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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-22339
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RAMBUS INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3112828
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4440 El Camino Real, Los Altos, CA 94022
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code:
(650) 947-5000
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
(Title of Class)
Preferred Share Purchase Rights
(Title of Class)
Indicate by check mark whether Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
Aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant as of October 31, 2001 was approximately
$685.6 million based upon the closing price reported for such date on the
Nasdaq Stock Market. For purposes of this disclosure, shares of Common Stock
held by persons who hold more than 5% of the outstanding shares of Common Stock
and shares held by officers and directors of the Registrant have been excluded
because such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
The number of outstanding shares of the Registrant's Common Stock, $.001 par
value, was 100,530,502 as of October 31, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's next Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.
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PART I
This report contains forward-looking statements. These forward-looking
statements are based on current expectations, estimates and projections about
the Company's industry, management's beliefs, and certain assumptions made by
the Company's management. These forward-looking statements include the
following predictions regarding the Company's future:
. the ability of licensees to implement Rambus(R) technology with decreased
assistance from Rambus;
. the manufacture of RDRAM(R) memory devices in a manner and at a
sufficiently competitive price with SDRAM to allow for the development of
a mass market for RDRAM memory devices and controllers;
. the ability of the Company to advance its chip-connection technology in
order to meet changing market needs;
. the Company's development of next-generation chip interfaces and other
proprietary technology;
. the Company's ability to continue to invest substantial funds in research
and development activities;
. the success of the Company being dependent upon royalties increasing at a
rate which more than offsets decreases in the recognition of revenue under
existing contracts;
. the Company's competition from its licensees and prospective licensees;
. the source and concentration of the Company's revenue, and the Company's
ability to collect this revenue;
. the Company's vigorous protection and defense of its patents and
successful litigation results relating thereto;
. the possibility that the Company's licensees or prospective licensees may
adopt and promote alternate technologies such as DDR-2, ADT and embedded
DRAM; and
. the Company's intention to develop and maintain a uniform RDRAM(R) memory
interface standard.
You can identify these and other forward-looking statements by the use of
words such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "intends," "potential," "continue," or the
negative of such terms, or other comparable terminology. Forward-looking
statements also include the assumptions underlying or relating to any of the
foregoing statements.
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." All forward-looking statements included in this
document are based on information available to Rambus on the date hereof.
Rambus assumes no obligation to update any forward-looking statements.
Item 1. Business
Rambus Inc. ("Rambus" or the "Company") designs, develops, licenses and
markets high-speed chip-connection technologies to enhance the performance and
cost-effectiveness of computers, consumer electronics, communications systems
and networking products. Rambus has multiple chip-connection technologies.
Rambus technology is used in Dynamic Random Access Memory ("DRAM") devices and
memory controller ICs which connect to DRAM devices. The Rambus DRAM memory
device ("RDRAM") and memory controller ICs which connect to the RDRAM memory
device use Rambus technology and comply to a system specification designed,
developed and issued by the Company. The Company's patents and intellectual
property are also used in SDRAM-compatible memory devices and DDR-compatible
memory devices. The Company's RaSer/TM/ serial link technology enables
semiconductor companies to use familiar, widely available design tools and
conventional techniques in integrating the RaSer serial link application
specification integrated circuit (ASIC) cells into their logic designs for use
in high speed communications and networking applications. Rambus' newest
chip-connection technology, Yellowstone, with high-speed data transfer rates,
enables solutions satisfying various high-bandwidth market requirements.
1
Rambus licenses semiconductor and systems companies to manufacture and sell
memory, memory controllers and other semiconductors incorporating Rambus
chip-connection technology, and markets its solutions to systems companies to
encourage them to design the Rambus technology into their products. The
Company's chip-connection technology increases the data transfer rate, or
bandwidth, allowing semiconductor memory devices to keep pace with faster
generations of processors and controllers and thus supports the accelerating
data transfer requirements of multimedia and other high-bandwidth applications.
Background
The performance of a computer or other electronic system is typically
constrained by the speed of its slowest element. In the past, that element was
the logic integrated circuit (IC) that controlled the system's specific
functions and performed calculations--the microprocessor. In recent years,
however, new generations of microprocessors and controllers have become
substantially faster and more powerful, and, increasingly, the bottleneck in
system performance was the rate at which data could move from one chip to
another.
Since 1980, the typical operating frequency of mainstream microprocessors
increased from 5 MHz (million cycles per second) to 2 GHz (billion cycles per
second). For several years, the typical operating frequency of a standard DRAM
did not keep pace with the microprocessor frequencies. The initial application
of Rambus technology was to ensure that the chip connection to memory did not
limit overall system performance.
While microprocessors underwent both manufacturing and architectural
improvements, significant innovations for DRAM generally only occurred in the
manufacturing area. DRAM manufacturers were successful in increasing DRAM
"density," or storage capacity, from roughly 1 Kbit (thousand bits) to 256
Mbits (million bits) per chip for standard production devices, thereby reducing
the number of DRAM devices required for a given amount of memory. However,
corresponding architectural improvements necessary to increase DRAM data
transfer rates to keep pace with increasing microprocessor speeds did not occur.
Rambus Technology
Rambus initially created a chip-connection architecture, which increased
transfer rates by transferring data through a simplified bus at significantly
higher frequencies than permitted by conventional technologies. The Company has
made ongoing innovations in high-speed chip connections since its founding.
The RDRAM memory interface chip-connection technology allows data transfers
of up to 1.6 gigabytes per second between memory controllers and RDRAM memory
devices by transferring data at a frequency of 800 MHz over a two-byte wide
bus. System performance can be further enhanced by increasing the number of
RDRAM memory interface channels on a memory controller IC. For example, a
memory controller IC incorporating Rambus technology can utilize four channels
to achieve data transfer rates of up to 6.4 gigabytes per second. In 2001,
Rambus and its partners announced an evolutionary roadmap for RDRAM memory
devices that will allow data to transfer up to 9.6 gigabytes per second for a
single memory module within the next few years. This increase in performance is
accomplished by increasing the speed of the RDRAM memory devices to 1200 MHz
and the width of the memory modules to 64 bits (8 bytes) in evolutionary steps.
The Company recently announced its newest chip connection technology.
Yellowstone was announced with data transfer rates of 3.2 GHz with plans to go
to 6.4 GHz. Yellowstone achieves this speed by transferring 8 bits per clock
cycle using Octal Data Rate (ODR) technology, and by using very low voltage
bi-directional signaling. Yellowstone's flexible architecture enables
customized memory solutions to satisfy various market needs over the next
decade, such as consumer, graphics, personal computer (PC) desktop,
workstation, server and mobile applications.
Rambus technology can be used to address a wide variety of chip-connection
data transfer requirements. The Company has announced its first non
memory-based technology, a serial link cell called the RaSer cell.
2
Existing RaSer serial links provide a 1.25 and 3.2 gigabit per second data
connection for use in high-speed chip connections. Typical applications for
this technology are backplanes in high-speed network routers and switches,
Serial Advanced Technology Attachment (ATA), Infiniband, Fibre Channel and 3GIO
products. The Company recently announced plans to develop RaSer serial links
that operate at 5 and 10 gigabits per second.
Target Markets and Applications
To date, the major markets for the Company's technology have been in the
consumer, computer and communications segments. In the consumer area, the
principal application has been for home video game consoles. An earlier
generation of the RDRAM memory interface technology is in the Nintendo64 video
game console, and current RDRAM technology is used in the newest version of the
Sony video game system known as PlayStation 2. Other consumer applications for
the Company's technology include digital televisions and set-top boxes.
In the computer market, RDRAM memory interface technology is used to provide
a high memory bandwidth connection to Intel Pentium IV processors. The
connections are provided via RDRAM memory controllers, which are a portion of
chipsets developed by Intel. One of these chipsets, designed for use in the PC
workstation market, has become the preferred chipset for performance desktop
PCs, and RDRAM technology is now fully established in this segment. RDRAM
technology has not yet penetrated the main PC market to the same extent as in
the PC workstation market because RDRAM memory device prices remain higher than
standard memory, and price remains more important than performance in the main
PC market.
Communications products are another important application for Rambus memory
interface and RaSer serial link technologies. RDRAM and RaSer technologies have
been specified in several network switch and router products. In addition RaSer
technology is valuable in a wide range of applications including Fibre Channel,
Serial ATA, Infiniband and 3GIO products.
Rambus Business Model and Strategy
In order to establish Rambus chip-connection technology as an industry
standard, the Company has adopted an innovative business model in which it
neither manufactures nor sells semiconductors incorporating the Company's
technology. The Company licenses its technology on a nonexclusive and worldwide
basis to semiconductor companies which manufacture and sell products that
incorporate Rambus technology. The Company offers several types of licenses.
For technology which is fully compatible with the RDRAM standard ("RDRAM
licenses"), Rambus licenses semiconductor manufacturers to manufacture and sell
RDRAM memory devices and logic ICs containing RDRAM ASIC cells ("RDRAM
controllers") to systems companies that have adopted RDRAM technology. Systems
companies are not required to obtain an RDRAM license to incorporate RDRAM
memory devices and controllers into their products. However, an important part
of the Company's strategy is to maintain close ties to these systems companies
in order to encourage the adoption of Rambus technology.
In the case of RDRAM licenses, the Rambus business model and strategy are
designed to:
. promote RDRAM technology as an industry standard;
. work with leading systems companies in the highest potential markets;
. provide systems companies with multiple sources for RDRAM devices;
. share research and development efforts with licensees;
. maintain technology leadership;
. pursue a system-level approach; and
. generate revenue through a combination of contract fees and royalties.
3
Rambus also licenses companies to use Rambus patents in synchronous DRAM
("SDRAM") and double data-rate ("DDR") memory devices and logic ICs which
control such memory. In the case of these "SDRAM-compatible licenses" and
"DDR-compatible licenses," the Rambus business model and strategy are designed
to recover the return on investment in R&D and patents through the generation
of license fees and royalties.
The final area in which Rambus is licensing technology is for the RaSer
serial link cells. This new area has resulted in licensees building networking,
Serial ATA, Infiniband and Fibre Channel products.
Rambus provides licenses to both DRAM manufacturers and logic IC
manufacturers. Royalties, which are generally a percentage of the revenues
received by licensees on their sales of licensed ICs, are normally payable by a
Rambus licensee on sales occurring during the life of the Rambus patents being
licensed in the case of RDRAM licenses, and over a five-year contract life in
the case of SDRAM-compatible and DDR-compatible licenses. For a typical systems
application using Rambus technology, the Company receives royalties from the
sale of both licensed logic ICs and DRAM as they are shipped by Rambus
licensees. Royalty rates range up to a maximum of approximately 2.5% for RDRAM
memory devices and a maximum of approximately 5% for associated RDRAM logic
ICs, and in some cases may decline based on the passage of time or on the total
volume of RDRAM memory interface ICs shipped. In the case of SDRAM-compatible
and DDR-compatible licenses, the royalty rates for SDRAM and associated
controllers are generally less than the comparable RDRAM royalty rates, and for
DDR and associated controllers the rates are generally higher. The exact rate
and structure of a royalty arrangement with a particular licensee depends on a
number of factors, including the amount of the license fee to be paid by the
licensee and, in the case of RDRAM licenses, the marketing and engineering
commitment made by the licensee. In the case of one license with Intel,
royalties are a fixed amount per quarter for a period of five years, which
grants Intel access to the complete Rambus patent portfolio. There is also one
DRAM company that has a fixed royalty payment per quarter until there is a
final resolution of pending litigation.
For the RaSer serial link business, royalties are generally calculated on
the volume of links produced by the licensees. The exact rate and structure of
Rambus RaSer licenses vary based on a number of factors including volume and
required customization.
Design and Manufacturing
RDRAM technology has been developed to allow semiconductor companies to use
familiar, widely available design tools and conventional techniques when
designing their RDRAM chips. A new RDRAM licensee receives an implementation
package from the Company which contains the information needed to develop a
RDRAM memory interface in the IC licensee's manufacturing process. There are
separate implementation packages for RDRAM memory devices and for Rambus ASIC
cells (RACs). An implementation package includes a specification, a generalized
circuit layout database for the particular version of the RDRAM memory device
or RAC which the licensee intends to develop, test parameter software and, for
RDRAM memory devices, a DRAM core interface specification. Many RDRAM licensees
have contracted to have Rambus produce the specific implementation required to
optimize the generalized circuit layout for the licensee's manufacturing
process. In such cases, the licensee provides specific design rules and
transistor models which Rambus designers use to integrate RDRAM memory devices
or RAC circuits into the licensee's process. However, Rambus anticipates that
as licensees become more familiar with the RDRAM technology, they will be able
to do more of the implementation work without Rambus' assistance.
Rambus has developed its RDRAM technology to be manufacturable using
familiar, industry-standard CMOS semiconductor processes. For this reason the
Company believes that the wafer fabrication yields of RDRAM memory devices and
logic products containing RACs in mass-production volumes are consistent with
those for similar products in the same manufacturing facility and in the same
stage of production ramp. However, because of the extra Rambus interface
circuitry and other features, an RDRAM chip is somewhat larger than a
4
standard SDRAM. Therefore, a manufacturer will generally produce fewer RDRAM
memory devices than standard SDRAM for a given wafer size and an RDRAM chip
will be somewhat more expensive than the standard version. Also, RDRAM
manufacturers are responsible for their own manufacturing processes and Rambus
has no role in the manufacture of RDRAM memory devices. For example, Rambus has
no influence on decisions in regard to any process changes or on whether or
when to "shrink" or otherwise change a design to reduce the cost of the chips.
RaSer serial link technology has also been developed to allow semiconductor
companies to use familiar, widely available design tools and conventional
techniques in integrating the RaSer cells into their overall logic designs.
Rambus typically works with its customers for the initial implementation.
Research and Development
The ability of the Company to compete in the future will be substantially
dependent on its ability to advance its chip-connection technology in order to
meet changing market needs. To this end, Company engineers are involved in
developing new versions of the Rambus technology that will allow chip-to-chip
data transfer at higher speeds as well as provide other improvements. The
Company has announced the intention to enable a 1200 MHz and 64 bit bus version
of its current RDRAM technology. Recently, Rambus announced its next generation
of chip interfaces operating at 3.2 GHz to 6.4 GHz. In the RaSer business,
Rambus has announced its intention to deliver 5 and 10 gigabit per second
links. The Company has assembled a team of highly skilled engineers whose
activities are focused on further development of Rambus chip-connection
technology as well as adaptation of current technology to specific licensees'
processes. Because of the complexity of these activities, the design and
development process at Rambus is a multi-disciplinary effort requiring
expertise in computer architecture, digital and analog circuit design and
layout, DRAM and logic semiconductor process characteristics, packaging,
printed circuit board (PCB) routing and high-speed testing techniques.
As of September 30, 2001, Rambus had 113 employees in its engineering
departments, representing 69% of the Company's total human resources.
Approximately 63% of research and development employees have advanced technical
degrees and 15% have PhDs. In fiscal 2001, 2000 and 1999, research and
development expenses were approximately $18.2 million, $11.5 million and $8.1
million, respectively. In addition, because the Company's RDRAM and RaSer
license agreements often call for engineering support by Rambus, a portion of
the Company's total engineering costs has been allocated to cost of contract
revenues, even though these engineering efforts have direct applicability to
Rambus' technology development. The Company expects that it will continue to
invest substantial funds in research and development activities. There can be
no assurance that new versions of the Rambus chip-connection technology can be
developed and introduced by the Company's licensees in a timely fashion or that
such new technology will be accepted by the market. Moreover, the end markets
for the Company's technology are subject to rapid technological change and
there can be no assurance that as such markets change, the Company's
chip-connection technology will remain current and suitable.
Competition
The semiconductor industry is intensely competitive and has been
characterized by:
. price erosion;
. rapid technological change;
. short product life cycles;
. cyclical market patterns; and
. increasing foreign and domestic competition.
5
Most major DRAM manufacturers, including RDRAM licensees, produce
higher-frequency versions of standard DRAM such as SDRAM and DDR that compete
with RDRAM memory devices. These companies are much larger and have better
access to financial, certain technical and other resources than Rambus.
The Company believes that its success in establishing the RDRAM standard has
been due in part to the systems approach it has taken to solving the
application needs of companies in home video console, PC and other electronic
systems businesses. However, the Company believes competitors have begun to
take a similar approach. The Company believes that its principal competition
will come from its RDRAM licensees and prospective licensees, many of which are
evaluating and developing products based on alternative technologies. Some DRAM
suppliers have been producing DDR, aimed at doubling the memory bandwidth from
SDRAM without increasing the clock frequency. While Rambus has been successful
in negotiating SDRAM-compatible licenses with some DRAM manufacturers that
include the payment of royalties on DDR, other manufacturers have not agreed to
a license and are in litigation with the Company. See "Legal Proceedings."
A consortium including semiconductor and systems companies is thought to be
developing an extension of DDR known as DDR-2, and another consortium is
working on advanced DRAM technology ("ADT"). To the extent that these
alternative technologies provide comparable system performance at lower or
similar cost than RDRAM memory devices, or are perceived to require the payment
of lower royalties, the Company's licensees and prospective licensees may adopt
and promote the alternative technologies. There can be no assurance that the
Company's future competition will not have a material adverse effect on the
Company's business, financial condition and results of operations. While the
Company might determine that such alternative technologies, when and if
developed, infringe the Company's patents, there can be no assurance that the
Company would be able to negotiate agreements which would result in royalties
paid to the Company without litigation, which could be costly and the result of
which would be uncertain.
In addition, certain semiconductor companies are now marketing ICs which
combine logic and DRAM on the same chip. Such technology, called "embedded
DRAM," eliminates the need for an external chip-connection interface. Embedded
DRAM is well suited for applications where component space saving and power
consumption are important, such as in the graphics subsystems of notebook PCs.
There can be no assurance that competition from embedded DRAM will not increase
in the future.
The Company will face new competition in the RaSer serial link business. The
initial competition is from semiconductor companies who sell discrete chips for
use in various types of systems, as well as competitors who license competing
serial link cells. The current Rambus business model for the RaSer serial link
cell is to license technology rather than compete directly with discrete chip
providers.
Patents and Intellectual Property Protection
The Company has an active program to protect its proprietary technology
through the filing of patents. At September 30, 2001, the Company held 126
United States patents on various aspects of its technology, with expiration
dates ranging from 2010 to 2020 and had applications pending for an additional
160 United States patents. At September 30, 2001, the Company held 26 foreign
patents and had 51 additional foreign patent applications pending in Europe and
Asia. In addition, the Company attempts to protect its trade secrets and other
proprietary information through agreements with licensees and systems
companies, proprietary information agreements with employees and consultants
and other security measures. The Company also relies on trademarks and trade
secret laws to protect its intellectual property.
Rambus believes that it is important to develop and maintain a uniform RDRAM
memory interface standard. The Company's RDRAM contracts generally prevent a
licensee from using licensee-developed patented improvements related to Rambus
technology to block other licensees from using the improvements or requiring
them to pay additional royalties related to their use of Rambus chip-connection
technology.
6
Specifically, the contracts generally require licensees to grant to Rambus a
royalty-free cross-license on patented licensee intellectual property related
to the implementation of Rambus interface technology, which Rambus sublicenses
to other licensees which have entered into similar arrangements. Nonetheless,
there is no assurance that such a blocking arrangement will not occur in the
future.
Risk Factors
Current and Potential Litigation. As the Company has extended its licensing
program to SDRAM-compatible and DDR-compatible products, it has increasingly
become involved in litigation either instigated by the Company or by the
potential licensee. As of September 30, 2001, the Company was in litigation
with three such potential SDRAM-compatible and DDR-compatible licensees. In
each of these cases, the Company has claimed infringement of its patents
whereas the potential licensees have generally sought damages and a
determination that the Rambus patents at suit are invalid and not infringed.
While the Company's preference in all these cases is to achieve settlements
resulting in SDRAM-compatible and DDR-compatible licenses, there can be no
assurance that such settlements will take place, that the Company will prevail
if there is no settlement or that additional litigation will not result from
future efforts by the Company to obtain additional SDRAM-compatible and
DDR-compatible licenses. In addition, future litigation may be necessary to
enforce the Company's patents and other intellectual property rights, to
protect the Company's trade secrets, or to determine the validity and scope of
the proprietary rights of others, and there can be no assurance that the
Company would prevail in any future litigation. Any such litigation, whether or
not determined in the Company's favor or settled by the Company, is costly and
could divert the efforts and attention of the Company's management and
technical personnel from normal business operations, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. Adverse determinations or adverse interim results in
litigation could result in, and/or have already resulted in, at least on an
interim basis, the Company losing certain rights, including the loss of the
right to sue others for violating the Company's proprietary rights, the Company
being subjected to significant liabilities, the Company being required to seek
licenses from third parties, the Company being prevented from licensing its
technology, or the Company being required to renegotiate with current licensees
on a temporary or permanent basis, any, or all, of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
In any potential dispute involving the Company's patents or other
intellectual property, the Company's licensees could also become the target of
litigation. While the Company generally does not indemnify its licensees, some
of its license agreements require the Company to provide technical support and
information to a licensee which is involved in litigation involving use of
Rambus technology. In addition, the Company is bound to indemnify certain
licensees under the terms of certain RDRAM license agreements, and the Company
may agree to indemnify others in the future. The Company's support and
indemnification obligations could result in substantial expenses to the
Company. In addition to the time and expense required for the Company to supply
such support or indemnification to its licensees, a licensee's development,
marketing and sales of ICs could be severely disrupted or shut down as a result
of litigation, which in turn could have a material adverse effect on the
Company's business, financial condition and results of operations.
Unpredictable and Fluctuating Operating Results. Because many of the
Company's revenue components fluctuate and are difficult to predict, and its
expenses are largely independent of revenues in any particular period, it is
difficult for the Company to accurately forecast revenues and profitability.
