary Information hereunder shall have no obligation with respect to any portion of any written material which is not so labeled or any information received orally unless it is identified as proprietary and a written summary of such oral communication, specifically identifying the items of Proprietary Information, is furnished to the Recipient within thirty (30) days of such disclosure. -11- The individuals identified below are the only persons authorized to receive Proprietary Information on behalf of the parties: For Buyer: Dr. Richard Nottenburg For TRW: Mr. Bob Van Buskirk, Dr. Thomas Joseph By written notice to the other party, these representatives may be replaced by another person from the same party. 16.4 Compensation: The parties shall not be obligated to compensate each ------------ other for the transfer of any Proprietary Information under this Agreement and agree that no warranties of any kind are given with respect to such Proprietary Information or any use thereof. No license is hereby granted under any patent, trademark or copyrights with respect to any Proprietary Information. 16.5 Survival: The obligations of the parties concerning confidentiality -------- set forth in this Article 16 shall survive termination or completion of this Agreement. 16.6 Remedies: Each of the parties agrees that the other would be --------- irreparably injured by a breach of the provisions of this Article 16 by such party, that monetary remedies would be inadequate to protect the other against any actual or threatened breach of this Article 16 by the other, and without prejudice to any other rights and remedies otherwise available to such party, the other agrees to the granting of equitable relief, including injunctive relief and specific performance, in the other's favor without proof of actual damage. Article 17 Miscellaneous ------------- 17.1 Headings: 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. 17.2 Remedies: Unless otherwise expressly provided herein, the rights -------- and remedies hereunder are in addition to, and not in limitation of, other rights and remedies under the Agreement, at law or in equity, and exercise of one right or remedy shall not be deemed a waiver of any other right or remedy. 17.3 Modification and Waiver: No cancellation, modification, amendment, ------------------------ deletion, addition, or other change in the Agreement or any provision hereof, 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 part to be bound thereby. No waiver of any right or remedy in respect of any occurrence or event on one occasion shall be deemed a waiver of such right or remedy in respect of such occurrence or event on any other occasion. -12- 17.4 Entire Agreement: With the exception of the Development Agreement ---------------- between the parties dated June 29, 1995, this Agreement supersedes all other agreements, oral or written, heretofore made with respect to the subject hereof and the transactions contemplated hereby and contains the entire agreement of the parties. 17.5 Severability: Any provision hereof prohibited by or unlawful or ------------ unenforceable under any applicable law of any jurisdiction shall as to such jurisdiction be ineffective without affecting any other provision of the Agreement. To the full extent, however, that the provisions of such applicable law may be waived, they are hereby waived, to the end that the Agreement be deemed to be a valid and binding agreement enforceable in accordance with its terms. 17.6 Controlling Law: All questions concerning the validity and operation --------------- of this Agreement and the performance of the obligations imposed upon the parties hereunder shall be governed by the laws of the State of California applicable to contracts entered into and wholly to be performed in such jurisdiction. 17.7 Successors and Assigns: The provisions of this Agreement shall be ---------------------- binding upon and for the benefit of TRW and Buyer and their respective successors and assigns. This provision shall not be deemed to expand or otherwise affect the limitation on assignment and transfers set forth in Article 11 and no party is intended to or shall have any right or interest under this Agreement, except, as provided in Article 11. 17.8 Counterparts: 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. 17.9 Inventions and Patents. Inventions conceived solely by employees of ---------------------- a party under this Agreement shall belong exclusively to such party. Inventions conceived jointly by the parties in the course of work called for in this Agreement shall be subject to the further agreement of the parties. Except as expressly set forth in this Agreement, nothing contained in this Agreement shall be deemed, by implication, estoppel or otherwise, to grant any party any right or license in respect of any patents, inventions, Proprietary Information or other technical data at any time owned by the party hereto. Irrespective of in whose name(s) patent applications are filed, any party which is a co-inventor of an invention shall be entitled to a non-exclusive, royalty-free, transferable license in any patent(s) issued with respect thereto. The understandings set forth in this Section 17.9 are subject to modification as may be required by applicable government regulations. Notwithstanding the above, each party shall have a non-exclusive, royalty-free, non-transferable, worldwide right and license under any inventions, patents, Proprietary Information and technical data owned by the other party and used in Products made under this Agreement, but only to the extent such licenses are required for the limited purpose of enabling a party to perform its obligations under this Agreement or to enable Buyer to sell products incorporating Products made by TRW under this Agreement. -13- 17.10 Ownership of Masksets. Buyer shall retain sole ownership of --------------------- all glass plates ("Masksets") utilized for photolithographic semiconductor processing of MMIC (as defined in Section 17.11 below) designs, and TRW shall retain sole possession of any and all Masksets developed or procured by TRW under this Agreement. TRW shall store Buyer's Masksets at TRW for a maximum period of two (2) years after delivery of all Products manufactured from such Masksets to Buyer and after expiration of such two (2) year storage period may destroy or dispose of such Masksets upon giving Buyer thirty (30) days prior written notice thereof. 17.11 Ownership of MMIC Designs. Buyer shall retain sole ownership ------------------------- rights to its designs for monolithic microwave integrated circuit ("MIMIC") designs. TRW shall retain sole ownership rights to TRW MMIC designs, all individual circuit elements, design libraries, design rule manuals, circuit elements and MMIC fabrication processes for all MMIC designs. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first set forth above. Multilink Technology Corporation By:___________________ Title:________________ TRW INC. By:___________________ Title:________________ -14- Exhibit 1A List of Products ---------------- 1. PCM tested, [*] GaAs HBT processed wafers (from [*] micron process). 2. PCM tested, [*] GaAs HBT processed wafers (from [*] micron process). 3. PCM tested, [*] GaAs HEMT processed wafers (from [*] micron process). Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Exhibit lB Price, Minimum Annual Quantities, Delivery Schedule and Site ------------------------------------------------------------ A. Price: Standard Reduced Product Process Process ------- ------- ------- 1. [*] GaAs HBT ([*] micron) processed wafers $[*] /ea. $[*] /ea. 2. [*] GaAs HBT ([*] micron) processed wafers [*] /ea. [*] 3. [*] GaAs HEMT processed wafers [*] /ea. [*] B. Minimum Annual Quantities: Number of Wafers per Year Product 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- 1. [*]GaAs processed wafers [*] [*] [*] [*] [*] [*] C. Site: Multilink Technology Corporation 2601 Ocean Blvd., Ste. 108 Santa Monica, CA 90405 D. Delivery Schedule: Shipment of PCM Tested Wafers from Release of Mask PG HBT ([*]micron) [*] weeks HBT ([*]micron standard process) [*] weeks HBT ([*]micron reduced process) [*] weeks HEMT [*] weeks (1) [*] Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Exhibit 1C HBT/HEMT Process Control Monitor (PCM) Specifications HBT Digital PCM Foundry Specifications 9 January 1995
Parameter Units Min Max Tvp # Sites Criteria - --------- ----- --- --- --- ------- -------- [*] ([*]) (nano amp) [*] [*] [*] [*]/wafer wafer average [*] Resistance* (ohm) [*] [*] [*] [*]/wafer [*] pass [*] Resistance* (ohm) [*] [*] [*] [*]/wafer [*] pass [*] Thickness (amp) [*] [*] [*] [*]/wafer [*] [*] [*] [*] [*]/wafer [*] pass [*] Thickness (micro meters) [*] [*] [*] [*]/wafer [*] Capacitance (pica farads/millimeter] [*] [*] [*] [*]/wafer wafer average [*] Resistance (ohm/sq) [*] [*] [*] [*]/wafer wafer average [*] Thickness (micro meters) [*] [*] [*] [*]/wafer [*] pass [*] Thickness (micro meters) [*] [*] [*] [*]/wafer [*] (volts) [*] [*] [*] [*]/wafer wafer average [*] (volts) [*] [*] [*] [*]/wafer wafer average
* for a [*] (micro meter) HBT /s/ Matthew M Hoppe 95-1-10 - ------------------------------------ Matt Hoppe, Production Line Manager /s/ Aaron Oki 95-1-10 - ------------------------------------ Aaron Oki, HBT Product Engineering Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Exhibit 3 Sample Order Form
----------------------- P/Q NUMBER: PAGE 1. ------------------------------------- P/Q DATE: ORDER TYPE: CHANGE/CANCEL Normal ------------------------------------- ORDERED SHIP FROM TO - ------------------------------------------------------------------------------------------------------------------------------------ BUYER TERMS ACKNOW- CONFIRM FOR: SHIP VIA COD LEDGE Destination Best Way - ------------------------------------------------------------------------------------------------------------------------------------ QUANTITY QUANTITY NUMBER REQUESTED CHANGE/ LINE ORDERED U / M DESCRIPTION/COMMENTS YOUR ITEM NUMBER PRICE/UNIT DATE CANCEL NUMBER BLANKET TYPE - ------------------------------------------------------------------------------------------------------------------------------------ Ext Price = - -------------------------------------------------------------------------------------------------------------------------------- COMMENTS Total Ext Price = -------------------------------------------------------------------------------------------------- ORDERED BY
Contract Change Notice Amendment No. 1 to TRW/ Multilink Technology Corp. Foundry Services Sales Agreement Agreement No. 68107 THIS AMENDMENT ("Amendment") is made and entered into by and between Multilink Technology Corporation ("Buyer" or "Multilink") and TRW Inc. by and through its Space and Electronics Group, a corporation organized and existing under the laws of Ohio, having offices at Redondo Beach, California, USA ("TRW"). WHEREAS, Buyer and TRW entered into a Sales Agreement No. 68107 ("Agreement") with an effective date of 29 June 1997, and; WHEREAS, TRW and Buyer desire to amend the Agreement in order to implement certain administrative revisions; NOW THEREFORE, the parties agree to amend the Agreement as follows: Article 5.1. Method of Payment - address for payments sent via mail is amended - ------------------------------ to read as follows: TRW Space and Defense, File No.41818, Los Angeles, CA 90074-1818 Article 6. Payment - revise payment terms to net forty-five (45) days. - ------------------ Article 14. Notices - revise TRW point of contact to Mr. Edward Cornejo. - ------------------- Add section 17.12. "Non-Solicitation of TRW Employees" - In consideration of the - ----------------------------------------------------- extended payment term implemented above in Article 6 amendment, Multilink agrees that during the term of this Agreement, it shall not solicit for employment nor hire any TRW employees. Add section 17.13. "Waivers" - It is understood TRW's election not to enforce - --------------------------- any provision hereof or of any order issued hereunder shall not be construed to be a continuing waiver and TRW reserves the right subsequently to enforce such provision. Exhibit 4 -- Payment Schedule -- Multilink's 6 January, 1999 correspondence, - ----------------------------- "Payment Plan for open invoices", is incorporated into the Agreement by this reference. The parties hereto agree that as of 3 April 1999, Multilink shall pay its current and future TRW invoices within 45 days of the invoice date. For the purposes of the Agreement, any receivables not paid within 45 days of invoice date shall be considered past due and assessed the 1% per month late payment fee indicated in the Agreement. The above changes constitute Contract Change Notice Amendment No. 1 to the Agreement. Except as expressly provided hereinabove, all other terms and conditions of the Agreement shall apply herein and remain in full force and effect as previously agreed to between Buyer and TRW. In the event of any conflict between the terms of this Amendment and those of the Agreement, the terms of this Amendment will be deemed to have superseded those of the Agreement and exclusively will govern the matter in question. IN WITNESS WHEREOF, duly authorized representatives of the undersigned parties have executed this Contract Amendment as of 13 January 1999. Multilink Technology Corp. TRW Inc. By: /s/ Richard N. Nottenburg By: /s/ Patrick Reynolds ------------------------- ------------------------ Names: Richard N. Nottenburg Name: Patrick Reynolds ----------------------- ----------------------- Title: President Title: Contracts Manager ----------------------- ----------------------- Date: 1/18/99 Date: 13 January 1999 ----------------------- ----------------------- [LETTERHEAD OF TRW TELECOMMUNICATION] June 30, 1999 Dr. Richard Nottenburg Multilink Technology Corp. 2601 Ocean Park Blvd., Suite 108 Santa Monica, CA 90405 Re: Supply Agreement dated June 29, 1997 by and between TRW Inc. ("TRW") and Multilink Technology Corporation ("MTC") Dear Rich: I very much enjoyed our dinner last night, and I am certainly pleased that we are on a solid path to continue to build the strategic relationship between TRW and Multilink. As we discussed, both companies need the flexibility to adjust the products and technologies in response to market dynamics, and we need to structure our agreements to provide this flexibility. At the same time, we need to make sure that we support this year's rapid growth of Multilink, as that is key to demonstrating the company's performance to enable future financing. I believe the following modification to the Supply Agreement captures this intent. Add to the end of the existing section 2.2 of the Supply Agreement: "; provided, however, that in 1999, TRW will accept all wafer orders from Buyer that TRW can reasonably supply; further provided, that in each of the years 2000, 2001 and 2002, notwithstanding any other provision herein, Buyer shall not be obligated to purchase from TRW, and TRW shall not be obligated to sell to Buyer, more than [*] wafers." If you agree with this modification, please sign below and fax a copy to me so that we can immediately process the outstanding orders you have placed. I am also sending by mail two originals of this letter. Please sign them, retain one for your records, and send me the other copy. Sincerely, AGREED AND ACCEPTED /s/ Wes Bush AS OF July 01, 1999 Wes Bush /s/ Richard N. Nottenburg ------------------------- Dr. Richard Nottenburg Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. EX-10.13 8 dex1013.txt SEMICONDUCTOR DEVELOPMENT AGREEMENT Exhibit 10.13 SEMICONDUCTOR DEVELOPMENT AGREEMENT between MULTILINK TECHNOLOGY CORPORATION and INTERNATIONAL BUSINESS MACHINES CORPORATION IBM/MTC CONFIDENTIAL Page 1 SEMICONDUCTOR DEVELOPMENT AGREEMENT This Semiconductor Development Agreement ("Agreement") is entered into as of May 18, 2000 (the "Effective Date") by and between International Business Machines Corporation, a corporation incorporated under the laws of the State of New York, having an office for the transaction of business at 1580 Route 52, Hopewell Junction, NY ("IBM"), and Multilink Technology Corporation, a corporation incorporated under the laws of California and having an office for the transaction of business at 2850 Ocean Park Boulevard, Suite 335, Santa Monica, CA 90405 ("MTC"). ("IBM" and "MTC" are hereinafter jointly referred to as the "Parties" or individually as a "Party"). Preamble: This Agreement is shall provide MTC with early Access (as defined below) to one or more of IBM's unqualified and unfinished SiGe and CMOS fabrication processes solely for early development of prototypes and does not cover manufacture and sale of completed products. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows: 1. DEFINITIONS ----------- 1.1 "Access" means the activities specified in Task 1 and Task 3B of Section 2.2 hereof. 1.2 "Affiliate" of a Party means a Person: (a) at least fifty percent (50%) of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) or (b) if the Person does not have outstanding shares or securities, other ownership interest (representing the right to make the decisions for such Person) are, now or hereafter, owned or controlled, directly or indirectly, by such Party hereto, but such corporation, company or other entity shall be deemed to be an Affiliate only so long as such percentage of ownership or interest remains at least fifty percent (50%). 1.3 "Change of Control" means a change in ownership or control of a Person effected through any of the following transactions: (i) a merger, consolidation or reorganization approved by the Person's equity holder unless securities representing more than sixty percent (60%) of the total combined voting power of the voting securities of the successor entity are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons beneficially owned such Person's outstanding voting securities immediately prior to such transaction, IBM/MTC CONFIDENTIAL Page 2 (ii) any transfer or other disposition of all or substantially all of the Person's assets, or (iii) the acquisition, directly or indirectly by any person or related group of persons (other than the Person that is the subject of a Change of Control or an Affiliate of such Person) or any Person currently owning, beneficially or of record, equity securities of such Person), of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than forty percent (40%) of the total combined voting power of the Person's outstanding securities. 1.4 "Confidential Information" means IBM Confidential Information, MTC Confidential Information, or both if the context so indicates. 1.5 "Design Review" shall mean a meeting between IBM and MTC, either at an IBM facility or a MTC facility, or via telecon, lasting for up to two (2) days, to be attended by up to four (4) IBM Employees, who will review MTC's Prototype designs with MTC Employees to help MTC conform its Prototype designs to the applicable IBM Fabrication Process. 1.6 "Disclosing Party" means either Party hereunder that discloses its Confidential Information to the other Party. 1.7 "Fabrication Process" for a particular RIT hereunder shall mean IBM's unqualified (as of the Effective Date) [*] IC fabrication process, or IBM's unqualified (as of the Effective Date) BiCMOS7HP SiGe IC fabrication process, or the next follow-on to IBM's BiCMOS7HP SiGe IC fabrication process, or IBM's unqualified (as of the Effective Date) [*] IC and [*] IC fabrication process, if and when they become available during the term of this Agreement. 1.8 "IBM Confidential Information" means any and all information and items disclosed or delivered by IBM to MTC hereunder, that is identified by IBM as confidential, whether written, oral or both, in whatever form disclosed or delivered, whether tangible or intangible (including software). With respect to the IBM Confidential Information referenced in the preceding sentence, IBM agrees (i) to coordinate and control the disclosure thereof with MTC's Technical Coordinator, (ii) if such IBM Confidential Information is disclosed in tangible form, IBM will stamp or otherwise clearly mark such information as IBM Confidential Information, and (iii) if such Confidential Information is disclosed orally, IBM agrees to identity the Confidential Information as confidential at the time of disclosure, and provide to MTC written confirmation thereof within thirty (30) days after such disclosure. Notwithstanding the foregoing, the term "IBM Confidential Information" shall also include the following information and items disclosed hereunder, whether or not identified by IBM as confidential, whether written, oral or both, in whatever form disclosed or delivered, whether tangible or intangible (including software): all product or circuit designs (including schematics, GDS II data, net lists, VHDL code, RTL code, block diagrams and simulation techniques), deliverables, manufacturing processes and techniques, and product plans. IBM/MTC CONFIDENTIAL Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Page 3 1.9 "IBM Deliverable Items" shall mean those items prepared by IBM as a part of the scope of work performed pursuant to a Task, and which items are defined with respect thereto. 1.10 "Integrated Circuit" or "IC" means an integral unit including a plurality of active and passive circuit elements formed at least in part of semiconductor material arranged on or in a single chip. 1.11 "Invention" means any idea, design, concept, technique, invention, discovery or improvement, whether or not patentable, made solely or jointly by one or more Representatives of either IBM or MTC, provided that either the conception or reduction to practice occurs in the performance of work hereunder and during the term of this Agreement. 1.12 "Joint invention" means any idea, design, concept, technique, invention, discovery or improvement, whether or not patentable, made jointly by one or more Employees of IBM with one or more Representatives of MTC, provided that either the conception or reduction to practice occurs in the performance of work hereunder. 1.13 "Person" shall mean any individual, corporation, partnership, joint venture, trust, limited liability company, business association, governmental entity or other entity. 1.14 "Product" shall mean the completed ("production-ready") version of any IC manufactured in a qualified IBM fabrication process having three (3) levels of metal, wire bond pads, and non-military, non-medical and non-nuclear uses, designed by MTC as part of the scope of the work performed pursuant to Task 3. "Product" may also include the additional and/or different features listed in Attachment B. "Product" does not include Prototypes. 1.15 "Prototype" shall mean a preliminary version of a Product under development by MTC, fabricated by IBM using the Fabrication Process, which may or may not be functional. 1.16 "Mask" shall mean a glass reticle containing a series of related images having or representing the predetermined pattern of metallic, insulating or semiconductor material present in or removed from a Prototype, and in which series the relation of the images to one another is that each image has the pattern of the surface of one form of the Prototype. 1.17 "Mask Set" shall mean a complete set of Masks necessary to manufacture a Prototype in the Fabrication Process. 1.18 "MTC Confidential Information" means any and all information and items disclosed or delivered by MTC to IBM hereunder, that is identified by MTC as confidential, whether written, oral or both, in whatever form disclosed or delivered, whether tangible or intangible (including software). With respect to the MTC Confidential Information referenced in the preceding sentence, MTC agrees (i) to coordinate and control the disclosure thereof with IBM's Technical Coordinator, (ii), such MTC Confidential Information is disclosed in tangible form, MTC will stamp or otherwise clearly mark such information as MTC Confidential Information, and (iii) if such Confidential IBM/MTC CONFIDENTIAL Page 4 Information is disclosed orally, MTC agrees to identity the Confidential Information as confidential at the time of disclosure, and provide to IBM written confirmation thereof within thirty (30) days after such disclosure. Notwithstanding the foregoing, the term "MTC Confidential Information" shall also include the following information and items disclosed hereunder, whether or not identified by MTC as confidential, whether written, oral or both, in whatever form disclosed or delivered, whether tangible or intangible (including software): all product or circuit designs (including schematics, GDS II data, net lists, VHDL code, RTL code, block diagrams and simulation techniques), deliverables, manufacturing processes and techniques and product plans, cost data relating to a Joint Project. 1.19 "MTC Deliverable items" shall mean those items prepared by MTC as part of the scope of work performed pursuant to a Task, and which items are defined with respect thereto. 1.20 "Multi-Project Wafer (MPW) Run" shall refer to a RIT which allows for design verification, circuit evaluation and testing by multiple customer designs on the same Wafer in IBM's Fabrication Process. Each Wafer from a MPW Run consists of multiple Sandbox sites and MTC shall be provided one (1) such Sandbox site. All Prototypes on each Wafer from a MPW Run shall include up to five (5) levels of metal and wire bond pads. However, the number of levels of metal associated with each MPW Run will be defined solely and exclusively by IBM prior to that run. 1.21 "Person" shall mean any individual, corporation, partnership, joint venture, trust, limited liability company, business association, governmental entity or other entity. 1.22 "Receiving Party" means either Party hereunder that receives the other Party's Confidential Information. 1.23 "Representative" means, with respect to a Party, that Party's agents, representatives and employees (including attorneys, accountants, consultants, contract employees and advisors). 1.24 "Sandbox" shall refer to a circuit evaluation site on an Wafer from a MPW Run that can accept single or multiple experimental customer designs with very minimal release support from IBM. 1.25 "RIT" shall mean a procedure in which: (1) MTC provides IBM error-free GDS2 formatted data representing a Prototype design; (2) IBM fabricates, or has fabricated, a Mask Set corresponding to the error-free GDS2 formatted data; (3) IBM schedules a corresponding set of [*] Wafer Starts; and (4) IBM processes Wafers as described in Task 3 of Section 2.2. 1.26 "Task" shall mean a development activity defined in Section 2.2. 1.27 "Wafer" shall mean an eight inch (8") wafer as required for the Fabrication Process. 1.28 "Wafer Start" shall mean the release of one (1) Wafer to the Fabrication Process for processing. IBM/MTC CONFIDENTIAL Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Page 5 1.29 "$" shall mean United States dollars. 2. STATEMENT OF WORK ----------------- 2.1 Objectives ---------- This Agreement relates only to development activities for Prototypes to be manufactured in the Fabrication Process. 2.2 Development Activities (Tasks) ------------------------------ The development program to be conducted by IBM and MTC under this Agreement will be conducted by executing the following Tasks. In the case of MTC, all work performed in connection with these Tasks shall be performed solely and exclusively by Representatives of MTC. In the case of IBM, all work performed in connection with these Tasks shall be performed solely and exclusively by Representative of IBM. The description of Tasks below includes work items and prime responsibility therefor. Although prime responsibility is assigned to one Party, the other Party will participate and use commercially reasonable efforts to cooperate fully in any particular work item as required by the relevant Task. Task 1: IBM shall provide MTC with models and design kits created by IBM for use in conjunction with the Fabrication Process, but only for the purposes of evaluating the technology, assessing future product development by MTC and developing and designing Prototypes to be manufactured solely by IBM if MTC elects to have such Prototypes manufactured. Such models and design kits are hereby licensed to MTC under the terms of the IBM Design Kit License attached hereto as Exhibit A. IBM may modify or alter the models and design kits and/or the Fabrication Process. IBM will promptly notify MTC of any such modifications or alterations to the design kits. Modifications or alterations to IBM's Fabrication Process may cause the corresponding Prototype designs to be unuseable for the manufacture of Products. Task 2A: MTC shall use the models and design kits provided by IBM solely to evaluate the technology, assess future product development by MTC and develop Prototype designs adapted to the Fabrication Process and Prototypes to be manufactured solely by IBM if MTC elects to have such Prototypes manufactured. MTC shall use commercially reasonable efforts to develop designs which take advantage of the unique attributes of the Fabrication Process in order to maximize performance and manufacturing yield and to minimize manufacturing cost. Task 2B: IBM shall provide MTC with up to a cumulative total of [*] RITs, [*] per contract year, subject to the payment provisions in sections 3.2 and attachment B. In addition, MTC, at its sole option, can substitute a RIT for a MPW Run, subject to availability from IBM. As part of the Prototype design(s) developed, MTC shall perform all IBM/MTC CONFIDENTIAL Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Page 6 needed circuit design and modeling functions to produce GDS2 formatted data containing such circuits to be fabricated in the Fabrication Process. Fabrication of Prototypes having the additional and/or different features listed in Attachment B shall be subject to the additional payments listed therein. The Parties shall hold a Design Review in connection with each RIT. These Design Reviews will address electrical and physical design issues and release procedures. In connection with each RIT, IBM will accept from MTC's Technical Coordinator (as identified in Section 6.2) a GDS2 formatted data set produced by MTC during the term of this Agreement. IBM will perform additional ground rule checking and may provide consultation to MTC as to where optimization for the Fabrication Process may be possible. Should changes to any such GDS2 formatted data be required to correct ground rule errors or to optimize the Fabrication Process (pattern density, for example), MTC will make these changes and resubmit the GDS2 formatted data set. Under no circumstances will IBM make any (intentional) changes to any GDS2 formatted data set submitted by MTC. Should MTC request IBM to fabricate a Mask Set corresponding to any of the GDS2 formatted data sets, IBM will forward all corresponding, required data and supporting documentation to an internal or third party, where a Mask Set, will be created. Should changes to any GDS2 formatted data set submitted by MTC be required to conform to Mask fabrication rules, MTC will make these changes and resubmit the GDS2 formatted data set. Under no circumstances will IBM make any (intentional) changes to any GDS2 formatted data set submitted by MTC. Upon completion of the fabrication of each Mask Set for Prototype design(s) by or on behalf of IBM, IBM will schedule [*] Wafer Starts. IBM will use commercially reasonable efforts to complete their manufacture. Upon request by MTC for each RIT (and not for any MPW Run), just prior to the passivation and metallization steps associated with each such set of [*] Wafer Starts, IBM will hold up to [*] Wafers and complete the processing of the rest. At the request of MTC, IBM will then (a) scrap the held Wafers; or (b) process the held Wafers in the same manner as those previously processed; or (c) MTC will submit new GDS2 formatted data set for the wiring layers, IBM will create or have created a corresponding Mask Set (subject to the payments discussed immediately hereafter), and IBM will then process the held Wafers using this Mask Set. In step (c), if MTC so requests, IBM will modify wiring masks (not transistor masks) in any Mask Set, subject to a payment for the modified masks plus a one-time engineering payment for the corresponding RIT as referenced in Attachment B. Upon Wafer run completion, IBM shall initially test certain test structures on processed Wafers and shall thereafter deliver Prototypes to MTC in Wafer form or diced if requested by MTC in addition to a copy of data from the test structures which IBM, in IBM/MTC CONFIDENTIAL Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Page 7 its sole discretion, deems appropriate to disclose to MTC. MTC shall perform all Prototype test and characterization measurements specific to MTC's unique circuit designs. Task 3: IBM and MTC shall each provide a Technical Coordinator to coordinate development activities under this Agreement. The responsibilities of these Technical Coordinators are listed in Section 6.1 and their identities are given in Section 6.2. Task 4: MTC and IBM will meet to assess MTC's technology requirements relative to the Fabrication Process for the purpose of discussing future plans and providing inputs to the technology development plan. The further purpose of these meetings is to provide feedback on the technology and to exchange technical ideas for the development of the technology. Any MTC Confidential Information received under this Task 4 (i) may be used by IBM in the Fabrication Process; including future versions thereof, for any purpose, (ii) may be disclosed by IBM to licensees of the Fabrication Process, including future versions thereof and (iii) shall include the unrestricted, royalty-free right of IBM to grant licenses thereunder to licensees of the Fabrication Process, including future versions thereof. 2.3 Uncertainty of Results ---------------------- Although IBM and MTC will use reasonable efforts in performing the development activities under this Agreement, each Party acknowledges that the results of the work to be performed hereunder are uncertain and cannot be guaranteed by either Party. The Parties also acknowledge that any key milestones and other checkpoint dates made in connection with such work are target dates only and failure to achieve any such target dates shall not constitute a breach of this Agreement. 2.4 Shipment and Use of Prototypes ------------------------------ 2.4.1 IBM shall ship all items to be delivered to MTC under this Agreement FOB plant of manufacture. 2.4.2 MTC agrees to use all Wafers delivered by IBM to MTC under this Agreement for internal testing, evaluation and demonstration purposes only. MTC may deliver Prototypes derived from such Wafers to MTC's customers at MTC's discretion for testing, evaluation and demonstration purposes only, provided that: (i) MTC notifies such customers in writing that the Prototypes are preliminary versions of a Product and are intended for internal testing, evaluation and demonstration purposes only. 2.5 Progress Reviews ---------------- IBM/MTC CONFIDENTIAL Page 8 Reviews of the activities in this Section 2 will be held quarterly and will be scheduled by the Technical Coordinators set forth in Section 6.2. 2.6 MTC agrees that no Prototypes delivered to IBM hereunder shall be work product jointly created by IBM and MTC. 3. PAYMENT ------- 3.1 Compensation ------------ In consideration for IBM's development efforts and for Access to the Fabrication Process as described in Section 2, MTC agrees to perform its development efforts described in Section 2, and to make the payments set forth in Section 3.2 below. In addition, in consideration of IBM entering into this Agreement with MTC, concurrently upon the execution of this Agreement by the Parties, MTC shall issue to IBM a warrant in the form of Attachment C attached hereto and made a part hereof by this reference (the "Warrant"). The Warrant shall be exercisable upon the terms and subject to the conditions set forth therein, including, but not limited to, payment of the exercise price set forththerein for the shares of capital stock issuable thereunder; provided, that the Warrant shall not under any circumstances be subject to forfeit by IBM prior to its exercise or expiration accordance with its terms. 3.2 Schedule of Payments -------------------- For each RIT or MPW Run MTC requests, MTC shall pay the fees listed in Attachment B. 3.3 Method of Payment ----------------- For the payments listed in Section 3.2, MTC shall submit a corresponding purchase order to IBM, identifying the RIT and option requested. Any such purchase order shall be subject to IBM's acceptance, which shall not be unreasonably withheld. If IBM accepts any such purchase order, then IBM shall submit a corresponding invoice to MTC, which MTC shall pay within sixty (60) days of receipt. All payments shall be made by electronic funds transfer in United States dollars, to the following bank wire address. Payments shall be made free all banking charges. IBM, Director of Licensing The Bank of New York 1 Wall Street New York, New York 10286 United States of America IBM/MTC CONFIDENTIAL Page 9 Credit Account No. 890-0209-674 ABA No. 0210-0001-8 The following information should be included in the wire detail: IBM/MULTILINK SEMICONDUCTOR DEVELOPMENT AGREEMENT Reason for Payment: MULT1LINK Development Services 3.4 Delinquencies ------------- If MTC's account becomes in arrears IBM, in addition to its right to hold MTC in default under the terms of Section 11.1 of this Agreement, may notify MTC in writing of such arrears and MTC will cure the condition within thirty (30) days. If not cured within such period, IBM reserves the right to stop shipment to MTC until MTC's account is again current, or to terminate this Agreement pursuant to Section 11.1 3.5 Taxes ----- Each Party shall bear and pay any and all taxes imposed on such Party by any jurisdiction in which such Party is operating. 4. TERM ---- This Agreement shall commence on the Effective Date and will continue for five (5) years thereafter, unless earlier terminated pursuant to Section 11. 5. NOTICES ------- 5.1 Any notice or other communication required or permitted to be made or given to either Party hereto pursuant to this Agreement shall be sent to such Party by facsimile (with written mailed confirmation), or by certified or registered mail, postage prepaid, addressed to the person named below and shall be deemed to have been made, given or provided on the date of facsimile transmission or mailing. IBM: Steve Woodham IBM Microelectronics Division 1000 River Street Department W0MA 29 Essex Junction, VT 05452 Tel: (802) 769-7745 Fax: (802) 769-9731 E-mail: woodham@us.ibm.com With a copy to: IBM/MTC CONFIDENTIAL Page 10 IBM Corporation Drop 92B 1580 Route 52 Hopewell Junction, NY 10533 Fax: (914)-892-5358 Attention: Division Counsel, Microelectronics Division MTC: MultiLink Technology Corporation 300 Atrium Drive Somerset, NJ 08873 Fax: (732) 805-9177 Attention: President With a copy to: Allen Matkins Leck Gamble & Mallory LLP 1999 Avenue of the Stars, Suite 1800 Los Angeles, CA 90067 Fax: (310) 788-2410 Attention: Mark J. Kelson 5.2 A Party hereto may change its address for the purposes of this Section 5 by giving ten (10) days prior written notice of such change of address to the other Party. 6. TECHNICAL COORDINATORS ---------------------- 6.1 Responsibilities ---------------- Work done under this Agreement, including day-to-day activities, shall be under the general direction of the Technical Coordinators who shall be responsible for: 6.1.1 in the case of MTC's Technical Coordinator, providing monthly forecasts of RITs to be requested of IBM; 6.1.2 overseeing work pursuant to the statement of work as set forth in Section 2, including objectives, technical specifications, delivery and receipt of all IBM and MTC Deliverable Items, performance of responsibilities, milestones, Tasks, development schedules, and acceptance dates and criteria; and in the case of the Technical Coordinator for MTC, the collection of design data from MTC, verifying its adherence to all IBM design rules delivered to MTC by IBM; IBM/MTC CONFIDENTIAL Page 11 6.1.3 identifying new IBM and MTC technical goals related to the Tasks, prioritizing such goals and approving desired changes to the statement of work; 6.1.4 approving any change to work, including extensions of time which do not affect payment due under Section 3.2 or the term of this Agreement; 6.1.5 establishing the initiation date of a Task and advising the other Party's Technical Coordinator in writing of the completion of a Task; 6.1.6 communicating, for each item delivered by one Party to the other Party, whether such item meets any applicable acceptance criteria; 6.1.7 reviewing current progress reports; 6.1.8 coordinating Wafer shipments from IBM to MTC pursuant to Section 2.3; 6.1.9 communicating together on a regular basis to satisfy their obligations hereunder and preparing minutes of each meeting; such meetings shall be subject to mutual agreement in terms of frequency, location, participants, etc., and each Party shall bear its related costs; and 6.1.10 managing the proper exchange of Information pursuant to Section 8.4. All the above-listed actions or decisions shall be duly recorded in a document by each Technical Coordinator. If the Technical Coordinators are unable to reach a unanimous decision on any of the above-listed matters, they will promptly refer such matter to the following contact executives: For IBM: For MTC Ms. Chris King Dr. Richard Nottenburg Vice President, Wired Communications President Drop 92X 300 Atrium Drive 1580 Route 52 Somerset, NJ 08873 Hopewell Junction, NY 12533 Phone (732)-537-3700 Phone 914-892-5610 Fax: (732) 805-9177 Fax:(914)892-5542 6.2 Technical Coordinators ---------------------- The Technical Coordinators for the Parties are: For IBM: For MTC: IBM/MTC CONFIDENTIAL Page 12 Jack Taylor Bill Reinisch IBM Microelectronics Division 300 Atrium Drive 1000 River Street Somerset, NJ 08873 Department WZ4A 29 Phone: (732) 537-3747 Essex Junction, VT 05452 Fax: (732) 537-9177 Tel: (802) 769-6923 E-mail: breinisch@mltc.com Fax: (802) 769-9731 E-mail: jacktayl@us.ibm.com Each Party may change its Technical Coordinator at any time and from time to time during the term of this Agreement by notifying the Technical Coordinator for the other Party in writing at the designated address. Such change is effective upon receipt of the notice of change. 