Until the fourth quarter of FY 2000, contract revenues had represented the
largest portion of the Company's revenues. The Company recognizes contract
revenues ratably over the period during which post-contract customer support on
RDRAM and RaSer licenses is expected to be provided. While this means that
contract revenues from current licenses are generally predictable, changes can
be introduced by a reevaluation by Company management of the length of the
post-contract support period. The initial estimate of this period is subject to
revision as the RDRAM and RaSer technology being developed under a contract
nears production, and such revision will result in an increase or decrease to
the quarterly revenue for that contract. In addition, accurate prediction of
revenues from new licenses is difficult because the development of a business
relationship with a potential licensee is a lengthy
7
process, frequently spanning a year or more, and the fiscal period in which a
new license agreement will be entered into, if at all, and the financial terms
of such an agreement are difficult to predict. Contract revenues also include
fees for engineering services, which are dependent upon the varying level of
assistance desired by licensees and, therefore, the revenue from these services
is also difficult to predict. Adding to the complexity of making accurate
financial forecasts is the fact that certain expenses associated with a
particular contract may not be incurred evenly over the contract period,
whereas contract fees associated with that contract are recognized ratably over
the period during which the post-contract customer support is expected to be
provided.
Royalties accounted for 90% of total revenues in the fourth quarter of
fiscal 2001 and 81% of total revenues in the full fiscal year. The Company
believes that royalties will represent the majority of total revenues in future
periods. Increasing royalty revenues will add to the difficulty in making
accurate financial forecasts. Such royalties are recognized in the quarter in
which the Company receives a report from a licensee regarding the shipment of
licensed ICs in the prior quarter, and are dependent upon fluctuating sales
volumes and prices of chips containing Rambus technology, all of which are
beyond the Company's ability to control or assess in advance. The Company
believes that its continued success will be substantially dependent upon
royalties increasing at a rate which more than offsets decreases in the
recognition of revenue under existing contracts, as well as the Company's
ability to add new licensees and to license new generations of its technology
to its existing licensees. Because a systems company can change its source of
licensed ICs at any time, and because the new source could have different
royalty rates, any such change by a systems company, particularly one which
accounts for substantial volumes of licensed ICs, could have a sudden and
significant adverse effect on the Company's revenues.
The Company's business is subject to a variety of additional risks which
could materially adversely affect quarterly and annual operating results,
including:
. market acceptance of the Company's technology;
. systems companies' acceptance of ICs produced by the Company's licensees;
. semiconductor and systems companies' acceptance of RaSer serial link
technology;
. market acceptance of the products of systems companies which have adopted
the Company's technology;
. the loss of any strategic relationships with systems companies or
licensees;
. announcements or introductions of new technologies or products by the
Company or the Company's competitors;
. delays or problems in the introduction or performance of enhancements or
of future generations of the Company's technology;
. fluctuations in the market price and demand for DRAM and logic ICs into
which the Company's technology has been incorporated;
. competitive pressures resulting in lower contract revenues or royalty
rates;
. changes in the Company's and systems companies' development schedules and
levels of expenditure on research and development;
. personnel changes, particularly those involving engineering and technical
personnel;
. costs associated with protecting the Company's intellectual property;
. adverse developments in litigation, including current litigation with
potential SDRAM and DDR licensees;
. the potential that licensees could fail to make payments under their
current contracts;
. changes in Company strategies;
. foreign exchange rate fluctuations or other changes in the international
business climate; and
. general economic trends and other factors.
8
Extreme Volatility of Stock Price. The trading price of the Company's Common
Stock has been subject to very wide fluctuations which may continue in the
future in response to the following:
. quarterly variations in operating results;
. progress or lack of progress in the development of RDRAM ICs by licensees
or RDRAM-based products by systems companies;
. signing or not signing new licensees, especially for SDRAM-compatible,
DDR-compatible, RaSer and Yellowstone licenses;
. new litigation or developments in current litigation;
. announcements of technological innovations or new products by the Company,
its licensees or its competitors; and
. developments with respect to patents or proprietary rights and other
events or factors.
The trading price of the Company's Common Stock could also be subject to
wide fluctuations in response to the publication of reports and changes in
financial estimates by securities analysts, and it is possible that the
Company's actual results in one or more future periods will fall short of those
estimates by securities analysts. In addition, the equity markets have
experienced volatility that has particularly affected the market prices of
equity securities of many high technology companies and that often has been
unrelated or disproportionate to the operating performance of such companies.
These broad market fluctuations may adversely affect the market price of the
Company's Common Stock.
Dependence upon Limited Number of Licensees. The Company neither
manufactures nor sells devices containing its memory or serial link
chip-connection technology. In general, the Company licenses its technology to
semiconductor companies, which in turn manufacture and sell licensed ICs to
systems companies which incorporate Rambus technology into their products. The
Company's strategy to become an industry standard is dependent upon the
Company's ability to make its technology widely available to systems companies
through multiple semiconductor manufacturers, and there can be no assurance
that the Company will be successful in maintaining its relationships with its
current licensees or in entering into new relationships with additional
licensees. In the case of RaSer serial links, semiconductor and systems
companies may license directly from Rambus. The Company faces numerous risks in
successfully obtaining RDRAM memory device and controller licensees on terms
consistent with the Company's business model, including, among others:
. the lengthy and expensive process of building a relationship with a
potential licensee before there is any assurance of a license agreement
with such party;
. persuading large semiconductor companies to work with, to rely for
critical technology on, and to disclose proprietary manufacturing
technology to, a smaller company such as Rambus;
. persuading potential licensees to bear certain development costs
associated with RDRAM technology and to make the necessary investment to
successfully produce RDRAM memory devices and controllers; and
. successfully transferring technical know-how to licensees.
To obtain new SDRAM-compatible and DDR-compatible licenses the Company may
have to resort to litigation, in many cases against the same companies who are
RDRAM memory device and controller licensees of the Company. In addition, there
are a relatively limited number of larger semiconductor companies to which the
Company could license its interface technology in a manner consistent with its
business model. The Company believes that its principal competition may come
from its licensees and prospective licensees, many of which are evaluating and
developing products based on alternative technologies.
Dependence upon Systems Companies. Although sales of RDRAM ICs to systems
companies which have adopted the Company's technology for their products are
not made directly by the Company, such sales directly
9
affect the amount of royalties from RDRAM memory devices and controllers
received by the Company. Therefore, the Company's success is partially
dependent upon the adoption of the Company's chip-connection technology by
systems companies, particularly those which develop and market high-volume
business and consumer products such as PCs and home video game consoles. The
sales of RaSer serial link technology are directly impacted by the sales of
systems using the technology regardless of whether the license is obtained
directly or through a semiconductor company. The Company is subject to many
risks beyond its control that influence the success or failure of a particular
systems company, including, among others:
. competition faced by the systems company in its particular industry;
. market acceptance of the systems company's products;
. the engineering, sales and marketing and management capabilities of the
systems company;
. technical challenges unrelated to Rambus technology faced by the systems
company in developing its products; and
. the financial and other resources of the systems company.
The process of persuading systems companies to adopt the Company's
technology can be lengthy and, even if adopted, there can be no assurance that
Rambus technology will be used in a product that is ultimately brought to
market, achieves commercial acceptance or results in significant royalties to
the Company. Rambus must dedicate substantial resources to market to and
support systems companies, in addition to supporting the sales, marketing and
technical efforts of its licensees in promoting Rambus technology to systems
companies. Even if a systems company develops a product based on Rambus
technology, success in the market will depend in part on a supply of ICs from
Rambus licensees in sufficient quantities and at commercially attractive
prices. Because the Company does not control the business practices of its
licensees, it has no ability to establish the prices at which the chips
containing its technology are made available to systems companies or the degree
to which its licensees promote Rambus technology to systems companies.
No Assurance of Adoption of RDRAM Technology as an Industry Standard; Cost
of RDRAM Technology. An important part of the Company's strategy for its RDRAM
technology to become an industry standard is to penetrate markets by working
with leaders in those markets. This strategy is designed to encourage other
participants in those markets to follow such leaders in adopting RDRAM
technology. Should a high profile industry participant adopt RDRAM technology
for one or more of its products but fail to achieve success with those
products, other industry participants' perception of RDRAM technology could be
adversely affected. Any such event could reduce future sales of RDRAM memory
devices and controllers. Likewise, were a market leader to adopt and achieve
success with a competing technology, the Company's reputation and sales could
be adversely affected. In addition, some industry participants have adopted,
and others may in the future adopt, a strategy of disparaging the Rambus
solution adopted by their competitors. Failure of the Company's technology to
be adopted as an industry standard would have a material adverse effect on the
Company's business, financial condition and results of operations.
One important requirement for the Company's RDRAM technology to be adopted
as an industry standard is for any premium in the price and cost of RDRAM
devices over alternatives to be reasonable in comparison to the perceived
benefits of the technology. However, there can be no assurance that the price
and cost premium for RDRAM memory over standard memory can be reduced
sufficiently to allow the development of RDRAM as an industry standard. There
can be no assurance that yields to the full 800 MHz or 1066 MHz specification
will maintain satisfactory levels. In addition, because of the extra interface
circuitry and other features, an RDRAM chip is somewhat larger than a standard
SDRAM. Therefore, a manufacturer will generally produce fewer RDRAM devices
than standard SDRAM for a given wafer size and an RDRAM chip will be somewhat
more expensive than the standard SDRAM version. Also, RDRAM manufacturers are
responsible for their own manufacturing processes, and Rambus has no role in
the manufacture of RDRAM devices. For example, Rambus has no influence on
decisions in regard to any process changes or on whether or when to "shrink" or
otherwise change a design to reduce the cost of the chips.
10
RDRAM devices use newer-generation chip-scale packaging ("CSP") and require
high-speed testers for a portion of the test procedure. While the Company feels
that testing costs for RDRAM devices in mass production volumes will be no
greater than for current standard SDRAM, additional capital equipment is
required and startup costs are incurred by the manufacturers producing RDRAM
devices. In addition, for PC main memory applications, memory modules (called
"RIMM(TM) modules"), connectors and clock chips must be produced by multiple
vendors and available in volume. There is no assurance that such changes in the
manufacturing processes and infrastructure of the DRAM industry can be
accomplished at a sufficiently competitive price to allow the development of a
mass market for RDRAM technology.
Dependence upon PC Main Memory Market Segment and Intel. An important part
of the Company's strategy is for its RDRAM technology to penetrate the market
segment for PC main memory. To date, the only use of RDRAM technology in this
market is via chipsets developed by Intel which allow RDRAM memory devices to
connect to Pentium III and Pentium IV processors. There can be no assurance
that the pricing of RDRAM memory devices will be reduced to a competitive level
or that Intel chipsets and RDRAM technology will be successful in penetrating
the market segment for PC main memory. Furthermore, Intel has in the past
changed it's roadmap to eliminate certain products using RDRAM technology and
there can be no assurance that Intel's emphasis or priorities will not further
change in the future, resulting in less attention and fewer resources being
devoted to developing chipsets supporting RDRAM. Intel could stop developing
chipsets that support RDRAM technology. Also, there can be no assurance that
Rambus and Intel will continue to be able to work together successfully over an
extended period of time or that Intel will not continue to develop or adopt
competing technologies in the future.
Revenue Concentration. The Company is subject to revenue concentration risks
at both the licensee and the systems company levels. In fiscal 2001, 2000, and
1999, revenues from the Company's top five licensees accounted for
approximately 75%, 54% and 47% of the Company's revenues, respectively. Because
the revenues derived from various licensees vary from period to period
depending on the addition of new contracts, the expiration of deferred revenue
schedules under existing contracts and the volumes and prices at which the
licensees have recently sold licensed ICs to systems companies, the particular
licensees which account for revenue concentration have varied from period to
period. These variations are expected to continue in the foreseeable future,
although the Company anticipates that revenue will continue to be concentrated
in a limited number of licensees.
The royalties received by the Company are a function of the adoption of
Rambus technology at the systems company level. Systems companies purchase
semiconductors containing Rambus technology from Rambus licensees and, other
than for RaSer technology, generally do not have a direct contractual
relationship with the Company. The Company's licensees generally do not provide
detail as to the identity or volume of licensed ICs purchased by particular
systems companies. As a result, the Company faces difficulty in analyzing the
extent to which its future revenues will be dependent upon particular systems
companies. Systems companies face intense competitive pressure in their
markets, which are characterized by extreme volatility, frequent new product
introductions and rapidly shifting consumer preferences, and there can be no
assurance as to the unit volumes of licensed ICs that will be purchased by
these companies in the future or as to the level of royalty-bearing revenues
that the Company's licensees will receive from sales to these companies. There
can be no assurance that a significant number of other systems companies will
adopt the Company's technology or that the Company's dependence upon particular
systems companies will decrease in the future.
Reliance upon DRAM Market; Declines in DRAM Price and Unit Volume per
System. In fiscal 2001, a majority of the Company's royalties was derived from
the sale of DRAM. Royalties on DRAM are based on the volumes and prices of DRAM
manufactured and sold by the Company's licensees. The royalties received by the
Company, therefore, are influenced by many of the risks faced by the DRAM
market in general, including constraints on the volumes shipped during periods
of shortage and reduced average selling prices (ASPs) during periods of
surplus. The DRAM market is intensely competitive and generally is
characterized by declining ASPs over the life of a generation of chips. Such
price decreases, and the corresponding decreases in per unit royalties received
by the Company, can be sudden and dramatic. Compounding the effect of price
decreases is the fact that, under certain of the Company's RDRAM license
agreements, royalty rates decrease as a function of time or
11
volume. There can be no assurance that decreases in DRAM prices or in the
Company's royalty rates will not have a material adverse effect on the
Company's business, results of operations and financial condition. There can be
no assurance that the Company will be successful in maintaining or increasing
its share of any market.
Rapid Technological Change; Reliance on Fundamental Technology; Importance
of Timely New Product Development. The semiconductor industry is characterized
by rapid technological change, with new generations of semiconductors being
introduced periodically and with ongoing evolutionary improvements. Since
beginning operations in 1990, the Company has derived all of its revenue from
its chip-connection technology and expects that this dependence on its
fundamental technology will continue for the foreseeable future. Accordingly,
broad acceptance of the Company's technology is critical to the Company's
future success. The introduction or market acceptance of competing technology
which renders the Company's chip-connection technology less desirable or
obsolete would have a rapid and material adverse effect on the Company's
business, results of operations and financial condition. The announcement of
new products by the Company could cause licensees or systems companies to delay
or defer entering into arrangements for the use of the Company's technology,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's operating results will depend to a significant extent on its
ability to introduce enhancements and new generations of its chip-connection
technologies which keep pace with other changes in the semiconductor industry
and which achieve rapid market acceptance. The Company must continually devote
significant engineering resources to addressing the ever-increasing need for
memory bandwidth associated with increases in the speed of microprocessors and
other controllers, as well as to serial link and signaling technologies.
Technical innovations of the type that will be required for the Company to be
successful are inherently complex and require long development cycles, and
there can be no assurance that the Company's development efforts will
ultimately be successful. In addition, these innovations must be completed
before changes in the semiconductor industry have rendered them obsolete, must
be available when systems companies require these innovations, and must be
sufficiently compelling to cause semiconductor manufacturers to enter into
licensing arrangements with Rambus for the new technologies. There can be no
assurance that Rambus will be able to meet these requirements. Moreover,
significant technological innovations generally require a substantial
investment before their commercial viability can be determined. There can be no
assurance that the Company will have the financial resources necessary to fund
future development, that the Company's licensees will continue to share certain
research and development costs with the Company as they have in the past, or
that revenues from enhancements or new generations of the Company's technology,
even if successfully developed, will exceed the costs of development.
Competition. The semiconductor industry is intensely competitive and has
been characterized by price erosion, rapid technological change, short product
life cycles, cyclical market patterns and increasing foreign and domestic
competition. Most major DRAM manufacturers, including RDRAM licensees, produce
higher-frequency versions of standard DRAM such as SDRAM and DDR which compete
with RDRAM devices. These companies are much larger and have better access to
financial, certain technical and other resources than Rambus.
The Company believes that its principal competition for memory interfaces
may come from its licensees and prospective licensees, many of which are
evaluating and developing products based on alternative technologies and are
beginning to take a systems approach similar to the Company's in solving the
application needs of systems companies. Most DRAM suppliers have been producing
DDR, aimed at doubling the memory bandwidth from SDRAM without increasing the
clock frequency. While Rambus has been successful in negotiating
SDRAM-compatible and DDR-compatible licenses with some DRAM manufacturers which
include the payment of royalties on DDR, other manufacturers have not agreed to
a license and are in litigation with the Company.
A consortium including semiconductor and systems companies is thought to be
developing an extension of DDR known as DDR-2 and another consortium is working
on advanced DRAM technology ("ADT").
12
To the extent that these alternative technologies provide comparable system
performance at lower or similar cost than RDRAM devices, or are perceived to
require the payment of lower royalties, the Company's licensees and prospective
licensees may adopt and promote the alternative technologies. There can be no
assurance that the Company's future competition will not have a material
adverse effect on the Company's business, results of operations and financial
condition. While the Company might determine that such alternative
technologies, when and if developed, infringe the Company's patents, there can
be no assurance that the Company would be able to negotiate agreements which
would result in royalties paid to the Company without litigation, which could
be costly and the result of which would be uncertain.
In addition, certain semiconductor companies are now marketing ICs which
combine logic and DRAM on the same chip. Such technology, called "embedded
DRAM," eliminates the need for an external interface to memory. Embedded DRAM
is well suited for applications where component space saving and power
consumption are important, such as in the graphics subsystems of notebook PCs.
There can be no assurance that competition from embedded DRAM will not increase
in the future.
The Company believes that competition for RaSer technology will come from
systems companies, semiconductor companies and other licensors of serial links.
At the 10 gigabit per second speed, competition will also come from optical
technology sold by systems and semiconductor companies.
Limited Protection of Intellectual Property. While the Company has an active
program to protect its proprietary technology through the filing of patents,
there can be no assurance that the Company's pending United States or foreign
patent applications or any future United States or foreign patent applications
will be approved, that any issued patents will protect the Company's
intellectual property or will not be challenged by third parties, that the
Company will be successful in litigation relating to its patents, or that the
patents of others will not have an adverse effect on the Company's ability to
do business. Furthermore, there can be no assurance that others will not
independently develop similar or competing technology or design around any
patents that may be issued to the Company.
The Company attempts to protect its trade secrets and other proprietary
information through agreements with licensees and systems companies,
proprietary information agreements with employees and consultants and other
security measures. The Company also relies on trademarks and trade secret laws
to protect its intellectual property. Despite these efforts, there can be no
assurance that others will not gain access to the Company's trade secrets, or
that the Company can meaningfully protect its intellectual property. In
addition, effective trade secret protection may be unavailable or limited in
certain foreign countries. Although the Company intends to protect its rights
vigorously, there can be no assurance that such measures will be successful.
Rambus believes that it is important to develop and maintain a uniform RDRAM
memory interface standard. The Company's RDRAM contracts generally prevent a
licensee from using licensee-developed patented improvements related to Rambus
technology to block other licensees from using the improvements or requiring
them to pay additional royalties related to their use of Rambus chip-connection
technology. Specifically, the contracts generally require licensees to grant to
Rambus a royalty-free cross-license on patented licensee intellectual property
related to the implementation of Rambus interface technology, which Rambus
sublicenses to other licensees that have entered into similar arrangements.
Nonetheless, there is no assurance that such a blocking arrangement will not
occur in the future.
Risks Associated with International Licenses. In fiscal 2001, 2000 and 1999,
international revenues constituted approximately 81%, 82% and 60% of the
Company's total revenues, respectively. For additional information concerning
international revenues, see Note 12 in the Notes to Consolidated Financial
Statements on page 48. The Company expects that revenues derived from
international licensees will continue to represent a significant portion of its
total revenues in the future. All of the revenues from international licensees
have to date been denominated in United States dollars. However, to the extent
that such licensees' sales to systems companies are not denominated in United
States dollars, any royalties that the Company receives as a result of such
sales could be subject to fluctuations in currency exchange rates. In addition,
if the effective price of
13
licensed ICs sold by the Company's foreign licensees were to increase as a
result of fluctuations in the exchange rate of the relevant currencies, demand
for licensed ICs could fall, which in turn would reduce the Company's
royalties. The Company does not use derivative instruments to hedge foreign
exchange rate risk. In addition, international operations and demand for the
products of the Company's licensees are subject to a variety of risks,
including:
. tariffs, import restrictions and other trade barriers;
. changes in regulatory requirements;
. longer accounts receivable payment cycles;
. adverse tax consequences;
. export license requirements;
. foreign government regulation;
. political and economic instability; and
. changes in diplomatic and trade relationships.
In particular, the laws of certain countries in which the Company currently
licenses or may in the future license its technology require significant
withholding taxes on payments for intellectual property, which the Company may
not be able to offset fully against its United States tax obligations. The
Company is subject to the further risk that tax authorities in those countries
may re-characterize certain engineering fees as license fees, which could
result in increased tax withholdings and penalties. The Company's licensees are
subject to many of the risks described above with respect to systems companies
which are located in different countries, particularly video game console and
PC manufacturers located in Asia and elsewhere. There can be no assurance that
one or more of the risks associated with international licenses of the
Company's technology will not have a direct or indirect material adverse effect
on the Company's business, financial condition and results of operations.
Moreover, the laws of certain foreign countries in which the Company's
technology is, or may in the future be, licensed may not protect the Company's
intellectual property rights to the same extent as the laws of the United
States, thus increasing the possibility of infringement of the Company's
intellectual property.
Dependence on Key Personnel. The Company's success depends to a significant
extent on its ability to identify, attract, motivate and retain qualified
technical, sales, marketing, finance and executive personnel. Because the
future success of the Company is dependent upon its ability to continue to
enhance and introduce new generations of its technology, the Company is
particularly dependent upon its ability to identify, attract, motivate and
retain qualified engineers with the requisite educational background and
industry experience. Competition for qualified engineers, particularly those
with significant industry experience, is intense. The Company is also dependent
upon its senior management personnel, most of whom have worked together at the
Company for several years. The loss of the services of any of the senior
management personnel or a significant number of the Company's engineers could
be disruptive to the Company's development efforts or business relationships
and could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company generally does not enter into
employment contracts with its employees and does not maintain key person life
insurance.