7. TRADEMARK --------- Nothing in this Agreement grants either Party any rights to use any trademark(s) or trade name(s), directly or indirectly, of the other Party in connection with any product, service, promotion or publication without prior written approval of the trademark owner. 8. INTELLECTUAL PROPERTY RIGHTS AND CONFIDENTIALITY ------------------------------------------------ 8.1 Copyrights, Mask Works Rights and Prototype or Product Designs -------------------------------------------------------------- 8.1.1 MTC shall own all copyrights and Mask work rights associated with, and all circuitry and all Prototype design information generated by MTC in connection with, its performance of Tasks and with Prototypes, their design, development or manufacture, including but not limited to the MTC Deliverable Items subject to IBM's rights as specified in Section 8.2.2 of this Agreement. 8.1.2 IBM or its licensors shall own all copyrights associated with, and all circuitry design components furnished to MTC by IBM in connection with, its performance of Tasks and with Prototypes, their design, development or manufacture, including, but not limited to: (i) the IBM Deliverable Items; (ii) all base array layers; (iii) all IBM-furnished library elements (including without limitation, any megafunctions or macrocells); and (iv) all IBM-furnished modifications of any such library elements. IBM shall have custody of any Masks provided by MTC and any Masks made by or on behalf of IBM using tangible netlist tape(s), and tangible GDS2 tape(s) received from MTC hereunder, but shall use such tapes and any Masks made therefrom only to manufacture for the benefit of MTC. IBM shall own all copyrights associated with the IBM/MTC CONFIDENTIAL Page 13 Fabrication Process, including the IBM Deliverable Items developed by or on behalf of IBM and delivered to MTC under this Agreement. 8.2 Invention Rights ---------------- 8.2.1 Representatives of IBM or MTC performing Tasks under this Agreement who make an Invention, whether solely or jointly with others, agree to make and shall promptly make a complete written disclosure to their employer for patent review of such Invention, in the normal course, specifically pointing out those features or concepts believed to be new or different. Each Party agrees to promptly submit to the other Party copies, marked as IBM Confidential Information or MTC Confidential Information, as the case may be, of any written disclosures pertaining to Joint Inventions submitted exclusively to it, which submissions shall be subject to the provisions of Section 8.3 of this Agreement. Also, MTC shall promptly submit to IBM copies of all written disclosures submitted exclusively to MTC relating to the Fabrication Process. 8.2.2 Each Invention, other than a Joint Invention, shall be the property of the Party whose Representatives made the Invention. 8.2.3 Joint Inventions shall be jointly owned, title to all patents issued thereon shall be joint, all expenses incurred in obtaining and maintaining such patents, except as provided hereinafter, shall be shared equally and each Party shall have the unrestricted right to license third parties thereunder without accounting to the other Party. In the event that one Party elects not to see patent protection for any Joint Invention in any particular country or not to share equally in the expense thereof with the other Party, the other Party shall have the right to seek or maintain such protection at its own expense in such country and shall have full control over the prosecution and maintenance thereof even though title to any patent issuing therefrom shall be joint. 8.2.4 Each Party shall give the other Party all reasonable assistance in obtaining patent protection and in preparing and prosecuting any patent application filed by the other Party, and shall cause to be executed assignments and all other instruments and documents as the other Party may consider necessary or appropriate to carry out the intent of this Section 8.2. 8.2.5 All MTC Inventions relating to the Fabrication Process shall be owned by MTC, subject to a worldwide, irrevocable, perpetual, nonexclusive, nontransferable, fully paid-up and royalty-free license which MTC hereby grants to IBM under all such Inventions. This license includes the right of IBM to make, have made, use, have used, lease, import, offer to sell, sell and/or otherwise transfer, any apparatus, and to practice and have practiced any method. This license further includes the right of IBM to sublicense third parties to do any or all of the foregoing. MTC agrees that for a period of five (5) years from the Effective Date of this Agreement, MTC shall treat such MTC Inventions relating to the Fabrication process as IBM/MTC CONFIDENTIAL Page 14 Confidential Information and shall not license such MTC Inventions relating to the Fabrication Process to any other entity. 8.2.6 No license, immunity or other right is granted herein to either Party, whether directly or by implication, estoppel or otherwise, with respect to any other patent, trademark, copyright, mask work, trade secret or other intellectual property right of the other Party, 8.3 Confidential Information: ------------------------- 8.3.1 For a period of seven (7) years from the date of disclosure of Confidential Information, the Receiving Party agrees to use the same degree of care and discretion to keep the Disclosing Party's Confidential Information confidential as it uses with its own similar information that it wishes to keep confidential. The Confidential Information received by a Receiving Party shall not be used for any purpose other than in connection with exercising the rights and licenses granted to it under this Agreement, subject to the obligation of confidentiality and subject to the terms and conditions of the licenses granted herein. Each Party agrees to inform its Representatives of the confidential nature of the other Party's Confidential Information, and each of such Representatives shall agree in writing to act in accordance with the terms and provisions of this Article 6. Each Receiving Party shall be responsible for any breach of this Agreement by any of its Representatives. 8.3.1.1 Either Receiving Party may use the "Residuals" of the Disclosing Party's Confidential Information for any purpose, royalty-free, subject to the obligation of confidentiality. "Residuals" means the ideas, concepts, know-how and techniques, related to the Receiving Party's business activities, which are contained in the Disclosing Party's Confidential Information and retained in the unaided memories of the Receiving Party's employees who have had rightful access to the Disclosing Party's Confidential Information pursuant to this Agreement. 8.3.2 The Receiving Party may disclose the Confidential Information of the Disclosing Party only to: the Receiving Party's Representatives on a need-to-know basis, subject to the requirements of Section 8.3. 8.3.3 Notwithstanding any other provisions of this Agreement, the nondisclosure and use obligations specified herein shall not apply to any Confidential Information which: 8.3.3.1 is already lawfully in the possession of the Receiving Party prior to being furnished the Receiving Party by the Disclosing Party, provided that the source of such information was not and does not become known, prior to disclosure, by the Receiving Party to be prohibited from disclosing the information to the Receiving Party by legal, contract or fiduciary obligation to the Disclosing Party; IBM/MTC CONFIDENTIAL Page 15 8.3.3.2 is independently developed by employees (without use of Confidential Information) of the Receiving Party or any of its Subsidiaries; 8.3.3.2 becomes generally publicly available without breach of this Agreement; 8.3.3.3 is rightfully received by the Receiving Party on a nonconfidential basis from a third party that is not known by the Receiving Party to be prohibited from disclosing the information to the Receiving Party by legal, contract or fiduciary obligation to the Disclosing Party; 8.3.3.4 is released for disclosure by the Disclosing Party with its written consent; or 8.3.3.6 is inherently and appropriately disclosed in the use, lease, marketing, sale, or other distribution of Prototypes, or Products, as the case may be and publicly available supporting documentation therefor by or for the Receiving Party or any of its Affiliates. 8.3.4 Disclosure of Confidential Information shall not be precluded if such disclosure is: 8.3.4.1 in response to a valid order of a court or other governmental body; provided, however, that the Receiving Party shall first promptly provide the Disclosing Party prompt notice of the order and provide the Disclosing Party the opportunity to make a commercially reasonable effort to obtain a protective order or other appropriate remedy; provided that if such protective order is not obtained, or if the Disclosing Party waives compliance with the provisions of this Section 8.3.4.1 in writing, the Receiving Party will furnish only that part of the Confidential Information that the Receiving Party is legally required to be so disclosed and the Receiving Party shall exercise its best commercially reasonable efforts to obtain reasonable assurance that confidential treatment will be accorded to the Confidential Information so disclosed; or 8.3.4.2 otherwise required by law (prior to such disclosure, however, the Receiving Party will provide written notification to the Disclosing Party, signed by an executive of the Receiving Party, stating that the Receiving Party believes in good faith that the disclosure is required by law); or 8.3.4.3 necessary to establish the Receiving Party's rights under this Agreement. 8.3.4.5 If any Confidential Information falls under an exception set forth in Sections 8.3.4.1 through 8.3.4.6 the Receiving Party shall not disclose that the Disclosing Party hereto was the source of that Confidential Information. 8.3.4.6 All Confidential Information not reasonably necessary or useful for the Receiving Party to exercise the rights and licenses granted in this Agreement shall be returned to the Disclosing Party or destroyed by the Receiving Party upon termination of this Agreement. Any IBM/MTC CONFIDENTIAL Page 16 oral Confidential Information shall continue to be kept confidential and subject to the terms of this Agreement. 9. LIMITATION OF LIABILITY ----------------------- 9.1 In no event shall either Party be liable to the other Party for incidental damages, lost profits, lost savings or any other consequential damages, regardless of whether the claim is for breach of contract, warranty, tort (including negligence), failure of a remedy to accomplish its purpose or otherwise, even if such Party has been advised of the possibility of such damages. 9.2 In no event shall either Party be liable to the other Party for actual damages resulting from any claim relating to this Agreement in excess of $ [*] regardless of the form of action, provided that this limitation will not apply to claims for bodily injury or damage to real property or tangible personal property for which the Party is legally liable. 9.3 Neither Party will be liable for any damages claimed by the other Party based on any third party claim. 10. WARRANTIES ---------- 10.1 Subject to Section 2.2, any item, including any products, services, information or technology furnished by one Party to the other Party, and any Wafers furnished by IBM to MTC, pursuant to this Agreement, are furnished on an "AS IS" basis without warranty of any kind 10.2 Neither Party warrants that any products, services or deliverable items provided to the other Party under this Agreement is free of infringement of third-party intellectual property rights. 10.3 THE FOREGOING WARRANTIES ARE LIMITED AND ARE IN LIEU OF ALL OTHER WARRANTIES EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS OR USEFULNESS FOR A PARTICULAR PURPOSE. 11. TERMINATION ----------- 11.1 Material Breach, Either Party Either Party may terminate this Agreement ----------------------------- for material breach of this Agreement by the other, provided that the Party in breach is given written notice of and fails to cure such breach within thirty (30) days, or in the event: 11.1.1 the other Party files a petition in bankruptcy, undergoes a reorganization pursuant to a petition in bankruptcy, is adjudicated a bankrupt, becomes insolvent, becomes dissolved or liquidated, files a petition for dissolution or liquidation, makes an assignment for the benefit of creditors, or has a receiver appointed for its business. IBM/MTC CONFIDENTIAL Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Page 17 11.2 Material Breach, IBM If IBM materially breaches this Agreement and the -------------------- Agreement is terminated by MTC pursuant to Section 11.1, then MTC's payment obligations pursuant to Section 3 due after the effective date of said termination shall cease. 11.3 Material Breach, MTC If MTC materially breaches this Agreement and the -------------------- Agreement is terminated by IBM pursuant to Section 11.1, MTC shall make all payments due or past due and payments associated with any work in progress, and IBM shall be entitled to retain all payments made by MTC. 11.4 IBM shall have the right to immediately terminate this Agreement by giving written notice of termination to MTC if MTC undergoes a Change of Control and MTC shall have the right to immediately terminate this Agreement by giving written notice of termination to IBM if the IBM Microelectronics Division undergoes a Change of Control. 11.5 Effect of Expiration or Termination Upon the earlier of MTC's written ----------------------------------- request or within a reasonable period of time (as solely determined by IBM) after expiration or termination of this Agreement, IBM will destroy all Masks fabricated by or on behalf of IBM, or provided by MTC to IBM, under this Agreement. Notwithstanding the above, if, MTC has not requested IBM to destroy the masks, and, in IBM's judgement there is a reasonable likelihood that any such Masks might be used by IBM to manufacture Product for MTC under a separate contract, to be negotiated between the Parties, then IBM may retain such Masks for such use and may then destroy such Masks within a reasonable period of time after expiration or termination of said separate contract. Unless otherwise agreed to by the Technical Coordinators of Record, IBM will stop all work in process for MTC upon expiration or termination of this Agreement and deliver the same to MTC "AS IS". 12. MISCELLANEOUS ------------- 12.1 Nothing contained in this Agreement shall be construed as conferring any right to use in advertising, publicity or other promotional activities any name, trade name, trademark or other designation of any Party hereto (including any contraction, abbreviation or simulation of any of the foregoing); and each Party hereto agrees not to disclose to other than its Affiliates the existence of or the terms and conditions of this Agreement, except as required by law or government rule or regulation, without the express written consent of the other Party except as may be required by law or government rule or regulation, or to establish its rights under this Agreement; provided, however that if one Party is seeking to disclose such information for reasons not requiring written consent, then the Disclosing Party shall limit the disclosure to the extent required, shall allow the other Party, to review the information to be disclosed prior to such disclosure, and shall apply, where available, for confidentiality, protective orders, and the like. Such review under this Section shall not be construed to make the reviewing Party responsible for the contents of the disclosure, and the Disclosing Party shall remain solely responsible for such contents. IBM/MTC CONFIDENTIAL Page 18 12.2 Nothing contained in this Agreement shall be construed as conferring on any Party any license or other right to copy the exterior design of any product of the other Party. 12.3 No license or immunity is granted by this Agreement by either Party to the other Party, either directly or by implication, estoppel, or otherwise, under any patent or other intellectual property right now owned or hereafter obtained, except as expressly provided herein. 12.4 Neither this Agreement nor any activities hereunder will impair any right of IBM or MTC to design, develop, manufacture, market, service or otherwise deal in, directly or indirectly, any products or services. Each Party may pursue activities independently with any third party even if similar to the activities under this Agreement. 12.5 Each Party is an independent contractor and is not an agent of the other Party for any purpose whatsoever. Neither Party will make any warranties or representations on the other Party's behalf, and it will not assume or create any obligation on the other Party's behalf. 12.6 IBM may, upon written notice to MTC, assign its rights or obligations to a third party without the prior written consent of MTC only in connection with a merger or a sale of all or substantially all of the assets of IBM relating to the subject matter of this Agreement. In all other instances, neither Party shall assign its rights or delegate or subcontract its obligations under this Agreement without prior written permission from the other Party and any attempt to do so without such permission shall be null and void. 12.7 Each Party will comply with all applicable federal, state and local laws, regulations and ordinances of the U.S. Government including, but not limited to, the regulations of the U.S. Government authorities relating to the export of commodities and technical data insofar as they relate to activities under this Agreement. Each Party agrees that Deliverables, design information, test results and any other technical data provided under this Agreement may be subject to restrictions under the export control laws and regulations of the United States of America, including but not limited to the U.S. Export Administration Act and the U.S. Export Administration Regulations. Neither Party shall export any design information or other technical data without appropriate government documents and approvals. 12.8 All monetary amounts that become due hereunder are in U.S. dollars. 12.9 This Agreement will not be binding upon the Parties until it has been signed herein below by or on behalf of each Party, in which event it shall be effective as of the date first written above. This Agreement and its Attachments constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous communications, representations, understandings and agreements, whether oral or written, between the Parties or any officer or representative thereof with respect to the subject matter of this Agreement. No amendment or modification of this Agreement shall be valid or binding upon the Parties unless made in writing and signed on IBM/MTC CONFIDENTIAL Page 19 behalf of each Party by their respective representatives thereunto duly authorized. The requirement of written form may only be waived in writing. 12.10 Any waiver by either Party of any breach of, or failure to enforce at any time, any of the provisions of this Agreement, shall not be construed as or constitute a continuing waiver of such provision, or a waiver of any other provision of this Agreement, nor shall it in any way affect the validity of this Agreement or any part thereof, or the right of either Party thereafter to enforce each and every provision of this Agreement. 12.11 If any provision of this Agreement is found by competent authority to be invalid, illegal or unenforceable in any respect for any reason, the availability, legality and enforceability of any such provision in every other respect and the remainder of this Agreement shall continue in effect so long as it still expresses the intent of the Parties. If it no longer expresses the intent of the Parties, the Parties will negotiate a satisfactory alternative to such provision; if, after reasonable efforts, such alternative cannot be found, this Agreement shall be terminated. 12.12 This Agreement and all exhibits or attachments hereto shall be executed in English, and such English text shall prevail over any translation thereof. All notices referred to hereunder shall also be written in English, or joined to an English translation made under the sender's responsibility and at its cost, which English translation shall then prevail over the corresponding original, each Party being entitled to disregard any document sent under this Agreement in any language other than English. 12.13 No action, regardless of form, arising out of this Agreement may be brought by either Party more than [*] years after the later of the date the cause of action has arisen or termination of this Agreement, except with respect to a claim for payment. 12.14 Either Party hereto shall be excused from the fulfillment of any obligation under this Agreement with the exception of payment obligations for so long as and to the extent such fulfilment may be hindered or prevented by any circumstance of force majeure, such as but not limited to, acts of God, war whether declared or not, riot, lockout, fire, shortages of materials or transportation, power failures, national or local government regulations, or any other circumstances outside its control. 12.15 Headings used in this Agreement are for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of this Agreement. References to any given section of this Agreement are intended by the Parties to include any subsections of such section. 12.16 This Agreement may be executed in two (2) counterparts, each of which shall deemed an original, but both of which together shall constitute one and the same agreement. ARTICLE 13 - GOVERNING LAW AND JURISDICTION ------------------------------------------- IBM/MTC CONFIDENTIAL Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Page 20 This Agreement shall be construed, and the legal relations created herein between the Parties shall be determined, in accordance with the laws of the United States of America and, specifically, the State of Delaware, as if said agreement were executed in, and to be fully performed within, the State of Delaware. Any proceeding to enforce or to resolve disputes relating to this Agreement shall be brought before a court of competent jurisdiction in the United States. In any proceedings no Party shall assert that such a court lacks jurisdiction over it or the subject matter of the proceeding. The Parties hereby expressly waive any right to a jury trial and agree that any proceeding hereunder shall be tried by a judge without a jury. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. INTERNATIONAL BUSINESS MACHINES MULTILINK (TECHNOLOGY CORPORATION CORPORATION By: /s/ Christine King By: /s/ Richard N. Nottenburg ----------------------------------- ------------------------------------- Name: Christine King Name: Richard N. Nottenburg --------------------------------- ----------------------------------- Title: VP Networking and Optical Communications Title: President and CEO -------------------------------- ---------------------------------- Date: 5/18/00 Date: May 12, 2000 -------------------------------- -----------------------------------
IBM/MTC CONFIDENTIAL Page 21 ATTACHMENT A ------------ (A&MS Design Kit License) This IBM Design Kit License ("Attachment A") is an attachment to the Silicon- Germanium Development Agreement ("Agreement"), dated as of March 31, 2000 between International Business Machines Corporation ("IBM") and Multilink Technology Corporation ("MTC), (collectively the "Parties") and sets forth the terms and conditions applicable to the IBM Design Kit, as defined below. The Parties agree that the following terms and conditions will apply to any IBM Design Kit provided to MTC under the Agreement. Capitalized terms used herein that are not herein defined shall have the meaning set forth in the Agreement. The IBM Design Kit is licensed and not sold. IBM retains all the right and title to all copies of any IBM Design Kit provided to MTC and any copy that MTC makes. The term "IBM Design Kit" includes the following information and materials as may be listed in a separate document accompanying the IBM Design Kit: . design automation software, and related support documentation (individually and collectively "ASIC Tool Kit"); . design-tool specific logical and physical design data and design rules (e.g., NDR, EDIF, GL/1, or GDS2 models) for all library and data path elements, macros, hard cores, soft cores, synthesizable cores, and MTC Licensed Products of such soft cores and synthesizable cores, and related support documentation (individually and collectively "ASIC Model Kit"); materials sent to MTC separately as documented in one or more Addendum's to the IBM Design Kit License ("Addendum"); and . machine-readable and printed related materials, including training materials, and listings as may be provided by IBM to MTC under this Agreement. The "IBM Design Kit" includes all copies and derivatives of such IBM Design Kit; and may include information, materials, and/or designs owned or provided by third parties, including but without limitation SSM. The "IBM Design Kit" also includes any semiconductor manufacturing process information and any semiconductor packaging information delivered to MTC pursuant to the Agreement. "SSM" shall mean Swift Simulation Models or any portion which is an output of a Verilog Foundry Model tool (a Synopsys, Inc. product). "Use", when referring to the machine-readable portion of the IBM Design Kit, means copying any portion of the IBM Design Kit into a machine for processing, transmitting it to a machine for processing, or performing such processing; and when referring to the printed portion of the IBM Design Kit, means use solely in furtherance of the Licensed Use set forth below. LICENSE IBM/MTC CONFIDENTIAL Page 22 The IBM Design Kit is provided to MTC as an IBM customer solely for MTC's Use. Under IBM's intellectual property rights in the IBM Design Kit, (including know- how, trade secrets, and other information, copyrights and mask works, but excluding patents, trademarks and trade names), IBM hereby grants to MTC a non- exclusive, non-transferable, revocable, limited license to use, perform, display, and make copies of the IBM Design Kit, solely and exclusively in accordance with this Agreement. MTC may: . use the IBM Design Kit only for purposes of(i) conducting an evaluation of the IBM Design Kit solely for the purpose of determining whether or not to carry out the design activities of (ii) below, and/or (ii) designing MTC Prototypes to be manufactured solely by IBM (both(i) and (ii) collectively referred to hereafter as "Licensed Use"); . create MTC Prototypes of any soft cores or synthesizable cores provided to MTC as part of an ASIC Model Kit, solely for the purpose of creating a derivative design to be included in MTC Prototypes to be manufactured solely by IBM; and . copy or translate the IBM Design Kit's machine-readable portion into any machine-readable or printed form to provide sufficient copies only to support MTC's Licensed Use as well as reasonable storage and backup of the IBM Design Kit, and copy the printed related materials to support MTC's Licensed Use. MTC may not . reverse assemble or reverse compile any portion of any machine-readable representation of the IBM Design Kit elements without IBM's prior written consent; . create any derivatives of the IBM Design Kit other than the derivative soft cores or synthesizable cores as set forth above; nor . sublicense, lease, or otherwise distribute the IBM Design Kit to any other persons, including other licensees, without IBM's prior written consent. MTC acknowledges that IBM retains all ownership rights in and to the intellectual property licensed pursuant to this Attachment A, and that no license, immunity, or other right is hereby granted under any IBM intellectual property rights, express or implied, other than as specifically set forth herein. SUPPORT AND SUBSEQUENT RELEASES IBM may provide support to MTC by answering reasonable technical questions MTC may have regarding the IBM Design Kit. Such support is not applicable to any derivative soft cores or synthesizable cores MTC creates pursuant to this Attachment. All such questions should be coordinated through the IBM contact person designated by IBM for this purpose. IBM/MTC CONFIDENTIAL PAGE 23 IBM may make a subsequent IBM Design Kit release available to MTC for MTC's Licensed Use. While MTC may continue Licensed Use of a previous release, IBM may not continue support for previous releases of the IBM Design Kit. PROTECTION AND SECURITY, CONFIDENTIALITY Any information required to be exchanged in connection with the performance of this Agreement which either party desires to have treated as confidential shall be exchanged and treated in accordance with the terms and conditions of Section X of the Agreement. Notwithstanding the foregoing, MTC agrees that any logical and physical design data, design rules, macros, hard cores, soft cores, synthesizable cores, MTC's derivatives of such soft cores and synthesizable cores, and training materials supplied to MTC by IBM are IBM Confidential, and MTC agrees to protect such information and materials for seven (7) years from the date of disclosure to MTC as provided in Section X of the Agreement. MTC agrees to use the training materials provided by IBM with the IBM Design Kit only for MTC's internal training requirements and for those Respresentatives who require training in order to carry out MTC's Licensed Use. The training materials shall not be used to train any other third party in the use and operation of the IBM Design Kit. MTC agrees that SSM and information in SSM provided under this Agreement may contain or be derived from information or portions of materials owned or provided by a third party supplier, and shall be treated as IBM Confidential. MTC acknowledges and agrees that Synopsys as such a third party supplier is an intended third party beneficiary of this Agreement, having all the rights to enforce the terms and conditions of this Agreement that govern the use and protection of Synopsys' intellectual property rights contained in the SSM. MTC agrees that it will not make IBM Confidential materials available to any third party. In addition, MTC agrees to take the following precautions with respect to the IBM Design Kit components licensed under this Agreement: . MTC will take appropriate action, by instruction, agreement or otherwise, with any persons permitted access to any IBM Design Kit, to satisfy its obligations under this Attachment. . MTC will reproduce and include the copyright notices and any other legend on all copies, modifications or portions merged into any other IBM Design Kit; no such copyright notices, legend, or other marking or in any materials distributed under this Attachment shall be tampered with or removed from any licensed item, and . MTC will ensure, before disposing of any media, that the IBM Design Kit or any portion contained thereon has been erased or destroyed. For purposes specifically related to MTC's Licensed Use of the IBM Design Kit, MTC may make the IBM Design Kit available to any of the following: (1) its Affiliates; (2) Representatives off MTC or MTC Affiliates; (3) Subcontractors of MTC or its Affiliates; and (4) IBM's Representatives (a) during the period they are IBM/MTC CONFIDENTIAL Page 24 on MTC's premises, or (b) whom MTC authorizes to have remote access to the IBM Design Kit. For purposes of this paragraph, "Subcontractors" shall mean, and shall be limited to, those persons who are contractually engaged full time on a temporary basis by MTC to perform the same semiconductor device design services as MTC's regular employees who have rightful access to the IBM Design Kit(s) hereunder and who perform such services only on the premises of MTC or its Affiliates. Before making the IBM Design Kit available, all such employees, Affiliates, and Subcontractors must be obligated to protect the IBM Design Kit(s) according to a prior written agreement of confidentiality with MTC having terms which are no less restrictive than set forth herein. TERM The license granted herein is effective for so long as the Agreement is in effect. Upon termination or expiration of the Agreement, the licenses set forth herein shall terminate. MTC agrees upon such termination to destroy (and certify to such destruction) the IBM Design Kit together with all elements (including SSM), copies, modifications and merged portions in any form. IBM/MTC CONFIDENTIAL Page 25 Attachment B ------------ (RIT and MPW Charges) Year 2000 charges RIT and MPW's (200mm wafers, wire bond) [*] RIT: 3LM: $ [*] 4LM: $ [*] 5LM: $ [*] C4: $ [*] additional charge RITB mask Charges: $ [*]/mask RITB one time engineering charges: $ [*] MPW: 5LM: $ [*] Target Cycle Time: [*] BiCMOS 7HP RIT: 4LM: $ [*] 5LM: $ [*] C4: $ [*] additional charge RITB mask Charges: $[*] /mask RITB one time engineering charges: $ [*] MPW: 5LM: $ [*] Target Cycle Time: [*] [*] and Follow-on [*] Process Prices to be determined at a later time IBM/MTC CONFIDENTIAL Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Page 27 EX-10.14 9 dex1014.txt JOINT DEVELOPMENT AGREEMENT EFFECTIVE MAY 18, 2000 IBM/MULTILINK CONFIDENTIAL JOINT DEVELOPMENT AGREEMENT EXHIBIT 10.14 JOINT DEVELOPMENT AGREEMENT BETWEEN INTERNATIONAL BUSINESS MACHINES CORPORATION AND MULTILINK TECHNOLOGY CORPORATION IBM/MULTILINK CONFIDENTIAL JOINT DEVELOPMENT AGREEMENT TABLE OF CONTENTS ARTICLE 1: DEFINITIONS ARTICLE 2: JOINT PROJECTS: MANAGEMENT AND STRUCTURE ARTICLE 3: MANUFACTURE AND SUPPORT ARTICLE 4: ROYALTIES AND AUDIT RIGHTS ARTICLE 5: RIGHTS AND LICENSES ARTICLE 6: CONFIDENTIALITY ARTICLE 7: INVENTIONS AND WORKS OF AUTHORSHIP ARTICLE 8: TERM AND TERMINATION ARTICLE 9: REPRESENTATIONS AND WARRANTIES ARTICLE 10: LIMITATION OF REMEDIES ARTICLE 11: NOTICES ARTICLE 12: GENERAL ARTICLE 13: GOVERNING LAW AND JURISDICTION EXHIBIT A, STATEMENTS OF WORK EXHIBIT B, IBM DESIGN KIT LICENSE AGREEMENT EXHIBIT C, CERTIFICATE OF ORIGINALITY,