Management of Expanded Operations. The Company is not experienced in
managing rapid growth. The Company may not be equipped to successfully manage
any future periods of rapid growth or expansion, which could be expected to
place a significant strain on the Company's limited managerial, financial,
engineering and other resources. The Company's RaSer and RDRAM licensees and
systems companies rely heavily on the Company's technological expertise in
designing, testing and manufacturing products incorporating the Company's
interface technologies. In addition, relationships with new RaSer and RDRAM
licensees or systems companies generally require significant engineering
support. As a result, any increases in adoption of the Company's technology
will increase the strain on the Company's resources, particularly the Company's
14
engineers. Any delays or difficulties in the Company's research and development
process caused by these factors or others could make it difficult for the
Company to develop future generations of its interface technology and to remain
competitive. In addition, the rapid rate of hiring new employees could be
disruptive and could adversely affect the efficiency of the Company's research
and development process. The rate of the Company's future expansion, if any, in
combination with the complexity of the technology involved in the Company's
licensee-based business model, may demand an unusually high level of managerial
effectiveness in anticipating, planning, coordinating and meeting the
operational needs of the Company as well as the needs of the licensees and
systems companies. Additionally, the Company may be required to reorganize its
managerial structure in order to more effectively respond to the needs of
customers. Given the small pool of potential licensees and target systems
companies, the adverse effect on the Company resulting from a lack of effective
management in any of these areas will be magnified. Inability to manage the
expansion of the Company's business would have a material adverse effect on its
business, financial condition and results of operations.
I
tem 2. Properties
Early in the second fiscal quarter of 2001, the Company moved all of its
U.S. operations, including its engineering, marketing, and administrative
functions into a newly constructed building in Los Altos, California. The
Company currently leases this 96,000 square foot building, and the lease has an
initial term of ten years, with options to extend the term for two periods of
five years each. The Company also leases approximately 31,000 square feet in
one building in Mountain View, California, which formerly housed its U.S.
engineering, marketing and administrative operations. The principal lease
expires in 2005, with an option to extend the lease for an additional five
years. With the move of the Company's U.S. operations to the new facility in
Los Altos in the second fiscal quarter of 2001, the Company subsequently
subleased the Mountain View facility. The sublease expires in 2005, although
there can be no assurance that the sub-tenant will continue to fulfill the
terms of the current agreement. The Company also leases space in Tokyo, Japan,
and Taipei, Taiwan, for offices which provide sales and technical support to
systems companies in Japan and Taiwan. The Company believes that its current
facilities are adequate to support any current growth expectations.
Item 3. Legal Proceedings
On August 8, 2000, the Company filed suit in the U.S. District Court for the
Eastern District of Virginia (the "Virginia court") against Infineon
Technologies AG ("Infineon") and its North American subsidiary for patent
infringement of two U.S. patents (USDC Virginia Civil Action No.: 3:00CV524).
On September 25, 2000, Infineon filed counterclaims against the Company in the
U.S. case seeking a declaratory judgment that the two asserted patents are
invalid and not infringed and further claiming contributory infringement by the
Company of two Infineon U.S. patents. In addition, Infineon also asserted
breach of contract, fraud, RICO, and monopolization claims in connection with
the Company's participation in an industry standards-setting group known as
JEDEC where the Company is alleged not to have disclosed certain of its
then-pending patents ("JEDEC related claims"). The Infineon counterclaims seek
compensatory and punitive damages, attorneys' fees, injunctions to halt future
infringement of the Infineon patents, and an award of a royalty-free license to
the Rambus patents. In October 2000, the Company amended its complaint to
assert infringement of two additional U.S. patents. In January 2001, Infineon
amended its answer and counterclaims to include a request for a declaratory
judgment that all four asserted Rambus patents are invalid and not infringed.
In addition, Infineon withdrew all contributory patent infringement claims
against the Company relating to Infineon's U.S. patents.
Trial began in the Virginia case on April 23, 2001. On May 4, 2001, the
Virginia court granted Infineon's motion to dismiss Rambus' patent infringement
case and granted Rambus' motion to dismiss Infineon's breach of contract and
monopolization claims. On May 9, 2001, the jury returned a verdict against
Rambus on the fraud claims and for Rambus on the RICO claims. The jury awarded
Infineon $3.5 million in punitive damages, which was reduced to $350,000 under
Virginia law. On August 9, 2001, as a result of post-trial motions, the
Virginia court set aside the constructive fraud verdict with respect to both
SDRAM and DDR standard setting. The actual fraud verdict with respect to DDR
standard setting was also set aside. Post-trial motions by Infineon resulted in
15
the Virginia court awarding Infineon approximately $7.1 million in attorneys'
fees. In addition, on November 26, 2001, the Virginia court issued a permanent
injunction, largely in accord with its previous rulings, prohibiting the
Company from filing additional patent infringement actions in the U.S., under
certain of the Company's U.S. patents, against Infineon with regard to
JEDEC-compliant SDRAM and DDR devices.
The Company has appealed numerous liability rulings by the Virginia court
with respect to infringement and the JEDEC-related claims with respect to SDRAM
standard setting. Infineon has also cross-appealed setting aside of the verdict
with respect to DDR standard setting. These appeals, which will be heard by the
Court of Appeals for the Federal Circuit (CAFC), have been consolidated (CAFC
Appeal Nos. 01-1449, 01-1583, 01-1604, 01-1641). The Company filed its opening
brief on November 2, 2001. The Company has also filed a subsequent appeal with
respect to the permanent injunction ruling.
On August 7, 2000, the Company filed suit in the District Court in Mannheim,
Germany (the "Mannheim court") against Infineon for infringement of one
European patent. A hearing was held on May 18, 2001, and on July 20, 2001, the
Mannheim court issued an "order for evidence" requiring the appointment of an
independent technical expert to evaluate certain technical aspects of Rambus'
infringement claim. The Mannheim court subsequently appointed its independent
technical expert, and, after the expert delivers an opinion, the court will
then determine whether Infineon products infringe Rambus' patent. In the
meantime, the validity of the same Rambus European patent is being reviewed by
the European Patent Office.
On August 28, 2000, Micron Technology, Inc. ("Micron") filed suit against
the Company in the U.S. District Court in Delaware (USDC Delaware Civil Action
No.: 00-792-RRM). The suit asserts violations of federal antitrust laws,
deceptive trade practices, breach of contract, fraud and negligent
misrepresentation in connection with the Company's participation in JEDEC.
Micron's suit seeks a declaration of monopolization by the Company,
compensatory and punitive damages, attorneys' fees, a declaratory judgment that
eight Rambus patents are invalid and not infringed and the award to Micron of a
royalty-free license to the Rambus patents. In February 2001, the Company filed
its answer and counterclaims, whereby the Company disputes Micron's claims and
asserts infringement by Micron of the eight U.S. patents. Some discovery is
still ongoing in the Delaware action. Both sides have filed a number of
potentially dispositive motions for summary judgment on which the Delaware
court has not yet ruled. The judge has postponed trial on a number of the
issues until after the CAFC reviews the judgments of the Virginia court in the
Infineon matter. Issues, if any, that are to be tried before the outcome of the
appeal is known are tentatively scheduled for a trial in the second calendar
quarter of 2002.
In September 2000, the Company filed suit against Micron in Germany, France,
Great Britain and Italy for infringement of a European patent. The French and
Italian actions included court-sanctioned seizure of documents, samples and, in
the case of the Italian action, mask sets from Micron facilities. The Micron
German suit is, like the Infineon German suit, in the Mannheim court, which is
currently expected to issue an "order for evidence" on December 7, 2001, which
the Company believes will ultimately result in the appointment of an expert.
The French suit is in an early phase. The British suit has been temporarily
stayed pending a determination by the European Patent Office on validity. In
the Italian case, on December 21, 2000, the items seized were ordered returned
based on jurisdictional grounds. On May 2, 2001, the independent experts
appointed by the District Court in Monza, Italy (the "Monza court") issued a
report that confirmed the validity of the Rambus patent in suit and determined
that Micron's SDRAM products infringe the Rambus patent. On May 25, 2001, the
Monza court, after considering the expert's report, declined to grant Rambus a
preliminary injunction. Rambus appealed the Monza court's ruling, and on July
18, 2001, the Appeals Court rejected the appeal based on jurisdictional
grounds. The infringement suit against Micron in Italy on the first European
patent will now continue in the District Court of Milan.
In December 2000, Micron filed a declaratory judgment suit of
non-infringement of a second European Patent against the Company in the
District Court of Avezzano, Italy. In response, the Company asserted
infringement of the second European Patent in Milan, Italy. Further, the
Company filed suit against Micron in Germany and Italy for infringement of a
third European patent. The German suit for infringement of the third European
patent is pending in the Mannheim court, while the Italian suit on this third
European patent has been stayed.
On August 29, 2000, Hyundai Electronics Industries Co., Ltd. ("Hyundai") and
various subsidiaries filed suit against the Company in the U.S. District Court
for the Northern District of California (USDC Northern
16
District of California Case No.: 00-20905 PVT). Since filing suit, Hyundai has
changed its name to "Hynix Semiconductor Inc." ("Hynix"). The suit asserts
breach of contract in connection with the Company's participation in JEDEC and
seeks a declaratory judgment that 11 Rambus patents are invalid and not
infringed by Hynix. In November 2000, Hynix amended its complaint to further
assert violations of federal antitrust laws, deceptive trade practices, breach
of contract, fraud and negligent misrepresentation in connection with the
Company's participation in JEDEC. Hynix seeks a declaration of monopolization
by the Company, compensatory and punitive damages, and attorneys' fees. In
February 2001, the Company filed its answer and counterclaims, whereby the
Company disputes Hynix's claims and asserts infringement of 11 U.S. patents. On
November 21, 2001, the California court ruled that the claim construction
applied in the Virginia case against Infineon should be applied in the case
with Hynix and, as a result, dismissed most of the Company's claims of patent
infringement against Hynix. In doing so, the California court declined to
decide whether, on the merits, the Virginia claim construction was correctly or
incorrectly decided. The Virginia claim construction issue is one of the
matters that will be reviewed as part of the Company's pending appeal in the
Infineon case, and the California court has suggested it will stay the
remaining issues in the Hynix case pending the outcome of the appeal.
In September 2000, the Company filed suit against Hynix in Germany, France
and Great Britain for infringement of a European patent. The French suit
included court-sanctioned seizure of documents and samples from a Hynix
facility. A hearing is scheduled on December 7, 2001, in the German suit. The
French suit is in an early phase. The British suit has been temporarily stayed.
On August 10, 2001, following the trial results in the Infineon case, Rambus
Inc. was named as a defendant in a purported federal class action in the United
States District Court for the Northern District of California. Toiv v. Rambus,
et al., C01-CV-3112 (Chesney, J.). That action was brought allegedly on behalf
of a class of plaintiffs who purchased Rambus Common Stock between February 11,
2000 and May 9, 2001, inclusive, and asserted claims under Section 10(b) of the
Exchange Act and Section 20(a) of the Exchange Act, as well as Rule 10b-5. The
Complaint alleges that Rambus misled shareholders concerning its business and
the status of its intellectual property in light of allegations concerning the
Company's involvement in JEDEC. Fourteen similar actions were filed in the
Northern District of California. On November 16, 2001, a lead plaintiff was
appointed and the various cases will be consolidated and a consolidated amended
complaint will be filed. The Company intends to defend itself in this action.
On August 15, 2001, a purported shareholder derivative lawsuit, Boyadjian v.
Davidow, et al., C.A. No. 19057, was filed in Delaware Chancery Court. The
Company is a nominal defendant and the Company's directors are defendants.
Additional similar actions were filed and were consolidated. The consolidated
complaint was filed on November 12, 2001 and alleges that the individual
defendants caused the Company to engage in an improper course of conduct
relating to JEDEC and its intellectual property beginning in 1992 and
continuing through the Infineon trial in May of 2001. The complaint alleges
breaches of fiduciary duty, misappropriation of confidential information for
personal profit, and asks for contribution or indemnification from the named
director defendants. The Company intends to file a motion to dismiss the
complaint.
Similar derivative actions were filed in California Superior Court, Santa
Clara County. They are Vista 2000 v. Davidow, et al., CV-800901, Taylor v.
Tate, et al., No. CV 801266, and Bonds v. Davidow et al., CV No. 802086, CV.
No. 802086. The Complaints assert claims for breaches of fiduciary duty and
violation of California's proscription against insider trading. On November 15,
2001, the Court granted defendants' motion to stay the Vista 2000 and Taylor
cases in deference to the Delaware actions described above. Defendants' have
filed a similar motion to stay the Bonds case.
The Company has been in communication with the Federal Trade Commission
(FTC) regarding its investigation of several standards-setting processes,
including Rambus' involvement in JEDEC. To the Company's knowledge, there has
been no decision by the FTC to move forward with any legal or other action
relating to these matters.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 2001.
17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is listed on the Nasdaq Stock Market under the
symbol "RMBS." The quarterly high and low prices as reported by Nasdaq are
included in the table "Consolidated Supplementary Financial Data" on page 52 of
this report on Form 10-K.
As of October 31, 2001, there were 747 holders of record of the Company's
Common Stock. Because many of the shares of the Company's Common Stock are held
by brokers and other institutions on behalf of stockholders, the Company is
unable to estimate the total number of stockholders represented by these record
holders. The Company has never paid or declared any cash dividends on its
Common Stock or other securities and does not anticipate paying cash dividends
in the foreseeable future.
Item 6. Selected Consolidated Financial Data
Net income (loss) per share calculations have been retroactively restated to
reflect a four-for-one split of Rambus' Common Stock effective June 15, 2000.
For a discussion of factors that could cause the information set forth below to
be not indicative of the Company's future financial condition or results of
operations, see "Risk Factors," beginning on page 7.
Year Ended September 30,
---------------------------------------------
2001 2000 1999 1998 1997
-------- --------- -------- -------- -------
(in thousands except per share data)
Operations:
Total revenues................................... $117,160 $ 72,311 $ 43,370 $ 37,864 $26,015
Operating income (loss).......................... 40,715 (143,508) 9,499 7,967 1,954
Net income (loss)................................ 31,271 (106,127) 8,718 6,788 1,981
Net income (loss) per share-diluted.............. $ 0.29 $ (1.10) $ 0.09 $ 0.07 $ 0.02
Financial Position (at year end):
Total assets..................................... $237,790 $ 219,631 $115,773 $110,987 $87,878
Total debt (capital lease obligations)........... -- -- -- 130 512
Stockholders' equity............................. 191,357 162,322 61,564 41,792 26,661
18
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion contains forward-looking statements, including,
without limitation, the Company's expectations regarding revenues, expenses and
results of operations. The Company's actual results may differ significantly
from those projected in the forward-looking statements. Factors that might
cause future actual results to differ materially from the Company's recent
results or those projected in the forward-looking statements include, but are
not limited to, those discussed in "Risk Factors" and below. The Company
assumes no obligation to update the forward-looking statements or such factors.
Overview
Since its founding in 1990, Rambus has been engaged in the development of
high-speed chip-connection technology. The Company neither manufactures nor
sells semiconductors but, rather, licenses its technology, patents and other
intellectual property on a nonexclusive and worldwide basis to semiconductor
companies which manufacture memory and logic ICs incorporating Rambus memory
interface technology. These RDRAM ICs are sold to systems companies to enhance
the performance and cost-effectiveness of consumer electronics, computer
systems and other electronic systems. The Company also licenses its RaSer
serial link technology to semiconductor companies for use in high-speed
communications and networking applications.
Revenues. The Company generates revenues from four types of agreements with
semiconductor companies. The first type of agreement, for technology which is
fully compatible with the RDRAM standard ("RDRAM licenses"), allows
semiconductor manufacturers to manufacture and sell RDRAM memory devices and
logic ICs containing an interface to the RDRAM devices. The second type of
agreement covers the use of Rambus patents and other intellectual property in
synchronous DRAM ("SDRAM") and double data-rate ("DDR") memory devices and
logic ICs which control such memory. The third type of agreement is for the
RaSer serial link ASIC cell that licensees integrate into their logic ICs. The
fourth type of agreement is one with Intel for five years of quarterly
payments, which grants Intel access to Rambus' complete patent portfolio.
Revenues from RDRAM and RaSer serial link agreements consist of contract
fees and royalties. Contract fees from RDRAM and RaSer agreements are comprised
of license fees, engineering service fees and nonrefundable, prepaid royalties,
and represented approximately 19% of the Company's total revenues in fiscal
2001, 55% in 2000, and 82% in 1999. The Company's RDRAM and RaSer agreements
generally require a licensee to pay a contract fee to Rambus typically ranging
from a few hundred thousand dollars for a narrow license covering a single
logic product to millions of dollars for a license with broad coverage of
Rambus technology. Part of these fees may be due upon the achievement of
certain milestones, such as the provision of certain deliverables by Rambus or
production of chips by the licensee. All contract fees are nonrefundable.
Substantially all of the license fees, engineering service fees and
nonrefundable, prepaid royalties from RDRAM and RaSer serial link licenses are
bundled together as contract fees because the Company generally does not
provide or price these components separately. These contracts also generally
include rights to upgrades and enhancements. Accordingly, Rambus recognizes
contract revenues ratably over the period during which post-contract customer
support is expected to be provided. The excess of contract fees received over
revenue recognized is shown on the Company's balance sheet as deferred revenue.
SDRAM-compatible and DDR-compatible licenses generally provide for the
payment of fees which include compensation for use of Rambus patents from the
time the Company notifies the licensee of potential infringement. Accordingly,
Rambus classifies these fees as royalty revenues that are recognized ratably
over the five-year contract period. The excess of payments received over
royalty revenue recognized is shown on the Company's balance sheet as deferred
revenue. As of September 30, 2001, the Company's deferred revenue from RDRAM,
SDRAM-compatible and DDR-compatible licenses was $38.5 million, substantially
all of which is scheduled to be recognized in varying amounts over the next
five years.
19
Royalties, which are generally a percentage of the revenues received by
licensees on their sales of licensed ICs, are normally payable quarterly by a
Rambus licensee on sales occurring during the life of the Rambus patents being
licensed in the case of RDRAM licenses, and over a five year contract period in
the case of SDRAM-compatible and DDR-compatible licenses. Rambus recognizes
royalties from a licensee in the quarter in which it receives the report
detailing shipments of the ICs by such licensee in the prior quarter. For a
typical systems application using Rambus technology, the Company receives
royalties from the sale of both licensed logic ICs and DRAM devices as they are
shipped by Rambus licensees. Royalty rates range up to a maximum of
approximately 2.5% for RDRAM memory devices and a maximum of approximately 5%
for associated RDRAM controllers, and in some cases may decline based on the
passage of time or on the total volume of RDRAM memory interface ICs shipped.
The royalty rates for SDRAM and associated controllers are generally less than
the comparable RDRAM royalty rates, and for DDR and associated controllers the
rates are generally higher. The exact rate and structure of a royalty
arrangement with a particular licensee depend on a number of factors, including
the amount of the license fee to be paid by the licensee and, in the case of
RDRAM memory device and controller licenses, the marketing and engineering
commitment made by the licensee. Royalties for the RaSer serial link technology
are generally calculated on the volume of links produced by the licensee. The
exact rate and structure for RaSer serial link royalties vary based on a number
of factors including volume and required customization. Royalties for the Intel
license are a fixed amount per quarter for five years from the date of the
contract signed in September 2001. There is also one DRAM company that has a
fixed royalty payment per quarter until there is a final resolution of pending
litigation.
Because all of the Company's revenues are derived from its relatively small
number of licensees, the Company's revenues tend to be highly concentrated. In
fiscal 2001, revenues from the Company's top five licensees, Hitachi, Intel,
NEC, Samsung and Toshiba, each accounted for greater than 10% of the Company's
total revenues. In fiscal 2000, revenues from the Company's top three
licensees, NEC, Samsung and Toshiba, each accounted for greater than 10% of the
Company's total revenues. In fiscal 1999, revenues from the Company's top three
licensees, Intel, NEC and Texas Instruments, each accounted for greater than
10% of the Company's total revenues. The Company expects that it will continue
to experience significant revenue concentration for the foreseeable future.
However, the particular licensees which account for revenue concentration may
vary from period to period depending on the addition of new contracts, industry
consolidation, the expiration of deferred revenue schedules under existing
contracts, and the volumes and prices at which the licensees sell licensed ICs
to systems companies in any given period.
The royalties received by the Company are also partially a function of the
adoption of Rambus technology by systems companies and the acceptance of the
systems companies' products by end users. The Company generally does not have a
direct contractual relationship with systems companies, and the royalty reports
submitted by the Company's licensees generally do not disclose the identity of,
or unit volume of, licensed ICs purchased by particular systems companies. As a
result, it is difficult for the Company to predict the extent to which its
future revenues will be dependent upon particular systems companies.
In fiscal 2001, 2000, and 1999, international revenues constituted 81%, 82%
and 60% of the Company's total revenues, respectively. The Company expects that
revenues derived from international licensees will continue to represent a
significant portion of its total revenues in the future. All of the revenues
from international licensees to date have been denominated in United States
dollars.
Expenses. Since the Company's inception in 1990, its engineering costs
(which consist of cost of contract revenues and research and development
expenses) and marketing, general and administrative expenses, including legal
costs, have continually increased as the Company has added personnel and ramped
up its activities in these areas. Engineering costs and marketing, general and
administrative expenses generally have decreased as a percentage of revenues
since the Company's inception due to the relatively rapid revenue base
expansion which the Company experienced as it began entering into license
agreements. The Company intends to continue making significant expenditures
associated with engineering, marketing, general and administration, and expects
that these costs and expenses will continue to be a significant percentage of
revenues in future periods. Whether such expenses increase or decrease as a
percentage of revenues will be substantially dependent upon the rate at which
the Company's revenues change.
20
Engineering costs are allocated between cost of contract revenues and
research and development expenses. Cost of contract revenues is determined
based on the portion of engineering costs which have been incurred during the
period for the adaptation of Rambus chip connection technology for specific
RDRAM and RaSer licensee processes. The balance of engineering costs, incurred
for general development of Rambus technology, is charged to research and
development. In a given period, the allocation of engineering costs between
these two components is a function of the timing of development and
implementation cycles. As a generation of technology matures from the
development stage through implementation, the majority of engineering costs
shift from research and development expenses to cost of contract revenues.
Engineering costs are recognized as incurred and do not correspond to the
recognition of revenues under the related contracts.
Marketing, general and administrative expenses include salaries, travel
expenses and costs associated with trade shows, advertising, legal, finance and
other marketing and administrative efforts. Costs of technical support for
systems companies, including applications engineering, are also charged to
marketing, general and administrative expense. Consistent with the Company's
business model, sales and marketing activities are focused on developing
relationships with potential licensees and on participating with existing
licensees in marketing, sales and technical efforts directed to systems
companies. In many cases, Rambus must dedicate substantial resources to the
marketing and support of systems companies. Due to the long business
development cycles faced by the Company and the semi-fixed nature of
administrative expenses, marketing, general and administrative expenses in a
given period generally are unrelated to the level of revenues in that period or
in recent or future periods.
Taxes. The Company reports certain items of income and expense for financial
reporting purposes in different years than they are reported in the tax return.
Specifically, the Company reports contract fees and royalties when received for
tax purposes, as required by tax law. For financial reporting purposes, the
Company records revenues from RDRAM and RaSer contract fees over the period
post-contract customer support is expected to be provided and from
SDRAM-compatible and DDR-compatible license fees over the five-year contract
period and records royalty revenues upon notification from licensees. Thus, the
Company recognizes revenue earlier for tax than for financial reporting
purposes. Accordingly, the Company's net operating profit or loss for tax
purposes may be more or less than the amount recorded for financial reporting
purposes.
Results of Operations
The following table sets forth, for the fiscal years indicated, the
percentage of total revenues represented by certain items reflected in the
Company's consolidated statements of operations:
2001 2000 1999
----- ------ -----
Revenues:
Contract revenues.................................. 18.6% 54.9 % 81.5%
Royalties.......................................... 81.4 45.1 18.5
----- ------ -----
Total revenues................................. 100.0% 100.0 % 100.0%
===== ====== =====
Costs and expenses:
Cost of contract revenues.......................... 8.4 16.7 28.2
Research and development........................... 15.5 15.9 18.7
Marketing, general and administrative.............. 41.3 29.2 31.2
Employee stock-related compensation expense........ -- 236.6 --
----- ------ -----
Total costs and expenses....................... 65.2 298.4 78.1
----- ------ -----
Operating income (loss)............................... 34.8 (198.4) 21.9
Interest and other income, net........................ 7.6 6.5 10.0
----- ------ -----
Income (loss) before income taxes..................... 42.4 (191.9) 31.9
Provision for (benefit from) income taxes............. 15.7 (45.1) 11.8
----- ------ -----
Net income (loss)..................................... 26.7% (146.8)% 20.1%
===== ====== =====
21
Revenues. Revenues were $117.2 million, $72.3 million and $43.4 million in
fiscal 2001, 2000 and 1999, respectively. Contract revenues decreased 45% to
$21.8 million in fiscal 2001. The decrease in contract revenues in fiscal 2001
is due largely to the expiration of revenue recognition periods for several
RDRAM contracts. This decrease was partially offset by the recognition of $4.3
million of remaining deferred revenue on contracts for which all remaining
obligations were terminated by mutual consent of the Company and the Company's
licensees. Such terminations result in the cancellation of all RDRAM
development obligations by both parties. Since all license and engineering
payments already received are non-refundable, the balance of deferred revenue
on these contracts was recognized in the period of cancellation. Contract
revenues increased 12.2% to $39.7 million in fiscal 2000 and increased 23.1% to
$35.4 million in fiscal 1999. The majority of the increase in contract revenues
in fiscal 2000 represents recognition of the remaining revenue on contracts for
which all remaining obligations were terminated by mutual consent due to the
licensees' withdrawal from the commodity DRAM market. The deferred revenue
balance of approximately $8.1 million on these contracts was recognized upon
termination in fiscal 2000. Also contributing to the revenue increase in fiscal
2000 was a change in management's estimate of certain contract revenue
recognition periods, which occurred in the fourth quarter of fiscal 1999. Such
periods are initially estimated based upon management's judgment of the time
over which the Company has an obligation to support its RDRAM licensees. As the
current generation of RDRAM ICs went into production late in fiscal 1999, a
more accurate estimate of the remaining support period could be made. To the
extent the new estimated periods were less than the original estimates, the
amount of deferred revenue recognized in fiscal 2000 was greater than in the
comparable periods of prior years. In fiscal 2000, this increase was partially
offset by the ending of revenue recognition on contracts for which the contract
periods had expired.
The Company anticipates continuing to book additional contracts, especially
contracts with existing licensees for newer versions of Rambus technology.
However, the Company anticipates that contract revenues will decline over time
as the value of contracts for which the revenue recognition periods have
expired exceeds the value of new contracts. The Company's past success in
signing licensees has reduced the number of potential new licensees, which also
contributes to the anticipated decline in contract revenues.
In fiscal 2001, royalties increased 192% to $95.4 million, or 81.4% of total
revenues. Royalties in fiscal 2001 included increased royalties for the first
of the Company's two royalty sources, namely licensees' shipments of RDRAM
memory devices and memory controllers that connect to RDRAM memory devices,
because wider acceptance increased RDRAM device market share and strengthened
the shipment ramp into the desktop PC workstation, digital television (TV) and
Sony PlayStation2 markets. As of the end of fiscal 2001, more than 300
computers, game consoles, TVs and other electronic systems worldwide were using
RDRAM memory devices and controllers. Average selling prices (ASPs) for RDRAM
memory devices continued to decline in fiscal 2001 due to competitive pressures
and as the Company worked closely with RDRAM licensees to reduce costs. In
fiscal 2001, these ASP declines were more than offset by increasing unit
volumes, which resulted in higher royalties from RDRAM ICs. In the case of
RDRAM ICs, the Company believes that declining ASPs are to the Company's
advantage as RDRAM memory devices continue to gain market share. The second of
the Company's two royalty sources in fiscal 2001 was royalties from licensees
for the use of Rambus patents and intellectual property in SDRAM, DDR and logic
products which directly control these memories. ASPs for SDRAM-compatible ICs
continued to decline in fiscal 2001. In the absence of increasing unit volumes
or additional licensees, royalties from this source will likely decrease in
future periods. Because of a slower than expected adoption of DDR during fiscal
2001, the decline in SDRAM royalties was not offset by increased DDR royalties.
In addition, in the third quarter of fiscal 2001, due to the rapid decline in
DRAM ASPs and due to adverse interim results in litigation, the Company had
discussions with one major SDRAM licensee and agreed to a reduced but fixed
royalty amount on memory for at least four quarters, including the fourth
fiscal quarter of 2001. The Company believes the long-term impact of that
agreement remains unchanged as, after the fourth quarter of the agreement, with
a favorable legal outcome, the royalty payments return to the original
agreement level. In fiscal 2000, royalties increased 307% to $32.6 million, or
45.1% of total revenues. The first contract revenue for RaSer serial link
technology was recognized in fiscal 2001. Fiscal 2000 revenues include
increased royalties from licensees' shipments of RDRAM memory devices and
controllers, as well as the first ever royalties from licensees for the use of
Rambus intellectual property in SDRAM-compatible ICs.
22
The Company anticipates that its potential to generate RDRAM royalties in
fiscal 2002 will be largely dependent upon system sales by PC and workstation
manufacturers and Sony. The markets addressed by systems companies using RDRAM
memory devices and controllers, including those in the video game console and
PC businesses, are characterized by extreme volatility, frequent new product
introductions and rapidly shifting consumer preferences, and there can be no
assurance as to the unit volumes of RDRAM memory devices and controllers that
will be purchased in the future or the level of royalty-bearing revenues that
the Company will receive due to these applications. None of the systems
companies currently incorporating RDRAM memory devices and controllers into
their products is contractually obligated to continue doing so. Given the
concentration of royalties from a limited number of sources, it is likely that
royalties will continue to vary greatly from period to period.
Engineering Costs. Engineering costs, consisting of cost of contract
revenues and research and development expenses, were $28.1 million, $23.6
million and $20.4 million in fiscal 2001, 2000 and 1999, respectively, which
represented 23.9%, 32.6% and 46.9% of revenues in the same periods,
respectively. The increase in engineering costs in fiscal 2001 was primarily
attributable to higher operating costs of the new office facilities to which
the Company relocated at the beginning of the second quarter of fiscal 2001, as
well as to the addition of engineering personnel to support the Company's
technology roadmap improvements. The increase in engineering costs in fiscal
2000 was primarily attributable to engineering personnel added to support the
launch of RDRAM ICs into the PC main memory market and new initiatives in the
communications market and chip-to-chip connections. The decrease as a
percentage of revenues was primarily the result of the Company's growth in
revenues.
Cost of Contract Revenues. Cost of contract revenues were $9.9 million,
$12.1 million and $12.2 million, which represented 8.4%, 16.7% and 28.2% of
revenues, in fiscal 2001, 2000 and 1999, respectively. The decrease in the cost
of contract revenues in fiscal 2001 and fiscal 2000 in absolute dollars, as a
percentage of total revenues, and as a percentage of total engineering costs,
is primarily due to the successful launch and ramp of RDRAM ICs into the PC
main memory market resulting in a reduction in engineering support efforts, as
well as to the effect of increasing royalty revenues. The Company believes that
the level of cost of contract revenues will continue to fluctuate in the
future, both in absolute dollars and as a percentage of revenues, as new
generations of RDRAM ICs go through the normal development and implementation
phases.
Research and Development. Research and development expenses were $18.2
million, $11.5 million and $8.1 million, which represented 15.5%, 15.9% and
18.7% of revenues, in fiscal 2001, 2000 and 1999, respectively. Research and
development expenses increased 58.3% in fiscal 2001 as compared to fiscal year
2000, and 41.6% in fiscal 2000 as compared to fiscal 1999, as the Company was
able to shift engineering resources from support of the PC market ramp to
development of technology roadmap improvements as well as new chip connection
activities. However, research and development expenses decreased as a
percentage of revenues in fiscal 2001 and fiscal 2000 due to the increase in
the Company's revenues. Research and development expenses include approximately
$904,000 and $802,000 of deferred compensation costs and goodwill amortization
in fiscal 2001 and fiscal 2000, respectively, related to the Company's fiscal
2000 purchase of the intellectual property assets of a small company
responsible for developing a Serializer/Deserializer (SerDes) serial link cell
for network applications. The acquisition was accounted for as a purchase,
which resulted in goodwill and deferred compensation costs that are being
amortized over periods ranging from 2 to 5 years. The Company expects research
and development expenses to increase over time as it enhances and improves its
technology and applies it to new generations of ICs. The rate of increase of,
and the percentage of revenues represented by, research and development
expenses in the future will vary from period to period based on the research
and development projects underway and the change in engineering headcount in
any given period, as well as the rate of change in the Company's total revenues.
Marketing, General and Administrative. Marketing, general and administrative
expenses were $48.4 million, $21.1 million and $13.5 million, which represented
41.3%, 29.2% and 31.2% of revenues, in fiscal 2001, 2000 and 1999,
respectively. The increase in fiscal 2001 in marketing, general and
administrative expenses primarily represents increased litigation costs
associated with the defense of the Company's intellectual property.
23
Litigation costs were $27.1 million in fiscal 2001 versus $3.8 million in
fiscal year 2000. Trial delays in several of the pending cases as well as the
number of simultaneous litigation activities -- many initiated by potential
SDRAM and DDR licensees -- contributed to the significant increase in
litigation expenses in fiscal 2001. In addition, at the beginning of fiscal
2001, the Company began to incur higher rent and other ongoing operating costs
associated with relocating its corporate headquarters to a larger facility to
accommodate anticipated long-term growth. The fiscal 2000 increase in absolute
dollars was primarily due to the addition of administrative personnel and legal
fees to support enforcement of the Company's patents and other intellectual
property rights. The decrease in marketing, general and administrative expenses
as a percentage of revenues in fiscal 2000 reflects the increased revenue base.
The Company expects marketing, general and administrative expenses to vary in
the future. Litigation expenses are expected to vary from period to period,
given the volatility of litigation activities, and as the Company continues to
focus its resources upon protecting its intellectual property rights, marketing
its technology and assisting systems companies with adapting this technology to
new generations of products. The rate of increase of, and the percentage of
revenues represented by, marketing, general and administrative expenses in the
future will vary from period to period based on the trade shows, advertising,
legal and other marketing and administrative activities undertaken and the
change in sales, marketing and administrative headcount in any given period, as
well as the rate of change in the Company's total revenues.
Employee Stock-Related Compensation Expense. As discussed below in the
section entitled "Contingent Warrants, Common Stock Equivalents, and Options,"
a $171.1 million employee stock-related compensation charge was taken in fiscal
2000 related to Common Stock Equivalents granted to the Company's Chief
Executive Officer and President and options granted to the Company's employees.
Interest and other Income, Net. Interest and other income, net consists
primarily of interest income from the Company's cash investments. Interest and
other income, net was $8.9 million, $4.7 million and $4.3 million, which
represented 7.6%, 6.5% and 10.0% of revenues, in fiscal 2001, 2000 and 1999,
respectively. The increase in absolute dollars in fiscal 2001 was due primarily
to higher invested balances. In addition, beginning in the second fiscal
quarter of 2001, interest and other income, net, includes net income recognized
from the Company's sublease of its former office facilities in Mountain View,
California. The Company expects cash investments to remain flat, and, with the
decline in interest rates, interest and other income, net, will likely decline
in future periods, particularly if the Company's sub-tenant does not continue
to fulfill the terms of the current agreement.
Provision for (Benefit from) Income Taxes. The Company recorded an income
tax provision of $18.4 million in fiscal 2001, an income tax benefit of $32.7
million in fiscal 2000, and a provision for income taxes of $5.1 million in
fiscal 1999. In the third quarter of fiscal 2001, the Company adjusted its
fiscal 2001 year-to-date tax rate to 37% to more accurately reflect the
Company's estimated tax liability. In the fourth quarter of fiscal 2000, the
Company determined, based upon its continued and growing profitability, that it
would more likely than not be able to utilize its deferred tax assets, and
recorded a $38 million credit to income tax expense to reduce the valuation
allowance against the deferred tax assets. For the 2000 and 1999, the estimated
federal and state combined rate on income before income taxes was (23.5)% and
37%, respectively. The Company's effective tax rate differs from the statutory
rate due to differences related to the timing of recognition of contract and
royalty revenues and expenses for tax and financial reporting purposes.
At September 30, 2001, the Company had gross deferred tax assets of
approximately $55.8 million, primarily relating to the difference between tax
and book treatment of employee stock-related compensation expenses and deferred
revenue, and net operating losses. The deferred tax assets of approximately
$49.8 million, net of the valuation allowance of $5.9 million, as of September
30, 2001, represents management's estimate of those tax assets which it
believes will more likely than not (a probability of just over fifty percent)
be realized. The deferred tax asset valuation allowance is subject to periodic
adjustment as facts and circumstances warrant.
Common Stock Split
In March 2000, the Company's board of directors approved a four-for-one
split of Rambus' Common Stock subject to stockholder approval of an increase in
authorized Common Stock. On May 23, 2000, the Company's
24
stockholders approved an increase in the Company's authorized shares of Common
Stock to 500 million shares. The stock began trading on a split-adjusted basis
on June 15, 2000. All references in this report on Form10-K to earnings per
share, to the number of common shares, contingent warrants, Common Stock
Equivalents, and options, and to the share price have been retroactively
restated to reflect the Common Stock split and the increase in authorized
Common Stock.
Contingent Warrants, Common Stock Equivalents, and Options
In November 1996, the Company entered into an agreement with Intel
Corporation for the development of high-speed semiconductor memory interface
technology. In January 1997, as part of this agreement, the Company issued a
warrant to purchase 4,000,000 shares of Common Stock of the Company at a
purchase price of $2.50 per share (the "Intel warrant"). This warrant was to
have become exercisable only upon the achievement of certain milestones by
Intel relating to shipment volumes of RDRAM chipsets (the "Intel milestones").
In September 2001, this warrant was cancelled as part of contract negotiations
that resulted in a new royalty-bearing contract with Intel.
In October 1998, the Company's board of directors authorized an incentive
program in the form of warrants for a total of up to 1,600,000 shares of Rambus
Common Stock (the "DRAM incentive warrants") to be issued to various RDRAM
licensees upon the achievement of certain product qualification and volume
production targets. The warrants, to be issued at the time the targets are met,
have an exercise price of $2.50 per share and a life of five years. These
warrants vest and become exercisable on the same basis as the former Intel
warrant, which will result in a non-cash charge to the statement of operations
based on the fair value of the warrants at the time the achievement of the
Intel milestones becomes probable. As of September 30, 2001, a total of
1,520,000 of these warrants had been issued.
In the fourth quarter of fiscal 1999, the Company granted to its Chief
Executive Officer and to its President a combined total of 2,000,000 Common
Stock Equivalents (CSEs) and to its employees approximately 2,160,000 options
to purchase Rambus Common Stock at $2.50 per share. An additional 494,500 of
these options were granted to employees in fiscal year 2001. Vesting of these
CSEs and options was contingent upon the achievement of key indicators of
success for Rambus. Vesting for a portion of the CSEs and options granted in
fiscal 1999 was contingent on an increase in the price of Rambus Common Stock
to greater than $50 per share for 30 consecutive days. This target was achieved
by the end of the second quarter of fiscal 2000, and resulted in a $171.1
million employee stock-related compensation charge taken in the same quarter.
Except for a $1.2 million employer payroll tax liability, this was a non-cash
charge. The remaining CSEs and options will vest on the same basis as the
former Intel and existing DRAM incentive warrants, which will result in another
almost entirely non-cash charge to the statement of operations based on the
fair value of the CSEs and options at the time achievement of the Intel
milestones becomes probable.
The magnitude of these charges is a function of the then current price of
Rambus Common Stock at the time the charges are taken. For example, if these
warrants, CSEs, and options were valued based upon a stock price of $50, the
charge could be $200 million or more. The charge, when and if taken, will be
non-cash except for payroll tax liabilities, which would likely be more than
offset by cash received by the Company upon exercise of the warrants and
options.
Liquidity and Capital Resources
As of September 30, 2001, the Company had cash and cash equivalents and
marketable securities of $155.6 million, including restricted investments of
$13.6 million and a long-term component of $12.1 million. As of the same date,
the Company had total working capital of $120.9 million, including a short-term
component of deferred revenue of $14.4 million. Deferred revenue represents the
excess of cash received from licensees over revenue recognized on license
contracts, and the short-term component represents the amount of this deferred
revenue expected to be recognized over the next twelve months. Without the
short-term component of deferred revenue, working capital would have been
$135.3 million at September 30, 2001.
25
The Company's operating activities provided net cash of $30.6 million, $35.2
million and $4.1 million in fiscal 2001, 2000 and 1999, respectively. Cash
generated by fiscal 2001 operations was primarily the result of net income and
a decrease in prepaids, deferred taxes and other, offset by the tax cost of
stock option exercises, increases in accounts receivable, and decreases in
accounts and taxes payable, accrued payroll and other liabilities and deferred
revenue. Cash generated by fiscal 2000 operations was primarily the result of
net loss, the tax benefit of stock option exercises and deferred taxes, offset
by non-cash items, primarily non-cash stock compensation expense. Cash
generated in 1999 was primarily from net income, the tax benefit of stock
option exercises and income tax adjustments, offset by a decrease in deferred
revenue due to recognition of contract revenues in excess of new billings.
Net cash used in investing activities was $60.2 million in fiscal 2001. Net
cash provided in investing activities was $2.2 million in fiscal 2000. Net cash
used in investing activities was $19.8 million in fiscal 1999. Investing
activities have consisted primarily of net purchases and maturities of
marketable securities, increases in restricted cash, and purchases of property
and equipment and investments.
Net cash provided by financing activities were $10.8 million, $10.8 million
and $4.7 million in fiscal 2001, 2000 and 1999, respectively. Proceeds from the
sale of Common Stock under the Company's Employee Stock Purchase and Option
plans are the primary source of net cash provided by financing activities.
The Company presently anticipates that existing cash balances will be
adequate to meet its cash needs for at least the next 12 months.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS No. 133 requires that all derivatives be recognized at fair
value in the statement of financial position, and that the corresponding gains
or losses be reported either in the statement of operations or as a component
of comprehensive income, depending on the type of hedging relationship that
exists. In fiscal 2001, the Company adopted SFAS No. 133. The adoption of SFAS
No. 133 did not have any effect on the Company's financial statements and
related disclosures since the company does not currently hold any derivative
instruments.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying accounting principles
generally accepted in the United States to revenue recognition in financial
statements. The Company adopted SAB 101 in fiscal 2001. The adoption of SAB 101
did not have any material effect on the Company's financial statements and
related disclosures since the Company's accounting policies are consistent with
the requirements of SAB 101.
On July 20, 2001, the FASB issued SFAS No. 141 "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." These statements make
significant changes to the accounting for business combinations, goodwill and
intangible assets. SFAS No. 141 established new standards for accounting and
reporting requirements for business combinations and will require that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Use of the pooling-of-interests method will be prohibited.
This statement is effective for business combinations completed after June 30,
2001. SFAS No. 142 establishes new standards for goodwill acquired in a
business combination and eliminates amortization of goodwill and instead sets
forth methods to periodically evaluate goodwill for impairment. Intangible
assets with a determinable useful life will continue to be amortized over that
period. The Company expects to adopt both of these statements during the first
quarter of fiscal 2003. During the fiscal year ended September 30, 2001,
goodwill amortization totaled $286,000.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible
26
long-lived assets and the associated asset retirement costs. This Statement
applies to all entities. It applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and (or) the normal operation of a long-lived asset, except for
certain obligations of lessees. SFAS No. 143 is effective for financial
statements issued for fiscal years beginning after June 25, 2002. The Company
expects that the initial application of SFAS 143 will not have a material
impact on its financial statements.