IBM/MULTILINK CONFIDENTIAL JOINT DEVELOPMENT AGREEMENT PAGE 1 JOINT DEVELOPMENT AGREEMENT --------------------------- This Joint Development Agreement is made effective as of May 18, 2000 (the "Effective Date"), and is by and between International Business Machines Corporation, a corporation incorporated under the laws of the State of New York, having an office for the transaction of business at 2070 Route 52, Hopewell Junction, NY 12533 ("IBM"), and Multilink Technology Corporation, a corporation incorporated under the laws of California and having an office for the transaction of business at 2850 Ocean Park Boulevard, Suite 335, Santa Monica, CA 90405 ("MTC"). (IBM and MTC may be referred to herein individually as a "Party" or collectively as the "Parties"). Whereas the Parties have certain complimentary expertise in silicon germanium technology design and production and in microcontroller designs and technologies for Transport Layer Applications (as defined below). Now, therefore, the Parties are entering into this Agreement which will set forth the terms and conditions under which the Parties may engage in certain joint development activities, as may be agreed by the Parties from time to time pursuant to the procedures set forth herein. ARTICLE 1: DEFINITIONS ---------------------- Unless expressly defined and used with an initial capital letter in this Agreement, words shall have their normally accepted meanings. The word "shall" is mandatory, the word "may" is permissive, the word "or" is not exclusive, the words "includes" and "including" are not limiting, and the singular includes the plural. The following terms shall have the described meanings: 1.1 "Affiliate" of a Party means a Person at least fifty percent (50%) of whose (a) outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) or (b) if the Person does not have outstanding shares or securities, other ownership interest (representing the right to make the decisions for such Person) are now or hereafter owned or controlled, directly or indirectly, by such Party hereto, but such corporation, company or other entity shall be deemed to be an Affiliate only so long as such percentage of ownership or interest remains at least fifty percent (50%). 1.2 "Agreement" means the terms and conditions of this Joint Development Agreement together with any exhibits or attachments hereto including but not limited to any SOWs signed by both Parties and referring to this Joint Development Agreement, which are incorporated herein by this reference. 1.3 "Change of Control" means a change in ownership or control of a Person effected through any of the following transactions: IBM/MULTILINK CONFIDENTIAL PAGE 2 JOINT DEVELOPMENT AGREEMENT (i) a merger, consolidation or reorganization approved by the Person's equity holders, unless securities representing more than sixty percent (60%) of the total combined voting power of the voting securities of the successor entity are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned such Person's outstanding voting securities immediately prior to such transaction, (ii) any transfer or other disposition of all or substantially all of the Person's assets, or (iii) the acquisition, directly or indirectly, by any person or related group of persons other than the Person that is the subject of a Change of Control or an Affiliate of such Person or any Person currently owning, beneficially or of record, equity securities of such Person), of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than forty percent (40%) of the total combined voting power of the Person's outstanding securities. 1.4 "Confidential Information" means IBM Confidential Information, MTC Confidential Information, or both if the context so indicates. 1.5 "Custom Sales Agreement" means the agreement so titled executed by and between the Parties concurrently with this Agreement. 1.6 "Design Completion" means the completion of the development of a Joint Product as evidenced by the written agreement of the PEC. 1.7 "Design Costs" means the actual incurred direct expenses associated with developing a Joint Product from Design Start until Design Completion and any other expenses mutually agreed to by the Project Team on a case by case basis. Design Costs shall include the compensation costs of either Party's employees who are assigned to a Joint Project at a per-person-year rate to be agreed upon by the parties in each SOW. 1.8 "Design Start" means the start of the design of a Product as evidenced by the execution of a Statement of Work applicable thereto by the Parties. 1.9 "Disclosing Party" means either Party hereunder that discloses its Confidential Information to the other Party. 1.10 "Error Correction" means any correction to the functional operation of a Joint Product, as described in the applicable Statement of Work or in the specifications developed pursuant to such Statement of Work, and any correction of a fundamental design flaw that causes an abnormally high level of failures in manufacturing or in customer systems using such Joint Product in a normal manner. The term Error IBM/MULTILINK CONFIDENTIAL PAGE 3 JOINT DEVELOPMENT AGREEMENT Correction also includes any screens or tests developed by a Party to detect an error or to verify the correction of an error in a Joint Product. 1.11 "Financial Coordinators" means the individuals referenced in Section 2.8. 1.12 "IBM Confidential Information" means any and all information and items disclosed or delivered by IBM to MTC hereunder, that is identified by IBM as confidential, whether written, oral or both, in whatever form disclosed or delivered, whether tangible or intangible (including software). With respect to the IBM Confidential Information referenced in the preceding sentence, IBM agrees (i) to coordinate and control the disclosure thereof with MTC's Technical Coordinator, (ii) if such IBM Confidential Information is disclosed in tangible form, IBM will stamp or otherwise clearly mark such information as IBM Confidential Information, and (iii) if such Confidential Information is disclosed orally, IBM agrees to identify the Confidential Information as confidential at the time of disclosure, and provide to MTC written confirmation thereof within thirty (30) days after such disclosure. Notwithstanding the foregoing, the term "IBM Confidential Information" shall also include the following information and items disclosed by IBM to MTC hereunder, whether or not identified by IBM as confidential, whether written, oral or both, in whatever form disclosed or delivered, whether tangible or intangible (including software): all product or circuit designs (including schematics, GDS II data, net lists, VHDL code, RTL code, block diagrams and simulation techniques), deliverables, manufacturing processes and techniques, IBM Technology, Joint Technology, product and marketing plans, cost data relating to a Joint Project. 1.13 "IBM Design Kit" shall have the meaning set forth in the IBM Design Kit License Agreement attached hereto as Exhibit B and shall also include any semiconductor manufacturing process information and any semiconductor packaging information delivered to MTC pursuant to this Agreement. 1.14 "IBM Licensed Patent Claims" means the claims, other than claims covering a semiconductor manufacturing process, of any patent: 1.14.1 which are necessarily infringed in the manufacture or sale or other transfer of Joint Products and/or MTC Licensed Products, but with respect to MTC Licensed Products to the extent, and only to the extent, that such MTC Licensed Products are based on designs contained in the IBM Technology and/or the Joint Technology; and 1.14.2 under which patents, claims or the relevant patent applications therefore, IBM has the right to grant licenses to MTC of the scope granted in Section 5.8 below, without such grant or the exercise of rights thereunder resulting in the payment of royalties or other consideration by IBM to third parties. The term "IBM Licensed Patent Claim" shall also include the corresponding claims of any reissued or reexamined patents containing any of the aforesaid claims provided they continue to meet the aforesaid criteria. IBM/MULTILINK CONFIDENTIAL PAGE 4 JOINT DEVELOPMENT AGREEMENT 1.15 "IBM Licensed Product" means any integrated circuit, chip set, module, or other item, including packages and control software therefor, having all or any portion of its design based on or derived from MTC Technology or the Joint Technology but which IBM Licensed Product is not itself a Joint Product. 1.16 "IBM Technology" means (i) the information listed in a Statement of Work as being provided by and that is actually provided by IBM (ii) any other information IBM provided by IBM pursuant to a Statement of Work, including technical information, know-how, trade secrets, maskworks and other information including maskwork rights and copyrights therefor, if any, and (iii) any Error Corrections provided by IBM hereunder; but only to the extent such information described in (i), (ii) and (iii), above, is owned or controlled by IBM or licensed to IBM independently of a Joint Project and IBM has the free right to grant a license or a non-assertion right to the extent necessary for the implementation of said Joint Project. IBM Technology shall not include IBM Tools and IBM Design Kits. 1.17 "IBM Tools" means software which is not commercially available and is either owned by IBM or under which IBM has the right to grant royalty-free licenses, and is used for the development, maintenance or implementation of an IBM deliverable in a Statement of Work. 1.18 "Integrated Circuit" means an integral unit including a plurality of active and passive circuit elements formed at least in part of semiconductor material arranged on or in a single chip. 1.19 "Invention" means any idea, design, concept, technique, invention, discovery or improvement, whether or not patentable, made solely or jointly by one or more employees or consultants of either IBM or MTC, provided that either the conception or reduction to practice occurs in the performance of work under a Joint Project. 1.20 "Joint Invention" means any idea, design, concept, technique, invention, discovery or improvement, whether or not patentable, made jointly by one or more employees or consultants of IBM with one or more employees or consultants of MTC, provided that either the conception or reduction to practice occurs in the performance of work under a Joint Project. 1.21 "Joint Product" means an Integrated Circuit, chip set, module or board or any other item specified on a Statement of Work to be jointly developed by the Parties hereunder. 1.22 "Joint Project" means joint development work described in a Statement of Work. 1.23 "Joint Technology" means, unless specified otherwise in a Statement of Work, those Inventions or other materials consisting of the specific results of the Parties' partial or completed design and development work pursuant to Joint Projects, as embodied in all tangible, written, graphic, and other documentary forms as well as the PAGE 5 IBM/MULTILINK CONFIDENTIAL JOINT DEVELOPMENT AGREEMENT intangible forms, and shall include but not be limited to the following: program material, design information, engineering notes, Joint Project design databases, simulation models, functional test vectors, design tool and design methodology information, semiconductor chip databases and topographies, and designs and any tools developed as part of a Joint Product (but not including any part of any IBM Tools or MTC Tools). 1.24 "MTC Confidential Information" means any and all information and items disclosed or delivered by MTC to IBM hereunder, that is identified by MTC as confidential, whether written, oral or both, in whatever form disclosed or delivered, whether tangible or intangible (including software). With respect to the MTC Confidential Information referenced in the preceding sentence, MTC agrees (i) to coordinate and control the disclosure thereof with IBM's Technical Coordinator, (ii), if such MTC Confidential Information is disclosed in tangible form, MTC will stamp or otherwise clearly mark such information as MTC Confidential Information, and (iii) if such Confidential Information is disclosed orally, MTC agrees to identify the Confidential Information as confidential at the time of disclosure, and provide to IBM written confirmation thereof within thirty (30) days after such disclosure. Notwithstanding the foregoing, the term "MTC Confidential Information" shall also include the following information and items disclosed by MTC to IBM hereunder, whether or not identified by MTC as confidential, whether written, oral or both, in whatever form disclosed or delivered, whether tangible or intangible (including software): all product or circuit designs (including schematics, GDS II data, net lists, VHDL code, RTL code, block diagrams and simulation techniques), deliverables, manufacturing processes and techniques, MTC Technology, Joint Technology, product and marketing plans, cost data relating to a Joint Project. 1.25 "MTC Licensed Patent Claims" means the claims, other than claims covering a semiconductor manufacturing process, of any patent: 1.25.1 which are necessarily infringed in the manufacture or sale or other transfer of Joint Products and/or IBM Licensed Products, but with respect to IBM Licensed Products, to the extent, and only to the extent, that such IBM Licensed Products are based on designs contained in the MTC Technology and/or the Joint Technology; and 1.25.2 under which patents, claims or the relevant patent applications therefore, MTC has the right to grant licenses to IBM of the scope granted in Section 5.9 below, without such grant or the exercise of rights thereunder resulting in the payment of royalties or other consideration by MTC to third parties. The term "MTC Licensed Patent Claim" shall also include the corresponding claims of any reissued or reexamined patents containing any of the aforesaid claims provided they continue to meet the aforesaid criteria. 1.26 "MTC Licensed Product" means any Integrated Circuit, chip set, module, or other item, including packages and control software therefor, having all or any portion of its design based on or derived from IBM Technology or Joint Technology but which MTC Licensed Product is not itself a Joint Product. IBM/MULTILINK CONFIDENTIAL PAGE 6 JOINT DEVELOPMENT AGREEMENT 1.27 "MTC Technology" means (i) the information listed in a Statement of Work as being provided by and that is actually provided by MTC, (ii) any other information provided by MTI pursuant to a Statement of Work including technical information, know-how, trade secrets, maskworks, and other information, including maskwork rights and copyrights therefor, if any, and (iii) any Error Corrections provided by MTC hereunder; but only to the extent such information described in (i), (ii) and (iii), above, is owned or controlled by MTC or licensed to MTC independently of a Joint Project and MTC has the free right to grant a license or a non-assertion right to the extent necessary for the implementation of said Joint Project. MTC Technology shall not include MTC Tools. 1.28 "MTC Tools" means software which is not commercially available and is either owned by MTC or under which MTC has a right to grant royalty-free licenses, and is used for the development, maintenance or implementation of a MTC deliverable in a Statement of Work. 1.29 "Net Selling Price" for each Product means the net revenue recorded by a Party with respect to that Product sold, leased, or otherwise transferred by the Selling Party, less (a) shipping, (b) insurance, and (c) sales, value added, use or excise taxes, to the extent to which they are actually paid or allowed, and less allowances to the extent they are actually allowed as determined in accordance with generally accepted accounting principles consistently applied. If a Product is sold, leased, or otherwise transferred in a higher level of assembly or in the course of a transaction that includes other products or services with no separate bona fide price charge for the Product, the applicable Net Selling Price for the purpose of calculating royalties shall be the fair market value of the Product itself without the rest of the assembly but not less than the average Net Selling Price of all such Products sold, leased, or otherwise transferred to a third party by such Party during the preceding calendar quarter (or if there are no sales in such preceding calendar quarter as determined in good faith by the PEC). 1.30 "PDT Leader" means the individual appointed initially by IBM and subsequently by the PEC pursuant to Section 2.6 to ensure that appropriate development processes are followed for the Joint Projects. 1.31 "Party(ies)" means MTC and/or IBM. 1.32 "Person" shall mean any individual, corporation, partnership, joint venture, trust, limited liability company, business association, governmental entity or other entity. 1.33 "Product" means a MTC Licensed Product, IBM Licensed Product, or Joint Product. 1.34 "Project Executive Committee" or "PEC" means the committee established by the Parties pursuant to Section 2.3 to oversee the work to be conducted under this Agreement. IBM/MULTILINK CONFIDENTIAL PAGE 7 JOINT DEVELOPMENT AGREEMENT 1.35 "Project Executive Director" means the individual appointed initially by MTC and subsequently by the PEC pursuant to Section 2.5 to provide day-to-day oversight of the Joint Projects. 1.36 "Project Team" means a working team, consisting of personnel of the Parties and, as specifically set forth in Section 2.10 hereof, which shall manage and implement Joint Projects as defined in a Statement of Work. 1.37 "Receiving Party" means either Party hereunder that receives the other Party's Confidential Information. 1.38 "Representative" means, with respect to a Party, that Party's agents, representatives and employees (including attorneys, accountants, consultants, contract employees and advisors). 1.39 "Statement or Work" or "SOW" means a written agreement executed by both Parties describing a Joint Project in substantially the form set forth in Exhibit A. 1.40 "Technical Coordinators" means the individuals referenced in Section 2.7. 1.41 "Term" means the period from May 18, 2000 through May 18, 2005. 1.42 "Transport Layer Application" means high performance transceivers connecting data communications and telecommunications equipment to a fiber optic infrastructure. Examples include 10Gb Ethernet, OC 192 10Gb Sonet, and OC768 40Gb Sonet applications. ARTICLE 2 - JOINT PROJECTS: MANAGEMENT AND STRUCTURE ---------------------------------------------------- 2.1 The Parties agree to cooperate on Joint Projects for the design of certain Joint Products useful in Transport Layer Applications. Each Joint Project or other development work to be performed by the Parties hereunder shall be the subject of a Statement of Work which shall be an attachment hereto. Each Statement of Work will establish the specifications for the Joint Product(s), a detailed plan for the conduct of the work and the schedule for task completion, a staffing commitment for each Party, the deliverables, including technology, to be provided by each Party for use in the Joint Project, and the documentation and other output requirement for the Joint Project results. Each Statement of Work will set forth a budget for the Design Costs for the Joint Project described therein. The actual Design Costs will be shared by the Parties equally. In the event of a conflict between the provisions of a Statement of Work and the provisions of this Joint Development Agreement, the provisions of the Statement of Work will prevail. 2.2 The initial Joint Projects are described in the Statements of Work attached hereto as Exhibits A-1 - A._. Future Joint Projects, if any, will be documented in a similar manner and will become a part of this Agreement upon signature by the PEC member IBM/MULTILINK CONFIDENTIAL PAGE 8 JOINT DEVELOPMENT AGREEMENT of each Party. Neither Party will be obligated with respect to any proposed Joint Project until and unless a Statement of Work with respect thereto is signed by both Parties. Neither Party has an obligation to agree to any additional Statements of Work. Joint Projects are expected to be performed by teams made up of employees of both Parties and are expected to be performed at one or more of a Party's locations. The location(s) at which such work will be performed will be specified in the applicable Statement of Work. 2.3 The Parties hereby create a Project Executive Committee, which shall consist of two (2) members, one appointed by each Party, to propose or review any new Joint Projects, review the progress of the Joint Projects to ensure that the Joint Projects remain in line with the Parties' objectives, propose, review or approve any needed adjustments in the various tasks to be performed by the Parties and the time schedule, review whether any of the Joint Projects should be extended, changed or terminated, and attempt to resolve in good faith any issues arising with respect to this Agreement or any Joint Project. 2.4 The PEC is comprised initially of the following individuals: (i) for MTC: Richard Nottenburg (ii) for IBM: Chris King Each Party may change its members of the PEC by written notice to the other Party. The PEC will conduct regular meetings on dates and at locations as the members mutually shall determine. Meetings of the PEC may be held in person, by teleconference or by video conference. 2.5 MTC will appoint a Project Executive Director to provide day-to-day oversight and coordination of the Joint Projects. The Project Executive Director may be changed by written agreement of the members of the PEC. 2.6 IBM will appoint a PDT Leader who will work with the Project Executive Director, the Project Team leaders and the Project Teams to ensure that appropriate development processes are being followed for all of the Joint Projects. The PDT Leader may be changed by written agreement of the members of the PEC. 2.7 Each Party shall appoint a Technical Coordinator to oversee its technical contributions to the Joint Projects and to interface with the Technical Coordinator of the other Party to help ensure that the Project Teams have appropriate technology and that the Parties' respective technical contributions across the Joint Projects are balanced. The Technical Coordinators jointly must approve any additional material technology contributions to a Joint Project by either Party which are not referenced in the applicable Statement of Work. The Technical Coordinators may agree upon changes to the technical aspects of a Statement of Work, provided that such changes do not materially alter the schedules or the deliverables and do not result in an uneven contribution of IBM/MULTILINK CONFIDENTIAL PAGE 9 JOINT DEVELOPMENT AGREEMENT resources or division of Design Costs associated with the Statement or Work. All other changes must be approved by the PEC and memorialized in a written amendment to this Agreement or the Statement of Work which is signed by authorized representatives of each Party. The Technical Coordinators shall also interface regularly with the Project Executive Director and Project Teams and advise the PEC on any necessarily or helpful modifications to signed Statements of Work as well as potential technical contributions to Statements of Work under consideration. With respect to copyrightable materials contained in any IBM Tools or MTC Tools delivered pursuant to a Joint Project, upon request from the receiving Technical Coordinator, the Technical Coordinator of the Party who delivered such materials shall provide the Technical Coordinator making such request with a Certificate of Originality for such materials in the form attached hereto as Exhibit C. Each Party shall retain their copyrights in any IBM Tools or MTC Tools, respectively. 2.8 Each Party will appoint a Financial Coordinator to monitor the budgets and spending for the Joint Projects to interface with the Financial Coordinator of the other Party and the PEC, the Project Executive Director and the Project Teams to help ensure that the spending on the Joint Projects is appropriate, as determined by the Parties in good faith. 2.9 Individual(s) appointed by each Party pursuant to Sections 2.5, 2.6, 2.7, and 2.8 may, at the appointing Party's sole discretion, simultaneously hold any of the other positions appointed by such Party pursuant thereto. 2.10 Upon execution of each Statement of Work, the PEC will establish a Project Team leader and a Project Team to perform the activities of the Joint Project described therein. The responsibilities of a Project Team relating to any Joint Project will be further detailed in the applicable Statement of Work and shall include: (i) submission of adjustments to any Statement of Work to the Project Executive Director for review and agreement prior to being submitted to the PEC for consideration and then to the Parties for appropriate amendment of the applicable Statement of work; (ii) making regular presentations to the PDT Leader, the Project Executive Director and, if requested, the PEC of the progress of any Joint Project; (iii) performing the development as described in the Statement of Work and working with the PDT Leader to ensure that appropriate development processes are being followed; and (iv) generation of all deliverables as described in the SOW which shall include all engineering documentation and specifications for the development, design, simulation, verification, manufacture, and test of a Joint Product. IBM/MULTILINK CONFIDENTIAL PAGE 10 JOINT DEVELOPMENT AGREEMENT 2.11 A Project Team shall be comprised of the number of employees of the Parties set forth in the applicable Statement of Work which will also set forth, among other things, the required professional level and experience of such employees. The Parties intend for each Party to assign an equal number of employees to the Joint Projects. If the assignment of employees to a Joint Project by each Party becomes significantly disproportionate, as determined in good faith by the PEC, the PEC will endeavor in good faith to find a way to level the Parties' respective overall contributions to the Joint Projects. Unless otherwise expressly agreed in writing by the Parties to the contrary, each Party shall pay all of the expenses (including wages, benefits, travel, and lodging) of its own employees or agents. The PEC may agree in writing to increase or decrease the number of employees of the Parties to be allocated to specific tasks on a Project Team. 2.12 Each Party agrees that its employees shall comply in all material respects with all reasonable personnel, human resources, security and safety rules, procedures and guidelines of the other Party applicable to contractors resident at or visiting the premises of such Party while such employees are on the other Party's premises. Each Party shall provide to the other a set of documents setting forth all such rules, procedures and guidelines. 2.13 Personnel supplied by each Party are employees of the supplying Party and shall not for any purpose be considered employees or agents of the other Party. Each Party shall be responsible for the supervision, direction and control, payment of salary (including withholding of taxes), worker's compensation insurance, disability benefits and the like of its own employees while engaged in any Joint Project in accordance with the law of the state or states wherein a Joint Project is to be performed. 2.14 To the extent permitted by law, during the Term and for one year thereafter, MTC and the Microelectronics Division of IBM each agrees neither to solicit nor hire the employees of the other Party performing services hereunder without the prior written consent of the other Party. 2.15 Each Party (a "Hosting Party") allowing employees of the other Party (an "Assigning Party") to work on its premises assumes no liability to the Assigning Party for any injury, (including death) to persons or damage to or loss of property suffered on or about the such Hosting Party's premises or in connection with work under this Agreement unless caused by the willful misconduct or gross negligence of the Hosting Party, its employees or invitees (other than employees of the Assigning Party). Each Hosting Party makes no representation or warranty, written or oral, of any kind as to the condition of or the fitness for any purpose of its premises. ARTICLE 3 - MANUFACTURING AND SUPPORT AND UPDATES OF JOINT ---------------------------------------------------------- PRODUCTS -------- IBM/MULTILINK CONFIDENTIAL PAGE 11 JOINT DEVELOPMENT AGREEMENT 3.1 IBM will manufacture or have manufactured the Joint Products for MTC pursuant to the terms of the Custom Sales Agreement. MTC agrees that for the term of this Agreement, IBM will be the sole provider of Joint Products to MTC and will be given an opportunity to be a provider of MTC Licensed Products to MTC. IBM agrees that for the term of this Agreement, IBM will sell all Joint Products and MTC Licensed Products manufactured by IBM for MTC under a foundry arrangement to MTC at foundry prices pursuant to the Custom Sales Agreement. 3.2 The Parties will work together on a plan to jointly promote the Joint Products. Neither Party will be obligated to perform any promotional activities unless it expressly agrees in writing to do so. 3.3 The Parties will engage in the cross training and support activities for Joint Projects as provided in the applicable Statement of Work. 3.4 During the period in which this Agreement is in effect and for one year thereafter, each Party will promptly notify the other Party of any errors in Joint Products which it becomes aware of and will provide the other Party with any and all Error Corrections it makes to the Joint Products promptly after such Error Corrections are developed. ARTICLE 4 - ROYALTIES AND AUDIT RIGHTS -------------------------------------- 4.1 In consideration of the licenses granted by IBM herein, MTC agrees to pay IBM a royalty of: (a) [*] percent ([*]%) of the Net Selling Price of each Joint Product sold or otherwise transferred by MTC, its Affiliates, distributors, or sublicensees to a third party; (b) [*] percent ([*]%) of the Net Selling Price of each MTC Licensed Product sold or otherwise transferred by MTC, its Affiliates, distributors, or sublicensees to a third party if the percentage of the total Integrated Circuit surface area (excluding areas occupied solely by memory functions) occupied by the IBM Technology or the Joint Technology, or a combination thereof, is greater than [*] percent ([*]%); and (C) [*] percent ([*]%) of the Net Selling Price of each MTC Licensed Product sold or otherwise transferred by MTC, its Affiliates, distributors, or sublicensees to a third party, if the percentage of the total Integrated Circuit surface area (excluding areas occupied solely by memory functions) occupied by the IBM Technology or the Joint Technology, or a combination thereof, is [*] percent ([*]%) or less. (d) For clarity, since MTC may purchase Joint Products and MTC Licensed Products from IBM under a foundry arrangement at foundry prices pursuant to the Custom Sales Agreement, the royalties specified in Sections 4.1(a), 4.1(b), and 4.1(c) shall apply to Joint Products and MTC Licensed Products sold or otherwise transferred by MTC, its Affiliates, distributors, or sublicensees to a third party either Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. PAGE 12 IBM/MULTILINK CONFIDENTIAL JOINT DEVELOPMENT AGREEMENT as a stand alone product or in a higher level of assembly, even if such Products were purchased by MTC from IBM. 4.2 In consideration of the licenses granted by MTC herein, IBM agrees to pay MTC a royalty of: (a) [*] percent ([*]%) of the Net Selling Price of each Joint Product sold or otherwise transferred by IBM, its Affiliates, distributors, or sublicensees to a third party, (b) [*] percent ([*]%) of the Net Selling Price of each IBM Licensed Product sold or otherwise transferred by IBM, its Affiliates, distributors, or sublicensees to a third party if the percentage of the total Integrated Circuit surface area (excluding areas occupied solely by memory functions) occupied by the MTC Technology or the Joint Technology, or a combination thereof, is greater than [*] percent ([*]%), and (c) [*] percent ([*]%) of the Net Selling Price of each IBM Licensed Product sold or otherwise transferred by IBM, its Affiliates, distributors, or sublicensees to a third party, if the percentage of the total Integrated Circuit surface area (excluding areas occupied solely by memory functions) occupied by the MTC Technology or the Joint Technology, or a combination thereof, is [*] percent ([*]%) or less. (d) For clarity, the royalties specified in Sections 4.2(a), 4.2(b), and 4.2(c) shall apply to Joint Products and IBM Licensed Products sold or otherwise transferred by IBM, distributors of Persons that are Affiliates as of the date hereof, or sublicensees to a third party either as a stand alone product or in a higher level of assembly, even if such Products were purchased by IBM from MTC. 4.3 Royalty Exceptions: Neither Party has any royalty obligation for: a. Products used for such Party's, or its Subsidiaries', distributors', or sublicensees' internal use, development, maintenance or support activities, marketing demonstrations, customer testing, prototypes, or product training or education, b. Documentation provided with a Product, c. Products sold by IBM to MTC pursuant to a Custom Sales Agreement, and d. Products transferred as warranty replacements. 4.4 End of Royalties: Each Party's royalty obligations hereunder with respect to a Product shall be paid-up seven (7) years after the first sale of such Product by such Party, its Affiliate, its distributor or sublicensee. Notwithstanding the previous sentence, in no event shall either Party owe any royalties under this Agreement for Products sold or otherwise transferred more than seven (7) years after termination or expiration of this Agreement. Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. IBM/MULTILINK CONFIDENTIAL PAGE 13 JOINT DEVELOPMENT AGREEMENT 4.5 All royalties owed hereunder shall be paid within sixty (60) days after the end of each calendar quarter. All payments shall be made by wire transfer to the applicable account listed below, shall be free of all banking charges, and shall be paid in U.S. Dollars. For Payments to MTC: Multilink Technology Corporation IMPERIAL BANK 2015 Manhattan Beach Blvd. Redondo Beach, CA 90278 Account No. 38-051903 ABA Routing No. 122201444 SWIFT No. IMPBUS66 Bank Telephone: (800) 505-0534 For Payments to IBM: IBM Corporation Director of Licensing The Bank of New York 48 Wall Street New York, NY 10286 Account No. 890-0209-674 ABA Routing No. 0210-0001-8 IBM Bank Contact: John Maguire (212) 648-3262 Include the following information in the wire detail: Company Name Reason for Payment License Reference No. 4.6 Except as expressly provided in this Article 4 "ROYALTIES AND AUDIT RIGHTS", as expressly provided in a Statement of Work, neither Party shall be entitled to any further payment, cost reimbursement, or other compensation from the other for services, deliverables and rights granted to the other Party hereunder. Unless otherwise specified in the Statement of Work, each party shall bear all its own expenses incurred in negotiating and rendering performance, including facilities, work space, computers and computer time, utilities, management, clerical reproduction services, supplies, and the like. 4.7 Each Party owing royalties pursuant to this Agreement shall maintain a complete, clear and accurate record of the number and type of Products, features and/or systems IBM/MULTILINK CONFIDENTIAL PAGE 14 JOINT DEVELOPMENT AGREEMENT shipped by it and other relevant information to the extent it is required to determine whether such Party is paying the correct royalty amount hereunder. To ensure compliance with the terms of this Agreement, the Party entitled to receive royalties hereunder shall have the right to have an inspection and audit of all the relevant accounting and sales books and records of the owing Party. The audit will be conducted by an independent audit firm mutually acceptable to both Parties, and shall be conducted following reasonable prior written notice during regular business hours at the audited Party's offices and in such a manner as not to interfere with the audited party's normal business activities. In no event shall audits be made hereunder more frequently than every twelve (12) months. If any audit should disclose any underpayment, the Party underpaying shall promptly (but in any event within thirty (30) days) pay the difference. The independent accountant referred to herein shall be under a confidentiality agreement as required by the audited Party and shall not disclose to the auditing Party any Confidential Information of the audited Party. The independent audit firm's fee will be paid by the Party seeking the audit unless the report of the audit firm determines that the audited Party has underpaid royalties during the period of the audit in an amount exceeding the greater of fifteen percent (15%) of the royalties owed or one hundred thousand dollars ($100,000). In the event such an underpayment is reported, the audited Party shall pay the audit firm's reasonable fee within thirty (30) days of the receipt of the report or submit evidence to dispute the finding of such underpayment. The independent audit firm referred to herein shall not be paid by the auditing Party on a contingency fee basis. ARTICLE 5 - RIGHTS AND LICENSES ------------------------------- 5.1 Unless otherwise agreed in a Statement of Work with respect a particular Joint Project, subject to Section 5.2 below, all copyrightable materials contained in the Joint Technology shall be the joint property of both IBM and MTC, and both Parties shall own the copyright in all such materials jointly. Such ownership right shall include all rights under copyright law, including the right to use, execute, reproduce, display, perform, prepare derivative works based upon, and distribute (internally and externally) copies of any and all such materials and derivative works thereof, and to authorize others to do any of the foregoing, without accounting, subject to the obligations with respect to Confidential Information as set forth in Article 6 of this Agreement. Neither Party shall have an obligation to file any copyright applications with respect to any Joint Technology; however, any application voluntarily filed by either Party shall state that the authors of such Joint Technology are IBM and MTC as joint authors. 5.2 Notwithstanding Section 5.1, IBM will continue to own the IBM Technology and MTC will continue to own the MTC Technology. 5.2.1 With regard to copyrightable materials contained in IBM Technology other than those specified in Section 5.1, IBM hereby grants to MTC and its Affiliates an irrevocable, nonexclusive, worldwide and royalty-free license to all rights in such IBM Technology under the copyright laws, including to use, execute, reproduce, display, perform, prepare derivative works based upon, and distribute IBM/MULTILINK CONFIDENTIAL PAGE 15 JOINT DEVELOPMENT AGREEMENT (internally and externally) copies of any and all such materials and derivative works thereof, and to authorize others to do any of the foregoing, subject to the obligations with respect to Confidential Information as set forth in Article 6 of this Agreement. 5.2.2 With regard to copyrightable materials contained in MTC Technology other than those specified in Section 5.1, MTC hereby grants to IBM and IBM Affiliates an irrevocable, nonexclusive, worldwide and royalty-free license to all rights in such MTC Technology under the copyright laws, including to use, execute, reproduce, display, perform, prepare derivative works based upon, and distribute (internally and externally) copies of any and all such materials and derivative works thereof, and to authorize others to do any of the foregoing, subject to the obligations with respect to Confidential Information as set forth in Article 6 of this Agreement. 5.3 IBM hereby grants to MTC under the IBM Tools and MTC hereby grants to IBM under the MTC Tools, an irrevocable, nonexclusive, worldwide and royalty-free license to use, execute, display and perform such IBM Tools or MTC Tools, as the case may be, only for the purpose of developing, maintaining, or implementing a deliverable in a Statement of Work and for developing, maintaining and implementing Joint Products, IBM Licensed Products and MTC Licensed Products, as the case may be, subject to the obligations with respect to Confidential Information as set forth in Article 6 of this Agreement. 5.4 MTC hereby grants to IBM under MTC Technology an irrevocable, worldwide, nonexclusive, nontransferable (except to IBM Affiliates) license to make, have made, use, lease and sell Joint Products and IBM Licensed Products, subject to the royalty obligations set forth in Article 4. 5.5 The license granted to IBM in Section 5.4 shall include the right of IBM to sublicense to IBM Affiliates and the right of such sublicensed Affiliates to sublicense to other IBM Affiliates. Each such sublicensed Affiliate shall be bound by the terms and conditions of this Agreement as if it were named herein in the place of IBM. Any sublicense granted to an IBM Affiliate shall terminate on the date such Affiliate ceases to be an Affiliate of IBM. 5.5.1 Upon the termination or expiration of this Agreement, to the extent that MTC Technology is contained in the Joint Technology, the license granted to IBM in Section 5.4 shall include the right of IBM to grant revocable or irrevocable sublicenses to third parties, provided, however, that if this Agreement is terminated by MTC pursuant to the provisions of Section 8.5 hereof, such right to grant sublicenses shall not commence until one (1) year after such termination. The granting of any such third party sublicenses shall not in any way relieve IBM of its obligations under this Agreement. IBM/MULTILINK CONFIDENTIAL PAGE 16 JOINT DEVELOPMENT AGREEMENT 5.6 IBM hereby grants to MTC under IBM Technology an irrevocable, worldwide, nonexclusive, nontransferable (except to MTC Affiliates) license to make, have made, use, lease and sell Joint Products and MTC Licensed Products, subject to the royalty obligations set forth in Article 4. With respect to any IBM Design Kit included in a Statement of Work, IBM grants to MTC the license set forth in the IBM Design Kit License, attached hereto as Exhibit B. 5.7 The license granted to MTC in Section 5.6 shall include the right of MTC to sublicense its Affiliates and the right of such sublicensed Affiliates to sublicense other Affiliates. Each sublicensed Affiliate shall be bound by the terms and conditions of this Agreement as if it were named herein the place of MTC. Any sublicense granted to an MTC Affiliate shall terminate on the date such Affiliate ceases to be an Affiliate of MTC. 5.7.1 Upon the termination or expiration of this Agreement, to the extent that IBM Technology is contained in the Joint Technology, the license granted to MTC in Section 5.6 shall include the right of MTC to grant revocable or irrevocable sublicenses to third parties, provided, however, that if this Agreement is terminated by IBM pursuant to the provisions of Section 8.5 hereof, such right to grant sublicenses shall not commence until one (1) year after such termination. The granting of any such third party, sublicenses shall not in any way relieve MTC of its obligations under this Agreement. 5.8 IBM hereby grants to MTC and its Affiliates a non-exclusive, nontransferable, irrevocable license under the IBM Licensed Patent Claims to make, have made, use, lease, sell, offer for sale, import, and otherwise transfer Joint Products and MTC Licensed Products, solely to the extent necessary to exercise its licensed rights as set forth in Section 5.6, subject to the royalty obligations set forth in Article 4. MTC shall have no right to grant licenses or sublicenses under this Section 5.8 to any entity. No license, immunity or other right is granted under this Section 5.8 by IBM either directly, by implication, estoppel, or otherwise: 5.8.1 other than under the IBM Licensed Patent Claims; or 5.8.2 with respect to any other product or item other than a Joint Product or an MTC Licensed Product, whether or not such other product or item is used in or in conjunction with a Joint Product or an MTC Licensed Product. 5.9 MTC hereby grants to IBM and its Affiliates a non-exclusive, nontransferable, irrevocable license under the MTC Licensed Patent Claims to make, have made, use, lease, sell, offer for sale, import, and otherwise transfer Joint Products and IBM Licensed Products, solely to the extent necessary to exercise its licensed rights as set forth in Section 5.4, subject to the royalty obligations set forth in Article 4. IBM shall have no right to grant licenses or sublicenses under this Section 5.9 to any entity. No license, immunity or other right is granted under this Section 5.9 by MTC either directly, by implication, estoppel, or otherwise: IBM/MULTILINK CONFIDENTIAL PAGE 17 JOINT DEVELOPMENT AGREEMENT 5.9.1 other than under the MTC Licensed Patent Claims; or 5.9.2 with respect to any other product or item other than a Joint Product or an IBM Licensed Product, whether or not such product or item is used in or in conjunction with a Joint Product or an IBM Licensed Product. 5.10 Each Party agrees that it will not assert against the other Party any patent claims covering a semiconductor manufacturing process, to the extent and only to the extent that such semiconductor manufacturing process is used to manufacture a Joint Product, an IBM Licensed Product or an MTC Licensed Product, as the case may be. ARTICLE 6 - CONFIDENTIAL INFORMATION ------------------------------------ 6.1 For a period of seven (7) years from the date of disclosure of Confidential Information, the Receiving Party agrees to use the same degree of care and discretion to keep the Disclosing Party's Confidential Information confidential as it uses with its own similar information that it wishes to keep confidential. The Confidential Information received by a Receiving Party shall not be used for any purpose other than in connection with exercising the rights and licenses granted to it under this Agreement, subject to the obligation of confidentiality and subject to the terms and conditions of the licenses granted herein. Each Party agrees to inform its Representatives of the confidential nature of the other Party's Confidential Information, and each of such Representatives shall agree in writing to act in accordance with the terms and provisions of this Article 6. Each Receiving Party shall be responsible for any breach of this Agreement by any of its Representatives. 6.1.1 Either Receiving Party may use the "Residuals" of the Disclosing Party's Confidential Information for any purpose, royalty-free, subject to the obligation of confidentiality. "Residuals" means the ideas, concepts, know-how and techniques, related to the Receiving Party's business activities, which are contained in the Disclosing Party's Confidential Information and retained in the unaided memories of the Receiving Party's employees who have had rightful access to the Disclosing Party's Confidential Information pursuant to this Agreement. 6.2 The Receiving Party may disclose the Confidential Information of the Disclosing Party only to: the Receiving Party's Representatives on a need-to- know basis, subject to the requirements of Section 6.1. 6.3 Notwithstanding any other provisions of this Agreement, the nondisclosure and use obligations specified herein shall not apply to any Confidential Information which: IBM/MULTILINK CONFIDENTIAL PAGE 18 JOINT DEVELOPMENT AGREEMENT 6.3.1 is already lawfully in the possession of the Receiving Party prior to being furnished to the Receiving Party by the Disclosing Party, provided that the source of such information was not and does not become known by the Receiving Party, prior to disclosure by the Receiving Party, to be prohibited from disclosing the information to the Receiving Party by legal, contract or fiduciary obligation to the Disclosing Party; 6.3.2 is independently developed by employees (without use of Confidential Information) of the Receiving Party or any of its Subsidiaries; 6.3.2 becomes generally publicly available without breach of this Agreement; 6.4.3 is rightfully received by the Receiving Party on a nonconfidential basis from a third party that is not known by the Receiving Party to be prohibited from disclosing the information to the Receiving Party by legal, contract or fiduciary obligation to the Disclosing Party; 6.3.4 is released for disclosure by the Disclosing Party with its written consent; or 6.3.6 is inherently and appropriately disclosed in the use, lease, marketing, sale, or other distribution of Joint Products and MTC Licensed Products, or IBM Licensed Products, as the case may be and publicly available supporting documentation therefor by or for the Receiving Party or any of its Affiliates. 6.4 Disclosure of Confidential Information shall not be precluded if such disclosure is: 6.4.1 in response to a valid order of a court or other governmental body; provided, however, that the Receiving Party shall first promptly provide the Disclosing Party prompt notice of the order and provide the Disclosing Party the opportunity to make a commercially reasonable effort to obtain a protective order or other appropriate remedy; provided that if such protective order is not obtained, or if the Disclosing Party waives compliance with the provisions of this Section 6.4.1 in writing, the Receiving Party will furnish only that part of the Confidential Information that the Receiving Party is legally required to be so disclosed and the Receiving Party shall exercise its best commercially reasonable efforts to obtain reasonable assurances that confidential treatment will be accorded to the Confidential Information so disclosed; or 6.4.2 otherwise required by law (prior to such disclosure, however, the Receiving Party will provide written notification to the Disclosing Party, signed by an executive of the Receiving Party, stating that the Receiving Party believes in good faith that the disclosure is required by law); or 6.4.3 necessary to establish the Receiving Party's rights under this Agreement. IBM/MULTILINK CONFIDENTIAL PAGE 19 JOINT DEVELOPMENT AGREEMENT 6.5 If any Confidential Information falls under an exception set forth in Sections 6.4.1 through 6.4.6 the Receiving Party shall not disclose that the Disclosing Party hereto was the source of that Confidential Information. 6.6 All Confidential Information not reasonably necessary or useful for the Receiving Party, but only to exercise the rights and licenses granted in this Agreement shall be returned to the Disclosing Party or destroyed by the Receiving Party upon termination of this Agreement. Any oral Confidential Information shall continue to be kept confidential and subject to the terms of this Agreement. ARTICLE 7 - INVENTIONS ---------------------- 7.1 Employees of IBM or MTC performing services under this Agreement who make an Invention, whether solely or jointly with others, shall agree to make and shall-promptly make a complete written disclosure to their employer for patent review of such Invention, in the normal course, specifically pointing out those features or concepts believed to be new or different. Each Party agrees to promptly submit to the other Party copies, marked as IBM Confidential Information or MTC Confidential Information as the case may be, of any written disclosures pertaining to Joint Inventions submitted exclusively to it, which submissions shall be subject to the confidentiality provisions of Article 6 of this Agreement. 7.2 Each Invention, other than a Joint Invention, shall be the property of the Party whose employees made the Invention (hereinafter "Owning Party") subject to a license which the Owning Party hereby grants to the other Party under such Invention and any patent protection obtained therefor. Upon request, the Owning Party shall advise the other Party of those countries, if any, wherein it intends to seek patent protection at its expense. The other Party may propose countries for filing in addition to those selected by the Owning Party. The Owning Party shall promptly notify the other Party, as to each proposed country, whether patent protection will be sought. For any proposed country wherein patent protection is not to be sought by the Owning Party, the other Party may elect to seek patent protection, at its own expense, but the Owning Party shall have title to any resulting patent, subject to the grant of a license to the other Party pursuant to the terms set forth in Section 7.6. 7.3 With respect to each Invention, other than a Joint Invention, the Owning Party upon request shall provide such other Party with a copy of the first English-language patent application so filed, the filing particulars of any corresponding foreign patent application, and, as may be requested by the other Party, copies of any such corresponding foreign patent applications and all official papers relating thereto. The Owning Party may also publish such Invention subject to the options granted to the other Party in Section 7.2. 7.4 Joint Inventions shall be jointly owned, title to all patents issued thereon shall be joint, all expense incurred in obtaining and maintaining such patents, except as provided hereinafter, shall be jointly shared and each Party shall have the unrestricted IBM/MULTILINK CONFIDENTIAL PAGE 20 JOINT DEVELOPMENT AGREEMENT right to license third parties thereunder without accounting. In the event that one Party elects not to seek patent protection for any Joint Invention in any particular country or not to share equally in the expense thereof with the other Party, the other Party shall have the right to seek or maintain such protection at its own expense in such country and shall have full control over the prosecution and maintenance thereof even though title to any patent issuing therefrom shall be jointly owned. 7.5 Each Party shall give the other Party all commercially reasonable assistance in obtaining patent protection and in preparing and prosecuting any patent application filed by the other Party, and shall cause to be executed assignments and all other instruments and documents as the other Party may consider reasonably necessary or appropriate to carry out the intent of this Section 7.5. 7.6 All licenses granted under Section 7.2 shall be worldwide, irrevocable, nonexclusive, nontransferable and royalty-free (except as set forth in Section 4 hereof); shall include the right to make, have made, use, have used, lease, sell, and/or otherwise transfer any apparatus, and to practice and have practiced any method. All such licenses shall include the right of the grantee to grant revocable or irrevocable sublicenses to its Affiliates, such sublicenses to include the right of the sublicensed Affiliates to correspondingly sublicense their own Affiliates. The term of any license granted under Section 7.2 shall extend for the full term of the licensed patent. 7.6.1 Upon the termination or expiration of this Agreement, all such licenses shall further include the right of grantee to grant revocable or irrevocable sublicenses to third Parties only under the Joint Technology but not under any patents or patent applications based thereon provided, however, that if this Agreement is terminated by either Party pursuant to the provisions of Section 8.5 hereof, the non-terminating party's right to grant sublicenses shall not commence until one (1) year after such termination. 7.7 Except as provided in Sections 7.2, 7.6 and 7.8 of this Agreement, nothing contained in this Section 7 shall be deemed to grant, either directly or by implication, estoppel, or otherwise, any license under any patents or patent applications arising out of any other inventions of either Party. 7.8 The Parties shall grant to each other and do hereby grant to each other worldwide, irrevocable, non-exclusive, non-transferable and royalty-free licenses (except as set forth in Section 4 hereof) necessary to make, use, sell, display or otherwise exploit any Joint Products developed by the Parties hereunder. ARTICLE 8 - TERM AND TERMINATION -------------------------------- 8.1 The term of this Agreement shall begin on the Effective Date, and unless previously terminated as hereinafter set forth, shall remain in force for the Term. IBM/MULTILINK CONFIDENTIAL PAGE 21 JOINT DEVELOPMENT AGREEMENT 8.2 The term of a Statement of Work shall begin on the date it is last signed by IBM and MTC and continue until the expiration date stated in the Statement of Work, termination of the Statement of Work or the date of termination or expiration of this Agreement, whichever occurs first. Upon the agreement of the PEC, a Statement of Work may be terminated without terminating this Agreement. 8.3 Either Party may terminate this Agreement without cause upon six (6) months written notice to the other Party, provided that neither Party shall submit such a written notice of termination prior to March 31, 2001. Upon such termination, all SOWs will also terminate, provided that if a particular SOW states that it survives termination, then it shall survive. 8.4 A Party shall have the right to immediately terminate this Agreement with cause by giving written notice of termination to the other Party, upon the happening of any of the following events: 8.4.1 A determination by a court of competent jurisdiction that makes it unlawful for the Parties to continue the relationship contemplated by this Agreement; 8.4.2 If the other Party is in default of any of its material obligations under this Agreement and such default is not cured within thirty (30) days after receipt of a written notice from the notifying Party specifying such default; or 8.4.3 The other Party sells substantially all of its assets or the assets required to fulfill its obligations under this Agreement, or ceases doing business, is adjudged bankrupt or insolvent or files a petition for bankruptcy. 8.5 IBM shall have the right to immediately terminate this Agreement by giving written notice of termination to MTC if MTC undergoes a Change of Control and MTC shall have the right to immediately terminate this Agreement by giving written notice of termination to IBM if the IBM Microelectronics Division undergoes a Change of Control. 8.6 Upon expiration or termination of this Agreement, both Parties shall end all Joint Project(s) in process and the following shall apply: 8.6.1 Neither Party shall be under any obligation to make further disclosures of technical information of any kind to the other Party. 8.6.2 All royalty obligations set forth herein shall continue. Except as otherwise provided in this Section 8.6, neither Party shall be liable to the other for any expenses resulting from any termination of this Agreement without cause. IBM/MULTILINK CONFIDENTIAL PAGE 22 JOINT DEVELOPMENT AGREEMENT 8.7 Any licenses or rights granted pursuant to this Agreement shall continue in perpetuity and shall survive any termination of this Agreement to permit each of the Parties to manufacture, sell, distribute, use, display or otherwise exploit any Joint Products, IBM Licensed Products and MTC Licensed Products developed by the Parties hereunder. In addition, Sections 2.13, 2.14 and 2.16, and Articles 4, 5, 6, 7, 8.3, 8.6, 8.7, 8.8, 9, 10, 11, 12 and 13 shall survive and continue following any expiration or termination of this Agreement. SECTION 9 - REPRESENTATIONS AND WARRANTIES ------------------------------------------ 9.1 Although the Parties will use all reasonable efforts in performing Joint Projects, the Parties acknowledge that the results of the design and development work to be performed are uncertain and cannot be guaranteed by either Party. Therefore, if a Party has exerted its reasonable efforts in the performance of its responsibilities under a Statement of Work, the failure to achieve schedules within the Statement of Work shall not constitute a breach of this Agreement. Further, neither Party warrants or assumes any liability in connection with the implementation or completion of any Joint Project or that its work under this Agreement will be error free. Any services provided by a Party shall be provided on an "AS IS" basis without warranty of any kind. 9.2 Each Party represents that it has agreements, including confidentiality agreements, with its employees and any other person with whom such agreement may be necessary sufficient to meet its obligations under this Agreement. 9.3 NEITHER PARTY MAKES ANY WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE JOINT PRODUCTS, THE TECHNOLOGY CONTRIBUTED, OR THE CONFIDENTIAL INFORMATION DISCLOSED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. ARTICLE 10 - LIMITATION OF REMEDIES ----------------------------------- 10.1 In no event shall either Party be liable to the other Party for incidental damages, lost profits, lost savings or any other consequential damages, regardless of whether the claim is for breach of contract, warranty, tort (including negligence), failure of a remedy to accomplish its purpose or otherwise, even if such Party has been advised of the possibility of such damages. 10.2 In no event shall either Party be liable to the other Party for actual damages resulting from any claim relating to this Agreement in excess of $ [*] , regardless of the form of action, provided that this limitation will not apply to claims for royalty amounts due hereunder and claims for bodily injury or damage to real property or tangible personal property for which the Party is legally liable. 10.3 Neither Party will be liable for any damages claimed by the other Party based on any third party claim. Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. IBM/MULTILINK CONFIDENTIAL PAGE 23 JOINT DEVELOPMENT AGREEMENT ARTICLE 11 - NOTICES -------------------- 11.1 Any notice or other communication required or permitted to be made or given to either Party hereto pursuant to this Agreement shall be sent to such Party by facsimile, or by certified or registered mail, postage prepaid, addressed to the person named below and shall be deemed to have been made, given or provided on the date of facsimile transmission or mailing. IBM: IBM Corporation Drop 92X 1580 Route 52, Hopewell Junction, NY 12533 Fax: (914) 892-5542 Attention: Ms. Chris King Vice President, Wired Communications IBM Microelectronics Division With a copy to: IBM Corporation Drop 92B 1580 Route 52 Hopewell Junction, NY 10533 Fax: (914)-892-5358 Attention: Division Counsel, Microelectronics Division MTC: Multilink Technology Corporation 2850 Ocean Park Boulevard Santa Monica, CA 90405 Fax: (310) 581-1558 Attention: President With a copy to: Allen Matkins Leck Gamble & Mallory LLP 1999 Avenue of the Stars, Suite 1800 Los Angeles, CA 90067 Fax: (310) 788-2410 Attention: Mark J. Kelson 11.2 A Party hereto may change its address for the purposes of this Section 12 by giving ten (10) days prior written notice of such change of address to the other Party. ARTICLE 12 - MISCELLANEOUS -------------------------- IBM/MULTILINK CONFIDENTIAL PAGE 24 JOINT DEVELOPMENT AGREEMENT 12.1 Nothing contained in this Agreement shall be construed as conferring any right to use in advertising, publicity or other promotional activities any name, trade name, trademark or other designation of any Party hereto (including any contraction, abbreviation or simulation of any of the foregoing); and each Party hereto agrees not to disclose to other than its Affiliates the existence of or the terms and conditions of this Agreement, without the express written consent of the other Party except as may be required by law or government rule or regulation, or to establish its rights under this Agreement; provided, however that if one Party is seeking to disclose such information for reasons not requiring written consent, then the Disclosing Party shall limit the disclosure to the extent required, shall allow the other Party to review the information to be disclosed prior to such disclosure, and shall apply, where available, for confidentiality, protective orders, and the like. Such review under this Section shall not be construed to make the reviewing Party responsible for the contents of the disclosure, and the Disclosing Party shall remain solely responsible for such contents. 12.2 Nothing contained in this Agreement shall be construed as conferring on any Party any license or other right to copy the exterior design of any product of the other Party. 12.3 No license or immunity is granted by this Agreement by either Party to the other Party, either directly or by implication, estoppel, or otherwise, under any patent or other intellectual property right now owned or hereafter obtained, except as expressly provided herein. 12.4 Neither this Agreement nor any activities hereunder will impair any right of IBM or MTC to design, develop, manufacture, market, service or otherwise deal in, directly or indirectly, any products or services. Each Party may pursue activities independently with any third party even if similar to the activities under this Agreement. 12.5 Each Party is an independent contractor and is not an agent of the other Party for any purpose whatsoever. Neither Party will make any warranties or representations on the other Party's behalf, and it will not assume or create any obligation on the other Party's behalf. 12.6 Each Party ("Assigning Party") may, upon written notice to the other Party, assign its rights or obligations without the prior written consent of the other Party only in connection with a merger or a sale of all or substantially all of the assets of such Party relating to the subject matter of this Agreement to a third party unless such merger or sale would constitute grounds for the other ------ Party to terminate this Agreement pursuant to the provisions of Section 8.5 and the other Party does so terminate this Agreement within sixty (60) days after having been notified in writing of the merger of sale by the Assigning Party. In such event, the assignment may not occur until one (1) year after termination. Each Party may freely assign its rights to receive payment hereunder to any third party upon written notice the other Party. In all other instances, neither Party shall assign its rights or delegate or subcontract its obligations under this Agreement IBM/MULTILINK CONFIDENTIAL PAGE 25 JOINT DEVELOPMENT AGREEMENT without prior written permission from the other Party and attempt to do so without such permission shall be null and void. 12.7 Each Party will comply with all applicable federal, state and local laws, regulations and ordinances of the U.S. Government including, but not limited to, the regulations of the U.S. Government authorities relating to the export of commodities and technical data insofar as they relate to activities under this Agreement. Each Party agrees that Joint Products, design information, test results and any other technical data provided under this Agreement may be subject to restrictions under the export control laws and regulations of the United States of America, including but not limited to the U.S. Export Administration Act and the U.S. Export Administration Regulations. Neither Party shall export any Joint Product, design information or other technical data without appropriate government documents and approvals. 12.8 All monetary amounts that become due hereunder are in U.S. dollars. 12.9 This Agreement will not be binding upon the Parties until it has been signed herein below by or on behalf of each Party, in which event it shall be effective as of the date first written above. This Agreement and its Exhibits constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous communications, representations, understandings and agreements, whether oral or written, between the Parties or any officer or representative thereof with respect to the subject matter of this Agreement. No amendment or modification of this Agreement shall be valid or binding upon the Parties unless made in writing and signed on behalf of each Party by their respective representatives thereunto duly authorized. The requirement of written form may only be waived in writing. 12.10 Any waiver by either Party of any breach of, or failure to enforce at any time, any of the provisions of this Agreement, shall not be construed as or constitute a continuing waiver of such provision, or a waiver of any other provision of this Agreement, nor shall it in any way affect the validity of this Agreement or any part thereof, or the right of either Party thereafter to enforce each and every provision of this Agreement. 12.11 If any provision of this Agreement is found by competent authority to be invalid, illegal or unenforceable in any respect for any reason, the availability, legality and enforceability of any such provision in every other respect and the remainder of this Agreement shall continue in effect so long as it still expresses the intent of the Parties. If it no longer expresses the intent of the Parties, the Parties will negotiate a satisfactory alternative to such provision; if, after reasonable efforts, such alternative cannot be found, this Agreement shall be terminated. 12.12 This Agreement and all exhibits or attachments hereto shall be executed in English, and such English text shall prevail over any translation thereof. All notices referred to hereunder shall also be written in English, or joined to an English translation made under the sender's responsibility and at its cost, which English translation shall IBM/MULTILINK CONFIDENTIAL PAGE 26 JOINT DEVELOPMENT AGREEMENT then prevail over the corresponding original, each Party being entitled to disregard any document sent under this Agreement in any language other than English. 12.13 No action, regardless of form, arising out of this Agreement may be brought by either Party more than two (2) years after the date the cause of action has arisen. 12.14 Either Party hereto shall be excused from the fulfillment of any obligation under this Agreement with the exception of payment obligations for so long as and to the extent such fulfillment may be hindered or prevented by any circumstance of force majeure, such as but not limited to, acts of God, war whether declared or not, riot, lockout, fire, shortages of materials or transportation, power failures, national or local government regulations, or any other circumstances outside its control. 12.15 Headings used in this Agreement are for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of this Agreement. References to any given section of this Agreement are intended by the Parties to include any subsections of such section. 12.16 If there is a conflict between this Agreement and a Statement of Work, the terms and conditions of the Statement of Work shall prevail. 12.17 This Agreement may be executed in two (2) counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same agreement. ARTlCLE 13 - GOVERNING LAW AND JURISDICTION ------------------------------------------- This Agreement shall be construed, and the legal relations created herein between the Parties shall be determined, in accordance with the laws of the United States of America and, specifically, the State of Delaware, as if said agreement were executed in, and to be fully performed within, the State of Delaware. Any proceeding to enforce or to resolve disputes relating to this Agreement shall be brought before a court of competent jurisdiction in the United States. In any proceedings no Party shall assert that such a court lacks jurisdiction over it or the subject matter of the proceeding. The Parties hereby expressly waive any right to a jury trial and agree that any proceeding hereunder shall be tried by a judge without a jury. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written. INTERNATIONAL BUSINESS MACHINES MULTILINK TECHNOLOGY CORPORATION CORPORATION By: /s/ Christine King By: /s/ Richard N Nottenburg ---------------------- ------------------------- IBM/MULTILINK CONFIDENTIAL PAGE 27 JOINT DEVELOPMENT AGREEMENT Name: CHRISTINE KING Name: Richard N Nottenburg --------------------- -------------------------- Title: VP Networking & Optical Communications Title: President and CEO ---------------------------------------- ------------------------- Date: 5/18/00 Date: 5/12/00 ---------------------------------------- ------------------------- Exhibits: - -------- A.1 - A.X - Statements of Work B. IBM Design Kit License Agreement C. Certificate of Originality IBM/MULTILINK CONFIDENTIAL PAGE 1 JOINT DEVELOPMENT AGREEMENT EXHIBIT A, STATEMENT OF WORK ---------------------------- Exhibit A-* Statement of Work: fill in name 1.0 Scope ----- fill in general description of project 2.0 Major Milestones & Project Descriptions --------------------------------------- Target Schedule Design Pass Assumptions Prelim Specs - Data Sheet Final Specification Interim Design Review (Pre Layout) Final Design Review Net List GDSII Tape out Prototype Delivery to Characterization FinalTest and Characterization Report Reference Platform Prototype Available Reference Platform Test and Characterization Report Reference Platform App Notes and Prototype release 2.1 ... 2.XX IBM/MULTILINK CONFIDENTIAL PAGE 2 JOINT DEVELOPMENT AGREEMENT fill in description, responsibilities and key checkpoints for each major milestone 3.0 Design Review Deliverables This section describes the Design Review process and deliverables. A Design Review shall mean a meeting of the parties to review the design work to date to determine compliance to all agreed-to specification parameters. The location of the Design Reviews will alternate between IBM and MTC facilities. The Design Review process may be modified based on the complexity of the design with the mutual agreement of the IBM and MTC Technical Coordinators. 3.1 Preliminary Design Review (PDR)(Interim Design Review) The goal of the Preliminary Design Review (PDR) is to review the design work to date to determine that the design effort is on track and that no major issues exist with the design simulation or design methodology, predicted performance, chip layout (floor plan), or product assembly and test. This review should address predicted performance of the circuit. Preliminary Design Reviews will include as applicable: i. Review final specifications ii. Schematic diagrams iii. Simulation results for key parameters iv. Thermal analysis v. Compliance Matrix: Simulated Performance vs.. Specification vi. Preliminary chip layout (floor plan) vii. Test approach viii. Design Review documentation package ix. Risk analysis and mitigation plan 3.2 Detailed Design Review (DDR) (Final Design Review) The goal of the Detailed Design Review (DDR) is to comprehensively review all aspects of the design and layout to assure compliance to specifications and manufacturability prior to tape out. The design must be Design Rule Checking (DRC) and Layout vs. Schematic (LVS) verified and free of errors at this point. Details of the final simulations, accounting for all relevant layout parasitics, should be covered extensively. Predicted performance, yield, and parameter sensitivity analysis should be reviewed. Final plots of the top level, major blocks or sections and critical signals or paths should be reviewed. Final assembly drawings of the packaged and/or assembled product are to be reviewed. Test methodologies and test plans for engineering characterization should also be reviewed. Detailed Design Reviews will include as applicable: IBM/MULTILINK CONFIDENTIAL PAGE 3 JOINT DEVELOPMENT AGREEMENT i. Completed PDR action items ii. Schematic diagrams iii. Detailed simulation and measured results for all key parameters outlined in the jointly developed chip specifications including: iv. - simulation over temperature, supply variations, and process variations - yield analysis / histograms or other yield estimates - parasitic extraction / analysis - chip wiring and package modeled and simulated v. Compliance Matrix: Simulated Performance vs.. Specification vi. Thermal analysis vii. Detailed chip layout and reticle plan viii. Physical design - Floor plan / block placement - Critical nodes / blocks - Shielding - Multiple power domains - Power distribution ix. Manufacturability - ESD / Latch-up robustness - Testability - Assembly issues - Yield issues - Process issues x. Clean DRC log file plot xi. Clean LVS log file plot xii. DC/High Speed characterization/test plan xiii. Packaging and assembly plan xiv. Common Reference Platform and test fixture plan xv. Design Review documentation package xvi. Update risk analysis and mitigation plan xvii. Update project status summary (schedule, dependencies, and Deliverables) 4.0 Staffing
- ---------------------------------------------------------------------------------------- IBM est. headcount IBM projected MTC est. headcount MTC projected effort location of effort location of headcount headcount - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------
(P) primary location (S) secondary location IBM/MULTILINK CONFIDENTIAL PAGE 4 JOINT DEVELOPMENT AGREEMENT 5.0 Deliverables - ----------------- 5.1 Introduction. The following list describes in detail the information which will be made available to both Parties The party creating or primarily responsible for the portion of the Joint Product related to each deliverable shall be responsible to create and provide that deliverable. 5.2 Guidelines. The following guidelines apply for deliverables delivered by one Party to the other under this Agreement: 5.2.1 A delivering Party will not deliver any licensed hardware or software items to the receiving Party, when delivering such items would violate the license agreement of a third party. 5.2.2 The delivering Party is only required to make available items on the following list in the form and format they are used by the delivering Party and as they become available. The delivering Party will provide reasonably requested support information necessary to render an item useful. 5.2.3 A delivering Party will make any written information created by it (or under subcontract for it) available to the receiving Party in both electronic as well as printed versions, when reasonably feasible. 5.3 Product Deliverables Items from the following Sections 5.4 through 5.10 shall be made available to the receiving Party by the delivering Party for the Joint Product in this SOW as soon as is reasonably practical in accordance with the target major milestones in section 2.0 The Joint Product for this SOW that the deliverables refer to are: 5.4....5.X fill in deliverables 6.0 Technical Sales Support Training fill in description of training plan 7.0 Initial Budget IBM/MULTILINK CONFIDENTIAL PAGE 5 JOINT DEVELOPMENT AGREEMENT fill in budget 8.0 Term The term of this Joint Project shall commence on _________ and end on _________. Agreed: INTERNATIONAL BUSINESS MACHINES MULTILINK TECHNOLOGY CORPORATION CORPORATION By:____________________________ By:____________________________ Name:__________________________ Name:__________________________ Title:_________________________ Title:_________________________ Date:__________________________ Date:__________________________ IBM/MULTILINK CONFIDENTIAL PAGE 6 JOINT DEVELOPMENT AGREEMENT EXHIBIT B --------- IBM DESIGN KIT LICENSE This IBM Design Kit License ("Exhibit B) is an exhibit to the Joint Development Agreement "Agreement"), dated as of April ___, 2000 between International Business Machines Corporation ("IBM") and Multilink Technology Corporation ("MTC), (collectively the "Parties") and sets forth the terms and conditions applicable to the IBM Design Kit, as defined below. In addition to the terms set forth herein, the terms of Articles 6 and 9 - 13 of the Agreement apply to the IBM Design Kit. The Parties agree that the following terms and conditions will apply to any IBM Design Kit provided to MTC under the Agreement. Capitalized terms used herein that are not herein defined shall have the meaning set forth in the Agreement. The IBM Design Kit is licensed and not sold. IBM retains all the right and title to all copies of any IBM Design Kit provided to MTC and any copy that MTC makes. The term "IBM Design Kit" includes the following information and materials as may be listed in a separate document accompanying the IBM Design Kit: . design automation software, and related support documentation (individually and collectively "ASIC Tool Kit"); . design-tool specific logical and physical design data and design rules (e.g., NDR, EDIF, GL/1, or GDS2 models) for all library and data path elements, macros, hard cores, soft cores, synthesizable cores, and MTC Licensed Products of such soft cores and synthesizable cores, and related support documentation (individually and collectively "ASIC Model Kit"); materials sent to MTC separately as documented in one or more Addendum's to the IBM Design Kit License ("Addendum"); and . machine-readable and printed related materials, including training materials, and listings as may be provided by IBM to MTC under this Agreement. The "IBM Design Kit" includes all copies and derivatives of such IBM Design Kit; and may include information, materials, and/or designs owned or provided by third parties, including but without limitation SSM. The "IBM Design Kit" also includes any semiconductor manufacturing process information and any semiconductor packaging information delivered to MTC pursuant to the Agreement. IBM/MULTILINK CONFIDENTIAL PAGE 7 JOINT DEVELOPMENT AGREEMENT "SSM" shall mean Swift Simulation Models or any portion which is an output of a Verilog Foundry Model tool (a Synopsys, Inc. product). "Use", when referring to the machine-readable portion of the IBM Design Kit, means copying any portion of the IBM Design Kit into a machine for processing, transmitting it to a machine for processing, or performing such processing; and when referring to the printed portion of the IBM Design Kit, means use solely in furtherance of the Licensed Use set forth below. LICENSE The IBM Design Kit is provided to MTC as an IBM customer solely for MTC's Use. Under IBM's intellectual property rights in the IBM Design Kit, (including know- how, trade secrets, and other information, copyrights and mask works, but excluding patents, trademarks and trade names), IBM hereby grants to MTC a non- exclusive, non-transferable, royalty-free, revocable, limited license to use, perform, display, and make copies of the IBM Design Kit, solely and exclusively in accordance with this Agreement. MTC may: . use the IBM Design Kit only for purposes of (i) conducting an evaluation of the IBM Design Kit solely for the purpose of determining whether or not to carry out the design activities of (ii) below, and/or (ii) designing Joint Products and MTC Licensed Products to be manufactured solely by IBM (both (i) and (ii) collectively referred to hereafter as "Licensed Use"); . create MTC Licensed Products of any soft cores or synthesizable cores provided to MTC as part of an ASIC Model Kit, solely for the purpose of creating a derivative design to be included in Joint Products and MTC Licensed Products to be manufactured solely by IBM; and . copy or translate the IBM Design Kit's machine-readable portion into any machine-readable or printed form to provide sufficient copies only to support MTC's Licensed Use as well as reasonable storage and backup of the IBM Design Kit, and copy the printed related materials to support MTC's Licensed Use. MTC may not . reverse assemble or reverse compile any portion of any machine-readable representation of the IBM Design Kit elements without IBM's prior written consent; . create any derivatives of the IBM Design Kit other than the derivative soft cores or synthesizable cores as set forth above; nor . sublicense, lease, or otherwise distribute the IBM Design Kit to any other persons, including other licensees, without IBM's prior written consent. IBM/MULTILINK CONFIDENTIAL PAGE 8 JOINT DEVELOPMENT AGREEMENT MTC acknowledges that IBM retains all ownership rights in and to the intellectual property licensed pursuant to this Exhibit B, and that no license, immunity, or other right is hereby granted under any IBM intellectual property rights, express or implied, other than as specifically set forth herein. SUPPORT AND SUBSEQUENT RELEASES IBM may provide support to MTC by answering reasonable technical questions MTC may have regarding the IBM Design Kit. Such support is not applicable to any derivative soft cores or synthesizable cores MTC creates pursuant to this Exhibit. All such questions should be coordinated through the IBM contact person designated by IBM for this purpose. IBM may make a subsequent IBM Design Kit release available to MTC for MTC's Licensed Use. While MTC may continue Licensed Use of a previous release, IBM may not continue support for previous releases of the IBM Design Kit. PROTECTION AND SECURITY, CONFIDENTIALITY Any information required to be exchanged in connection with the performance of this Agreement which either party desires to have treated as confidential shall be exchanged and treated in accordance with the terms and conditions of Section 6 of the Agreement. Notwithstanding the foregoing, MTC agrees that any logical and physical design data, design rules, macros, hard cores, soft cores, synthesizable cores, MTC's derivatives of such soft cores and synthesizable cores, and training materials supplied to MTC by IBM are IBM Confidential, and MTC agrees to protect such information and materials for seven (7) years from the date of disclosure to MTC as provided in Section 6 of the Agreement. MTC agrees to use the training materials provided by IBM with the IBM Design Kit only for MTC's internal training requirements and for those employees, together with those subcontractors engaged by MTC who are individuals at MTC's facilities and who are performing tasks substantially similar to MTC's regular employees, who require training in order to carry out MTC's Licensed Use. The training materials shall not be used to train any other third party in the use and operation of the IBM Design Kit. MTC agrees that SSM and information in SSM provided under this Agreement may contain or be derived from information or portions of materials owned or provided by a third party supplier, and shall be treated as IBM Confidential. MTC acknowledges and agrees that Synopsys as such IBM/MULTILINK CONFIDENTIAL PAGE 9 JOINT DEVELOPMENT AGREEMENT a third party supplier is an intended third party beneficiary of this Agreement, having all the rights to enforce the terms and conditions of this Agreement that govern the use and protection of Synopsys' intellectual property rights contained in the SSM. MTC agrees that it will not make IBM Confidential materials available to any third party. In addition, MTC agrees to take the following precautions with respect to the IBM Design Kit components licensed under this Agreement: . MTC will take appropriate action, by instruction, agreement or otherwise, with any persons permitted access to any IBM Design Kit, to satisfy its obligations under this Exhibit. . MTC will reproduce and include the copyright notices and any other legend on all copies, modifications, or portions merged into any other IBM Design Kit; no such copyright notices, legend, or other marking on or in any materials distributed under this Exhibit shall be tampered with or removed from any licensed item, and . MTC will ensure, before disposing of any media, that the IBM Design Kit or any portion contained thereon has been erased or destroyed. For purposes specifically related to MTC's Licensed Use of the IBM Design Kit, MTC may make the IBM Design Kit available to any of the following: (1) its Affiliates; (2) Representatives of MTC or MTC Affiliates; (3) Subcontractors of MTC or its Affiliates; and (4) IBM's employees (a) during the period they are on MTC's premises, or (b) whom MTC authorizes to have remote access to the IBM Design Kit. For purposes of this paragraph, "Subcontractors" shall mean, and shall be limited to, those persons who are contractually engaged full time on a temporary basis by MTC to perform the same semiconductor device design services as MTC's regular employees who have rightful access to the IBM Design Kit(s) hereunder and who perform such services only on the premises of MTC or its Affiliates. Before making the IBM Design Kit available, all such Representatives, Affiliates, and Subcontractors must be obligated to protect the IBM Design Kit(s) according to a prior written agreement of confidentiality with MTC having terms which are no less restrictive than set forth herein. TERM The license granted herein is effective for so long as the Agreement is in effect. Upon termination or expiration of the Agreement, the licenses set forth herein shall terminate. MTC agrees upon such termination to destroy (and certify to such destruction) the IBM Design Kit together with all elements (including SSM), copies, modifications and merged portions in any form. IBM/MULTILINK CONFIDENTIAL PAGE 10 JOINT DEVELOPMENT AGREEMENT EXHIBIT C CERTIFICATE OF ORIGINALITY This questionnaire must be completed by any Party furnishing any software under an SOW under this Agreement. The completed questionnaire is to be sent to the Technical Coordinator for the Party submitting the software under the Agreement. Please leave no questions blank. Write "not applicable" or N/A if a question is not relevant to the furnished software material. ________________________________________________________________________________ 1. Name of the software (include version, release and modification numbers for programs and documentation) ____________________________________________________ Business address of employee making Certification ______________________________ _______________________________ _______________________________ Citizenship of employee making Certification ___________________________________ 2. Was the software or any portion thereof: a. Written by any person(s) other than the employee working within his/her job assignment? YES____ NO____ If YES, indicate if the whole software or only a portion thereof was written by such person(s), and identify such portion. IBM/MULTILINK CONFIDENTIAL PAGE 11 JOINT DEVELOPMENT AGREEMENT b. If 2a. is NO, was the software or any portion thereof furnished to the submitting Party by: COMPANY(IES)_______ INDIVIDUAL(S)________ UNIVERSITY____________ c. If 2b. is COMPANY (IES), or UNIVERSITY provide for each Company and/or University the following information: 1) Name: 2) Address: 3) How the Company/University acquired title to the software (e.g., Software was written by Company's/University employees as part of their job assignment)? 