On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 144 applies to all long-lived assets
(including discontinued operations) and consequently amends Accounting
Principles Board Opinion No. 30. SFAS No. 144 develops one accounting model for
long-lived assets that are to be disposed of by sale. SFAS No. 144 requires
that long-lived assets that are to be disposed of by sale be measured at the
lower of book value or fair value less cost to sell. Additionally, SFAS No. 144
expands the scope of discontinued operations to include all components of an
entity with operations that (1) can be distinguished from the rest of the
entity and (2) will be eliminated from the ongoing operations of the entity in
a disposal transaction. SFAS No. 144 is effective for the Company for all
financial statements issued in fiscal 2003. The Company expects the initial
application of SFAS No. 144 will not have a material impact on its financial
statements.
I
tem 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company's exposure to market risk for changes in interest rates relates
primarily to its investment portfolio. The Company places its investments with
high credit issuers and by policy limits the amount of credit exposure to any
one issuer. As stated in its policy, the Company will ensure the safety and
preservation of its invested funds by limiting default risk and market risk.
The Company has no investments denominated in foreign country currencies and
therefore is not subject to foreign exchange risk.
The Company mitigates default risk by investing in high credit quality
securities and by positioning its portfolio to respond appropriately to a
significant reduction in a credit rating of any investment issuer or guarantor.
The portfolio includes only marketable securities with active secondary or
resale markets to ensure portfolio liquidity.
The table below presents the carrying value and related weighted average
interest rates for the Company's investment portfolio. The carrying value
approximates fair value at September 30, 2001.
Average Rate
of Return at
Carrying September 30,
Value 2001
(in thousands) (annualized)
-------------- -------------
Marketable securities:
Cash equivalents................................... $ 40,699 3.2%
United States government debt securities........... 36,572 3.7%
Corporate notes and bonds.......................... 21,123 6.1%
Foreign debt securities............................ 26,944 4.6%
Commercial paper................................... 13,118 3.1%
--------
Total marketable securities.................... $138,456
========
Item 8. Financial Statements and Supplementary Data
See Item 14 of this Form 10-K for required financial statements and
supplementary data.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
27
PART III
Certain information required by Part III is omitted from this Report on Form
10-K since the Registrant will file its definitive Proxy Statement for its next
Annual Meeting of Stockholders, pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended (the "Proxy Statement"), not later than 120
days after the end of the fiscal year covered by this Report, and certain
information to be included in the Proxy Statement is incorporated herein by
reference.
Item 10. Directors and Executive Officers of the Registrant
The information required by this item concerning the Company's directors is
incorporated by reference to the information set forth in the section entitled
"Proposal One - Election of Directors - Information Regarding Nominees and
Other Directors" in the Company's Proxy Statement for the 2002 Annual Meeting
of Stockholders to be filed with the Commission within 120 days after the end
of the Company's fiscal year ended September 30, 2001. Information required by
this item concerning the Company's executive officers is incorporated by
reference to the information set forth in the section entitled "Executive
Officers of the Company" in the Company's Proxy Statement for the 2002 Annual
Meeting of Stockholders to be filed with the Commission within 120 days after
the end of the Company's fiscal year ended September 30, 2001. Information
regarding Section 16 reporting compliance is incorporated by reference to the
information set forth in the section entitled "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy Statement for the 2002
Annual Meeting of Stockholders to be filed with the Commission within 120 days
after the end of the Company's fiscal year ended September 30, 2001.
Item 11. Executive Compensation
The information required by this item regarding executive compensation is
incorporated by reference to the information set forth in the sections entitled
"Proposal One--Election of Directors--Director Compensation" and "Executive
Compensation" in the Company's Proxy Statement for the 2002 Annual Meeting of
Stockholders to be filed with the Commission within 120 days after the end of
the Company's fiscal year ended September 30, 2001.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item regarding security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in the section entitled "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement for the 2002
Annual Meeting of Stockholders to be filed with the Commission within 120 days
after the end of the Company's fiscal year ended September 30, 2001.
Item 13. Certain Relationships and Related Transactions
The information required by this item regarding certain relationships and
related transactions is incorporated by reference to the information set forth
in the section entitled "Certain Relationships and Related Transactions" in the
Company's Proxy Statement for the 2002 Annual Meeting of Stockholders to be
filed with the Commission within 120 days after the end of the Company's fiscal
year ended September 30, 2001.
28
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements
Page
----
The following consolidated financial statements of the Registrant and
Report of PricewaterhouseCoopers LLP, Independent Accountants, are
included herewith:
Report of PricewaterhouseCoopers LLP, Independent Accountants............. 30
Consolidated Balance Sheets as of September 30, 2001 and 2000............. 31
Consolidated Statements of Operations for the years ended September 30,
2001, 2000, and 1999.................................................... 32
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for the years ended September 30, 2001, 2000, and 1999.................. 33
Consolidated Statements of Cash Flows for the years ended September 30,
2001, 2000, and 1999.................................................... 34
Notes to Consolidated Financial Statements................................ 35
Consolidated Supplementary Financial Data................................. 52
(a) (2) Financial Statement Schedules
Financial statement schedules have been omitted because the required
information is not present or not present in amounts sufficient to require
submission of the schedule or because the information is included in the
consolidated financial statements or notes thereto.
(a) (3) Exhibits
See Index to Exhibits on page 54 of this report on Form 10-K.
(b) Reports of Form 8-K
The Company filed no reports on Form 8-K during the fiscal year ended
September 30, 2001.
29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Rambus Inc. and Subsidiary
In our opinion, the consolidated financial statements listed in the index
appearing under item 14 (a) (1) present fairly, in all material respects, the
financial position of Rambus Inc. and its subsidiary at September 30, 2001 and
2000 and the results of their operations and their cash flows for each of the
three years in the period ended September 30, 2001, in conformity with
accounting principles generally accepted in the United States of America. 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 of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
October 16, 2001, except at to Note 13, which is as of November 26, 2001
30
RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
September 30,
--------------------
2001 2000
--------- ---------
ASSETS
------
Current assets:.............................................
Cash and cash equivalents................................ $ 44,195 $ 63,093
Marketable securities.................................... 85,700 59,127
Accounts receivable...................................... 2,368 68
Prepaid and deferred taxes............................... 7,665 17,661
Prepaids and other current assets........................ 3,319 2,988
--------- ---------
Total current assets................................. 143,247 142,937
Property and equipment, net................................. 15,862 6,724
Marketable securities, long-term............................ 12,057 7,548
Restricted investments...................................... 13,605 2,500
Deferred taxes, long-term................................... 44,275 55,404
Other assets................................................ 8,744 4,518
--------- ---------
Total assets......................................... $ 237,790 $ 219,631
========= =========
LIABILITIES
-----------
Current liabilities:........................................
Accounts payable......................................... $ 1,563 $ 1,850
Income taxes payable..................................... 183 74
Accrued salaries and benefits............................ 2,635 3,504
Other accrued liabilities................................ 3,596 3,604
Deferred revenue......................................... 14,398 24,155
--------- ---------
Total current liabilities............................ 22,375 33,187
Deferred revenue, less current portion...................... 24,058 24,122
--------- ---------
Total liabilities.................................... 46,433 57,309
--------- ---------
Commitments and contingencies (Notes 6, 7 and 13)...........
STOCKHOLDERS' EQUITY
--------------------
Convertible preferred stock, $.001 par value:...............
Authorized: 5,000,000 shares;............................
Issued and outstanding: no shares at September 30, 2001
and September 30, 2000................................. -- --
Common Stock, $.001 par value:..............................
Authorized: 500,000,000 shares;..........................
Issued and outstanding: 100,287,676 shares at September
30, 2001 and 97,490,774 shares at September 30, 2000... 100 97
Additional paid-in capital.................................. 282,911 285,885
Deferred stock-based compensation........................... (461) (571)
Accumulated deficit......................................... (91,861) (123,132)
Accumulated other comprehensive gain........................ 668 43
--------- ---------
Total stockholders' equity........................... 191,357 162,322
--------- ---------
Total liabilities and stockholders' equity........ $ 237,790 $ 219,631
========= =========
See Notes to Consolidated Financial Statements.
31
RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended September 30,
-----------------------------
2001 2000 1999
-------- ---------- --------
Revenues:
Contract revenues............................. $ 21,797 $ 39,683 $ 35,353
Royalties..................................... 95,363 32,628 8,017
-------- ---------- --------
Total revenues............................ 117,160 72,311 43,370
-------- ---------- --------
Costs and expenses:
Cost of contract revenues..................... 9,863 12,093 12,232
Research and development...................... 18,204 11,501 8,123
Marketing, general and administrative......... 48,378 21,140 13,516
Employee stock-related compensation expense... -- 171,085 --
-------- ---------- --------
Total costs and expenses.................. 76,445 215,819 33,871
-------- ---------- --------
Operating income (loss)................... 40,715 (143,508) 9,499
Interest and other income, net................... 8,932 4,714 4,346
Interest expense................................. -- -- (7)
-------- ---------- --------
Income (loss) before income taxes......... 49,647 (138,794) 13,838
Provision for (benefit from) income taxes........ 18,376 (32,667) 5,120
-------- ---------- --------
Net income (loss)......................... $ 31,271 $ (106,127) $ 8,718
======== ========== ========
Net income (loss) per share--basic............... $ 0.31 $ (1.10) $ 0.09
======== ========== ========
Net income (loss) per share--diluted............. $ 0.29 $ (1.10) $ 0.09
======== ========== ========
Number of shares used in per share calculations:
Basic......................................... 99,456 96,487 93,328
======== ========== ========
Diluted....................................... 105,966 96,487 100,208
======== ========== ========
See Notes to Consolidated Financial Statements.
32
RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
for the years ended September 30, 2001, 2000 and 1999
Accumulated
Common Stock Additional Deferred Other
-------------- Paid-In Stock-Based Accumulated Comprehensive
Shares Amount Capital Compensation Deficit Gain (Loss) Total
------- ------ ---------- ------------ ----------- ------------- ----------
(in thousands)
Balances, September 30, 1998..... 91,704 $ 92 $ 67,548 $ -- $ (25,723) $ (125) $ 41,792
Components of comprehensive
income:
Net income.................... -- -- -- -- 8,718 -- 8,718
Foreign currency
translation adjustments...... -- -- -- -- -- 201 201
Unrealized loss on
marketable securities........ -- -- -- -- -- (105) (105)
----------
Total comprehensive income... 8,814
----------
Issuance of Common Stock
upon exercise of options,
net........................... 2,360 2 2,821 -- -- -- 2,823
Issuance of Common Stock
under Employee Stock
Purchase Plan................. 748 1 2,031 -- -- -- 2,032
Tax benefit of stock option
exercises..................... -- -- 6,103 -- -- -- 6,103
------- ----- --------- ------ --------- ------ ----------
Balances, September 30, 1999..... 94,812 95 78,503 -- (123,132) 43 162,322
Components of comprehensive
income:
Net loss...................... -- -- -- -- (106,127) -- (106,127)
Foreign currency
translation adjustments...... -- -- -- -- -- (14) (14)
Unrealized gain on
marketable securities........ -- -- -- -- -- 86 86
----------
Total comprehensive income... (106,055)
----------
Issuance of Common Stock
upon exercise of options,
net........................... 2,300 2 8,497 -- -- -- 8,499
Issuance of Common Stock
under Employee Stock
Purchase Plan................. 179 -- 2,257 -- -- -- 2,257
Issuance of Common Stock
from Common Stock
Equivalents................... 200 -- -- -- -- -- --
Stock-related compensation
charges....................... -- -- 169,878 -- -- -- 169,878
Deferred compensation........... -- -- 663 (663) -- -- --
Amortization of deferred
compensation.................. -- -- -- 92 -- -- 92
Tax benefit of stock option
exercises..................... -- -- 26,087 -- -- -- 26,087
------- ----- --------- ------ --------- ------ ----------
Balances, September 30, 2000..... 97,491 97 285,885 (571) (123,132) 43 162,322
Components of comprehensive
income:
Net income.................... -- -- -- -- 31,271 -- 31,271
Foreign currency
translation adjustments...... -- -- -- -- -- (87) (87)
Unrealized gain on
marketable securities........ -- -- -- -- -- 712 712
----------
Total comprehensive income... 31,896
----------
Issuance of Common Stock
upon exercise of options,
net........................... 1,813 2 8,318 -- -- -- 8,320
Issuance of Common Stock
under Employee Stock
Purchase Plan................. 184 -- 2,459 -- -- -- 2,459
Issuance of Common Stock
from Common Stock
Equivalents................... 800 1 -- -- -- -- 1
Amortization of deferred
compensation.................. -- -- -- 110 -- -- 110
Tax cost of stock option
exercises..................... -- -- (13,751) -- -- -- (13,751)
------- ----- --------- ------ --------- ------ ----------
Balances, September 30, 2001..... 100,288 $ 100 $ 282,911 $ (461) $ (91,861) $ 668 $ 191,357
======= ===== ========= ====== ========= ====== ==========
See Notes to Consolidated Financial Statements.
33
RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended September 30,
---------------------------------
2001 2000 1999
--------- --------- -----------
(in thousands)
Cash flows from operating activities:
Net income (loss)......................................... $ 31,271 $(106,127) $ 8,718
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Non-cash employee stock-related
compensation........................................ -- 169,878 --
Tax benefit (cost) of stock option
exercises........................................... (13,751) 26,087 6,103
Depreciation.......................................... 4,449 3,243 3,127
Amortization of deferred compensation................. 618 557 --
Amortization of goodwill.............................. 286 245 --
Other................................................. -- -- (531)
Change in operating assets and liabilities:
Accounts receivable................................ (2,300) 1,431 414
Prepaids, deferred taxes and other
assets........................................... 21,382 (62,664) 1,110
Accounts and taxes payable, accrued
payroll and......................................
other liabilities.................................. (1,563) 4,070 991
Deferred revenue................................... (9,821) (1,507) (15,853)
--------- --------- -----------
Net cash provided by operating
activities................................... 30,571 35,213 4,079
--------- --------- -----------
Cash flows from investing activities:
Purchase of property and equipment........................ (13,587) (5,737) (3,292)
Purchases of marketable securities........................ (835,414) (854,550) (1,118,281)
Maturities of marketable securities....................... 805,044 865,777 1,102,630
Acquired technology rights................................ -- (1,334) --
Purchase of investments................................... (5,100) (2,000) (1,200)
Sale of investments....................................... -- -- 2,822
Increase in restricted cash............................... (11,105) -- (2,500)
--------- --------- -----------
Net cash provided by (used in)
investing activities......................... (60,162) 2,156 (19,821)
--------- --------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock................ 10,780 10,756 4,855
Principal payments on capital lease obligations........... -- -- (130)
--------- --------- -----------
Net cash provided by financing
activities................................... 10,780 10,756 4,725
--------- --------- -----------
Effect of exchange rates on cash and cash
equivalents................................................ (87) (14) 201
--------- --------- -----------
Net increase (decrease) in cash and cash
equivalents................................................ (18,898) 48,111 (10,816)
Cash and cash equivalents at beginning of year............... 63,093 14,982 25,798
--------- --------- -----------
Cash and cash equivalents at end of year..................... $ 44,195 $ 63,093 $ 14,982
========= ========= ===========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ -- $ -- $ 7
Taxes paid................................................ 12,968 5,975 408
Deferred compensation upon acquisition of
technology rights....................................... -- 1,128 --
See Notes to Consolidated Financial Statements.
34
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Formation and Business of the Company
Rambus Inc. and Subsidiary (the Company) designs, develops, licenses and
markets high-speed chip-connection technologies to enhance the performance and
cost-effectiveness of computers, consumer electronics, communications systems,
and networking products. The Company licenses semiconductor companies to
manufacture and sell memory and logic ICs incorporating Rambus chip-connection
technology and markets its solution to systems companies to encourage them to
design Rambus standard technology into their products.
The Company was incorporated in California in March 1990 and reincorporated
in Delaware in March 1997.
2. Summary of Significant Accounting Policies
Financial Statement Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Rambus K.K., located in Tokyo,
Japan. All intercompany accounts and transactions have been eliminated in the
accompanying consolidated financial statements. Identifiable assets and
revenues of the subsidiary are not significant. Investments with less than 20%
ownership by the Company are recorded using the cost method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company generates revenues from four types of agreements with
semiconductor companies. The first type of agreement, for memory interface
technology which is fully compatible with the RDRAM standard ("RDRAM
licenses"), allows semiconductor manufacturers to manufacture and sell RDRAM
memory devices and logic ICs containing an interface to the RDRAM device. The
second type of agreement covers the use of Rambus patents and other
intellectual property in synchronous DRAM ("SDRAM") and double data-rate
("DDR") memory devices and logic ICs which control such memory. The third type
of agreement is for the RaSer ASIC cell that licensees integrate into their
logic ICs. The fourth type of agreement is one with Intel for five years of
payments which grants Intel access to Rambus' complete patent portfolio.
RDRAM licenses allow a semiconductor manufacturer to use the Company's
proprietary technology and to receive engineering implementation services,
customer support, and enhancements. The Company delivers to a new RDRAM
licensee an implementation package which contains the information needed to
develop a chip incorporating RDRAM memory interface technology in the
licensee's process. An implementation package includes a specification, a
generalized circuit layout database software for the particular version of the
chip which the licensee intends to develop, test parameter software and, for
memory chips, a core interface specification. Test parameters are the programs
that test the RDRAM technology embedded in the customer's product. Many
licensees have contracted to have Rambus provide the specific engineering
implementation services required to optimize the generalized circuit layout for
the licensee's manufacturing process. The RDRAM licenses also provide for the
right to receive ongoing customer support which includes technical advice on
chip specifications, enhancements, debugging and testing.
35
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Summary of Significant Accounting Policies (Continued)
Revenue Recognition (continued)
The Company recognizes revenue on RDRAM licenses consistent with American
Institute of Certified Public Accountants (AICPA) Statement of Position No.
98-9 (SOP 98-9), modification of SOP 97-2, "Software Revenue Recognition." This
SOP applies to all entities that earn revenue on products containing software,
where software is not incidental to the product as a whole. Contract fees for
the services provided under these agreements are comprised of license fees,
engineering service fees and nonrefundable, prepaid royalties. Contract fees
are bundled together as the total price of the agreement does not vary as a
result of inclusion or exclusion of services. Accordingly, the revenues from
such contract fees are recognized ratably over the period during which the
post-contract customer support is expected to be provided independent of the
payment schedules under the contract, including milestones. Revenue recognition
periods are estimated based on management's judgment of the time over which the
Company expects to support its licensees.
At the time the Company begins to recognize revenue under RDRAM licenses,
the remaining obligations, as defined by the SOP, are no longer significant.
These remaining obligations are primarily to keep the product updated and and
include activities such as responding to inquiries and periodic customer
meetings. Part of these contract fees may be due upon the achievement of
certain milestones, such as provision of certain deliverables by the Company or
production of chips by the licensee. The remaining fees are due on
pre-determined dates and include significant up-front fees. The excess of
contract fees received over revenue recognized is shown on the balance sheet as
deferred revenue.
RaSer serial link licenses generally also provide for the payment of license
fees and engineering fees, as well as royalties based upon the number of links
produced by the licensees. Revenues from license fees and engineering fees are
recognized ratably over the period during which the post-contract customer
support is expected to be provided, independent of the payment schedules under
the contract.
SDRAM-compatible and DDR-compatible licenses also generally provide for the
payment of fees which include compensation for use of Rambus patents from the
time the Company notifies the licensee of potential infringement. Accordingly,
the Company classifies these fees as royalty revenues which are recognized
ratably over the five-year contract period.
The Company recognizes royalties upon notification of sale by its licensees.
The terms of the royalty agreements generally require licensees to give
notification to the Company and to pay royalties within 60 days of the end of
the quarter during which the sales take place. The Company recognizes royalties
from the Intel contract which grants Intel access to the Rambus patent
portfolio as the amounts are due and payable pursuant to the contract with
Intel.
Research and Development
Costs incurred in research and development are expensed as incurred.
Software development costs are capitalized beginning when a product's
technological feasibility has been established and ending when a product is
available for general release to customers. The Company has not capitalized any
software development costs since such costs have not been significant.
Income Taxes
The Company accounts for income taxes under the liability method whereby
deferred tax asset or liability account balances are calculated at the balance
sheet date using current laws and rates in effect.
36
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Summary of Significant Accounting Policies (Continued)
Computation of Net Income Per Share
Net income per share is calculated in accordance with Financial Accounting
Standards Board Statement No. 128, "Earnings Per Share" (SFAS 128), which
requires the presentation of basic and diluted earnings per share. Basic
earnings per share is calculated using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is calculated
using the weighted average number of common stock and common stock equivalents,
if dilutive, outstanding during the period.
Common Stock Split
In March 2000, the Company's board of directors approved a four-for-one
split of Rambus' Common Stock, subject to stockholder approval of an increase
in authorized Common Stock. On May 23, 2000, the Company's stockholders
approved an increase in the Company's authorized shares of Common Stock to 500
million shares. The stock began trading on a split-adjusted basis on June 15,
2000. All references in this Form 10-K to earnings per share, the number of
common shares, warrants, Cmmon Stock Equivalents, and options, and the share
price have been retroactively restated to reflect the common stock split and
the increase in authorized Common Stock.
Stock-Based Compensation
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Stock options are generally granted
with exercise prices equivalent to fair market value, and no compensation cost
is recognized. When stock options are granted with exercise prices below fair
market value, employee stock-related compensation expense is recognized
accordingly. The Company provides additional pro forma disclosures as required
under Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation." See Note 7.
Cash and Cash Equivalents
Cash equivalents are highly liquid investments with original or remaining
maturities of three months or less at the date of purchase. Cash equivalents
present risk of changes in value because of interest rate changes. The Company
maintains its cash balances with high quality financial institutions and has
not experienced any material losses.
Marketable Securities
Available-for-sale securities are carried at fair value, based on quoted
market prices, with the unrealized gains or losses reported in stockholders'
equity. The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity, both of which are included in
interest income. Realized gains and losses are recorded on the specific
identification method.
Fair Value of Financial Instruments
The amounts reported for cash equivalents, receivables and other financial
instruments are considered to approximate fair values based upon comparable
market information available at the respective balance sheet dates.
37
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Summary of Significant Accounting Policies (Continued)
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line
basis over estimated useful lives of three to five years. Leasehold
improvements are amortized on a straight-line basis over the shorter of their
estimated useful lives or the terms of the leases. Upon disposal, assets and
related accumulated depreciation are removed from the accounts and the related
gain or loss is included in results from operations.
Foreign Currency Translation
The functional currency for the Company's foreign operation in Japan is the
Japanese yen. The translation from the Japanese yen to U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using the weighted
average exchange rate during the period. Adjustments resulting from such
translation are included in stockholders' equity and comprehensive gain (loss).
Gains or losses resulting from foreign currency transactions are included in
the results of operations.
Segments
As defined by Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," the
Company operates in one disclosable segment, using one measurement of
profitability for its business. The Company has sales outside the United
States, which are described in Note 12. All long-lived assets are maintained in
the United States.
Comprehensive Income
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources, including foreign currency translation adjustments and
unrealized gains and losses on marketable securities. Other comprehensive gain
is presented in the statement of stockholders' equity and comprehensive income.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS No. 133 requires that all derivatives be recognized at fair
value in the statement of financial position, and that the corresponding gains
or losses be reported either in the statement of operations or as a component
of comprehensive income, depending on the type of hedging relationship that
exists. In fiscal 2001, the Company adopted SFAS No. 133. The adoption of SFAS
No. 133 did not have any effect on the Company's financial statements and
related disclosures since the company does not currently hold any derivative
instruments.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on applying accounting principles
generally accepted in the United States to revenue recognition in financial
statements. The Company adopted SAB 101 fiscal 2001. The adoption of SAB 101
did not have any material effect on the Company's financial statements and
related disclosures since the Company's accounting policies are consistent with
the requirements of SAB 101.
38
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements (continued)
On July 20, 2001, the FASB issued SFAS No. 141 "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." These statements make
significant changes to the accounting for business combinations, goodwill and
intangible assets. SFAS No. 141 established new standards for accounting and
reporting requirements for business combinations and will require that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Use of the pooling-of-interests method will be prohibited.
This statement is effective for business combinations completed after June 30,
2001. SFAS No. 142 establishes new standards for goodwill acquired in a
business combination and eliminates amortization of goodwill and instead sets
forth methods to periodically evaluate goodwill for impairment. Intangible
assets with a determinable useful life will continue to be amortized over that
period. The Company expects to adopt both of these statements during the first
quarter of fiscal 2003. During the fiscal year ended September 30, 2001,
goodwill amortization totaled $286,000.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This Statement applies to all
entities. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) the normal operation of a long-lived asset, except for certain
obligations of lessees. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 25, 2002. The Company expects that
the initial application of SFAS 143 will not have a material impact on its
financial statements.
On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 144 applies to all long-lived assets
(including discontinued operations) and consequently amends Accounting
Principles Board Opinion No. 30. SFAS No. 144 develops one accounting model for
long-lived assets that are to be disposed of by sale. SFAS No. 144 requires
that long-lived assets that are to be disposed of by sale be measured at the
lower of book value or fair value less cost to sell. Additionally, SFAS No. 144
expands the scope of discontinued operations to include all components of an
entity with operations that (1) can be distinguished from the rest of the
entity and (2) will be eliminated from the ongoing operations of the entity in
a disposal transaction. SFAS No. 144 is effective for the Company for all
financial statements issued in fiscal 2003. The Company expects that the
initial application of SFAS No. 144 will not have a material impact on it
financial statements.
3. Business Risks and Credit Concentration
The Company operates in the intensely competitive semiconductor industry,
which has been characterized by price erosion, rapid technological change,
short product life cycles, cyclical market patterns, litigation regarding
patent and other intellectual property rights, and heightened foreign and
domestic competition. Significant technological changes in the industry could
adversely affect operating results.
The Company markets and sells its technology to a narrow base of customers
and generally does not require collateral. At September 30, 2001, one customer
accounted for 90% of accounts receivable. At September 30, 2000, three
customers accounted for 73%, 12% and 11% of accounts receivable.
As of September 30, 2001, the Company's cash and cash equivalents are
deposited with principally three financial institutions in the form of
commercial paper, money market accounts, and demand deposits. As of
39
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Business Risks and Credit Concentration (Continued)
September 30, 2000, the Company's cash and cash equivalents were deposited with
principally two financial institutions in the form of commercial paper, money
market accounts, and demand deposits.
4. Marketable Securities
Financial instruments that potentially subject the Company to concentrations
of credit risk comprise principally cash and cash equivalents,
available-for-sale securities and trade accounts receivable. The Company
invests its excess cash primarily in U.S. government agency and treasury notes;
corporate paper, notes, bonds and preferred stock; and municipal notes and
bonds that mature within 2 years.
All marketable securities are classified as available-for-sale and are
summarized as follows (in thousands):
September 30,
---------------
2001 2000
------- -------
United States government debt securities................... $36,572 $37,527
Corporate notes and bonds.................................. 21,123 9,520
Municipal notes and bonds.................................. -- 8,189
Foreign debt securities.................................... 26,944 7,523
Commercial paper........................................... 13,118 3,916
------- -------
$97,757 $66,675
======= =======
Available-for-sale securities are carried at fair value. Gross unrealized
gains of approximately $701,000 are netted against gross unrealized losses of
approximately $7,000, net of tax, and are included as a component of
stockholders' equity and comprehensive income. Realized gains and losses,
declines in value judged to be other than temporary, and interest on
available-for-sale securities are included in interest income. All marketable
securities classified as current have scheduled maturities of less than one
year.
5. Property and Equipment, Net
Property and equipment, net is comprised of the following (in thousands):
September 30,
------------------
2001 2000
-------- --------
Computer equipment......................................... $ 9,654 $ 9,215
Computer software.......................................... 6,768 5,973
Furniture and fixtures..................................... 5,357 1,509
Leasehold improvements..................................... 9,057 592
Construction in process.................................... -- 3,830
-------- --------
30,836 21,119
Less accumulated depreciation and amortization............. (14,974) (14,395)
-------- --------
$ 15,862 $ 6,724
======== ========
Depreciation and amortization expense was approximately $4,449,000,
$2,752,000 and $2,985,000 in the years ended September 30, 2001, 2000 and 1999.
40
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Lease Commitments
The Company relocated its headquarters at the beginning of calendar year
2001, and entered into an agreement to sublease its previous Mountain View
facilities through the end of the existing lease term in February 2005.
The Company leases its present office facilities in Los Altos, California,
under an operating lease agreement. The Company is responsible for taxes,
insurance, utilities and maintenance related to the leased facilities. The
lease has an initial term of ten years with options to renew for an additional
ten years, subject to certain conditions. Rent obligations for the building
commenced upon occupancy in January 2001. As part of this lease transaction,
the Company provided the lessor with a letter of credit restricting $2.5
million of its cash as collateral for certain of the Company's obligations
under the lease. The cash is restricted as to withdrawal and is managed by a
third party subject to certain limitations under the Company's investment
policy. The letter of credit is subject to reduction to $1.2 million on the
first anniversary of rent commencement and to $0.6 million on the second
anniversary.
As of September 30, 2001, aggregate future minimum payments under the leases
are (in thousands):
Net
Fiscal Year: Leases Subleases Commitments
------------ ------- --------- -----------
2002................................... $ 4,705 $ 2,893 $ 1,812
2003................................... 4,846 2,980 1,866
2004................................... 4,984 3,069 1,915
2005................................... 4,660 1,304 3,356
2006................................... 4,467 -- 4,467
Thereafter............................. 20,516 -- 20,516
------- ------- -------
Total minimum lease payments........... $44,178 $10,246 $33,932
======= ======= =======
Rent expense was approximately $3,931,000, $1,516,000, and $1,503,000 for
the years ended September 30, 2001, 2000 and 1999, respectively.
7. Stockholders' Equity
Preferred and Common Stock
In February 1997, the Company established a Stockholder Rights Plan pursuant
to which each holder of the Company's Common Stock shall receive a right to
purchase one-thousandth of a share of Series E Preferred Stock for $125 per
right, subject to a number of conditions. Such rights are subject to adjustment
in the event of a takeover or commencement of a tender offer not approved by
the Board of Directors. In July 2000, the Company's Board of Directors agreed
to restate the exercise price to $600 per right in an Amended and Restated
Preferred Shares Rights Agreement.
As of September 30, 2001, 2000 and 1999, the total shares held by employees
that were subject to repurchase were 5,736 and 215,087, and 841,944,
respectively.
In October 2001, the Company's Board of Directors approved a share
repurchase program of the Company's Common Stock. Under the share repurchase
program, the Company is authorized to purchase in open market transactions up
to five million of the Company's shares of outstanding Common Stock over an
undefined period of time.
41
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Stockholders' Equity (Continued)
Stock Option Plans
In March 1990, the Company adopted the 1990 Stock Plan under which
10,628,572 shares of Common Stock were reserved for issuance. Incentive stock
options were granted with exercise prices of no less than fair market value,
and nonqualified stock options could be granted with exercise prices of no less
than 85% of the fair market value of the Common Stock on the grant date, as
determined by the Board of Directors. The options generally vest over a
four-year period but may be exercised immediately subject to repurchase by the
Company for those options that are not vested.
In May 1997, the 1990 Stock Plan was terminated and the 1997 Stock Plan was
adopted. The 1997 Stock Plan authorizes the issuance of incentive stock options
and nonstatutory stock options to employees and nonstatutory stock options to
directors, employees or paid consultants of the Company. The Company has
reserved 20,494,094 shares of Common Stock for issuance under the plan. The
plan expires ten years after adoption, and the Board of Directors or a
committee designated by the Board of Directors has the authority to determine
to whom options will be granted, the number of shares, the vesting period and
the exercise price (which generally cannot be less than 100% of the fair market
value at the date of grant for incentive stock options). The options are
exercisable at times and in increments as specified by the Board of Directors,
and expire not more than ten years from date of grant. In October 1999, the
1997 Stock Plan was revised to add the provision and ability of the Company to
grant Common Stock Equivalents, which are unfunded and unsecured rights to
receive shares in the future.
In October 1999, the Company adopted the 1999 Nonstatutory Stock Option
Plan, which authorizes the issuance of nonstatutory options to employees and
consultants. The Company has reserved 14,800,000 shares of Common Stock for
issuance under the plan. The plan expires ten years after adoption, and the
Board of Directors or a committee designated by the Board of Directors has the
authority to determine to whom options will be granted, the number of shares,
the vesting period, the expiration date, and the exercise price (which
generally is the fair market value at the date of grant).
42
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Stockholders' Equity (Continued)
Stock Option Plans (continued)
A summary of activity under all stock option plans is as follows:
Options Outstanding
----------------------------
Options Number Weighted
Available for of Average Exercise
Grant Shares Price Per Share
------------- ---------- ----------------
Outstanding at September 30, 1998...... 568,800 11,045,936 $ 5.28
Shares reserved........................ 3,431,200 -- --
Shares repurchased..................... 28,000 -- --
Options terminated under 1990 Plan..... (207,800) -- --
Options granted........................ (4,682,400) 4,682,400 $14.75
Options exercised...................... -- (2,386,420) $ 1.19
Options canceled....................... 1,095,552 (1,095,552) $10.99
----------- ----------
Outstanding at September 30, 1999...... 233,352 12,246,364 $ 9.19
Shares reserved........................ 10,366,648 -- --
Shares repurchased..................... 33,510 -- --
Options terminated under 1990 Plan..... (152,204) -- --
Options granted........................ (9,808,900) 9,808,900 $20.65
Options exercised...................... -- (2,334,300) $ 3.78
Options canceled....................... 706,382 (706,382) $ 9.35
----------- ----------
Outstanding at September 30, 2000...... 1,378,788 19,014,582 $15.73
----------- ----------
Shares reserved........................ 10,881,312 -- --
Options terminated under 1990 Plan..... (9,001) -- --
Options granted........................ (10,883,500) 10,883,500 $10.36
Options exercised...................... -- (1,812,685) $ 4.47
Options canceled....................... 1,939,366 (1,939,366) $17.83
----------- ----------
Outstanding at September 30, 2001...... 3,306,965 26,146,031 $14.11
=========== ==========
43
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Stockholders' Equity (Continued)
Stock Option Plans (continued)
The following table summarizes information about outstanding and exercisable
options as of September 30, 2001:
Options Outstanding Options Exercisable
--------------------------------------------- --------------------------
Weighted Average Weighted
Number Remaining Weighted Average Number Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
------------------------ ----------- ---------------- ---------------- ----------- --------------
$ 0.00--$ 2.50 2,694,437 7.13 $ 2.00 1,295,041 $ 1.53
$ 3.00 540,930 5.62 3.00 471,462 3.00
$ 4.86 8,476,000 9.90 4.86 246,979 4.86
$ 6.01--$12.78 2,935,134 7.12 11.24 868,282 11.54
$13.25--$14.83 2,768,089 7.26 14.29 576,633 13.85
$14.94--$15.66 729,204 7.41 15.32 364,344 15.31
$15.67 3,743,500 8.05 15.67 113,950 15.67
$15.78--$37.66 2,627,737 8.63 30.27 315,308 22.03
$54.63--$77.36 1,571,000 9.05 59.77 38,466 69.24
$83.00 60,000 9.01 83.00 13,749 83.00
---------- ---------
26,146,031 8.42 $14.11 4,304,214 $ 9.46
========== =========
As of September 30, 2001, a total of 29,452,996 shares of Common Stock were
reserved for issuance under all stock option plans. As of September 30, 2001,
2000 and 1999, options for the purchase of 4,157,613, 2,892,852 and1,960,764
shares, respectively, were exercisable without being subject to repurchase by
the Company.
Employee Stock Purchase Plan
In May 1997, the Company adopted the 1997 Employee Stock Purchase Plan (the
"Purchase Plan") and reserved 1,600,000 shares of Common Stock for issuance
under the Purchase Plan. The Purchase Plan authorizes the granting of stock
purchase rights to eligible employees during two-year offering periods with
exercise dates approximately every six months. Shares are purchased through
employee payroll deductions at purchase prices equal to 85% of the lesser of
the fair market value of the Company's Common Stock at either the first day of
each offering period or the date of purchase. In fiscal 2001 the Company issued
184,221 shares, 179,300 shares in fiscal 2000 and 748,712 shares in fiscal
1999, under the Purchase Plan at an average price per share of $13.35, $12.58
and $2.72, respectively.
44
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Stockholders' Equity (Continued)
Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its stock plans. Stock options are generally granted with exercise prices
equivalent to fair market value, and no compensation cost is recognized. When
stock options are granted with exercise prices below fair market value,
employee stock-related compensation expense is recognized accordingly. If the
Company had recognized compensation expense based upon the fair value of stock
option awards, including shares issued under the Purchase Plan (collectively
called "options"), at the grant date consistent with the methodology prescribed
under SFAS 123, "Accounting for Stock-Based Compensation," the Company's net
income (loss) and net income (loss) per share would have changed to the pro
forma amounts indicated below:
Year Ended September 30,
-------------------------
2001 2000 1999
------- --------- ------
Net income (loss) as reported......................... $31,271 $(106,127) $8,718
Net income (loss) pro forma........................... $13,065 $(117,846) $5,413
Net income (loss) per share--basic as reported........ $ 0.31 $ (1.10) $ 0.09
Net income (loss) per share--basic pro forma.......... $ 0.13 $ (1.22) $ 0.06
Net income (loss) per share--diluted as reported...... $ 0.29 $ (1.10) $ 0.09
Net income (loss) per share--diluted pro forma........ $ 0.12 $ (1.22) $ 0.05
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.
The fair value of the options is estimated as of the grant date using the
Black-Scholes option-pricing model assuming a dividend yield of 0% and the
following additional weighted-average assumptions:
Stock Option Plans Stock Purchase Plan
----------------------------- -------------------
2001 2000 1999 2001 2000
--------- --------- --------- --------- ---------
Expected stock price volatility........ 107% 98% 82% 106% 95%
Risk-free interest rate................ 4.2% 6.2% 5.0% 4.8% 6.1%
Expected life of options............... 5.4 years 4.8 years 4.1 years 0.5 years 0.5 years
The weighted-average fair value of stock options granted during the years
ended September 30, 2001, 2000 and 1999 is $8.79, $19.97 and, $9.36,
respectively. The weighted-average fair value of purchase rights granted under
the Purchase Plan during the years ended September 30, 2001, 2000 and 1999 is
$13.82, $12.95 and $2.68, respectively.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's options have characteristics significantly different from
those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in the opinion of
management, the existing models do not necessarily provide a reliable single
measure of the fair value of its options.
The effects of applying SFAS 123 on the pro forma disclosures for the years
ended September 30, 2001, 2000 and 1999 are not likely to be representative of
the effects on pro forma disclosures in future years.
45
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Stockholders' Equity (Continued)
Warrants
In November 1996, the Company entered into an agreement with Intel
Corporation for the development of high-speed semiconductor memory interface
technology. In January 1997, as part of this agreement, the Company issued a
warrant to purchase 4,000,000 shares of Common Stock of the Company at a
purchase price of $2.50 per share (the "Intel warrant"). This warrant was to
have become exercisable only upon the achievement of certain milestones by
Intel relating to shipment volumes of RDRAM chipsets (the "Intel milestones").
In September 2001, this warrant was cancelled as part of contract negotiations
which resulted in a new royalty-bearing contract with Intel.
In October 1998, the Company's Board of Directors authorized an incentive
program in the form of warrants for a total of up to 1,600,000 shares of Rambus
Common Stock (the "DRAM incentive warrants") to be issued to various RDRAM
licensees upon the achievement of certain product qualification and volume
production targets. The warrants, to be issued at the time the targets are met,
have an exercise price of $2.50 per share and a life of five years. They vest
and become exercisable on the same basis as the former Intel warrant, which
will result in a non-cash charge to the statement of operations based on the
fair value of the warrants at the time the achievement of the Intel milestones
becomes probable. As of September 30, 2001, a total of 1,520,000 of these
warrants had been issued.
Contingent Common Stock Equivalents and Options
In the fourth quarter of fiscal 1999, the Company granted to its Chief
Executive Officer and to its President a combined total of 2,000,000 Common
Stock Equivalents (CSEs) and to its employees approximately 2,160,000 options
to purchase Rambus Common Stock for $2.50 per share. An additional 494,500 of
these options were granted to employees in fiscal 2001. Vesting of these CSEs
and options was contingent upon the achievement of key indicators of success
for Rambus. Vesting for a portion of these CSEs and options granted in fiscal
1999 was contingent on an increase in the price of Rambus Common Stock to
greater than $50 per share for 30 consecutive days. This target was achieved by
the end of the second quarter of fiscal 2000, and resulted in a $171.1 million
employee stock-related compensation charge taken in the same quarter. Except
for a $1.2 million employer payroll tax liability, this was a non-cash charge.
The remaining CSEs and options will vest on the same basis as the previous
Intel and existing DRAM incentive warrants, which will result in another almost
entirely non-cash charge to the statement of operations based on the fair value
of the CSEs and options at the time achievement of the Intel milestones becomes
probable.
8. Employee Benefit Plans
The Company has a 401(k) Profit Sharing Plan (the "Plan") qualified under
Section 401(k) of the Internal Revenue Code of 1986. Each eligible employee may
elect to contribute up to 20% of the employee's annual compensation to the
Plan. The Company, at the discretion of its Board of Directors, may match
employee contributions to the Plan. For the years ended September 30, 2001 and
2000, the Company made matching contributions totaling $135,000 and $116,000,
respectively. There were no matching contributions for the year ended September
30, 1999.
46
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Income Taxes
The provision for (benefit from) income taxes comprises (in thousands):
Year Ended September 30,
------------------------
2001 2000 1999
------- -------- ------
Foreign withholding tax:
Current....................................... $10,667 $ 5,954 $ 369
Federal:
Current....................................... 311 -- (8)
Deferred...................................... 6,785 (32,843) 4,115
State:
Current....................................... 23 -- --
Deferred...................................... 590 (5,778) 644
------- -------- ------
$18,376 $(32,667) $5,120
======= ======== ======
The Company's effective tax rate on pretax income (loss) differs from the
U.S. federal statutory regular tax rate as follows:
Year Ended September 30,
----------------------
2001 2000 1999
---- ----- ----
Expense at U.S. federal statutory rate........... 35.0 % (35.0)% 35.0 %
Expense at state statutory rate.................. 4.3 (5.9) 5.7
Nondeductible compensation expense............... -- 28.7 --
Nondeductible amortization....................... -- -- 0.4
R&D credit....................................... (1.9) (1.9) (9.7)
Change in valuation allowance.................... -- (13.8) 10.8
Other............................................ (0.4) 4.4 (5.2)
---- ----- ----
37.0 % (23.5)% 37.0 %
==== ===== ====
The components of the net deferred tax assets are as follows (in thousands):
September 30,
----------------
2001 2000
------- -------
Deferred tax assets:
Deferred revenue........................................ $14,586 $19,489
Depreciation and amortization expense................... 1,155 1,025
Other liabilities and reserves.......................... 757 595
Employee stock-related compensation expense............. 8,033 35,947
Net operating loss carryover............................ 7,508 16,431
Tax credits............................................. 23,716 3,394
------- -------
Total deferred tax asset............................ 55,755 76,881
Valuation allowance........................................ (5,923) (5,923)
------- -------
Deferred tax assets, net............................ $49,832 $70,958
======= =======
The Company has established a partial valuation allowance against its
deferred tax assets due to the uncertainty surrounding the realization of such
assets. Management periodically evaluates the recoverability of
47
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Income Taxes (Continued)
the deferred tax assets and recognizes the tax benefit only as reassessment
demonstrates they are realizable. At such time, if it is determined that it is
more likely than not that the deferred tax assets are realizable, the valuation
allowance will be reduced.