4) Did the Company/University have each non-U.S. author who contributed to the software sign a waiver of moral rights agreement? YES____ NO____ N/A____ If YES, please attach a copy of the waiver agreement(s). d. If 2b. is INDIVIDUAL(S), provide for each person the following information 1) Name: IBM/MULTILINK CONFIDENTIAL PAGE 12 JOINT DEVELOPMENT AGREEMENT 2) Citizenship 3) Address: 4) Did the person create the software while employed by or under contractual relationship with another party? YES_____ NO_____. If YES, provide name and address of the other party. 5) Did the person create the software in a country other than the United States? YES____ NO____. 6) If d.5) is YES, did that person sign a waiver of moral rights agreement? YES____ NO____. If YES, please attach a copy of the waiver agreement. 3. Was the software or any portion thereof registered at any Copyright Office? YES____ NO____. 4. Was the software or any portion thereof published? YES____ NO____. If YES, provide the following information: IBM/MULTILINK CONFIDENTIAL PAGE 13 JOINT DEVELOPMENT AGREEMENT a. When and where was it published? b. Was any copyright notice present on the published material(s)? YES____ NO____. If YES, provide the copyright notice. 5. Was the software or any portion thereof released to any outside person or company other than a Party hereto? YES____ NO____. If YES, provide the following information: a. When and where was the software released? b. Why was the software released? c. Under what conditions (e.g., contract) was the software released? 6. Was the software or any portion thereof derived from preexisting material(s)? YES____ NO____. If YES, provide the following information for each of the preexisting materials. a. Name of the material: IBM/MULTILINK CONFIDENTIAL PAGE 14 JOINT DEVELOPMENT AGREEMENT b. Author (if known): c. Owner: d. Copyright notice appearing on the material (if any): e. Was any new function added to the preexisting software? YES____ NO____. If YES, briefly describe (or attach a brief description) of the new function(s). f. State approximately 1) ____percent of preexisting material used 2) ____percent of preexisting material modified 3) ____percent of new material consisting of or deriving from preexisting materials IBM/MULTILINK CONFIDENTIAL PAGE 15 JOINT DEVELOPMENT AGREEMENT g. Briefly describe (or attach a brief description of) how the preexisting material has been used: 7. Were the "external characteristics" of this software or any portion thereof copied or derived from the "external characteristics" of another program or product? "External characteristics" include display screens, data formats, instruction or command format, operator messages, interfaces, etc. YES____ NO____. If YES, provide the following information for each of the preexisting materials: a. Name of material b. Author (if known): c. Owner: d. Copyright notice relating to the preexisting "externals" (if any) e. Have the preexisting "externals" been modified? YES____ NO____. If YES, briefly explain how such "externals" have been modified? IBM/MULTILINK CONFIDENTIAL PAGE 16 JOINT DEVELOPMENT AGREEMENT CERTIFICATION AS TO ENTIRE FORM I hereby certify that all of the information set forth above and in any attachment(s) to this form is, to the best of my knowledge, complete and accurate. ___________________________________________________________ Signature Date Witness:___________________________________________________ Signature Date ___________________________________________________________ Address Witness:___________________________________________________ Signature Date ___________________________________________________________ Address EX-10.15 10 dex1015.txt DEVELOPMENT AGREEMENT DATED SEPTEMBER 1, 1999 Contract Number 81163-PPCG 14 March 2000 EXHIBIT 10.15 [*] DEVELOPMENT AGREEMENT BETWEEN TYCO SUBMARINE SYSTEMS LTD AND MULTILINK TECHNOLOGY CORPORATION THIS DEVELOPMENT AGREEMENT ("Agreement"), is made effective September 1, 1999 ("Effective Date") by and between Tyco Submarine Systems Ltd. having an office at Patriot's Plaza, 60 Columbia Turnpike-Building A, Morristown, New Jersey 07960 (hereinafter referred to as "TSSL"), and Multilink Technology Corporation having an office at 300 Atrium Drive, Second Floor, Somerset, NJ, 08873 (hereinafter referred to as "Supplier"). WITNESSETH WHEREAS, TSSL is in the business of designing, constructing and maintaining integrated optical fiber submarine cable systems and Supplier is in the business of designing, developing, and manufacturing integrated circuits and circuit boards; and WHEREAS, TSSL desires to engage Supplier for the design and development of custom integrated circuit(s) ("Device(s)") and board assembly (ies) ("Board(s)"); and WHEREAS, Supplier has developed design tools and design platforms (hereinafter collectively referred to as ("Supplier Products") which, along with compatible software and hardware, facilitate the design of Devices and Boards; and WHEREAS, TSSL and Supplier desire to enter into a definitive agreement for design and development services, prototypes and production pricing to be provided by Supplier. NOW, THEREFORE, TSSL and Supplier, in consideration of the mutual promises set forth herein and for other good and valuable consideration hereby agree as follows: ARTICLE 1 - STATEMENT OF WORK Supplier shall render to TSSL all the technical and manufacturing services for the design, development, prototype fabrication and test ("Work") of the Devices and the Boards as specified in the attached Exhibits. Supplier shall complete such Work within the time allowed in this Agreement, and shall meet all interim deadlines, as specified in Exhibit C. The Work shall meet all required specifications and test requirements stated herein, shall be performed in accordance with the highest standards and shall be in accordance with such requirements or restrictions as may be lawfully imposed by governmental authority. Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. TSSL Proprietary 1 Contract Number 81163-PPCG 14 March 2000 ARTICLE 2 - EXHIBITS The following Exhibits have been attached hereto and are hereby incorporated by reference herein: Exhibit A - Statement of Work Exhibit B - Specifications Exhibit C - Schedule ARTICLE 3 - NOTICES Any notice or demand required to be given or made by Supplier or TSSL shall be in writing and shall be given or made by confirmed facsimile or similar communication or by certified or registered mail addressed as follows: To TSSL: Leo Redmond Tyco Submarine Systems Ltd. Room 3A-241 60 Columbia Turnpike - Bldg. A Morristown, New Jersey 07960 To Multlink: David Huff Multilink Technology Corporation 300 Atrium Drive, Second Floor Somerset, NJ 08873 ARTICLE 4 - REPRESENTATIVES TSSL's Technical Representative is [*] (Telephone [*] ), TSSL's Component Engineer is [*] (Telephone [*] ) and TSSL's Agreement Representative is [*] (Telephone [*] ), or such other persons as may be designated in writing by TSSL from time to time. Multilink's Technical Representative is [*] (Telephone [*] ), and Product Line Manager is [*] (Telephone [*] ) and Agreement Representative is [*] (Telephone [*] ), or such other persons as may be designated in writing by Multilink from time to time. ARTICLE 5 - DELIVERY SCHEDULE 5.1 The Supplier shall meet the following Milestones:
- ---------------------------------------------------------------------------------------------- Task Milestone Required Delivery Late Delivery Date Date - ---------------------------------------------------------------------------------------------- [*] Preliminary Design Review 9/6/99 - Complete - ---------------------------------------------------------------------------------------------- [*] Critical Design Review 12/6/99 - Complete - ---------------------------------------------------------------------------------------------- [*] Preliminary Design Review 12/14/99 - Complete - ---------------------------------------------------------------------------------------------- [*] Prototype Delivery 1/30/00 - Complete - ---------------------------------------------------------------------------------------------- [*] Final Data Review 3/3/00 - ---------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- [*] Delivery (2 each) 3/21/00 3/21/00 - ---------------------------------------------------------------------------------------------- [*] Delivery (2 each) 3/21/00 3/21/00 - ---------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. 2 TSSL Proprietary Contract Number 81163-PPCG 14 March 2000 - ---------------------------------------------------------------------------------------------- [*] Delivery ([*] each) 3/24/00 3/29/00 - ---------------------------------------------------------------------------------------------- [*] Delivery ([*] each) 3/24/00 3/29/00 - ---------------------------------------------------------------------------------------------- [*] - ---------------------------------------------------------------------------------------------- [*] Delivery ([*] each) 4/1/00 - 4/28/00 Delivered Weekly - ---------------------------------------------------------------------------------------------- [*] Delivery ([*] each) 6/16/00-7/16/00 - ----------------------------------------------------------------------------------------------
The Delivery Date is defined as the date that the Supplier ships from the factory for overnight next day delivery to TSSL. The delivery dates for the prototypes are as stated in the "Required Delivery Dates" column. The date stated in the "Late Delivery Date" column will be used to determine the price reduction for late delivery in accordance with 5.2 and Article 7. 5.2 The Supplier shall be entitled to receive an Incentive Payment for the early delivery of the Prototype Sets. [*] - -------------------------------------- Early delivery is defined as meeting a delivery date of 3/21/00 for the Set for which the Supplier shall receive an incentive payment of $100,000. [*] - -------------------------------------- Early delivery is defined as meeting a delivery date of 3/24/00 for supplying the Set with the [*] having the reverse bit order and for supplying the [*] with the required bit order by 3/29/00. If the Supplier meets both these dates the Supplier will be entitled to receive a $50,000 incentive payment. If the Supplier meets a delivery date of 3/24/00 for supplying the Set with the [*] having the required bit order, the Supplier shall be entitled to a $100,000 incentive payment. ARTICLE 6 - PROTOTYPE PRICING Supplier will be paid the following unit price for each of the Prototypes delivered in accordance with Article 5: Additional Board Prototype Prices ------------------------------------ [*] $ [*] [*] $ [*] [*] $ [*] [*] $ [*] Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. 3 TSSL Proprietary Contract Number 81163-PPCG 14 March 2000 ARTICLE 7 - PRODUCTION PRICING 7.1 The Supplier has agreed to the production pricing as follows: - --------------------------------------------------------- Board/Quantity First 200* 201 - 1000** 1001 - 1500 - --------------------------------------------------------- [*] [*] [*] [*] - --------------------------------------------------------- [*] [*] [*] [*] - --------------------------------------------------------- - --------------------------------------------------------- [*] [*] [*] [*] - --------------------------------------------------------- [*] [*] [*] [*] - --------------------------------------------------------- - --------------------------------------------------------- Total Set Price [*] [*] [*] - --------------------------------------------------------- *Prices are based on the 1000 piece order commitment. ** Includes First 200 The "Required Prototype Delivery Dates" are as stated in Article 5. The Production Pricing for the first quantity of 200, which includes the Models quantity, is based on the Supplier meeting the Required Prototype Delivery Dates for the first two sets of boards, with the sets of boards as defined in Article 5. If the Supplier does not meet the Required Prototype Delivery Dates for the first two sets of boards, the Production Pricing stated for the first quantity of two hundred shall be reduced on a pro-rated basis based on the number of days missed between the Required Prototype Delivery Dates for the first two sets of boards and the date of April 7, 2000, the "Late Delivery Date". Each board within a Set shall be reduced for the first quantity of two hundred (200) at the per business day rate as follows: - -------------------------------------- BOARD PRICE REDUCTION BY BOARD BY DAY - -------------------------------------- [*] [*] - -------------------------------------- [*] [*] - -------------------------------------- - -------------------------------------- [*] [*] - -------------------------------------- [*] [*] - -------------------------------------- - -------------------------------------- 7.2 The Production Pricing at the 1000 piece quantity includes a Value Engineering Investment of $400,000 by the Supplier. This investment is reflected in the reduced price that TSSL will pay for each item from the quantity of 750 to 1000 piece quantities as stated above. Should TSSL not take delivery of the quantity of 1000, then TSSL will be required to reimburse the Supplier for the prorated amount of the investment between the quantity delivered and the quantity of 1000. For example, if TSSL takes delivery of a quantity of 850, TSSL will be required to reimburse the Supplier for sixty (60) per cent of the $400,000 (1000 - 850 = 150 which is 60% of 250). The Production Pricing and Value Engineering Investment terms stated above shall be applicable to and be made a part of the Supply Agreement that will be entered into between Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. 4 TSSL Proprietary Contract Number 81163-PPCG 14 March 2000 Supplier and TSSL's Exeter Manufacturing Center located in Exeter, NH, which agreement shall include the terms and conditions similar to those as stated in the current Supply Agreement. ARTICLE 8 - PERIOD OF PERFORMANCE The Supplier shall comply with the schedule for the design, development, and the fabrication and delivery of the Prototypes, which shall be completed no later than April 7, 200O. The delivery of the Models shall be made beginning June 16, 2000 through July 16, 2000. The quantities and specific delivery dates of the quantities will be mutually agreed to between the Parties, but it is expected that the quantity will be between [*] and [*] . In the event of a conflict between Article 5 Delivery Schedule and Exhibit C, Article 5 shall take precedence. ARTICLE 9 - VERSION 3 DISCUSSIONS TSSL and the Supplier will initiate discussions on Supplier's possible participation in TSSL's Version 3 HPOE Program. ARTICLE 10 - ACCEPTANCE TSSL shall have the right to evaluate all Work for compliance with the Specifications. Supplier shall provide TSSL with free access to the Work performed and the items furnished under this Agreement, for the purpose of inspection thereof. At any time during the progress of the Work, TSSL may reject any or all of the Work if the same are not in accordance with this Agreement, and shall give written notice to Supplier of such non-compliance. Supplier agrees to correct, at its expense, each error or defect (referred to herein collectively as "defect") leading to such rejection and resubmit to TSSL within seven (7) business days, or other mutually agreed upon date, after receipt of notice from TSSL of such error or defect. ARTICLE 11 - INVOICING Supplier's invoices shall be rendered upon documented completion and acceptance of a Milestone and for hardware deliveries, after delivery of the Boards provided for in this Agreement; and shall be payable net thirty (30) days from the receipt of the invoice. For all payments Supplier shall reflect the Purchase Order Number, and shall be submitted in duplicate to: TYCO Submarine Systems Ltd 100 Domain Drive Exeter, NH 03833-4897 Attn: Accounts Payable Department Supplier shall mail invoices with copies of any supporting documentation required herein. The Work shall be delivered free from all claims, liens, and charges whatsoever. TSSL Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. 5 TSSL Proprietary Contract Number 81163-PPCG 14 March 2000 reserves the right to require before making payment, proof that all parties furnishing labor and materials for the work have been paid. ARTICLE 12 - PAYMENT TERMS Unless payment terms more favorable to TSSL appear on Supplier's invoice and TSSL elects to pay on such terms, invoices shall be paid in accordance with the terms stated in this Agreement, and due dates for payment of invoices shall be computed.from the date of receipt of invoice by TSSL. ARTICLE 13 - TITLE TO MATERIAL; RISK OF LOSS Unless otherwise specified herein, title and risk of loss or damage to the Work, shall remain with Supplier until the Work is accepted for delivery by TSSL at the point of origin specified herein. Notwithstanding the above, if in any case TSSL pays Supplier for any Work prior to TSSL's acceptance for delivery, title to such Work shall vest in TSSL upon payment of the applicable invoice, but risk of loss and damage shall remain with Supplier and shall pass to TSSL only upon acceptance for delivery by TSSL. Acceptance for delivery involves the acceptance for physical delivery and in no way affects acceptance of the Work with respect to conformance with the Exhibits. ARTICLE 14 - ASSIGNMENT AND SUBCONTRACTING Supplier shall not assign any right or interest under this Agreement (excepting moneys due or to become due) or delegate or subcontract any Work (except as stated herein) or other obligation to be performed or owed under this Agreement without the prior written consent of TSSL. Any attempted assignment, delegation or subcontracting in contravention of the above provisions shall be void and ineffective. Any assignment of moneys shall be void and ineffective to the extent that (1) Supplier shall not have given TSSL at least thirty (30) days prior written notice of such assignment or (2) such assignment attempts to impose upon TSSL obligations to the assignee additional to the payment of such moneys, or to preclude TSSL from dealing solely and directly with Supplier in all matters pertaining to this Agreement including the negotiation of amendments or settlements of charges due. All Work performed by Supplier's subcontractor(s) at any tier shall be deemed Work performed by Supplier. ARTICLE 15 - QUALITY SYSTEM AUDIT 15.1 If requested, Supplier agrees to permit TSSL or its agent to conduct an initial and any subsequently required on-site Quality System Audit(s) (QSA) of Supplier's Quality System at TSSL's expense. Such an audit shall assess the effectiveness and documentation of the various elements that comprise a functioning quality system which may include, but not be limited to the following elements: A) Management Responsibility B) Quality System C) Contract Review D) Design Control E) Document & Data Control TSSL Proprietary 6 Contract Number 81163-PPCG 14 March 2000 F) Purchasing G) Control of TSSL Supplied Equipment H) Equipment Identification and Traceability I) Process Control J) Inspection and Testing K) Control of Inspection, Measuring and Test Equipment L) Inspection and Test Status M) Control of Non-conforming Equipment N) Corrective Action and Preventive Action 0) Handling, Storage, Packaging, Preservation, and Delivery P) Control of Quality Records Q) Internal Quality Audits R) Training S) Servicing T) Statistical Techniques 15.2 Supplier further agrees that any deficiencies discovered in Supplier's quality system as a result of the audit(s) shall be reviewed and agreed to by Supplier. Necessary remedies shall be as agreed to by the Parties and shall be implemented to the satisfaction of all Parties. Remedies shall be implemented at no additional cost to TSSL. 15.3 Upon written request and at no additional charge, Supplier agrees to provide TSSL with a written description of its Quality Plan for the Equipment used in undersea cable systems. Said Quality Plan description shall be provided to TSSL in the English language. ARTICLE 16 - IS0 9000 16.1 TSSL is an IS0 9001: 1994 Certified Company. It is, therefore, a requirement that each Supplier and sub-Supplier to TSSL either be IS0 9000 Certified, or, if not IS0 9000 Certified, that Supplier and sub-Supplier document to TSSL that they have in place a Quality System and Quality Plan. These IS0 9000 certifications or other Quality System(s) and Quality Plan(s) must be submitted to TSSL for review and approval, prior to the issuance of any Order by TSSL for Equipment(s). Supplier and sub-Supplier must indicate their willingness to be audited by TSSL or TSSL's representative(s) for compliance with IS0 9000 or Supplier's and sub-Supplier's own Quality System(s) and Quality Plan(s). 16.2 If Supplier or sub-Supplier is IS0 9000 certified, Supplier shall, prior to or upon execution of this Agreement, provide TSSL's representative indicated below a copy of the appropriate certificate(s) of registration issued by such third party accredited registrar(s), such as the Registration and Accreditation Board (RAB-U.S.), Royal Dutch Standards Bureau (RvA) or United Kingdom Accreditation Society (UKAS). Supplier shall also maintain such certificate(s) of registration through appropriate assessments by such third party accredited registrar(s) and provide to customer's representative any applicable updated certificate(s) or notifications of failure to pass a surveillance or full registration audit. If Supplier or sub-Supplier fails, for any reason, to maintain or provide to TSSL such certificate(s) of registration as set forth above, TSSL shall have the right, and without any cost to or liability 7 TSSL Proprietary Contract Number 81163-PPCG 14 March 2000 or obligation of TSSL, to terminate this Agreement and any outstanding Orders placed under this Agreement. TSSL's representative for IS0 9000 series standards purposes is: Lowry Drinkwater TSSL 60 Columbia Turnpike-Building A Morristown, NJ 07960 USA ARTICLE 17 - CHANGES TSSL may at any time during the progress of the Work require additions to or alterations of or deductions or deviations (all hereinafter referred to as a "Change") from the Work called for by the specifications, drawings and samples. No Change shall be considered as an addition or alteration to or deduction or deviation from the Work called for by the specifications, drawings and samples nor shall Supplier be entitled to any compensation for work done pursuant to or in contemplation of a Change, unless made pursuant to a written Change Order issued by TSSL. Within five (5) days after a request for a Change, Supplier shall submit a proposal to TSSL, which includes any increases or decreases in Supplier's costs or changes in the delivery or Work schedule necessitated by the Change. TSSL shall, within ten (10) days of receipt of the proposal, either (i) accept the proposal, in which event TSSL shall issue a written Change Order directing Supplier to perform the Change or (ii) advise Supplier not to perform the Change in which event Supplier shall proceed with the original Work. ARTICLE 18 - TITLE TO MATERIAL AND LICENSES 18.1 Authorship and Copyright All right, title and interest in and to all work and work products developed or produced under this Agreement for TSSL, whether in the form of specifications, drawings, sketches, models, samples, data, computer programs, documentation or other technical or business information, and all right, title and interest in patents, copyrights, trade secrets, trademarks and other intellectual property derived from such work and work products are hereby assigned by Supplier to TSSL. To the extent that such work or work products are copyrightable, they shall be deemed to be "works made for hire" for the benefit of TSSL under the Copyright Act. 18.2 Developed Information and Mask Work Supplier agrees that Supplier will and, where applicable, will have Supplier disclose and furnish promptly to TSSL any and all technical information, computer or other apparatus programs, specifications drawings, records, documentation, works of authorship or other creative works ideas, knowledge of data, written, oral or otherwise expressed, originated or developed by Supplier or by any Supplier's employees, consultants, representatives or agents ("associates") as a result of work performed under this Agreement. TSSL Proprietary 8 Contract Number 81163-PPCG 14 March 2000 Supplier further agrees that all such Information shall be the property of TSSL, shall be kept in confidence by Supplier and Supplier's representatives, shall be used only in the performance hereunder and in the filling of Orders under any production agreement awarded by TSSL, for the manufacture of material covered under this Agreement, and may not be used for other purposes except upon such terms as may be agreed upon in writing by TSSL. 18.3 Inventions Supplier agrees that if any inventions, discoveries or improvements are conceived, first reduced to practice, made or developed in the course of, or as a result of work done under this Agreement, by Supplier or by one or more of Supplier's associates, Supplier will assign to TSSL and TSSL's associates entire right, title, and interest in and to such inventions, discoveries and improvement, and any patents that, may be granted thereon in any country of the world. 18.4 Background Information All right, title and interest in and to Background Information, as defined below, shall remain the property of Supplier. "Background Information" shall mean any information or materials previously developed or copyrighted by Supplier, and not originated or developed as part of this Agreement, and furnished as part of the deliverables hereunder. For purposes of this agreement, Background Information shall include, but not be limited to, the Supplier Products identified in Section II of the Statement of Work, titled - MULTILINK PRODUCTS. Supplier grants to TSSL an unrestricted, perpetual, non-exclusive, worldwide, royalty-free, irrevocable license under copyright, mask work rights, patents trade secrets, trade marks and other intellectual property contained in or derived from the Background Information to use, have use, to make, have made, reproduce, sublicense, sell, import, distribute and modify, in whole or in part, the deliverables and Pre-existing Information and any derivative work thereof. ARTICLE 19 - EXCLUSIVITY Supplier shall not, without the prior written consent of TSSL, sell the Devices or the Boards developed under this Agreement to any person or entities other than TSSL or an associated Tyco International company for a period of ten (10) years from the effective date of this Agreement. ARTICLE 20 - IDENTIFICATION Supplier shall not, without TSSL's prior written consent, engage in advertising, promotion or publicity related to this Agreement, or make public use of any Identification in any circumstances related to this Agreement. "Identification" means any copy or semblance of any trade name, trademark, service mark, insignia, symbol, logo, or any other product, service or organization designation, or any specification or drawing of TSSL or its affiliates, or evidence of inspection by or for any of them. Supplier shall remove or obliterate any Identification prior to any use or disposition of any material rejected or not purchased by TSSL, and, shall indemnify, defend (at TSSL's request) and save harmless TSSL and its 9 TSSL Proprietary Contract Number 81163-PPCG 14 March 2000 affiliates and each of their officers, directors and employees from and against any losses, damages, claims, demands, suits, liabilities, fines, penalties and expenses (including reasonable attorneys' fees) arising out of Supplier's failure to so remove or obliterate. ARTICLE 21 - IMPLEADER Supplier shall not implead or bring an action against TSSL or its customers or the employees of either based on any claim by any person for personal injury or death to an employee of TSSL or its customers occurring in the course or scope of employment and that arises out of material or services furnished under this Agreement. ARTICLE 22 - INDEMNITY All persons furnished by Supplier shall be considered solely Supplier's employees or agents, and Supplier shall be responsible for payment of all unemployment, social security and other payroll taxes, including contributions when required by law. Supplier agrees to indemnify and save harmless TSSL, its affiliates, its and their customers and each of their officers, directors, employees, successors and assigns (all hereinafter referred to in this clause as "TSSL") from and against any losses, damages, claims, demands, suits, liabilities, fines, penalties and expenses (including reasonable attorney's fees) that arise out of or result from: (1) injuries or death to persons or damage to property, including theft, in any way arising out of or occasioned by, caused or alleged to have been caused by or on account of the performance of the Work or services performed by Supplier or persons furnished by Supplier; (2) assertions under Workers' Compensation or similar acts made by persons furnished by Supplier or by any subcontractor or by reason of any injuries to such persons for which TSSL would be responsible under Workers' Compensation or similar acts if the persons were employed by TSSL; (3) any failure on the part of Supplier to satisfy all claims for labor, equipment, materials and other obligations relating directly or indirectly to the performance of the Work; or (4) any failure by Supplier to perform Supplier's obligations under this clause or the INSURANCE clause. Supplier agrees to participate in the defense of TSSL, at TSSL's request, against any such claim, demand or suit. TSSL agrees to notify Supplier within a reasonable time of any written claims or demands against TSSL for which Supplier is responsible under this clause. ARTICLE 23 - INFRINGEMENT The following terms apply to any infringement, or claim of infringement, of any patent, trademark, copyright, trade secret or other proprietary information based on the use of any Information furnished by Supplier to TSSL under this Agreement or in contemplation of this Agreement or order. Supplier shall indemnify TSSL for any loss damage, expense or liability that may result by reason of any such infrigement or claim, except where such infringement or claim arises from Supplier's adherence to specifications or drawings which TSSL requires Supplier to follow. TSSL, at its own expense, shall indemnify Supplier for any loss, damage, expense or liability that may result solely by reason of Supplier's adherence to specifications or drawings which TSSL requires Supplier to follow. TSSL Proprietary 10 Contract Number 81163-PPCG 14 March 2000 ARTICLE 24 - NON-SOLICITATION Supplier agrees not to solicit for employment, directly or indirectly, any of the Company's technical employees, which shall include any such person who has been an employee of TSSL sixty (60) days prior to the Effective Date of this Agreement and for a period of one (1) year subsequent to the delivery of the Models as required in Article 8 or termination of this Agreement. ARTICLE 25 - INSPECTION TSSL's Representatives shall at all times have access to the Work for the purpose of inspection or a Quality Review and Supplier shall provide safe and proper facilities for such purpose ARTICLE 26 - INSURANCE 26.1 Supplier shall maintain and cause Supplier's subcontractors to maintain during the term of this Agreement the following types of insurance as prescribed by the law of the state or nation in which the work is performed: Supplier will name TSSL as an additional insured with waiver of subrogation with respect to the work. All such insurance must be primary and required to respond and pay prior to any other available coverage. A) Workers' Compensation insurance; B) Employer's Liability insurance, with limits of at least U.S. $1,000,000 for each occurrence; C) Comprehensive Automobile Liability insurance if the use of motor vehicles is required, with limits of at least U.S. $5,000,000 combined single limit for bodily injury and property damage for each occurrence; D) Commercial General Liability ("CGL") insurance. The sum insured shall be no less than U.S. $5,000,000 for any one incident, unlimited in the aggregate; E) If professional services are provided, Errors and Omissions insurance in the amount of at least U.S. $5,000,000 per claim and in the aggregate should be procured and maintained for a period of at least one (1) year after completion of the Agreement; F) If there is potential environmental impact or required by State or Federal statutes, Environmental Impairment Liability (EIL or Pollution liability) insurance in the amount of U.S. $5,000,000 for each claim. 26.2 Supplier agrees that Supplier, Supplier's insurer(s) and anyone claiming by, through, under or in Supplier's behalf shall have no claim, right of action or right of subrogation against TSSL and its Customer(s) based on any loss or liability insured against under the foregoing insurance. Supplier and Supplier's subcontracts shall furnish prior to the start of work certificates or adequate proof of the foregoing insurance including, if specifically 11 TSSL Proprietary Contract Number 81163-PPCG 14 March 2000 requested by TSSL, copies of the endorsements and insurance policies. TSSL shall be notified in writing at least thirty (30) calendar days prior to cancellation of or any change in the policy. ARTICLE 27 - RELEASES VOID Neither party shall require (i) waivers or releases of any personal rights or (ii) execution of documents which conflict with the terms of this Agreement, from employees, representatives or customers of the other in connection with visits to its premises and both parties agree that no such releases, waivers or documents shall be pleaded by them or third persons in any action or proceeding. ARTICLE 28 - RIGHT OF ENTRY AND PLANT RULES Each party shall have the right to enter the premises of the other party during normal business hours with respect to the performance of this Agreement, subject to all plant rules and regulations, security regulations and procedures and US Government clearance requirements if applicable. ARTICLE 29 - SUPPLIER'S INFORMATION Supplier shall not provide under, or have provided in contemplation of, this Agreement any idea, data, program, technical, business or other intangible information, however conveyed, or any document, print, tape, disk, semiconductor memory or other information-conveying tangible article, unless Supplier has the right to do so. Any information provided by Supplier which is confidential or proprietary shall be provided in accordance with the Agreement Concerning Disclosure of Information effective 9 September 1998. ARTICLE 30 - TERMINATION TSSL may at any time terminate this Agreement for its convenience, in whole or in part, upon written notice to Supplier, for any reason whatsoever. In such case, TSSL's liability shall be limited to Milestone Payments due as of the date of termination and any additional amount due, whether engaged or incurred, for work performed up to and including the date of termination (which amount shall be substantiated with proof satisfactory to TSSL), and no further work will be rendered by Supplier. Such payment shall constitute a full and complete discharge of TSSL's obligations. In no event shall TSSL's liability exceed the price set forth in this Agreement. Upon such a termination TSSL shall pay Supplier moneys due and owing pursuant to this Article or Supplier shall refund moneys due TSSL, if any. ARTICLE 31- TOOLS AND EQUIPMENT Unless otherwise specifically provided in this Agreement, Supplier shall provide all labor, tools and equipment (the "tools") for performance of this Agreement. ARTICLE 32 - USE OF INFORMATION Any specifications, drawings, sketches, models, samples, tools, computer or other apparatus programs, technical or business information or data, written, oral or otherwise, owned or controlled by TSSL ("Information") furnished to or acquired by Supplier under this Agreement of order, or in comtemplation of this Agreement or order, shall remain TSSL's property. All copies of such 12 TSSL Proprietary Contract Number 81163-PPCG 14 March 2000 Information in written, graphic or other tangible form shall be returned to TSSL at its request. Unless such Information was previously known to Supplier free of any obligation to keep it confidential, or has been or is subsequently made public by TSSL or third party, it shall be kept confidential by Supplier, shall be used only in the filling of orders or in performing under this Agreement or order, and may not be used for other purposes except upon such terms as may be agreed upon between Supplier and TSSL in writing. ARTICLE 33 - WAIVER The failure of either party at any tine to enforce any right or remedy available to it under this Agreement or otherwise with respect to any breach or failure by the other party shall not be construed to be a waiver of such right or remedy with respect to any other breach or failure by the other party. ARTICLE 34 - WARRANTY FOR PROTOTYPES AND PREPRODUCTION Supplier warrants to TSSL and its customers that the Work furnished will be free from defects in design (except to the intent designed by TSSL), material and workmanship and will conform to and perform in accordance with the specifications, drawings and samples. In addition, if the Work contains one or more manufacturer's warranties, Supplier hereby assigns such warranties to TSSL and its customers for the full duration thereof. All warranties shall survive inspection, acceptance and payment. Work not meeting the warranties will be, at TSSL's option, adjusted or replaced by Supplier (on an overtime basis, if necessary, to avoid interference with plant operation), at no cost to TSSL and its customers. ARTICLE 35 - FORCE MAJEURE Neither party shall be held responsible for any delay or failure in performance of any part of this Agreement to the extent such delay or failure is caused by fire, flood, explosion, war, strike, embargo, government requirement, civil or military authority, act of God, or other similar causes beyond its control and without the fault or negligence of the delayed or nonperforming party or its subcontractors ("force majeure conditions"). Notwithstanding the foregoing, Supplier's liability for loss or damage to TSSL's material in Supplier's possession or control shall not be modified by this clause. If any force majeure condition occurs, the party delayed or unable to perform shall give immediate notice to the other party, stating the nature of the force majeure condition and any action being taken to avoid or minimize its effect. The party affected by the other's delay or inability to perform may elect to: (1) suspend this Agreement or an order for the duration of the force majeure condition and (i) at its option buy, sell, obtain or furnish elsewhere material or services to be bought, sold, obtained or furnished under this Agreement or an order (unless such sale or furnishing is prohibited under this Agreement) and deduct from any commitment the quantity bought, sold, obtained or furnished or for which commitments have been made elsewhere and (ii) once the force majeure condition ceases, resume performance under this Agreement or an order with an option in the affected party to extend the period of this Agreement or order up to the length of time the force majeure condition endured and/or (2) when the delay or nonperformance continues for a period of at least fifteen (15) days, terminate, at no charge, this Agreement or an order or the part of it relating to material not already shipped, or services not already performed. Unless written notice is given within forty-five (45) days TSSL Proprietary 13 Contract Number 81163-PPCG 14 March 2000 after the affected party is notified of the force majeure condition, (1) shall be deemed selected. ARTICLE 36 - COMPLIANCE WITH LAWS Supplier and all persons furnished by Supplier shall comply at their own expense with all applicable federal, state, local and foreign laws, ordinances, regulations and codes, including those relating to the use of chlorofluorocarbons, and including the identification and procurement of required permits, certificates, licenses, insurance, approvals and inspections in performance under this Agreement. Supplier agrees to indemnify, defend (at TSSL's request) and save harmless TSSL, its affiliates, its and their customers and each of their officers, directors and employees from and against any losses, damages, claims, demands, suits, liabilities, fines, penalties and expenses (including reasonable attorney's fees) that arise out of or result from failure to do so. ARTICLE 37 - CHOICE OF LAW The construction, interpretation and performance of this Agreement and all transactions under it shall be governed by the laws of the State of New Jersey excluding its choice of law rules and excluding the Convention for the International Sale of Goods. The parties agree that the provisions of the New Jersey Uniform Commercial Code apply to this Agreement and all transactions under it, including agreements and transactions relating to the furnishing of services, the lease or rental of equipment or material, and the license of software. Supplier agrees to submit to the jurisdiction of any court wherein an action is commenced against TSSL based on a claim for which Supplier has agreed to indemnify TSSL under this Agreement. ARTICLE 38 - JURISDICTION Supplier agrees that any action or legal proceeding arising out of this Agreement shall be brought only in a court of competent jurisdiction in the State of New Jersey, United States of America, and Supplier expressly submits to, and accepts the jurisdiction of, any such court in connection with such action or proceeding and Supplier further consents to the enforcement of any judgement against Supplier arising therefrom in any jurisdiction in which it has or shall have any assets. ARTICLE 39 - SURVIVAL OF OBLIGATIONS The obligations of the parties under this Agreement which by their nature would continue beyond the termination, cancellation or expiration of this Agreement, including, by way of illustration only and not limitation, those in the clauses COMPLIANCE WITH LAWS, IDENTIFICATION, IMPLEADER, INDEMNITY, INFRINGEMENT, INSURANCE, RELEASES VOID, USE OF INFORMATION and WARRANTY, shall survive termination, cancellation or expiration of this Agreement. 