The Company has net operating loss carryforwards of $19.7 million and $20.4
million for federal and California state tax purposes, respectively. In
addition, the Company has federal and state research and experimentation tax
credit carryforwards of $5.0 million and $3.0 million respectively, and foreign
tax credit carryforwards of $15.7 million. The net operating loss carryforwards
and tax credits expire between 2002 and 2021. For federal and state tax
purposes, the Company's net operating loss carryforwards may be subject to an
annual limitation in the case of a greater than 50% change in stock ownership,
as defined by federal and state tax law.
10. Acquired Technology Rights
In November 1999, the Company acquired rights to the intellectual property
assets of a network technology company for approximately $3.1 million in cash
and stock-based compensation and other obligations, subject to vesting, to
certain key employees. The value of the intellectual property assets acquired
is being amortized over five years. Deferred compensation and other obligations
are being amortized over the vesting terms ranging from 2 to 4 years. Research
and development expenses include approximately $904,000 of such expenses in
fiscal 2001.
11. Net Income Per Share
Net income (loss) per share is calculated as follows (in thousands, except
per share data):
Year Ended September 30,
----------------------------
2001 2000 1999
-------- --------- --------
Net income (loss)........................... $ 31,271 $(106,127) $ 8,718
======== ========= ========
Weighted average common shares outstanding.. 99,456 96,487 93,328
Additional dilutive common stock equivalents 6,510 -- 6,880
-------- --------- --------
Diluted shares outstanding.................. 105,966 96,487 100,208
======== ========= ========
Net income (loss) per share--basic.......... $ 0.31 $ (1.10) $ 0.09
======== ========= ========
Net income (loss) per share--diluted........ $ 0.29 $ (1.10) $ 0.09
======== ========= ========
Options to purchase 4,931,296 shares of Common Stock were not included in
the computation of diluted shares for the year ended September 30, 2001,
because the options' exercise prices were greater than the average market price
of the common shares for the year. For the year ended September 30, 2000, all
outstanding options to purchase shares of Common Stock were excluded from the
computation of diluted net loss per share because they were anti-dilutive. For
the year ended September 30, 1999, no options were excluded from the
computation of diluted shares for the years ended September 30, 2001, as all
options were dilutive.
12. Business Segments, Exports and Major Customers
The Company operates in a single industry segment.
Five customers accounted for 25%, 17%, 12%, 10% and 10%, respectively, of
revenues in the year ended September 30, 2001. Three customers accounted for
15%, 13% and 11%, respectively, of revenues in the year
48
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Business Segments, Exports and Major Customers (Continued)
ended September 30, 2000. Three customers accounted for 11%, 11% and 10%,
respectively, of revenues in the year ended September 30, 1999.
The Company sells its technology to customers in the Far East, North
America, and Europe. The net income and loss for all periods presented are
derived primarily from the Company's North American operations, which generates
revenues from the following geographic regions (in thousands):
Year Ended September 30,
------------------------
2001 2000 1999
-------- ------- -------
Japan................................................. $ 55,171 $38,415 $14,010
United States......................................... 22,571 13,377 17,404
Korea................................................. 30,483 11,272 4,908
Taiwan................................................ 5,930 5,333 4,461
Europe................................................ 2,897 3,672 2,587
Israel................................................ 108 242 --
-------- ------- -------
$117,160 $72,311 $43,370
======== ======= =======
Revenues are attributed to individual countries according to the countries
in which the licensees are headquartered.
13. Litigation and Asserted Claims
On August 8, 2000, the Company filed suit in the U.S. District Court for the
Eastern District of Virginia (the "Virginia court") against Infineon
Technologies AG ("Infineon") and its North American subsidiary for patent
infringement of two U.S. patents. On September 25, 2000, Infineon filed
counterclaims against the Company in the U.S. case seeking a declaratory
judgment that the two asserted patents are invalid and no infringed and further
claiming contributory infringement by the Company of two Infineon U.S. patents.
In addition, Infineon also asserted breach of contract, fraud, RICO, and
monopolization claims in connection with the Company's participation in an
industry standards-setting group known as JEDEC where the Company is alleged
not to have disclosed certain of its then-pending patents ("JEDEC related
claims"). The Infineon counterclaims seek compensatory and punitive damages,
attorneys' fees, injunctions to halt future infringement of the Infineon
patents, and an award of a royalty-free license to the Rambus patents. In
October 2000, the Company amended its complaint to assert infringement of two
additional U.S. patents. In January 2001, Infineon amended its answer and
counterclaims to include a request for a declaratory judgment that all four
asserted Rambus patents are invalid and not infringed. In addition, Infineon
withdrew all contributory patent infringement claims against the Company
relating to Infineon's U.S. patents.
Trial began in the Virginia case on April 23, 2001. On May 4, 2001, the
Virginia court granted Infineon's motion to dismiss Rambus' patent infringement
case and granted Rambus' motion to dismiss Infineon's breach of contract and
monopolization claims. On May 9, 2001, the jury returned a verdict against
Rambus on the fraud claims and for Rambus on the RICO claims. The jury awarded
Infineon $3.5 million in punitive damages, which was reduced to $350,000 under
Virginia law. On August 9, 2001, as a result of post-trial motions, the
Virginia court set aside the constructive fraud verdict with respect to both
SDRAM and DDR standard setting. The actual fraud verdict with respect to DDR
standard setting was also set aside. Post-trial motions by Infineon resulted in
the Virginia court awarding Infineon approximately $7.1 million in attorneys'
fees. In addition, on November 26, 2001, the Virginia court issued a permanent
injunction, largely in accord with its previous rulings, prohibiting the
Company from filing additional patent infringement actions in the U.S., under
certain of the Company's U.S. patents, against Infineon with regard to
JEDEC-compliant SDRAM and DDR devices.
49
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Litigation and Asserted Claims (Continued)
The Company has appealed numerous liability rulings by the Virginia court
with respect to infringement and the JEDEC-related claims with respect to SDRAM
standard setting. Infineon has also cross-appealed setting aside of the verdict
with respect to DDR standard setting. These appeals, which will be heard by the
Court of Appeals for the Federal Circuit (CAFC), have been consolidated. The
Company filed its opening brief on November 2, 2001. The Company has also filed
a subsequent appeal with respect to the permanent injunction ruling.
On August 7, 2000, the Company filed suit in the District Court in Mannheim,
Germany (the "Mannheim court") against Infineon for infringement of one
European patent. A hearing was held on May 18, 2001, and on July 20, 2001, the
Mannheim court issued an "order for evidence" requiring the appointment of an
independent technical expert to evaluate certain technical aspects of Rambus'
infringement claim. The Mannheim court subsequently appointed its independent
technical expert, and, after the expert delivers an opinion, the court will
then determine whether Infineon products infringe Rambus' patent. In the
meantime, the validity of the same Rambus European patent is being reviewed by
the European Patent Office.
On August 28, 2000, Micron Technology, Inc. ("Micron") filed suit against
the Company in the U.S. District Court in Delaware. The suit asserts violations
of federal antitrust laws, deceptive trade practices, breach of contract, fraud
and negligent misrepresentation in connection with the Company's participation
in JEDEC. Micron's suit seeks a declaration of monopolization by the Company,
compensatory and punitive damages, attorneys' fees, a declaratory judgment that
eight Rambus patents are invalid and not infringed and the award to Micron of a
royalty-free license to the Rambus patents. In February 2001, the Company filed
its answer and counterclaims, whereby the Company disputes Micron's claims and
asserts infringement by Micron of the eight U.S. patents. Some discovery is
still ongoing in the Delaware action. Both sides have filed a number of
potentially dispositive motions for summary judgment on which the Delaware
court has not yet ruled. The judge has postponed trial on a number of the
issues until after the CAFC reviews the judgments of the Virginia court in the
Infineon matter. Issues, if any, that are to be tried before the outcome of the
appeal is known are tentatively scheduled for a trial in the second calendar
quarter of 2002.
In September 2000, the Company filed suit against Micron in Germany, France,
Great Britain and Italy for infringement of a European patent. The French and
Italian actions included court-sanctioned seizure of documents, samples and, in
the case of the Italian action, mask sets from Micron facilities. The Micron
German suit is, like the Infineon German suit, in the Mannheim court, which is
currently expected to issue an "order for evidence" on December 7, 2001, which
the Company believes will ultimately result in the appointment of an expert.
The French suit is in an early phase. The British suit has been temporarily
stayed pending a determination by the European Patent Office on validity. In
the Italian case, on December 21, 2000, the items seized were ordered returned
based on jurisdictional grounds. On May 2, 2001, the independent experts
appointed by the District Court in Monza, Italy (the "Monza court") issued a
report that confirmed the validity of the Rambus patent in suit and determined
that Micron's SDRAM products infringe the Rambus patent. On May 25, 2001, the
Monza court, after considering the expert's report, declined to grant Rambus a
preliminary injunction. Rambus appealed the Monza court's ruling, and on July
18, 2001, the Appeals Court rejected the appeal based on jurisdictional
grounds. The infringement suit against Micron in Italy on the first European
patent will now continue in the District Court of Milan.
In December 2000, Micron filed a declaratory judgment suit of
non-infringement of a second European Patent against the Company in the
District Court of Avezzano, Italy. In response, the Company asserted
infringement of the second European Patent in Milan, Italy. Further, the
Company filed suit against Micron in Germany and Italy for infringement of a
third European patent. The German suit for infringement of the third European
patent is pending in the Mannheim court, while the Italian suit on this third
European patent has been stayed.
50
RAMBUS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Litigation and Asserted Claims (Continued)
On August 29, 2000, Hyundai Electronics Industries Co., Ltd. ("Hyundai") and
various subsidiaries filed suit against the Company in the U.S. District Court
for the Northern District of California . Since filing suit, Hyundai has
changed its name to "Hynix Semiconductor Inc." ("Hynix"). The suit asserts
breach of contract in connection with the Company's participation in JEDEC and
seeks a declaratory judgment that eleven Rambus patents are invalid and not
infringed by Hynix. In November 2000, Hynix amended its complaint to further
assert violations of federal antitrust laws, deceptive trade practices, breach
of contract, fraud and negligent misrepresentation in connection with the
Company's participation in JEDEC. Hynix seeks a declaration of monopolization
by the Company, compensatory and punitive damages, and attorneys' fees. In
February 2001, the Company filed its answer and counterclaims, whereby the
Company disputes Hynix's claims and asserts infringement of 11 U.S. patents. On
November 21, the California court ruled that the claim construction applied in
the Virginia case against Infineon should be applied in the case with Hynix,
and, as a result, dismissed most of the Company's claims of patent infringement
against Hynix. In doing so, the California court declined to decide whether, on
the merits, the Virginia claim construction was correctly or incorrectly
decided. The Virginia claim construction issue is one of the matters that will
be reviewed as part of the Company's pending appeal in the Infineon case, and
the California court has suggested it will stay the remaining issues in the
Hynix case pending the outcome of the appeal.
In September 2000, the Company filed suit against Hynix in Germany, France
and Great Britain for infringement of a European patent. The French suit
included court-sanctioned seizure of documents and samples from a Hynix
facility. A hearing is scheduled on December 7, 2001, in the German suit. The
French suit is in an early phase. The British suit has been temporarily stayed.
On August 10, 2001, following the trial results in the Infineon case,
Rambus, Inc. was named as a defendant in a purported federal class action in
the United States District Court for the Northern District of California. That
action was brought allegedly on behalf of a class of plaintiffs who purchased
Rambus Common Stock between February 11, 2000 and May 9, 2001, inclusive, and
asserted claims under Section 10(b) of the Exchange Act and Section 20(a) of
the Exchange Act, as well as Rule 10b-5. The Complaint alleges that Rambus
misled shareholders concerning its business and the status of its intellectual
property in light of allegations concerning the Company's involvement in JEDEC.
Fourteen similar actions were filed in the Northern District of California. On
November 16, 2001, a lead plaintiff was appointed and the various cases will be
consolidated and a consolidated amended complaint will be filed. The Company
intends to defend itself in this action.
On August 15, 2001, a purported shareholder derivative lawsuit was filed in
Delaware Chancery Court. The Company is a nominal defendant and the Company's
directors are defendants. Additional similar actions were filed and were
consolidated. The consolidated complaint was filed on November 12, 2001 and
alleges that the individual defendants caused the Company to engage in an
improper course of conduct relating to JEDEC and its intellectual property
beginning in 1992 and continuing through the Infineon trial in May of 2001. The
complaint alleges breaches of fiduciary duty, misappropriation of confidential
information for personal profit, and ask for contribution or indemnification
from the named director defendants. The Company intends to file a motion to
dismiss the complaint.
Similar derivative actions were filed in California Superior Court, Santa
Clara County. Complaints assert claims for breaches of fiduciary duty and
violation of California's proscription against insider trading. On November 15,
2001, the Court granted defendants' motion to stay two of these cases in
deference to the Delaware actions described above. Defendants' have filed a
similar motion to stay the third case.
The Company has been in communication with the Federal Trade Commission
(FTC) regarding its investigation of several standards-setting processes,
including Rambus' involvement in JEDEC. To the Company's knowledge, there has
been no decision by the FTC to move forward with any legal or other action
relating to these matters.
51
RAMBUS INC. AND SUBSIDIARY
CONSOLIDATED SUPPLEMENTARY FINANCIAL DATA
Fiscal years by quarter
--------------------------------------------------------------------------
2001 2000
----------------------------------- --------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
-------- -------- -------- -------- -------- -------- --------- --------
(in thousands, except per share amounts)
Unaudited)
Revenues:
Contract revenues..................... $ 2,833 $ 3,514 $ 7,581 $ 7,869 $ 6,987 $ 11,186 $ 12,191 $ 9,319
Royalties............................. 25,063 19,787 23,665 26,848 19,921 6,574 3,503 2,630
-------- -------- -------- -------- -------- -------- --------- --------
Total revenues...................... 27,896 23,301 31,246 34,717 26,908 17,760 15,694 11,949
-------- -------- -------- -------- -------- -------- --------- --------
Costs and expenses:
Cost of contract revenues............. 1,894 2,692 3,057 2,220 2,666 2,908 3,018 3,501
Research and development.............. 5,035 4,822 4,758 3,588 3,520 2,828 2,900 2,254
Marketing, general and administrative. 12,654 13,893 12,585 9,247 6,472 6,205 5,064 3,399
Employee stock-related compensation
expense............................. -- -- -- -- -- -- 171,085 --
-------- -------- -------- -------- -------- -------- --------- --------
Total costs and expenses............ 19,583 21,407 20,400 15,055 12,658 11,941 182,067 9,154
Operating income (loss)................ 8,313 1,894 10,846 19,662 14,250 5,819 (166,373) 2,795
Interest and other income, net......... 1,987 2,317 2,557 2,071 1,254 1,296 1,167 997
-------- -------- -------- -------- -------- -------- --------- --------
Income (loss) before income taxes...... 10,300 4,211 13,403 21,733 15,504 7,115 (165,206) 3,792
Provision for (benefit from) income
taxes................................. 3,818 504 5,361 8,693 (38,121) 2,491 1,635 1,327
-------- -------- -------- -------- -------- -------- --------- --------
Net income (loss) ..................... $ 6,482 $ 3,707 $ 8,042 $ 13,040 $ 53,625 $ 4,624 $(166,841) $ 2,465
======== ======== ======== ======== ======== ======== ========= ========
Net income (loss) per share--diluted... $ 0.06 $ 0.04 $ 0.07 $ 0.12 $ 0.49 $ 0.04 $ (1.75) $ 0.02
======== ======== ======== ======== ======== ======== ========= ========
Shares used in per share calculations.. 102,218 102,889 107,588 108,560 110,049 108,859 95,557 100,681
Stock prices:
High.................................. $ 11.06 $ 20.40 $ 53.69 $ 83.25 $ 109.69 $ 117.38 $ 111.27 $ 23.16
Low................................... $ 5.35 $ 9.07 $ 15.80 $ 35.00 $ 66.69 $ 37.66 $ 17.25 $ 15.66
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
RAMBUS INC.
Date: December 4, 2001
By: /s/ ROBERT K. EULAU
__________________________________
Robert K. Eulau,
Sr. Vice President, Finance,
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ GEOFF TATE Chief Executive Officer and December 4, 2001
---------------------------------------- Director (Principal Executive
Geoff Tate Officer)
/s/ DAVID MOORING President and Director December 4, 2001
----------------------------------------
David Mooring
/s/ ROBERT K. EULAU Sr. Vice President, Finance, December 4, 2001
---------------------------------------- Chief Financial Officer
Robert K. Eulau (Principal Financial and
Accounting Officer)
/s/ WILLIAM DAVIDOW Chairman of the Board of Directors December 4, 2001
----------------------------------------
William Davidow
/s/ BRUCE DUNLEVIE Director December 4, 2001
----------------------------------------
Bruce Dunlevie
/s/ P. MICHAEL FARMWALD Director December 4, 2001
----------------------------------------
P. Michael Farmwald
/s/ CHARLES GESCHKE Director December 4, 2001
----------------------------------------
Charles Geschke
/s/ MARK HOROWITZ Director December 4, 2001
----------------------------------------
Mark Horowitz
53
INDEX TO EXHIBITS
Exhibit
Number Description of Document
------ -----------------------
3.1(3) Amended and Restated Certificate of Incorporation of Registrant filed
May 29, 1997.
3.2(6) Amended and Restated Bylaws of Registrant dated October 20, 1999.
4.1(1) Form of Registrant's Common Stock Certificate.
4.2(1) Amended and Restated Information and Registration Rights Agreement,
dated as of January 7, 1997,between Registrant and the parties
indicated therein.
4.3(1) Form of Preferred Shares Rights Agreement dated April 1, 1997.
4.4(7) Warrant No. 1-REV dated January 7, 1997 issued to Intel Corporation
to purchase shares of the Registrant's common stock.
10.1(1) Form of Indemnification Agreement entered into by Registrant with
each of its directors and executive officers.
10.4(1)(2) Semiconductor Technology License Agreement, dated as of November 15,
1996, between Registrant and Intel Corporation.
10.4.1(4) Amendment No. 1 to Semiconductor Technology License Agreement, dated
as of July 10, 1998, between Registrant and Intel Corporation.
10.5(11) 1990 Stock Plan, as amended, and related forms of agreements.
10.6(5) 1997 Stock Plan and related forms of agreements.
10.7(11) 1997 Employee Stock Purchase Plan and related forms of agreements.
10.8(1) Standard Office Lease, dated as of March 10, 1991, between Registrant
and South Bay/Latham.
10.9(1) Form of Promissory Note between the Registrant and certain executive
officers.
10.10(6) Office Lease, dated as of August 27, 1999, between Registrant and Los
Altos--El Camino Associates, LLC.
10.11(6) Common Stock Equivalent Agreement, dated as of October 20, 1999,
between the Registrant and Geoff Tate.
10.12(6) Common Stock Equivalent Agreement, dated as of October 20, 1999,
between the Registrant and David Mooring.
10.13(8) Office Sublease, dated as of May 8, 2000, between Registrant and Muse
Prime Software, Inc.
10.14(9) Amended and Restated 1999 Nonstatutory Stock Option Plan.
10.15(10) Patent License Agreement, dated as of September 14, 2001, by and
between the Registrant and Intel Corporation.
21.1(1) Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
--------
(1) Incorporated by reference to Registration Statement No. 333-22885.
(2) Confidential treatment was granted with respect to certain portions of
this exhibit. Omitted portions were filed separately with the Securities
and Exchange Commission.
(3) Incorporated by reference to the Form 10-K filed on December 15, 1997.
(4) Incorporated by reference to the Form 10-K filed on December 9, 1998.
(5) Incorporated by reference to the Registration Statement on Form S-8 filed
December 22, 1999 (file no. 333-93427).
(6) Incorporated by reference to the Form 10-K filed on December 23, 1999.
(7) Incorporated by reference to the Form 8-K filed on July 7, 2000.
(8) Incorporated by reference to the Form 10-Q filed on August 9, 2000.
(9) Incorporated by reference to the Registration Statement on Form S-8 filed
December 19, 2000 (file no. 333-52158).
(10) Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(11) Incorporated by reference to the Registration Statement on Form S-8 filed
June 6, 1997 (file no. 333-28597).
54
Exhibit 10.15
-------------
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as [*]. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
PATENT LICENSE AGREEMENT
This Patent License Agreement (this "Agreement") is made by and between
Rambus Inc. ("Rambus"), a Delaware corporation with principal offices at 4440 El
Camino Real, Los Altos, California 94022 and Intel Corporation ("Intel"), a
Delaware corporation, located at 2200 Mission College Blvd., Santa Clara,
California 95052 and is effective as of the Effective Date (as defined below).
WHEREAS, Rambus represents that it owns various patents, utility models
and patent applications, in certain countries of the world, in the field of
integrated circuit products, systems containing integrated circuit products,
methods of operating integrated circuit products, and methods of controlling
integrated circuit products;
WHEREAS, Intel is a worldwide leader in the creation, development,
manufacture and sale of integrated circuits;
WHEREAS, on November 15, 1996 the parties entered into
the 1996 Agreement
as Amended granting certain licenses between Intel and Rambus;
WHEREAS, the parties have [*];
WHEREAS, Intel has [*];
WHEREAS, the parties hereto now wish to [*];
WHEREAS, the parties hereto both desire a mutually beneficial, [*]
arrangement;
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, the parties agree as follows:
1. Definitions.
1.1 "Change of Control" shall mean a transaction or a series of
related transactions in which (i) one or more related parties who did not
previously own at least a fifty percent (50%) interest in a party to this
Agreement obtain at least a fifty percent (50%) interest in such party,
including, without limitation, a transfer of all or substantially all of such
party's assets, whether by sale, merger, or otherwise, or (ii) a party acquires,
by merger, acquisition of assets or
- 1 -
otherwise, all or any portion of another legal entity such that the market value
of such party immediately after the close of such transaction is, as a result of
such transaction, greater than two (2) times the market value of such party
immediately prior to such transaction.