14 TSSL Proprietary Contract Number 81163-PPCG 14 March 2000 ARTICLE 40 - ENTIRE AGREEMENT This Agreement shall incorporate the typed or written provisions on TSSL's orders issued pursuant to this Agreement and shall constitute the entire agreement between the parties with respect to the subject matter of this Agreement and the order(s) and shall not be modified or rescinded, except by a writing signed by Supplier and TSSL. All references in these terms and conditions to this Agreement or to Work, services, material, equipment, products, software or information furnished under, in performance of, pursuant to, or in contemplation of, this Agreement shall also apply to any orders issued pursuant to this Agreement. Printed provisions on the reverse side of TSSL's orders (except as specified otherwise in this Agreement) and all provisions on Supplier's forms shall be deemed deleted. Additional or different terms inserted in this Agreement by Supplier, or deletions thereto, whether by alterations, addenda, or otherwise, shall be of no force and effect, unless expressly consented to by TSSL in writing. Estimates or forecasts furnished by TSSL shall not constitute commitments. The provisions of this Agreement supersede all contemporaneous oral agreements and all prior oral and written quotations, communications, agreements and understandings of the parties with respect to the subject matter of this Agreement. The term "Work" as used in this Agreement may also be referred to as "services." AGREED: MULTILINK TECHNOLOGY CORP. TYCO SUBMARINE SYSTEMS LTD Signature /s/ Richard N. Nottenburg Signature /s/ Leo D. Redmond III ---------------------------- ---------------------------- Name Richard N. Nottenburg Name Leo D. Redmond III --------------------------------- --------------------------------- Title President and CEO Title Contracts Manager -------------------------------- -------------------------------- Date 4/28/00 Date May 2, 2000 --------------------------------- -------------------------------- 15 TSSL Proprietary EXHIBIT A AGREEMENT -- [*] DATED 26 January 2000 I. Development The following items will be developed under and for this program, in compliance with the specifications provided in Exhibit B: A. Custom [*] with input data rates from [*] (developed with Multilink-owned proprietary IC blocks) B. Custom [*] with input data rates from [*] (developed with Multilink-owned proprietary IC blocks) C. Board assembly [*] D. Board assembly [*] E. Board assembly [*] F. Board assembly [*] II. Multilink Products The following Multilink products may also be used in this project: A. MTC1204A - 9.95Gb/s CDRDMux IC B. MTC1207D - 12.25Gb/s 16:1 MuxCMU IC C. MTC1207A - 9.95Gb/s 16:1 MuxCMU IC D. MTC1206D - 12.25Gb/s 1:16 Demultiplexer IC E. MTC1205D - 12.25Gb/s 16:1 Multiplexer IC (as alternate to item B if needed) F. MTC5585D - 12.25Gb/s Clock/Data Recovery G. Active Splitter/Differentiator H. Passive Splitter I. Delay Line J. Resonant limiting Amplifier K. Dielectric Resonator Filter L. Limiting Amplifier M. 1:16 Digital DMUX N. 16:128 Demux and 128:16 gate array cells and architectural blocks Many of these products are currently under development by Multilink and may be required for the TSSL development effort. The cost associated with the development effort for these components is being funded and paid for by Multilink. III. Deliverables Multilink shall provide the following design documentation for the [*] devices: a) Final Technical Specifications b) Block Diagram and Simultation c) Schematic Design and Simultation d) Chip Layout and Tape Out e) Test Specification Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Multilink shall provide the following design documentation for each of the boards a) Final Technical Specification b) Block Diagram and Schematic c) Test Specifications Multilink will deliver working Prototypes for each Board in accordance with the Schedule. [*] initial Prototypes of each Board will be delivered based on the milestone schedule in Exhibit C. An additional [*] total prototype board sets in total, as requested by TSSL, will be provided throughout [*] on a weekly delivery basis. Prototypes and Pre-production units may be provided on an as-is basis and may not fully comply with the qualification and workmanship requirements of production units. Agreement on the configuration of the Prototypes and Pre-production units will be reached by the Parties prior to shipment if the Prototypes and Pre-production units are not in compliance with applicable Specifications, Exhibit B. Agreement on test and qualification procedures will be negotiated by the Parties. Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. EXHIBIT B SPECIFICATIONS AGREEMENT [*] SPECIFICATIONS: 1) Component Specification for [*] dated [*] 2) Component Specification for [*] dated [*] 3) Component Specification for [*] dated [*] 4) Component Specification for [*] dated [*] Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number ######## Component Specification for TSSL Part Number ####### [*] --------------------------------------- This document is TSSL Proprietary. Use pursuant to Company Instructions and applicable Non-Disclosure Agreements
Revision History - ----------------------------------------------------------------------------------------------------- Issue # Date Author Reason for Re-issue - ----------------------------------------------------------------------------------------------------- 1 [*] [*] Initial Release - ----------------------------------------------------------------------------------------------------- 2 [*] [*] Spec. negotiation - ----------------------------------------------------------------------------------------------------- 3 [*] [*] Spec. negotiation - ----------------------------------------------------------------------------------------------------- 4 [*] [*] Module drawing update Specs for [*] Update low speed logic levels - ----------------------------------------------------------------------------------------------------- 5 [*] [*] Remove [*] input Modified specs on low speed clock, data, and alarm outputs Moved sub-rate clock outputs from SMB connectors to parallel connector - ----------------------------------------------------------------------------------------------------- 6 [*] [*] Remove +8 (volts) supply, Add +5 (volts) supply. Reduce run length tolerance to [*] Change specs for (volts)th and (volts)ph Change levels and impedance of low speed data. Change levels and impedance of low speed clocks Change impedance of alarm outputs Change rise/fall times of low speed clocks Change impedance of alarm outputs Change CLK3 over/under shoot to 10% Spec'd CLK3 output impedance Spec'd temperature sensors Removed LOS alarm Spec'd connector type Spec'd module thickness - ----------------------------------------------------------------------------------------------------- 7 [*] [*] All changes in Red Bold Removed specs in Black Bold Strikethrough - -----------------------------------------------------------------------------------------------------
TSSL PROPRIETARY Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 1/17/2000 Sheet 1 of 166 Tyco Submarine Systems, Ltd Issue 7 TSSL Part Number ######## [*] [*] - ------------------------------------------- 1. General Description 1.1. This module accepts a [*] data stream and performs the following functions . Quantization of the input signal with user controllable decision threshold . Recovers the [*] clock . Retimes the data with user controllable decision phase . Demultiplexes the data [*] to [*] then [*] to [*] to produce a parallel data word, one [*] , and [*] differential clocks 1.2. This module produces the following output signals: . Quantized replica of input data at [*] . Recovered [*] clock . Demultiplexed [*] bit wide data word . One [*] MHz differential sub-rate clock . Two [*] MHz differential low speed clocks . Alarm signal 2. Block Diagram and I/O Definitions [*] [*] TSSL PROPRIETARY Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 1/17/2000 Sheet 2 of 166 Tyco Submarine Systems, Ltd Issue 7 TSSL Part Number ######## [*] - -------------------------------------------------------------------------------- Table 1 - I/O Signal Descriptions Signal Description Din [*] input data signal Vth Decision threshold adjustment Vph Decision phase adjustment Vcc1 DC power supply Vcc2 DC power supply Vee1 DC power supply Vee2 DC power supply Removed from specs Cmon Recovered clock monitor D\\coo\\ - D\\127\\ [*] Demultiplexed data CLK1, CLK2 Differential [*] clocks CLK3 Differential [*] sub-rate clock LOC Loss of clock alarm - -------------------------------------------------------------------------------- TSSL PROPRIETARY Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 1/17/2000 Sheet 3 of 166 Tyco Submarine Systems, Ltd Issue / [*] TSSL Part Number ########
3. Module Specifications 3.1. DC Power
- ------------------------------------------------------------------------------------------------------------------------------------ Table 2 - DC Power Specifications - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments - ------------------------------------------------------------------------------------------------------------------------------------ Power Dissipation Pdisp 11 W - ------------------------------------------------------------------------------------------------------------------------------------ Supply Voltages (Volts)cc1 [*] [*] [*] (Volts) All power supplies:+/- 7% tolerance (Volts)cc2 [*] [*] [*] (Volts) (Volts)ee1 [*] [*] [*] (Volts) (Volts)ee2 [*] [*] [*] (Volts) - ------------------------------------------------------------------------------------------------------------------------------------ Current Draw lcc1 [*] meters(amps) lcc2 [*] meters(amps) lee1 [*] meters(amps) lee2 [*] meters(amps) - ------------------------------------------------------------------------------------------------------------------------------------ Power Supply Sequencing Module shall be insensitive to supply power-up and power-down sequencing or timing. - ------------------------------------------------------------------------------------------------------------------------------------ Power Failure Tolerance Failure of one or more supplies will not cause damage to module. - ------------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY Sheet 4 of 166 1/17/2000 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number ######## 3.2. High Speed Input Signal
- ------------------------------------------------------------------------------------------------------------------------------------ Table 3 - High Speed Input Specifications - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments - ------------------------------------------------------------------------------------------------------------------------------------ Input Data Rate [*] [*] [*] Gb/s - ------------------------------------------------------------------------------------------------------------------------------------ Input Data Format NRZ - ------------------------------------------------------------------------------------------------------------------------------------ Input Pattern Tolerance Module must work properly with a 101010...... Input pattern. - ------------------------------------------------------------------------------------------------------------------------------------ Maximum Tolerable Run [*] All 1's or all 0's Length - ------------------------------------------------------------------------------------------------------------------------------------ Input Data Amplitude (volts)_Din [*] [*] [*] (metres)(volt)p-p - ------------------------------------------------------------------------------------------------------------------------------------ Input Data Connector [*] - ------------------------------------------------------------------------------------------------------------------------------------ Input Data Coupling [*] - ------------------------------------------------------------------------------------------------------------------------------------ [*] [*] - ------------------------------------------------------------------------------------------------------------------------------------ Input Low End Cutoff F_low_Din [*] [*] KHz 3 dB down - ------------------------------------------------------------------------------------------------------------------------------------ Input Impedance Z_Din [*] ohm - ------------------------------------------------------------------------------------------------------------------------------------ Input Return Loss S11_Din dB 150 MHz F 11 GHz [*] (S11 greater than 10 dB down to 150 KHz Established by qualification measurement) - ------------------------------------------------------------------------------------------------------------------------------------ Input Return Loss S11_Din [*] dB 11 GHz less than F 16 GHz Established by qualification measurement - ------------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPREITARY 1/17/2000 Sheet 5 of 166 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number ######## 3.3. Control Inputs
- ------------------------------------------------------------------------------------------------------------------------------------ Table 4 - Control Input Specifications - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments - ------------------------------------------------------------------------------------------------------------------------------------ Decision Threshold % of input Adjustment Range Capability [*] [*] eye amp. - ------------------------------------------------------------------------------------------------------------------------------------ (volts)th for decision threshold at (Volts)th_min (Volts) 10% of eye amplitude [*] [*] - ------------------------------------------------------------------------------------------------------------------------------------ (volts)th for decision threshold at (Volts)th_max (Volts) 90% of eye amplitude [*] [*] - ------------------------------------------------------------------------------------------------------------------------------------ (volts)th_max-(volts)th_min [*] [*] (Volts) Assures adequately small adjustment granularity for digital control of (Volts)th - ------------------------------------------------------------------------------------------------------------------------------------ (Volts)th input resistance R_(Volts)th [*] K (ohm) - ------------------------------------------------------------------------------------------------------------------------------------ (Volts)th High End Cutoff F_high_(Volts)th [*] kHz 3 dB down - ------------------------------------------------------------------------------------------------------------------------------------ Decision Phase Adjustment [*] [*] ps Relative to center of Range Capability eye Goal of + 25 ps - ------------------------------------------------------------------------------------------------------------------------------------ (Volts)ph for decision phase at eye (Volts)ph_min (Volts) center -20 ps [*] - ------------------------------------------------------------------------------------------------------------------------------------ (Volts)ph for decision phase at eye (Volts)ph_max [*] (Volts) center +20 ps - ------------------------------------------------------------------------------------------------------------------------------------ (Volts)ph_max-(Volts)ph_min [*] [*] (Volts) Assures adequately small adjustment granularity for digital control of (Volts)ph - ------------------------------------------------------------------------------------------------------------------------------------ (Volts)ph monotonicity Absolutely monotonic over (Volts)ph_min to (Volts)ph_ max - ------------------------------------------------------------------------------------------------------------------------------------ Instantaneous slope of Phase d(Phase) ps/100 Measured over range -------- (metres) (Volts)ph_min to vs (Volts)ph curve d(Voltsph) [*] Volts (Volts)ph_max - ------------------------------------------------------------------------------------------------------------------------------------ (Volts)ph input resistance R_(Volts)ph [*] K (ohm) - ------------------------------------------------------------------------------------------------------------------------------------ (Volts)ph High End Cutoff F_high_(Volts)ph [*] kHz 3 dB down - ------------------------------------------------------------------------------------------------------------------------------------
Confidential matters omitted and filed separately with the securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/7/2000 Sheet 6 of 166 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number ######## 3.4. Low Speed Outputs
- ------------------------------------------------------------------------------------------------------------------------------------ Table 5 - Low Speed Outputs - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments ==================================================================================================================================== Data output rate [*] Mb/s (Input data rate) + 128 - ------------------------------------------------------------------------------------------------------------------------------------ Output clock frequency [*] MHz (Input data rate) + 128 Both CLK1 and CLK2 are differential clock outputs - ------------------------------------------------------------------------------------------------------------------------------------ Short Circuit Tolerance All outputs shall be able to withstand an infinite duration short to ground without sustaining damage. - ------------------------------------------------------------------------------------------------------------------------------------ Data logic HIGH level (volts)_data_(high) [*] [*] [*] (milli volts) CMOS drivers with 68 (ohm) output Impedence - ------------------------------------------------------------------------------------------------------------------------------------ Data logic LOW level (volts)_data_(low) [*] [*] (milli volts) CMOS drivers with 68 (ohm) output Impedence - ------------------------------------------------------------------------------------------------------------------------------------ Data transmission line (impedence)_data [*] (ohm) See data output driver equivalent circuit impedance on module figure - ------------------------------------------------------------------------------------------------------------------------------------ Cross talk [*] db data to data, data to clock, clock to data - ------------------------------------------------------------------------------------------------------------------------------------ "Eye" cross position Eye_cross [*] [*] % of eye - ------------------------------------------------------------------------------------------------------------------------------------ Clock - Data relationship Low speed data shall be clocked out of the CDR/DEMUX module on the RISING edge of CLK1 ------ - ------------------------------------------------------------------------------------------------------------------------------------ Clock output coupling [*] All low speed clock outputs - ------------------------------------------------------------------------------------------------------------------------------------ Clock logic HIGH level (volts)_clk_(high) [*] [*] [*] (milli volts) CMOS drivers with 68 (ohm) output Impedence Amplitude defined to high impedance load (open) Each low speed clock output, single ended, driving 50 (ohm) load - ------------------------------------------------------------------------------------------------------------------------------------ Data logic LOW level (volts)_clk_(low) [*] [*] (milli volts) CMOS drivers with 68 (ohm) output impedance Amplitude defined to high impedance load (open) Each low speed clock output, single ended, driving 50 (ohm) load - ------------------------------------------------------------------------------------------------------------------------------------ Clock transmission line (impedence)_clk [*] (ohm) All low speed clock outputs. See clock impedence on module output driver equivalent circuit figure - ------------------------------------------------------------------------------------------------------------------------------------ Data output rise / fall time (rise time)_data [*] [*] (nano seconds) 20 to 80%, see timimg diagram (fall time)_data - ------------------------------------------------------------------------------------------------------------------------------------ Clock output rise / fall time (rise time)_clk, [*] [*] (nano seconds) 20 to 80%, see timing diagram (fall time)_clk - ------------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/17/2000 Sheet 7 of 166 Tyco Submarine Systems, Ltd Issue 7 [*] SSL Part Number #########
- ----------------------------------------------------------------------------------------------------------------------------------- Table 5 - Low Speed Outputs (continued) - ---------------------------------------------------------------------------------------------------------------------------------- Output clock duty cycle Dcyc [*] [*] % All clock outputs - ---------------------------------------------------------------------------------------------------------------------------------- CLK1 to CLK1_b and CLK2 Tclk_skew [*] (nano seconds) See timing diagram to CLK2_b differential clock skew - ---------------------------------------------------------------------------------------------------------------------------------- CLK1 to data delay Tcd [*] [*] (nano seconds) See timing Diagram Measured across D\\oco\\ - D\\127\\. over temperature and supply voltage range. - ---------------------------------------------------------------------------------------------------------------------------------- CLK1 to data skew variation Tcd(max) - See timing Diagram Tcd(min) [*] (nano seconds) Measured across D\\oco\\ - D\\127\\. over temperature and supply voltage range. - ---------------------------------------------------------------------------------------------------------------------------------- Clock over / under shoot Ovrsh_c95, % of clock Applies to Clk1, Clk1_b, Undrsh_c95 [*] amplitude Clk2, and Clk2_b - ----------------------------------------------------------------------------------------------------------------------------------
3.5. Alarms
- ----------------------------------------------------------------------------------------------------------------------------------- Table 6 - Alarm Outputs - ----------------------------------------------------------------------------------------------------------------------------------- Parameter Symbol Min Typ Max Units Comments =================================================================================================================================== LOC logic HIGH level Volts_LOC_High [*] [*] [*] (millivolts) Standard CMOS output - ----------------------------------------------------------------------------------------------------------------------------------- LOC logic LOW level Volts_LOC_Low [*] [*] (millivolts) Standard CMOS output - ----------------------------------------------------------------------------------------------------------------------------------- Short Circuit Tolerance All outputs shall be able to withstand an Infinite duration short to ground without sustaining damage. - ----------------------------------------------------------------------------------------------------------------------------------- Removed from specs - ----------------------------------------------------------------------------------------------------------------------------------- LOC activate threshold Activated on input LOS "noise" only input, and input bit rate * 100 Mb/s from nominal Must distinguish between: Vin valid signal and maximum Vin wideband noise signal. Must not generate the false alarms - ----------------------------------------------------------------------------------------------------------------------------------- LOC activate / disable time T_LOC [*] (microseconds) Alarms are active HIGH - -----------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. * greater than Issue 7 TSSL PROPRIETARY 1/17/2000 Sheet 8 of 166 Tyco Submarine Systems, Ltd Issue 7 [*] SSL Part Number ######### 3.6. Monitor Outputs
- ----------------------------------------------------------------------------------------------------------------------------------- Table 7 Monitor Port Specifications - ----------------------------------------------------------------------------------------------------------------------------------- Parameter Symbol Min Typ Max Units Comments - ----------------------------------------------------------------------------------------------------------------------------------- CMON and DMON connector [*] - ----------------------------------------------------------------------------------------------------------------------------------- CMON and DMON coupling [*] - ----------------------------------------------------------------------------------------------------------------------------------- Short Circuit Tolerance All outputs shall be able to withstand an infinite duration short to ground without sustaining damage. - ----------------------------------------------------------------------------------------------------------------------------------- CMON output amplitude (Volts)_CMON [*] mVp-p - ----------------------------------------------------------------------------------------------------------------------------------- Removed from specs - ----------------------------------------------------------------------------------------------------------------------------------- Monitor output rise / fall times (risetime)_CMON ps (falltime)_DMON - ----------------------------------------------------------------------------------------------------------------------------------- CMON and output [*] (ohms) impedance - ----------------------------------------------------------------------------------------------------------------------------------- Required termination Termination insensitive - ----------------------------------------------------------------------------------------------------------------------------------- Removed from specs - ----------------------------------------------------------------------------------------------------------------------------------- Removed from specs - ----------------------------------------------------------------------------------------------------------------------------------- Removed from specs - ----------------------------------------------------------------------------------------------------------------------------------- CMON return loss s22_CMON [*] dB 12.0 * F 12.5 GHz. - -----------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. * less than Issue 7 TSSL PROPRIETARY 1/17/2000 Sheet 9 of 166 Issue 7 Tyco Submarine Systems, Ltd TSSL Part Number ######## [*] 3.7. Sub-Rate Clock Outputs
- ------------------------------------------------------------------------------------------------------------------------------- Table 8 - Sub-Rate Clock Outputs - ------------------------------------------------------------------------------------------------------------------------------- Parameter Symbol Min Typ Max Units Comments =============================================================================================================================== Frequency [*] MHz (Input data rate) + 16 - ------------------------------------------------------------------------------------------------------------------------------- Output Coupling [*] - ------------------------------------------------------------------------------------------------------------------------------- Short Circuit Tolerance All outputs shall be able to withstand an infinite duration short to ground without sustaining damage. - ------------------------------------------------------------------------------------------------------------------------------- Output Level (volts)_c622_diff [*] [*] (millivolt)p-p Differential, 400 mVp-p single ended - ------------------------------------------------------------------------------------------------------------------------------- Clock rise / fall time (Rise time)_c767 / [*] [*] [*] ps 20-80% (fall time)_c767 - ------------------------------------------------------------------------------------------------------------------------------- Clock duty cycle Dcyc [*] [*] % All clock outputs - ------------------------------------------------------------------------------------------------------------------------------- CLK3 to CLK3_b differential Tc767_skew [*] ps clock skew - ------------------------------------------------------------------------------------------------------------------------------- Clock over / under shoot Ovrsh_c767 % of clock Applies to CPx3 and Clk3_b Undrsh_c767 [*] amplitude - ------------------------------------------------------------------------------------------------------------------------------- Clock output impedance (impedence)_c767 [*] OHM Applies to Clk3 and Clk 3_b - -------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/17/2000 Sheet 10 of 166 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number ######## 3.8. Jitter Performance
- ----------------------------------------------------------------------------------------------------------------------- Table 9 - Jitter Specifications - ----------------------------------------------------------------------------------------------------------------------- Parameter Symbol * Min Typ Max Units Comments ======================================================================================================================= Jitter Tolerance JTOL [*] - ----------------------------------------------------------------------------------------------------------------------- Jitter Transfer Function JTF [*] dB DC to 10 KHz - ----------------------------------------------------------------------------------------------------------------------- Jitter Generation JGEN [*] Ulp-p 50 to KHz 80 MHz - -----------------------------------------------------------------------------------------------------------------------
3.9. Temperature Sensors
- ----------------------------------------------------------------------------------------------------------------------- Table 10 - Temperature Sensor Outputs - ----------------------------------------------------------------------------------------------------------------------- Parameter Symbol Min Typ Max Units Comments ======================================================================================================================= 12G Demux sensor: 2(Volts)be - type sensor in GaAs Parameters: a) Volts/Time TBD b) (current)Fmax TBD - ----------------------------------------------------------------------------------------------------------------------- Low Speed Demux sensor [*] Sink current output - ----------------------------------------------------------------------------------------------------------------------- 3.10 Miscellaneous - ----------------------------------------------------------------------------------------------------------------------- Table 11 - Miscellaneous Specifications - ----------------------------------------------------------------------------------------------------------------------- Parameter Symbol Min Typ Max Units Comments ======================================================================================================================= Lifetime [*] Years - ----------------------------------------------------------------------------------------------------------------------- Failure Rate [*] FIT FIT = Failures in 10/?/ hours - ----------------------------------------------------------------------------------------------------------------------- Environmental Requirements [*] Supplied by TSSL. Exceptions granted on case by case basis. - -----------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/17/2000 Sheet 11 of 166 Issue 7 Tyco Submarine Systems, Ltd TSSL Part Number ######## [*] 3.11. Timing Diagrams [*] Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. TSSL PROPRIETARY Issue 7 Sheet 12 of 166 1/17/2000 Issue 7 Tyco Submarine Systems, Ltd TSSL Part Number ######## [*] 3.12. Output Driver Equivalent Circuits 3.13. Output Driver Equivalent Circuits [*] Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. TSSL PROPRIETARY Issue 7 Sheet 13 of 166 1/17/2000 Issue 7 Tyco Submarine Systems, Ltd [*] TSSL Part Number ######## [*] 4. Mechanical Requirements 4.1. Module I/O Placement The sub-rate clocks and all low speed signals (data, clock, control, power) shall be connected to the module through [*] [*] ). Figure 4 shows a rough diagram of the module I/O layout. For exact details, see the appropriate mechanical drawing. [*] [*] Confidential materials omitted and filed separately with the Securities and Exchange commission. Asterisks denote omissions. TSSL PROPRIETARY Issue 7 Sheet 14 of 166 1/17/2000 Issue 7 Tyco Submarine Systems, Ltd TSSL Part Number ######## [*] 4.2. Output Bit Ordering The order of the bits at the [*] outputs is affected by the fact [*] [*] Assuming that the input bit order is: [*] The de-multiplexed bits shall appear at the module's low speed output connector in the order shown in Table 10. The layout of the module's IC's, substrate and connector shall be such that [*] [*] [*] Table 10 - Output Bit Ordering - ------- D127 - ------- D111 - ------- D095 - ------- D079 - ------- D063 - ------- D047 - ------- D031 - ------- D015 - ------- ---- - ------- D014 - ------- ---- - ------- D013 - ------- ---- - ------- D012 - ------- ---- - ------- D011 - ------- ---- - ------- DO10 - ------- ---- - ------- D009 - ------- ---- - ------- D008 - ------- ---- - ------- D007 - ------- ---- - ------- D006 - ------- ---- - ------- D005 - ------- ---- - ------- D004 - ------- ---- - ------- D003 - ------- ---- - ------- D002 - ------- D113 - ------- D097 - ------- D081 - ------- D065 - ------- D049 - ------- D033 - ------- D017 - ------- D001 - ------- D112 - ------- D096 - ------- D080 - ------- D064 - ------- D048 - ------- D032 - ------- D016 - ------- D000 - ------- Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. TSSL PROPRIETARY Issue 7 Sheet 15 of 166 1/17/2000 Issue 7 Tyco Submarine Systems, Ltd TSSL Part Number ######## [*] 4.3. Thermal Management The primary heat removal method shall be conduction through the module's base plate (non-component side) that will be attached to an appropriate heat sink. 4.4. Product Marking TBD --- 5. Product Documentation 5.1. Test Results TBD --- 5.2. Warranty Information TBD --- Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. TSSL PROPRIETARY Issue 7 Sheet 16 of 166 1/17/2000 Issue 7 Tyco Submarine Systems, Ltd TSSL Part Number ######## [*] =Component Specification for TSSL Part Number ####### [*] ____________________________________ This document is TSSL Proprietary. Use pursuant to Company Instructions and applicable Non-Disclosure Agreements Revision History - -------------------------------------------------------------------------------- Issue # Date Author Reason for Re-issue - -------------------------------------------------------------------------------- 1 [*] [*] Initial Release - -------------------------------------------------------------------------------- 2 [*] [*] Spec. negotiation - -------------------------------------------------------------------------------- 3 [*] [*] Spec. negotiation - -------------------------------------------------------------------------------- 4 [*] [*] Module drawing updated Specs for (volts)gain Updated low speed logic levels - -------------------------------------------------------------------------------- 5 [*] [*] Modified specs on low speed clock, data, and alarm outputs Moved sub-rate clock outputs from SMB connectors to parallel connector Removed (volts)gain - -------------------------------------------------------------------------------- 6 [*] [*] Added +5 (volts) supply. Reduced run length tolerance to [*] Changed levels & impedance of low speed data Changed levels & impedance of low speed clocks Changed impedance of alarm outputs Changed rise/fall times of low speed clocks Changed impedance of alarm outputs Changed CLK3 over/under shoot to 10% Spec'd CLK3 output impedance Spec'd temperature sensors Removed LOC Spec'd connector type Spec'd module thickness - -------------------------------------------------------------------------------- 7 [*] [*] Changes in Bold Red - -------------------------------------------------------------------------------- Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. TSSL PROPRIETARY Issue 7 Sheet 1 of 16 1/17/2000 Tyco Submarine Systems, Ltd Issue 7 TSSL Part Number ######## [*] - -------------------------------------------------------------------------------- [*] Removed Specs in Bold Black Striketrough - -------------------------------------------------------------------------------- TSSL PROPRIETARY Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 Sheet 2 of 16 1/17/2000 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number ####### [*] - ---------------------------------------------- 1. General Description 1.1. This module accepts a [*] data stream and performs the following functions . Recovers the [*] clock . Quantizes and retimes input data with the recovered clock optimally phase aligned in data eye . Demultiplexes the data [*] to produce a parallel data word, [*] , and [*] differential clocks 1.2. The module produces the following output signals: . [*] data word . [*] low speed clocks . [*] sub-rate clock . LOS Alarm signal 2. Block Diagram and I/O Definitions [*] [*] TSSL PROPRIETARY Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 Sheet 3 of 16 1/17/2000 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number ####### [*] - ---------------------------------------------- - ------------------------------------------------------------------------------ Table 1-I/0 Signal Descriptions Signal Description Din [*] input data signal (Volts)cc1 DC power supply (Volts)cc2 DC power supply (Volts)ee1 DC power supply Removed from specs D\\000\\ - D\\127\\ [*] Demultiplexed data CLK1, CLK2 Differential [*] clocks CLK3 Differential [*] sub-rate clock LOS Loss of signal alarm (Volts)th Decisions threshold adjustment - ------------------------------------------------------------------------------ TSSL PROPRIETARY Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 Sheet 4 of 16 1/17/2000 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number ######## 3. Module Specifications 3.3. DC Power
- ---------------------------------------------------------------------------------------------------------------- Table 2 - DC Power Specifications - ---------------------------------------------------------------------------------------------------------------- Parameter Symbol Min Typ Max Units Comments - ---------------------------------------------------------------------------------------------------------------- Power Dissipation Pdisp [*] W Design Goal: 8 W max - ---------------------------------------------------------------------------------------------------------------- Supply Voltages (volts)cc1 [*] [*] [*] (volts) Power supplies tolerance (volts)cc2 [*] [*] [*] (volts) +7% (volts)ee1 [*] [*] [*] (volts) [*] (volts) - ---------------------------------------------------------------------------------------------------------------- Current Draw lcc1 [*] (meters)(amp) lcc2 [*] (meters)(amp) lee1 [*] (meters)(amp) [*] - ---------------------------------------------------------------------------------------------------------------- Power Supply Sequencing Module shall be insensitive to supply power-up and power-down sequencing or timing. - ---------------------------------------------------------------------------------------------------------------- Power Failure Tolerance Failure of one or more supplies will not cause damage to module. - ----------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/17/2000 Sheet 5 of 16 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number ######### 3.4. High Speed Input Signal
- ------------------------------------------------------------------------------------------------------------------------------------ Table 3 - High Speed Input Specifications - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments ==================================================================================================================================== Input Data Rate [*] [*] [*] Gb/s OC-192 / STM-64 Rate - ------------------------------------------------------------------------------------------------------------------------------------ Input Data Format NRZ - ------------------------------------------------------------------------------------------------------------------------------------ Input Pattern Tolerance Module must work properly with a 101010.....input pattern. - ------------------------------------------------------------------------------------------------------------------------------------ Maximum Tolerable Run All 1's or all 0's Length [*] - ------------------------------------------------------------------------------------------------------------------------------------ Input Data Amplitude (Volts)_Din [*] [*] [*] (millivolts)p-p - ------------------------------------------------------------------------------------------------------------------------------------ Input Data Connector [*] - ------------------------------------------------------------------------------------------------------------------------------------ Input Data Coupling [*] - ------------------------------------------------------------------------------------------------------------------------------------ Input High End Cutoff F_high_Din [*] GHz 3 dB down - ------------------------------------------------------------------------------------------------------------------------------------ Input Low End Cutoff F_low_Din [*] KHz 3 dB down - ------------------------------------------------------------------------------------------------------------------------------------ Input Impedance (impedence)_Din [*] [ohm] - ------------------------------------------------------------------------------------------------------------------------------------ Input Return Loss S11_Din [*] dB 50 MHz F 8.0 GHz (S11 ** 10 dB down to 150 KHz established by qualification measurement) - ------------------------------------------------------------------------------------------------------------------------------------
** greater than Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/17/2000 Sheet 6 of 16 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number ######## 3.5 High Speed Input Signal
- ------------------------------------------------------------------------------------------------------------------------------------ Table 4 - Control Input Specifications - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments ==================================================================================================================================== Decision Threshold [*] [*] % of input Adjustment Range Capability eye amp. - ------------------------------------------------------------------------------------------------------------------------------------ Vth for decision threshold at Vth_min [*] [*] (Volts) 10% of eye amplitude - ------------------------------------------------------------------------------------------------------------------------------------ Vth for decision threshold at Vth_max [*] [*] [*] (Volts) 90% of eye amplitude - ------------------------------------------------------------------------------------------------------------------------------------ Vth_max-Vth_min [*] [*] (Volts) Assures adequately small adjustment granularity for digital control of Vth - ------------------------------------------------------------------------------------------------------------------------------------ Vth input resistance R_Vth [*] (Kido)(ohm) - ------------------------------------------------------------------------------------------------------------------------------------ Vth High End Cutoff F_high_Vth [*] kHz 3 dB down - ------------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions Issue 7 TSSL PROPRIETARY 1/17/2000 Sheet 7 of 16 Tyco Submarine Systems, Ltd Issuer 7 [*] TSSL Part Number ######## 3.6. Low Speed Outputs
- ------------------------------------------------------------------------------------------------------------------------------------ Table 5 - Low Speed Outputs - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments ==================================================================================================================================== Data output rate [*] Mb/s (Input data rate) / 128 - ------------------------------------------------------------------------------------------------------------------------------------ Output clock frequency [*] MHz (Input data rate) / 128 Both CLK1 and CLK2 are differential clock outputs - ------------------------------------------------------------------------------------------------------------------------------------ Short Circuit Tolerance All outputs shall be able to withstand an infinite duration short to ground without sustaining damage. - ------------------------------------------------------------------------------------------------------------------------------------ Data logic HIGH level (Volts)_data_(High) CMOS drivers with 68 (ohm) output [*] [*] [*] millivolts impedance - ------------------------------------------------------------------------------------------------------------------------------------ Data logic LOW level (Volts)_data_(Low) CMOS drivers with 68 (ohm) output [*] [*] millivolts impedance - ------------------------------------------------------------------------------------------------------------------------------------ Data transmission line (impedence)_data See data output driver equivalent impedance on module [*] (ohm) circuit figure - ------------------------------------------------------------------------------------------------------------------------------------ Cross talk [*] dB data to data, data to clock, clock to data - ------------------------------------------------------------------------------------------------------------------------------------ "Eye" cross position Eye_cross [*] [*] % of eye - ------------------------------------------------------------------------------------------------------------------------------------ Clock - Data relationship Low speed shall be clocked out of the CDR/DEMUX module on the RISING edge of CLK1 ------ - ------------------------------------------------------------------------------------------------------------------------------------ Clock output coupling [*] All low speed clock outputs - ------------------------------------------------------------------------------------------------------------------------------------ Clock logic HIGH level (Volts)_clk_(High) millivolts CMOS drivers with 68 (ohm) output [*] [*] [*] impedance Amplitude defined to high Impedance load (open) ended, driving 50 (ohm) load - ------------------------------------------------------------------------------------------------------------------------------------ Data logic LOW level (Volts)_clk_(Low) [*] [*] millivolts CMOS drivers with 68 (ohm) output impedance Amplitude defined to high Impedance load (open) Each low speed clock output, single ended, driving 50 (ohm) load - ------------------------------------------------------------------------------------------------------------------------------------ Clock transmission line (impedence)_clk (ohm) All low speed clock outputs. See impedance on module [*] clock output driver equivalent circuit figure - ------------------------------------------------------------------------------------------------------------------------------------ Data output rise / fall time (rise time)_data, (nano seconds) 20 to 80%, see timing diagram (fall time)_data [*] [*] - ----------------------------------------------------------------------------------------------------------------------------------- Clock output rise / fall time (rise time)_clk, (fall time)_clk [*] [*] (nano seconds) 20 to 80%, see timing diagram - ------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omission. TSSL PROPRIETARY Issue 7 Sheet 8 of 16 1/17/2000 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number ########
- ----------------------------------------------------------------------------------------------------------------------------------- Table 5 - Low Speed Outputs (continued) - ----------------------------------------------------------------------------------------------------------------------------------- Output clock duty cycle Dcyc [*] [*] % All clock outputs - ----------------------------------------------------------------------------------------------------------------------------------- CLK1 to CLK1_b and CLK2 Tclk_skew [*] (nano seconds) See timing diagram to CLK2_b differential clock skew - ----------------------------------------------------------------------------------------------------------------------------------- CLK1 to data delay Tcd [*] [*] (nano seconds) See timing diagram Measured across Doco-D127. Worst case over temperature and supply voltage range. - ----------------------------------------------------------------------------------------------------------------------------------- CLK1 to date skew variation Tcd(max)- (nano seconds) See timing Diagram Tcd(min) [*] Measured across Doco-D127. Worst case over temperature and supply voltage range. - ----------------------------------------------------------------------------------------------------------------------------------- Clock over / under shoot Ovrsh_c77, [*] % of clock Applies to Clk1, Clk1_b, Clk2, Undrsh_c77 amplitude and Clk2_b - ----------------------------------------------------------------------------------------------------------------------------------- 3.7 Alarm Output - ----------------------------------------------------------------------------------------------------------------------------------- Table 6 - Alarm Output Specifications - ----------------------------------------------------------------------------------------------------------------------------------- Parameter Symbol Min Typ Max Units Comments =================================================================================================================================== LOS logic High level (Volts)_LOS_H [*] [*] [*] (milli volts) Open collector. On-board Pull-up Resistor of 10k(ohm) - ----------------------------------------------------------------------------------------------------------------------------------- LOS logic Low level (Volts)_LOS_L [*] [*] (milli volts) - ----------------------------------------------------------------------------------------------------------------------------------- Short Circuit Tolerance All outputs shall be able to withstand an Infinite duration short to ground without sustaining damage - ------------------------------------------------------------------------------------------------------------------------------------ See LOS output driver equivalent Removal from specs circuit figure - ------------------------------------------------------------------------------------------------------------------------------------ Din LOS activate threshold LOS_active [*] - ------------------------------------------------------------------------------------------------------------------------------------ Din LOS hysteresis LOS_hyst [*] - ------------------------------------------------------------------------------------------------------------------------------------ LOS activate / disable time T_LOS [*] [*] (micro seconds) Alarm is active HIGH - ------------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/17/2000 Sheet 9 of 16 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number ######## 3.8. Sub-Rate Clock Outputs
- ------------------------------------------------------------------------------------------------------------------------------------ Table 7 - Sub-Rate Clock Outputs - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments ==================================================================================================================================== Frequency [*] MHz (Input data rate) + 16 - ------------------------------------------------------------------------------------------------------------------------------------ Output Coupling [*] - ------------------------------------------------------------------------------------------------------------------------------------ Short Circuit Tolerance All outputs shall be able to withstand an infinite duration short to ground without sustaining damage. - ------------------------------------------------------------------------------------------------------------------------------------ Output Level (volts)_c622_diff [*] [*] (millivolts) Differential, 300 millivoltsp-p single ended - ------------------------------------------------------------------------------------------------------------------------------------ Clock rise / fall time (rise time)_c622/ [*] [*] ps 20 - 80% (fall time)_c622 - ------------------------------------------------------------------------------------------------------------------------------------ Clock duty cycle Dcyc [*] [*] % All clock outputs - ------------------------------------------------------------------------------------------------------------------------------------ CLK3 to CLK3_b differential Tc622_skew [*] ps clock skew - ------------------------------------------------------------------------------------------------------------------------------------ Clock over / under shoot Ovrsh_c622, [*] % of clock Applies to Clk3 and Clk3_b Undrsh_c622 amplitude - ------------------------------------------------------------------------------------------------------------------------------------ Clock output impedance (impedence)_c767 [*] (ohm) Applies to Clk3 and Clk3_b - ------------------------------------------------------------------------------------------------------------------------------------
3.9. Jitter Performance
- ------------------------------------------------------------------------------------------------------------------------------------ Table 8 - Jitter Specifications - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments ==================================================================================================================================== Jitter Tolerance JTOL [*] - ------------------------------------------------------------------------------------------------------------------------------------ Jitter Transfer Function JTF [*] dB DC to 10 KHz (established by qualification measurement) - ------------------------------------------------------------------------------------------------------------------------------------ Jitter Generation JGEN [*] Ulp-p 50 KHz - 80 MHz - ------------------------------------------------------------------------------------------------------------------------------------
Issue 7 TSSL PROPRIETARY 1/17/2000 Sheet 10 of 16 Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Tyco Submarine Systems, Ltd Issue7 [*] TSSL Part Number ######## 3.10. Temperature Sensors
- --------------------------------------------------------------------------------------------------------- Table 9 - Temperature Sensor Specifications - --------------------------------------------------------------------------------------------------------- Parameter Symbol Min Typ Max Units Comments - --------------------------------------------------------------------------------------------------------- 10G Demux sensor: 2 Volts \\BE\\ -type sensor in GaAs Parameters: a) Volt/Time TBD b) (current) \\ F\\max TBD - --------------------------------------------------------------------------------------------------------- Low Speed Demux sensor [*] Sink current output - --------------------------------------------------------------------------------------------------------- 3.11. Miscellaneous - --------------------------------------------------------------------------------------------------------- Table 10 - Miscellaneous Specifications - --------------------------------------------------------------------------------------------------------- Parameter Symbol Min Typ Max Units Comments - --------------------------------------------------------------------------------------------------------- Lifetime [*] Years - --------------------------------------------------------------------------------------------------------- Failure Rate [*] FIT FIT = Failures in 10/9/ hours - --------------------------------------------------------------------------------------------------------- Environmental Requirements Supplied by TSSL. Exceptions [*] granted on case by case basis. - ---------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/17/2000 Sheet 11 of 16 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number ######## 3.12 Timing Diagrams [*] [*] Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/17/2000 Sheet 12 of 16 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number ######## 3.13. Output Driver Equivalent Circuits [*] [*] Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/17/2000 Sheet 13 of 16 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number ######## 4. Mechanical Requirements 4.14. Module I/O Placement The sub-rate clocks and all low speed signals (data, clock, control, power) shall be connected to the [*] through [*] impedance controlled). Figure 4 shows a rough diagram of the module I/O layout. For exact details, see the appropriate mechanical drawing. [*] [*] [*] Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/17/2000 Sheet 14 of 16 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number ######## 4.15. Output Bit Ordering The order of the bits at the [*] outputs is affected by the fact that [*] [*] .Assuming that the input bit order is: [*] The de-multiplexed bits shall appear at the module's low speed output connector in the order shown in Table 10. The layout of the module's IC's, substrate and connector shall be such that all of the low speed data signals are located as shown in figure 4. This assures that [*] [*] Table 10- Output Bit Ordering --------- D127 --------- D111 --------- D095 --------- D079 --------- D063 --------- D047 --------- D031 --------- D015 --------- ---- --------- D014 --------- ---- --------- D013 --------- ---- --------- D012 --------- ---- --------- D011 --------- ---- --------- D010 --------- ---- --------- D009 --------- ---- --------- D008 --------- ---- --------- D007 --------- ---- --------- D006 --------- ---- --------- D005 --------- ---- --------- D004 --------- ---- --------- D003 --------- ---- --------- D002 --------- D113 --------- D097 --------- D081 --------- D065 --------- D049 --------- D033 --------- D017 --------- D001 --------- D112 --------- D096 --------- D080 --------- D064 --------- D048 --------- D032 --------- D016 --------- D000 --------- Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/17/2000 Sheet 15 of 16 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number ######## 4.16. Thermal Management The primary heat removal method shall be conduction through the module's base plate (non-component side) that will be attached to an appropriate heat sink. 4.17. Product Marking TBD --- 5. Product Documentation 5.18. Test Results TBD --- 5.19. Warranty Information TBD --- Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/17/2000 Sheet 16 of 16 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] Component Specification for TSSL Part Number [*] [*] ___________________________ This document is TSSL Proprietary Use pursuant to Company Instructions and applicable Non-Disclosure Agreements
Revision History - ------------------------------------------------------------------------------- Issue # Date Author Reason for Re-issue - --------------------------------------------------------------------------------- 1 [*] [*] Initial Release - --------------------------------------------------------------------------------- 2 [*] [*] Spec. negotiation - --------------------------------------------------------------------------------- 3 [*] [*] Spec. negotiation - --------------------------------------------------------------------------------- 4 [*] [*] Module drawing update Block diagram labeling Vterm bypass - ---------------------------------------------------------------------------------- 5 [*] [*] Removed Clk2 Changed high speed data output to DC coupling Modified specs on alarm outputs Moved sub-rate clock outputs from SMB connectors to parallel connector - ---------------------------------------------------------------------------------- 6 [*] [*] Add +5 V supply Change levels and impedance of low speed data. Change levels and impedance of low speed clocks Added rise/fall time for input low speed signals Change CLK3 over/under shoot to 10% Spec'd CLK3 output impedance Spec'd temperature sensors Spec'd connector type Spec'd module thickness - ---------------------------------------------------------------------------------- 7 [*] [*] Removed Data_b output Added LOC3 alarm Updated supply voltages and currents Changed levels of sub-rate clock outputs. General clean up. - ----------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. TSSL PROPRIETARY Issue 7 Sheet 1 of 15 1/19/2000 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] [*] - ----------------------- 1. General Description. 1.1. This module accepts [*] differential clock at [*] . It performs the following functions: . Uses the input clock as a reference to synthesize a [*] clock . Multiplexes the input data [*] to produce [*] [*] . Uses the [*] clock as a reference to synthesize a [*] clock . Multiplexes the internal rails [*] to produce a [*] 1.2. The module produces the following output signals: . [*] output signal . [*] output clock . [*] differential sub-rate clock . [*] alarm signals 2. Block Diagrams and I/O Definitions [*] [*] Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. TSSL PROPRIETARY Issue 7 Sheet 2 of 15 1/19/2000 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] - -------------------------------------------------------------------------------- Table 1 - I/O Signal Descriptions Signal Description D\\000\\-- D\\127\\ [*] input data Vth_data Input data threshold adjustment Clk_in, Clk_in_b Differential [*] input clock Vcc1 DC power supply Vcc2 DC power supply Vee1 DC power supply Vee2 DC power supply Data Differential [*] output signal Clk1 [*] output clock Clk3, Clk3_b Differential [*] sub-rate clock LOC1 Loss of input reference clock alarm-active high LOC2 Loss of [*] VCO output alarm-active high LOC3 Loss of PLL lock in [*] alarm-active high Vterm_clk Clock signal termination voltage - -------------------------------------------------------------------------------- Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. TSSL PROPRIETARY Issue 7 Sheet 3 of 15 1/19/2000 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 3. Module Specifications 3.1. DC Power
- ------------------------------------------------------------------------------------------------------------------------------------ Table 2 - DC Power Specifications - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments - ------------------------------------------------------------------------------------------------------------------------------------ Power Dissipation Pdisp 10 (Watts) - ------------------------------------------------------------------------------------------------------------------------------------ Supply Voltages Vcc1 [*] [*] [*] (Volts) +7% - Vcc2 [*] [*] [*] (Volts) +7% - Vee1 [*] [*] [*] (Volts) +7% - Vee2 [*] [*] [*] (Volts) +5% - - ------------------------------------------------------------------------------------------------------------------------------------ Current Draw Icc1 [*] (Milli amps) Icc2 [*] (Milli amps) Iee1 [*] (Milli amps) Iee2 [*] (Milli amps) - ------------------------------------------------------------------------------------------------------------------------------------ Power Supply Sequencing Module shall be insensitive to supply power-up and power-down sequencing or timing. - ------------------------------------------------------------------------------------------------------------------------------------ Power Failure Tolerance Failure of one or more supplies will not cause damage to module. - ------------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 4 of 15 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 3.2. Data Inputs
- ----------------------------------------------------------------------------------------------------------------------------------- Table 3 - Data Receiver Specifications - ----------------------------------------------------------------------------------------------------------------------------------- Parameter Symbol Min Typ Max Units Comments =================================================================================================================================== Input data rate [*] [*] [*] Mb/s 128 Parallel channels - ----------------------------------------------------------------------------------------------------------------------------------- Input impedance (impedence)_data [*] (ohm) Both to ground and (volts) - ----------------------------------------------------------------------------------------------------------------------------------- Input decision threshold (volts)_data [*] [*] (millivolts) Set by (volts) input - ----------------------------------------------------------------------------------------------------------------------------------- Vth input impedance (impedence)_Vth [*] (ohm) Both to ground and data inputs - ----------------------------------------------------------------------------------------------------------------------------------- Vth high end cutoff F_high_Vth [*] Hz 3 dB down - ----------------------------------------------------------------------------------------------------------------------------------- Data input logic LOW (volts)_data_low [*] (millivolts) threshold - ----------------------------------------------------------------------------------------------------------------------------------- Data input logic HIGH (volts)_data_high [*] (millivolts) threshold - ----------------------------------------------------------------------------------------------------------------------------------- Input data levels [*] [*] (millivolts) Each input to ground - ----------------------------------------------------------------------------------------------------------------------------------- Input data rise/fall times (rise time)_data (nanoseconds) (fall time)_data [*] - ----------------------------------------------------------------------------------------------------------------------------------- Data transmission line (impedence)_data [*] (volts) impedance on module - -----------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 5 of 15 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 3.3. Clock Inputs
- ------------------------------------------------------------------------------------------------------------------------------------ Table 4 - Clock Receiver Specifications - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments ==================================================================================================================================== Input clock rate [*] [*] [*] MHz - ------------------------------------------------------------------------------------------------------------------------------------ Input impedance (impedence)_clk [*] (ohm) Each input measured to Vterm_clk - ------------------------------------------------------------------------------------------------------------------------------------ Differential Input impedance (impedence)_clk_diff [*] (Kilo ohm) Between differential inputs - ------------------------------------------------------------------------------------------------------------------------------------ Clock HIGH level ("PECL") (Volts)_clk_H [*] [*] (milli volts) Each input to ground - ------------------------------------------------------------------------------------------------------------------------------------ Clock LOW level ("PECL") (Volts(_clk_L [*] [*] (milli volts) Each input to ground - ------------------------------------------------------------------------------------------------------------------------------------ Input clock over / under shoot [*] (percent) - ------------------------------------------------------------------------------------------------------------------------------------ Clock termination voltage (Volts)term_clk [*] [*] [*] (milli volts) Generated off-module and applied to Vterm- clk input - ------------------------------------------------------------------------------------------------------------------------------------ Input clock rise/fall times (risetime)_clk, (falltime)_clk [*] (nano seconds) - ------------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 6 of 15 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 3.4. Input Timing
- ------------------------------------------------------------------------------------------------------------------------------------ Table 5 - Input Timing Specifications - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments ==================================================================================================================================== Minimum required data to T_setup ps Last data stable to clock clock setup time [*] transition. See timing diagram - ------------------------------------------------------------------------------------------------------------------------------------ Minimum required clock to T_hold ps Clock stable to first data data hold time [*] transition. See timing diagram - ------------------------------------------------------------------------------------------------------------------------------------ Clock - Data relationship Low speed data shall be clocked into the MUX/CMU module on the RISING ------ edge of CLK_in - ------------------------------------------------------------------------------------------------------------------------------------
[*] Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 7 of 15 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 3.5. High Speed Data Output
- ------------------------------------------------------------------------------------------------------------------------------------ Table 6 -- High Speed Data Output Specifications - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments ==================================================================================================================================== Output data rate [*] Gb/s (input rate) * 128 - ------------------------------------------------------------------------------------------------------------------------------------ Output connector [*] - ------------------------------------------------------------------------------------------------------------------------------------ Output coupling [*] CML, centered at--600 (milli volts) - ------------------------------------------------------------------------------------------------------------------------------------ Short Circuit Tolerance All outputs shall be able to withstand an infinite duration short to ground without sustaining damage. - ------------------------------------------------------------------------------------------------------------------------------------ Output impedance [*] (ohm) - ------------------------------------------------------------------------------------------------------------------------------------ Output return loss S22_data [*] dB 150 KHz less than or equal to F less than ----------------------------------------- or equal to 11 GHz ------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Output return loss S22_data [*] dB 11 GHz less than or equal to F less than ---------------------------------------- or equal to 16 GHz ------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Data output amplitude (Volts)_data [*] (milli volts)-p - ------------------------------------------------------------------------------------------------------------------------------------ Eye opening [*] (milli volts)-p Violation free for ITU-T STM-64 eye mask scaled to 12.276 Gb/s - ------------------------------------------------------------------------------------------------------------------------------------ Output rise / fall time (risetime)_data, Ps 20- 80% See timing diagram (falltime)_data, [*] [*] - ------------------------------------------------------------------------------------------------------------------------------------ Output overshoot, undershoot Ovsh_data, [*] % of (Volts) data Goal of 5% Undrsh_data See timing diagram - ------------------------------------------------------------------------------------------------------------------------------------ Output "eye" cross position Eye_cross [*] [*] % of (Volts) data See timing diagram - ------------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 8 of 15 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 3.6. High Speed Clock Outputs
- ------------------------------------------------------------------------------------------------------------------------------------ Table 7 - High Speed Clock Output Specifications - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments ==================================================================================================================================== Output clock rate [*] Gb/s (input rate) * 128 - ------------------------------------------------------------------------------------------------------------------------------------ Output connector [*] - ------------------------------------------------------------------------------------------------------------------------------------ Output coupling [*] - ------------------------------------------------------------------------------------------------------------------------------------ Short Circuit Tolerance All outputs shall be able to withstand an Infinite duration short to ground without sustaining damage. - ------------------------------------------------------------------------------------------------------------------------------------ Output impedance [*] (ohm) - ------------------------------------------------------------------------------------------------------------------------------------ Output return loss S22_clk [*] dB 12.0 GHz (less than or equal to) F (less than or equal to) 12.5 GHz - ------------------------------------------------------------------------------------------------------------------------------------ Clk1 output amplitude volts_clk1 [*] mVp-p - ------------------------------------------------------------------------------------------------------------------------------------ Output rise / fall time (rise time)_clk, (fall time)_clk [*] ps 20 - 80% See timing diagram - ------------------------------------------------------------------------------------------------------------------------------------ Clock duty cycle Dcyc [*] [*] % - ------------------------------------------------------------------------------------------------------------------------------------ Output overshoot, undershoot Ovsh_cl2G % of (volts)_clk1 See timing diagram Undrsh_c12G [*] Goal of 5% - ------------------------------------------------------------------------------------------------------------------------------------
3.7. Temperature Sensors - -------------------------------------------------------------------------------- Table 8 - Temperature Sensor Specifications - -------------------------------------------------------------------------------- Temp Sensor #1 [*] - -------------------------------------------------------------------------------- Temp Sensor #2 [*] - -------------------------------------------------------------------------------- Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 9 of 15 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 3.8.High Speed Output Timing
- --------------------------------------------------------------------------------------------------------------------------------- Table 9 - High Speed Output Timing Specifications - --------------------------------------------------------------------------------------------------------------------------------- Parameter Symbol Min Typ Max Units Comments ================================================================================================================================= Clk1 to Data delay Tcd [*] [*] [*] ps TBD.C case temperature Nominal supply voltages Over entire population of modules - --------------------------------------------------------------------------------------------------------------------------------- Clk1 to Data delay variation Tcd_delta [*1 ps Tcd(max) - Tcd(min) For a given unit over time and worst case variation of temperature and supply voltage. All variation with temperature must be monotonic and repeatable.
[*] Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 10 of 15 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 3.9. Sub-Rate Clock Outputs
- ------------------------------------------------------------------------------------------------------------------------------------ Table 10 - Sub-Rate Clock Outputs - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments ==================================================================================================================================== Frequency [*] MHz (Input data rate) * 8 - ------------------------------------------------------------------------------------------------------------------------------------ Output Coupling [*] - ------------------------------------------------------------------------------------------------------------------------------------ Short Circuit Tolerance All outputs shall be able to withstand an infinite duration short to ground without sustaining damage. - ------------------------------------------------------------------------------------------------------------------------------------ Output Level (Volts)_c767_diff [*] (millivolts) Differential to 50(ohm) - ------------------------------------------------------------------------------------------------------------------------------------ Clock rise / fall time (Rise Time)_c767/ ps 20 - 80% (Rise Time)_c767 [*] [*] - ------------------------------------------------------------------------------------------------------------------------------------ Clock duty cycle Dcyc_c767 [*] [*] % All clock outputs - ------------------------------------------------------------------------------------------------------------------------------------ CLK3 to CLK3_b differential Tc767_skew ps clock skew [*] - ------------------------------------------------------------------------------------------------------------------------------------ Clock over / under shoot Ovrsh_c767 % of clock Undrsh_c767 [*] amplitude - ------------------------------------------------------------------------------------------------------------------------------------ Clock output impedance (impedence)_c767 [*] (ohm) Applies to Clk3 and Clk3_b - ------------------------------------------------------------------------------------------------------------------------------------ 3.10. Jitter Performance - ------------------------------------------------------------------------------------------------------------------------------------ Table 11 - Jitter Specifications - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments - ------------------------------------------------------------------------------------------------------------------------------------ Jitter Transfer Function JTF [*] dB DC to 10 KHz - ------------------------------------------------------------------------------------------------------------------------------------ Jitter Generation JGEN [*] mUlp-p 50 KHz to 80 MHz Measurement technique - TBD --- - ------------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 11 of 15 Issue 7 Tyco Submarine Systems, Ltd TSSL Part Number [*] [*] 3.11. Alarm Outputs
- ----------------------------------------------------------------------------------------------------------------------------------- Table 12 -- LOC1, LOC2 Output Specifications - ----------------------------------------------------------------------------------------------------------------------------------- Parameter Symbol Min Typ Max Units Comments =================================================================================================================================== Logic HIGH level (Volt)_LOC1_(High) [*] [*] [*] (millivolts) CMOS compatible (Volt)_L0C2_(High) (Volt)_LOC3_(High) - ----------------------------------------------------------------------------------------------------------------------------------- Logic LOW level (Volt)_LOC1_(Low) (millivolts) CMOS compatible (Volt)_LOC2_(Low) [*] [*] (Volt)_LOC3_(Low) - ----------------------------------------------------------------------------------------------------------------------------------- Short Circuit Tolerance The LOC outputs shall be able to withstand an infinite duration short to ground without sustaining damage. - ----------------------------------------------------------------------------------------------------------------------------------- Clk_in level for LOC1 activate [*] (millivolts)p-p Differential - ----------------------------------------------------------------------------------------------------------------------------------- Cik_in level for LOC1 disable [*] (millivolts)p-p Differential - ----------------------------------------------------------------------------------------------------------------------------------- Activate / disable conditions Internal threshold based on for LOC2 status of 767.3 MHz VCO output - ----------------------------------------------------------------------------------------------------------------------------------- Frequency error for activation ppm 128:16 MUX PLL out of lock of LOC3 [*] condition - ----------------------------------------------------------------------------------------------------------------------------------- LOC1, LOC2, LOC3 activate / T_LOC1, disable time T_LOC2, [*] (micro)s Alarms are active HIGH T_LOC3 - -----------------------------------------------------------------------------------------------------------------------------------
3.12. Miscellaneous - ----------------------------------------------------------------------------------------------------------------------------------- Table 13 -- Miscellaneous Specifications - ----------------------------------------------------------------------------------------------------------------------------------- Parameter Symbol Min Typ Max Units Comments =================================================================================================================================== Lifetime [*] Years - ----------------------------------------------------------------------------------------------------------------------------------- Failure Rate [*] FIT FIT = Failures in 10/9/ hours - ----------------------------------------------------------------------------------------------------------------------------------- Environmental Requirements [*] Supplied by TSSL Exceptions granted on case by case basis. - -----------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 12 of 15 Tyco Submarine Systems, Ltd Issue 7 TSSL Part Number [*] [*] 4. Mechanical Requirements 4.1 Module I/O Placement The sub-rate clocks and all low speed signals (data, clock, control, power) shall be connected to the module through [*] [*]. ). Figure 4 shows a rough diagram of the module I/O layout. For exact details, see the appropriate mechanical drawing. [*] [*] Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 13 of 15 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 4.2. Input Bit Ordering The required bit order at the [*] inputs is affected by the fact that the input bit stream is first multiplexed [*] [*]. Assuming that the desired output bit order ( [*] ) is: [*] The bits shall appear at the module's low speed parallel data inputs in the order shown in Table 13. The Clk_in and Clk_in_b signals appear in the middle of this field between bits [*] . The layout of the module's IC's, substrate and connector shall be such that all of the low speed data signals are located as shown in figure 4. This assures that the required bit order can be transported from the FEC circuitry to the MUX/CMU module via a single layer PWB without crossovers. Table 13 - Input Bit Ordering - ---------- D000 - ---------- D016 - ---------- D032 - ---------- D048 - ---------- D064 - ---------- D080 - ---------- D096 - ---------- D112 - ---------- D001 - ---------- D017 - ---------- D033 - ---------- D049 - ---------- D065 - ---------- D081 - ---------- D097 - ---------- D113 - ---------- D002 - ---------- ---- - ---------- D003 - ---------- ---- - ---------- D004 - ---------- ---- - ---------- D005 - ---------- ---- - ---------- D006 - ---------- ---- - ---------- D007 - ---------- ---- - ---------- D119 - ---------- Clk_in_b - ---------- Clk_in - ---------- D008 - ---------- ---- - ---------- D009 - ---------- ---- - ---------- D010 - ---------- ---- - ---------- D011 - ---------- ---- - ---------- D012 - ---------- ---- - ---------- D013 - ---------- ---- - ---------- D014 - ---------- ---- - ---------- D015 - ---------- D031 - ---------- D047 - ---------- D063 - ---------- D079 - ---------- D095 - ---------- D111 - ---------- D127 - ---------- Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 14 of 15 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 4.3. Thermal Management The primary heat removal method shall be conduction through the module's bottom plate that will be attached to an appropriate heat sink. 4.4. Product Marking TBD --- 5. Product Documentation 5.1. Test Results TBD --- 5.2. Warranty Information TBD --- Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 15 of 15 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] Component Specification for [*] [*] ---------------------------------- This document is TSSL Proprietary. Use pursuant to Company instructions and applicable Non-Disclosure Agreements Revision History
- -------------------------------------------------------------------------------- Issue # Date Author Reason for Re-issue - -------------------------------------------------------------------------------- 1 [*] [*] Initial Release - -------------------------------------------------------------------------------- 2 [*] [*] Spec. negotiation - -------------------------------------------------------------------------------- 3 [*] [*] Spec. negotiation - -------------------------------------------------------------------------------- 4 [*] [*] Module drawing update Block diagram labeling Vterm bypass - -------------------------------------------------------------------------------- 5 [*] [*] Reduce minimum [*] Modified specs on alarm outputs Moved sub-rate clock outputs from SMB connectors to parallel connector - -------------------------------------------------------------------------------- 6 [*] [*] Add +5 (volts) supply Change levels and impedance of low speed data. Change levels and impedance of low speed clocks Added rise/fall time for input low speed signals Change CLK3 over/under shoot to 10% Spec'd CLK3 output impedance Spec'd temperature sensors Spec'd connector type Spec'd module thickness - -------------------------------------------------------------------------------- 7 [*] [*] Removed Data_b output Removed Clk1 output Added LOC3 alarm Updated supply voltages and currents Changed levels of sub-rate clock outputs. Removed output timing specs General clean up. - --------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 1 of 14 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] [*] - ---------------------------------------- 1. General Description 1.1. This module accepts [*] each and one differential clock at [*] . It performs the following functions: . Uses the input clock as reference to synthesize a [*] clock . Multiplexes the input data [*] [*] . Uses the [*] [*] . Multiplexes the internal rails [*] signal 1.2. The module produces the following output signals: . [*] output signal . [*] differential sub-rate clock . [*] alarm signals 2. Block Diagram and I/O Definitions [*] [*] Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 2 of 14 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] - -------------------------------------------------------------------------------- Table 1 - I/O Signal Descriptions Signal Description D\\QOO\\ - D\\127\\ [*] input data (volts)th_data Input data threshold adjustment Clk_in, Clk_in_b Differential [*] input clock (volts)cc1 DC power supply (volts)cc2 DC power supply (volts)ee1 DC power supply (volts)ee2 DC power supply Data Differential [*] output signal Clk3, Clk_b Differential [*] sub-rate clock LOC1 Loss of input reference clock alarm - active high LOC2 Loss of [*] VCO output alarm - active high LOC3 Loss of PLL lock in [*] alarm - active high (volts)term_clk Clock input termination voltage - -------------------------------------------------------------------------------- Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 3 of 14 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 3. Module Specifications 3.1. DC Power
- -------------------------------------------------------------------------------------------------------------------------- Table 2 - DC Power Specifications - -------------------------------------------------------------------------------------------------------------------------- Parameter Symbol Min Typ Max Units Comments ========================================================================================================================== Power Dissipation Pdisp [*] [*] Watts - -------------------------------------------------------------------------------------------------------------------------- Supply Voltages Vcc1 [*] [*] [*] Volts +7% - Vcc2 [*] [*] [*] Volts +7% - Vee1 [*] [*] [*] Volts +7% - Vee2 [*] [*] [*] Volts +5% - - -------------------------------------------------------------------------------------------------------------------------- Current Draw Icc1 [*] milliAmps Icc2 [*] milliAmps Iee1 [*] milliAmps Iee2 [*] milliAmps - -------------------------------------------------------------------------------------------------------------------------- Power Supply Sequencing Module shall be insensitive to supply power-up and power-down sequencing or timing. - -------------------------------------------------------------------------------------------------------------------------- Power Failure Tolerance Failure of one or more supplies will not cause damage to module. - --------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 4 of 14 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 3.2. Data Inputs
- ------------------------------------------------------------------------------------------------------------------------------- Table 3 - Data Receiver Specifications - ------------------------------------------------------------------------------------------------------------------------------- Parameter Symbol Min Typ Max Units Comments =============================================================================================================================== Input data rate [*] [*] [*] Mb/s 128 Parallel channels - ------------------------------------------------------------------------------------------------------------------------------- Input impedance (impedence)_data [*] (kiloohm) Both to ground and Vth - ------------------------------------------------------------------------------------------------------------------------------- Input decision threshold (volts)th_data [*] [*] (millivolts) Set by Vth input - ------------------------------------------------------------------------------------------------------------------------------- Vth input impedance (impedence)_th [*] (kiloohm) Both to ground and data inputs - ------------------------------------------------------------------------------------------------------------------------------- Vth high end cutoff F_high_Vth [*] Hz 3 dB down - ------------------------------------------------------------------------------------------------------------------------------- Data input logic LOW threshold (impedence)_data_L [*] (millivolts) - ------------------------------------------------------------------------------------------------------------------------------- Data input logic HIGH threshold (impedance)_data_H [*] (millivolts) - ------------------------------------------------------------------------------------------------------------------------------- Input data levels [*] [*] (millivolts) each input to ground - ------------------------------------------------------------------------------------------------------------------------------- Input data rise/fall times (risetime)_data, [*] (nanoseconds) (fulltime)_data - ------------------------------------------------------------------------------------------------------------------------------- Data transmission line (impedence)_data [*] (ohm) impedance on module - -------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 5 of 14 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 3.3. Clock inputs
- --------------------------------------------------------------------------------------------------------------------------------- Table 4- Clock Receiver Specifications - --------------------------------------------------------------------------------------------------------------------------------- Parameter Symbol MIN Typ Max Units Comments ================================================================================================================================= Input clock rate [*] [*] [*] (Mega hertz) - --------------------------------------------------------------------------------------------------------------------------------- Input impedance (impedence)_clk [*] (ohm) Each input measured to Vterm _clk - --------------------------------------------------------------------------------------------------------------------------------- Differential input impedance (impedence)_clk_diff [*] (Kilo ohm) - --------------------------------------------------------------------------------------------------------------------------------- Clock HIGH level ("PECL") (volts)_clk_high [*] [*] (milli volts) Each input to ground - --------------------------------------------------------------------------------------------------------------------------------- Clock LOW level ("PECL") (volts)_clk_low [*] [*] (milli volts) Each input to ground - --------------------------------------------------------------------------------------------------------------------------------- Input clock over/ under shoot [*] % - --------------------------------------------------------------------------------------------------------------------------------- Clock termination voltage (Volt)sterm_clk [*] [*] [*] (milli volts) General off-module and applied to Vterm_clk input - --------------------------------------------------------------------------------------------------------------------------------- Input clock rise/fall times (Risetime)_clk, (fulltime)_clk [*] (nano seconds) - ---------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSI PROPRIETARY Sheet 6 of 14 1/19/2000 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 3.4. Input Timing
- -------------------------------------------------------------------------------------------------------------------------- Table 5 - Input Timing Specifications - -------------------------------------------------------------------------------------------------------------------------- Parameter Symbol Min Typ Max Units Comments ========================================================================================================================== Minimum required data to T_setup [*] ps Last data stable to clock transition. clock setup time See timing diagram - -------------------------------------------------------------------------------------------------------------------------- Minimum required clock to T_hold [*] ps Clock stable to First data data hold time transition. See timing diagram - -------------------------------------------------------------------------------------------------------------------------- Clock - Data relationship Low speed data shall be clocked into the MUX/CMU module on the RISING edge ------ of CLK_in - --------------------------------------------------------------------------------------------------------------------------
[*] Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 7 of 14 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 3.5. High Speed Data Output
- ----------------------------------------------------------------------------------------------------------------------------------- Table 6 -- High Speed Data Output Specifications - ----------------------------------------------------------------------------------------------------------------------------------- Parameter Symbol Min Typ Max Units Comments - ----------------------------------------------------------------------------------------------------------------------------------- Output data rate [*] Gb/s (input rate)* 128 - ----------------------------------------------------------------------------------------------------------------------------------- Output connector [*] - ----------------------------------------------------------------------------------------------------------------------------------- Output coupling [*] CML, centered at -600 m(Volts) - ----------------------------------------------------------------------------------------------------------------------------------- Short Circuit Tolerance All outputs shall be able to withstand an infinite duration short to ground without sustaining damage. - ----------------------------------------------------------------------------------------------------------------------------------- Output impedance [*] (ohm) - ----------------------------------------------------------------------------------------------------------------------------------- Output return loss S22_data [*] dB 150 KHz ** F ** 10.0 GHz - ----------------------------------------------------------------------------------------------------------------------------------- Output return loss S22_data [*] dB 10.0 GHz ** F ** 16 GHz - ----------------------------------------------------------------------------------------------------------------------------------- Data output amplitude (Volts)_data [*] [*] (millivolts)p-p - ----------------------------------------------------------------------------------------------------------------------------------- Data eye opening [*] (millivolts)p-p Violation free for ITU-T STM-64 eye mask - ----------------------------------------------------------------------------------------------------------------------------------- Output rise / fall time (rise time)_data, [*] ps 20-80% See timing diagram (fall time)_data - ----------------------------------------------------------------------------------------------------------------------------------- Output overshoot, undershoot Ovsh_data, [*] % of (Volts)_data See timing diagram Undrsh_data - ----------------------------------------------------------------------------------------------------------------------------------- Output "eye" cross position Eye_cross [*] [*] % of (Volts)_data See timing diagram - -----------------------------------------------------------------------------------------------------------------------------------
** = (less than or equals to) Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. TSSL PROPRIETARY Issue 7 1/19/2000 Sheet 8 of 14 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 3.6. Temperature Sensors - -------------------------------------------------------------------------------- Table 7 -- Temperature Sensor Specifications - -------------------------------------------------------------------------------- Temp Sensor #1 [*] - -------------------------------------------------------------------------------- Temp Sensor #2 [*] - -------------------------------------------------------------------------------- Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. TSSL PROPRIETARY Issue 7 1/19/2000 Sheet 9 of 14 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 3.7. Sub-Rate Clock Outputs
- ------------------------------------------------------------------------------------------------------------------------------------ Table 8- Sub-Rate Clock Outputs - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments - ------------------------------------------------------------------------------------------------------------------------------------ Frequency [*] (mega hertz) (Input data rate) 8 - ------------------------------------------------------------------------------------------------------------------------------------ Output Coupling [*] - ------------------------------------------------------------------------------------------------------------------------------------ Short Circuit Tolerance All outputs shall be able to withstand an infinite duration short to ground without sustaining damage. - ------------------------------------------------------------------------------------------------------------------------------------ Output Level volts_c622_diff [*] (milli volts) Differential to 50 (ohm) - ------------------------------------------------------------------------------------------------------------------------------------ Clock rise/fall time rise time_c622/ [*] [*] ps 20-80% fall time_c622 - ------------------------------------------------------------------------------------------------------------------------------------ Clock duty cycle Dcyc_c622 [*] [*] % All clock outputs - ------------------------------------------------------------------------------------------------------------------------------------ CLK3 to CLK3_b differential Tc622_skew [*] ps clock skew - ------------------------------------------------------------------------------------------------------------------------------------ Clock over/under shoot Ovrsh_c622 [*] % of clock Applies to Clk3 and Clk3_b Undrsh_c622 amplitude Goal of 5% - ------------------------------------------------------------------------------------------------------------------------------------ Clock output impedance Impedence_c767 [*] (ohm) Applies to Clk3 and Clk3_b - ------------------------------------------------------------------------------------------------------------------------------------ 3.8. Jitter Performance - ------------------------------------------------------------------------------------------------------------------------------------ Table 9- Jitter Specifications - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments - ------------------------------------------------------------------------------------------------------------------------------------ Jitter Transfer Function JTF [*] dB DC to 10 (Kilo hertz) - ------------------------------------------------------------------------------------------------------------------------------------ Jitter Generation JGEN [*] mUlp-p 50 (Kilo hertz) to 80 (Mega hertz Measurement technique- TBD ---- - ------------------------------------------------------------------------------------------------------------------------------------
Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. TSSI PROPRIETARY Issue 7 1/19/2000 Sheet 10 of 14 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 3.9. Alarm Outputs
- ------------------------------------------------------------------------------------------------------------------------------------ Table 10- LOC1, LOC2 Output Specifications - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments ==================================================================================================================================== Logic HIGH level volts_LOC1_High (millivolts) CMOS compatible volts_LOC2_High [*] [*] [*] volts_LOC3_High - ------------------------------------------------------------------------------------------------------------------------------------ Logic LOW level volts_LOC1_Low (millivolts) CMOS compatible volts_LOC2_Low [*] [*] volts_LOC3_Low - ------------------------------------------------------------------------------------------------------------------------------------ Short Circuit Tolerance The LOC outputs shall be able to withstand an infinite duration short to ground without sustaining damage. - ------------------------------------------------------------------------------------------------------------------------------------ Clk_in level for LOC1 activate [*] (millivolts)p-p Differential - ------------------------------------------------------------------------------------------------------------------------------------ Clk_in level for LOC1 disable [*] (millivolts)p-p Differential - ------------------------------------------------------------------------------------------------------------------------------------ Activate / disable conditions Internal threshold based on status for LOC2 of 622.08 (Mega hertz) VCO output - ------------------------------------------------------------------------------------------------------------------------------------ Frequency error for activation of LOC3 [*] ppm 128:16 MUX PLL out of lock condition - ------------------------------------------------------------------------------------------------------------------------------------ LOC1, LOC2, LOC3 activate/ T_LOC1, (mirco seconds) Alarms are active HIGH disable time T_LOC2 [*] T_LOC3 - ------------------------------------------------------------------------------------------------------------------------------------ 3.10 Miscellaneous - ------------------------------------------------------------------------------------------------------------------------------------ Table 11- Miscellaneous Specifications - ------------------------------------------------------------------------------------------------------------------------------------ Parameter Symbol Min Typ Max Units Comments - ------------------------------------------------------------------------------------------------------------------------------------ Lifetime [*] Years - ------------------------------------------------------------------------------------------------------------------------------------ Failure Rate [*] FIT FIT= Failures in 10//9// hours - ------------------------------------------------------------------------------------------------------------------------------------ Environmental Requirements [*] Supplied by TSSL Exceptions granted on case by case basis. - ------------------------------------------------------------------------------------------------------------------------------------
Confidential material omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. TSSL PROPRIETARY Issue 7 1/19/2000 Sheet 11 of 14 Issue 7 Tyco Submarine Systems, Ltd TSSL Part Number [*] [*] 4. Mechanical Requirements 4.1. Module I/O Placement The sub-rate clocks and all low speed signals (data, clock, control, power) shall be connected to the module through [*] [*] ). Figure 4 shows a rough diagram of the module I/O layout. For exact details, see the appropriate mechanical drawing. [*] Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 12 of 14 Issue 7 Tyco Submarine Systems, Ltd TSSL Part Number [*] [*] 4.2. Input Bit Ordering The required bit order at the [*] inputs is affected by the fact that [*] [*] . Assuming that the desired output bit order (at [*] ) is: [*] The bits shall appear at the module's low speed parallel data inputs in the order shown in Table 13. The Clk_in and Clk_in_b signals appear in the middle of this field between bits D\\119\\ and D\\008\\. The layout of the module's IC's, substrate and connector shall be such that all of the low speed data signals are located as shown in figure 4. This assures that the required bit order can be transported from the FEC circuitry to the MUX/CMU module via a single layer PWB without crossovers. Table 13 -- Input Bit Ordering - ----------------- D000 - ----------------- D016 - ----------------- D032 - ----------------- D048 - ----------------- D064 - ----------------- D080 - ----------------- D096 - ----------------- D112 - ----------------- D001 - ----------------- D017 - ----------------- D033 - ----------------- D049 - ----------------- D065 - ----------------- D081 - ----------------- D097 - ----------------- D113 - ----------------- D002 - ----------------- - ---- - ----------------- D003 - ----------------- - ---- - ----------------- D004 - ----------------- - ---- - ----------------- D005 - ----------------- - ---- - ----------------- D006 - ----------------- - ---- - ----------------- D007 - ----------------- - ---- - ----------------- D119 - ----------------- Clk_in_b - ----------------- Clk_in - ----------------- D008 - ----------------- - ---- - ----------------- D009 - ----------------- - ---- - ----------------- D010 - ----------------- - ---- - ----------------- D011 - ----------------- - ---- - ----------------- D012 - ----------------- - ---- - ----------------- D013 - ----------------- - ---- - ----------------- D014 - ----------------- - ---- - ----------------- D015 - ----------------- D031 - ----------------- D047 - ----------------- D063 - ----------------- D079 - ----------------- D095 - ----------------- D111 - ----------------- D127 - ----------------- Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 13 of 14 Tyco Submarine Systems, Ltd Issue 7 [*] TSSL Part Number [*] 4.3. Thermal Management The primary heat removal method shall be conduction through the module's base plate (non-component side) that will be attached to an appropriate heat sink. 4.4. Product Marking TBD --- 5. Product Documentation 5.1. Test Results TBD --- 5.2. Warranty Information TBD --- Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. Issue 7 TSSL PROPRIETARY 1/19/2000 Sheet 14 of 14 EXHIBIT C SCHEDULE AGREEMENT [*] Confidential materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote omissions. EX-23.1 11 dex231.txt CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No. 3 to Registration Statement No. 333-47376 of Multilink Technology Corporation on Form S-1 of our report dated February 14, 2001, appearing in the Prospectus, which is part of this Registration Statement, and to the reference to us under the heading "Experts" in such prospectus. /s/ DELOITTE & TOUCHE LLP Parsippany, New Jersey May 18, 2001 -----END PRIVACY-ENHANCED MESSAGE-----