1.2 "Compliant Portion" means only those specific portions of
Integrated Circuits that implement an Interface. Any portion of a Compliant
Portion which also serves purposes other than to implement an Interface shall
not be a Compliant Portion, for purposes of the licenses in Section 4, when, and
only when, performing such other functions.
1.3 "Flash Memory Products" shall mean non-volatile Integrated
Circuits which has a primary function of storing data that are electrically
programmable and electrically erasable.
1.4 "Information System Product" shall mean any active circuit
element, apparatus, appliance, circuit assembly, computer, device, equipment,
firmware, housing, Integrated Circuit, instrumentality, material, method,
passive circuit element, process, service, software, substrate or other means
for calculating, classifying, combining, computing, detecting, displaying,
handling, hosting, imaging, inputting, manifesting, measuring, modifying,
networking, originating, photographing, playing, printing, processing,
providing, receiving, recording, reproducing, retrieving, scanning, serving,
storing, switching, transmitting or utilizing data or other information for
business, scientific, control or other purposes, including components and
subsystems thereof or supplies therefor.
1.5 "Integrated Circuit" shall mean an integrated unit comprising
one or more active and/or passive circuit elements associated on one or more
silicon substrates, such unit forming, or contributing to the formation of, a
circuit for performing electrical functions (including, if provided therewith,
housing and/or supporting means).
1.6 "Intel Bus" shall mean a proprietary bus or other data path
either of which was first introduced by Intel that (a) is capable of
transmitting and/or receiving information within an Integrated Circuit or
between two or more Integrated Circuits, together with the set of protocols
defining the electrical, physical, timing and functional characteristics,
sequences and control procedures of such bus or data path; and (b) to which
Intel has not granted a license or committed to grant a license through its
participation in a government sponsored, industry sponsored, or contractually
formed group or any similar organization that is dedicated to creating publicly
available standards or specifications; and (c) which Intel has not publicly
disclosed with no obligation of confidentiality.
1.7 "Intel Architecture Emulator" shall mean any processor that is
designed and marketed primarily to be used with software such that the
combination of the processor and the software when used in an Information
Processing System is capable of processing binaries of software that runs on an
Intel Processor.
1.8 "Intel Compatible Chipsets" shall mean one or more Integrated
Circuits that alone or together are capable of (i) electrically interfacing
directly (with or without buffering or pin reassignment) with an Intel Processor
or Intel Compatible Processor to form the connection between
- 2 -
an Intel Processor or Intel Compatible Processor and any other device including,
without limitation, processors, input/output devices, and memory; or (ii)
communicating directly with any Intel Compatible Processor through an Intel Bus.
1.9 "Intel Compatible Processor" shall mean any processor that (a)
can perform substantially the same functions as an Intel Processor by compatibly
executing or otherwise processing (i) a substantial portion of the instruction
set of an Intel Processor or (ii) object code versions of applications or other
software targeted to run on or with an Intel Processor, in order to achieve
substantially the same result as an Intel Processor; or (b) is substantially
compatible with an Intel Bus.
1.10 "Intel Patents" shall mean Patents which Intel or any of its
Subsidiaries owns or controls (directly or indirectly), or as to which Intel or
any of its Subsidiaries has the right to grant licenses within and of the scope
set forth herein, now or hereafter during the term of this Agreement; provided
that if such right to grant patent licenses is subject to a requirement to pay
consideration to any third party (other than Intel's Subsidiaries or employees
of Intel or its Subsidiaries), such patent shall be deemed an "Intel Patent"
only if Rambus agrees to bear such payment, but excluding those Patents claiming
manufacturing technology, semiconductor structures, chemicals, and validation
techniques, and further excluding testing methodologies and packaging provided
that testing methodologies and packaging shall be included to the extent
reasonably required by the applicable Interface.
1.11 "Intel Licensed Products" shall mean any product that
constitutes: (a) an Information System Product, (b) software or (c) any
combination thereof, that if sold, is sold by Intel as Intel's own product
(subject to the limitations set forth in Section 6.2) and not on behalf of
another, provided that Integrated Circuits shall be "Intel Licensed Products"
only so long as they do not bear exclusively one or more third parties' part
number(s), name(s), or mark(s).
1.12 "Intel Processor" shall mean a processor first developed by,
for or with substantial participation by Intel, or the design of which has been
purchased or otherwise acquired by Intel, including without limitation the Intel
8086, 80186, 80286, 80386, 80486, Pentium(R), Pentium Pro, Pentium(R) II,
Pentium(R) III, Pentium 4, StrongARM, Xscale, Itanium(R) processor, 80860 and
80960 microprocessor families, and the 8087, 80287, and 80387 math coprocessor
families. For purposes of this section, " purchased or otherwise acquired by
Intel" does not include nonexclusively licensed to Intel.
1.13 "Intel Proprietary Product" shall mean Intel Processors, Intel
Compatible Processors, Intel Architecture Emulators, Intel Compatible Chipsets,
any product that contains or implements any Intel Bus, and Flash Memory
Products.
1.14 "Interface" shall mean a proprietary electrical bus or other
similar information path either of which was first introduced by Rambus that is
capable of transmitting and/or receiving information between two or more
Integrated Circuits, together with the set of protocols defining the electrical,
physical, timing and functional characteristics, sequences and/or control
procedures of such bus or data path.
- 3 -
1.15 "Patents" shall mean all classes or types of patents,
including utility models and applications for the included classes or types of
patent rights in all countries of the world that have a first effective filing
date on or prior to the expiration of the term or the termination of this
Agreement.
1.16 "Memory Interface" shall mean any Interface which is primarily
designed, optimized and marketed by Rambus to connect a logic Integrated Circuit
with one or more Memories. An example of a Memory Interface is the Compliant
Portion on one or more RAMs, coupled to a memory controller including any
intervening sockets or connectors between such RAMs, and the memory controller
plus clock sources to provide timing over the Memory Interface, the physical I/O
on the memory controller coupled to the RAMs and the digital logic on the memory
controller that directly generates and/or controls the transactions to/from the
RAMs over such physical I/O.
1.17 "Memory" means an Integrated Circuit the primary purpose of
which is to perform the function of storing digital information.
1.18 "Other Interface" shall mean any Interface which is neither a
Memory Interface nor an Intel Bus.
1.19 "Rambus Licensed Integrated Circuit" means any Integrated
Circuit that is not an Intel Proprietary Product.
1.20 "Rambus Licensee" is a third party to whom Rambus has granted
a license under its intellectual property rights to a Memory Interface and/or an
Other Interface.
1.21 "Rambus Patents" shall mean Patents which Rambus or any of its
Subsidiaries owns or controls (directly or indirectly), or as to which Rambus or
any of its Subsidiaries has the right to grant licenses within and of the scope
set forth herein, now or hereafter during the term of this Agreement; provided
that if such right to grant patent licenses is subject to a requirement to pay
consideration to any third party (other than Rambus' Subsidiaries or employees
of Rambus or its Subsidiaries), such patent shall be deemed a "Rambus Patent"
only if Intel agrees to bear such payment.
1.22 "Subsidiary" shall mean any corporation, partnership, joint
venture, limited liability company or other entity, now or hereafter, in which a
party owns or controls (either directly or indirectly) either of the following:
(a) if such entity has voting shares or other securities, at
least fifty percent (50%) of the outstanding shares or securities entitled to
vote for the election of directors or similar managing authority and such entity
is under no obligation (contractual or otherwise) to directly or indirectly
distribute more than seventy percent (70%) of its profits to a third party, or
(b) if such entity does not have voting shares or other
securities, at least fifty percent (50%) of the ownership interest that
represents the right to make decisions for such
- 4 -
entity and an interest sufficient to receive at least thirty percent (30%) of
the profits of such entity if such profits are distributed.
An entity shall be deemed to be a Subsidiary under this Agreement only so
long as all requisite conditions of being a Subsidiary are met.
1.23 "1996 Agreement as Amended" shall mean the Semiconductor
Technology License Agreement made by and between Intel and Rambus dated November
14, 1996, as amended by the July 10, 1998 Amendment thereto.
1.24 "Effective Date" means the date of signing by the second party
to sign this Agreement, provided that if within fifteen (15) days after the
first party signs this Agreement, the other party has not signed this Agreement,
the first party's signature shall become void unless otherwise agreed in
writing.
2. Release From Past Claims.
2.1 Effective as of the Effective Date of this Agreement:
(a) Each party, on behalf of itself and its Subsidiaries,
hereby irrevocably releases, acquits, forever discharges and covenants not to
sue the other party, its Subsidiaries, and its and their distributors,
customers, mediate and immediate, from any and all claims of infringement
(direct, induced, indirect, or contributory) of any Patents for acts prior to
the Effective Date which, if occurring after the Effective Date, would be
licensed hereunder, or would be subject to paragraph (B) of Section 3. If a
company becomes a Subsidiary of a party after the Effective Date of this
Agreement, and (A) that company is then in litigation, arbitration, before the
International Trade Commission, or any other proceeding in which it has asserted
any claims against the other party, and (B) claims asserted against such other
company by the other party would be released, pursuant to this section, upon the
company's becoming a Subsidiary, then, as a condition of such company's
obtaining the benefits of this Section 2.1(a) as a Subsidiary, it shall
irrevocably release the other party, for no additional consideration, from all
such claims. This Section 2.1(a) shall not apply to any acts, prior to the
Effective Date, of any successor in interest of either party. For the avoidance
of doubt, a party's distributors and customers, mediate and immediate ("Released
Customers") are so released from such claims of infringement only with respect
to their use, import, offer for sale, or sale of Intel Licensed Products
acquired, directly or indirectly, from Intel or its Subsidiaries.
(b) In addition, each party releases, acquits, and
discharges the other party and its Subsidiaries which are Subsidiaries as of the
Effective Date of this Agreement, from any and all claims and/or liabilities of
any nature or kind, whether known or unknown, as of the Effective Date, relating
to or arising out of the subject matter of this Agreement or the 1996 Agreement
as Amended. UPON THE ADVICE OF LEGAL COUNSEL, EACH PARTY AND ITS SUBSIDIARIES
WAIVE AGAINST THE OTHER PARTY AND ITS SUBSIDIARIES, ALL RIGHTS UNDER CALIFORNIA
CIVIL CODE SECTION 1542 AND ANY OTHER STATE OR FEDERAL STATUTE OR COMMON LAW
PRINCIPLE OF SIMILAR EFFECT. SECTION 1542 PROVIDES: A GENERAL RELEASE DOES NOT
EXTEND TO CLAIMS
- 5 -
WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM, MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
3. Rambus License to Intel. Subject to the terms and conditions of this
Agreement, Rambus, on behalf of itself and its Subsidiaries, grants to Intel and
its Subsidiaries a worldwide, nonexclusive, nontransferable license, without
right of sublicense, under Rambus Patents to:
(i) make, have made (subject to the restrictions of
Section 6.1), use, and import, and sell, offer to sell and otherwise dispose of
Intel Licensed Products (subject to Section 6.2); and
(ii) make, have made (subject to the restrictions of
Section 6.1), use, offer to sell, sell and/or import any equipment and practice
any method or process for use in the manufacture, sale, offer for sale, or
import of Intel Licensed Products.
For purposes of this Section 3, an "Unlicensed IC" shall mean an Integrated
Circuit the manufacture, use, import, or sale of which by a third party is
unlicensed by Rambus. With respect to each Unlicensed IC acquired by Intel or
its Subsidiaries from a third party and incorporated by Intel into an Intel
Licensed Product, due to the licenses granted herein:
(A) Rambus shall retain all of its rights against such third
parties, and no license, covenant not to sue, or other right or benefit shall be
implied on behalf of said third party with respect to the Unlicensed IC.
(B) The Unlicensed IC is expressly excluded from the scope
of Intel's and its Subsidiaries' license (express, implied, or otherwise), but
Rambus hereby agrees that it cannot assert any claim against Intel, its
Subsidiaries, or their distributors or customers, mediate or immediate, with
respect to any such entity's use, importation, offer for sale, or sale of such
Unlicensed IC if purchased from Intel as part of an Intel Licensed Product.
(C) If however, Intel or its Subsidiaries incorporate such
Unlicensed IC into a product that is an Intel Licensed Product, Rambus hereby
agrees it cannot assert any claim against Intel, its Subsidiaries, or their
distributors or customers, mediate or immediate, with respect to any such
entity's use, importation, offer for sale, or sale of such Unlicensed IC.
4. Intel License to Rambus.
4.1 Memory Interfaces. Subject to the terms and conditions of this
-----------------
Agreement, Intel, on behalf of itself and its Subsidiaries, grants to Rambus and
its Subsidiaries a worldwide, royalty free, nonexclusive license, under Intel
Patents pertaining to Memory Interfaces, to design, make, have made (subject to
Section 6.1), use, import, offer to sell, and sell or otherwise dispose of any
Compliant Portions of Memory Interfaces (alone or as incorporated into products)
(subject to Section 6.2) provided that such license does not extend to any part
or function of a product in which a Compliant Portion is incorporated that is
not itself part of the Compliant Portion. Rambus shall
- 6 -
have the right to sublicense (without any right of its sublicensees to further
sublicense except to their Subsidiaries) its rights under the Intel Patents to
Rambus Licensees but only to the same scope as Rambus has licensed its
intellectual property (other than trademarks) necessary to implement such Memory
Interface.
4.2 Rambus shall have the right to obtain [*] as set forth in
Exhibit B. This Section 4.2, however, shall not survive any assignment, merger
in which Rambus is not the surviving entity, or Change of Control of Rambus
without Intel's express written consent.
4.3 Other Interfaces. Subject to the terms and conditions of this
----------------
Agreement, Intel, on behalf of itself and its Subsidiaries, grants to Rambus and
its Subsidiaries a worldwide, royalty free, nonexclusive license, under Intel
Patents pertaining to Other Interfaces, to design, make, have made (subject to
Section 6.1), use, import, offer to sell, and sell or otherwise dispose of
Compliant Portions of Other Interfaces (alone or as incorporated into products)
(subject to Section 6.2), provided that such license does not extend to any
portion of a product in which a Compliant Portion is incorporated other than
such Compliant Portion. Rambus shall have the right to sublicense (without any
right of its sublicensees to further sublicense except to their Subsidiaries)
its rights under the Intel Patents to Rambus Licensees but only to the same
extent Rambus has licensed such Rambus Licensee under Rambus' and its
Subsidiaries' intellectual property rights (other than trademarks) necessary to
implement the Other Interface, provided that such sublicense shall exclude use
of the Compliant Portion in products other than Rambus Licensed Integrated
Circuits.
4.4 In response to a written request from Intel, Rambus will
respond within thirty (30) days whether the company named in the request has an
Interface license from Rambus, subject to Rambus' confidentiality obligations,
if any, to such company. Each party agrees to treat all information provided to
the other party under this Section 4.4 as Confidential Information of the
disclosing party pursuant to a Corporate Non-disclosure Agreement between the
parties.
5. Licenses for Subsidiaries.
5.1 Intention for Subsidiaries to be Bound.
(a) Except as expressly set forth herein, the parties intend
that this Agreement shall extend to all of each party's Subsidiaries. The
parties agree that to the extent they are not already bound, each party shall
use reasonable and diligent efforts to ensure that all such Subsidiaries are
bound by the terms of this Agreement.
(b) Each party agrees to take all steps that are reasonable
and in good faith under the circumstances to ensure that all Patents directed to
inventions that are made by its employees and/or contractors either alone or in
conjunction with the employees and/or contractors of one or more of its
Subsidiaries or third parties (to the extent legally possible) are licensed
under this Agreement. Each party further agrees to take all steps that are
reasonable and in good faith under the circumstances to ensure that all Patents
directed to inventions that are made in substantial part using funding provided
directly or indirectly by that party and/or its Subsidiaries are licensed under
this Agreement.
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(c) Notwithstanding the foregoing, however, both parties
understand and intend that there are circumstances in which a party could
reasonably agree in good faith with an independent third party that the party
would not have rights to license and/or enforce Patents directed to inventions
developed in conjunction with employees and or contractors of such third party.
For example, both parties understand that it could be reasonable under the
circumstances for a party to agree in good faith not to have rights to license
and/or enforce Patents directed to inventions that arise out of: (i) bona fide
joint development projects based in substantial part on the pre-existing
technology of an independent third party; or (ii) bona fide joint development
projects undertaken with the significant assistance of the employees and/or
contractors of an independent third party.
(d) Either party to this Agreement shall have the right to
request a written confirmation or denial from the other party to this Agreement
that a specific Subsidiary is (or is not) bound by this Agreement. A party
receiving such a request shall provide such written confirmation (including a
full explanation in support of such confirmation or denial) within 30 days after
the receipt of the request.
(e) In the event that neither a party nor any of its
Subsidiaries has the right to grant a license under any particular Patent right
of the scope set forth herein, then the license granted herein under such Patent
shall be of the broadest scope which the licensing party or any of its
Subsidiaries has the right to grant.
(f) The parties represent, warrant and covenant that they
shall not participate in the creation or acquisition of Subsidiaries where a
primary purpose of such creation is to extend the benefits of this Agreement to
a third party.
(g) The extension of license rights to a Subsidiary shall
apply only during the time period when such Subsidiary meets all requirements of
a Subsidiary. However, if a Subsidiary of a party that holds any Patents that
are licensed to the other party hereunder ceases to meet all requirements of
being a Subsidiary, the licenses granted by such Subsidiary to the other party
under this Agreement shall continue for the life of such Patents even after such
entity ceases to meet all the requirements of being a Subsidiary.
6. Limitations on Licenses.
6.1 Have Made Rights.
(a) Each party's and its sublicensee's rights to have
products manufactured for it by third parties under the licenses and sublicenses
granted under Sections 3 and 4 above shall apply only when the designs,
specifications and working drawings for the manufacture of such products to be
manufactured by such third party are furnished to the third party manufacturer
by the party licensed under this Agreement ("Licensed Party").
(b) The parties understand and acknowledge that Intel's
Licensed Products may consist of software, and that software is often
distributed to end users by providing a single master copy of such software to a
distributor, replicator, VAR, OEM or other agent and authorizing
- 8 -
such agent to reproduce such software in substantially identical form.
Accordingly, the parties agree that the licenses granted in Sections 3 and 4 are
intended to apply to the reproduction and subsequent distribution of such
software Licensed Products in substantially identical form by such authorized
agent.
(c) Upon written request of the party to this Agreement that
grants the relevant license to the Licensed Party ("Requesting Party"), the
Licensed Party shall, within 30 days of receiving such request, inform the
Requesting Party in writing whether, and if so to what extent, any manufacturer
identified by the Requesting Party is manufacturing any product for the Licensed
Party pursuant to the "have made" rights granted under this Agreement.
(d) To the extent that Intel acts a foundry for third
parties (i.e., by providing manufacturing services for a third party for such
third party's Integrated Circuit products), Intel shall be licensed pursuant to
this Agreement under any Rambus Patents on semiconductor manufacturing processes
or methods.
6.2 Clarification Regarding Patent Laundering. The parties
-----------------------------------------
understand and acknowledge that the licenses granted hereunder are intended to
cover only the products of the two parties to this Agreement and their permitted
sublicensees, and are not intended to cover manufacturing activities that either
party or a sublicensee may undertake on behalf of third parties (patent
laundering activities). Similarly, the licenses provided under this Agreement
are not intended to cover services provided by the parties or their sublicensees
to the extent that such services are provided to or on behalf of a third party
using tangible or intangible materials provided by or on behalf of the third
party. Accordingly, by way of clarification, the following guidelines are
provided to aid the determination of whether a party's or its sublicensees
product is licensed as provided herein or whether such product is disqualified
from being licensed because circumstances surrounding the manufacture of the
product suggest patent laundering.
(a) Products that would be licensed (including, without
limitation, Application Specific Integrated Circuits "ASICs") are disqualified
as licensed products if such products are manufactured on behalf of a third
party from designs received in a substantially completed form from a third party
for resale to or on behalf of that party.
(b) Products (including, without limitation, ASICs) that
would be licensed are not disqualified as licensed products under the
prohibition against patent laundering set forth in this Section 6.2 if:
(i) the party selling such product owns the design of
such product and is under no obligation that restricts the sale of such product;
or
(ii) the party selling such product has an
unrestricted, royalty-free ownership or license right to the design of such
product.
Further, it is understood that Rambus and/or its Subsidiaries have granted, and
may in the future grant, to Rambus Licensees the right to incorporate Interfaces
into such Rambus Licensee's ASIC
- 9 -
products, and it is agreed that such ASIC products, of Rambus, its Subsidiaries,
and/or Rambus Licensees, are not disqualified as licensed products under the
prohibition on patent laundering in this Section 6.2.
7. Waiver of Indirect Infringement Liability.
7.1 For purposes of this Section 7, "Indirect Infringement" means
a claim for infringement where the accused infringer is not directly infringing
the subject patent rights(s), but is in some manner contributing to a third
party's direct infringement of the subject patent rights(s) by, for example,
supplying parts or instructions to the third party that as a result of such
parts or instructions enable such third party to infringe directly the subject
patent rights(s). Indirect Infringement includes without limitation contributory
infringement and inducing infringement.
7.2 Each party agrees that, unless the licenses it has granted
hereunder are terminated pursuant to Section 18, for any of its Patents, it and
its Subsidiaries will not assert a claim of Indirect Infringement against the
other party or its Subsidiaries licensed hereunder. The parties agree that the
foregoing sentence does not and shall not in any way limit their respective
rights to assert direct or indirect claims of infringement against third
parties.
8. Limitations. No license or other right is granted, by implication,
estoppel or otherwise, to either party under any patents, confidential
information or other intellectual property rights now or hereafter owned or
controlled by either party except for the licenses and rights expressly granted
in this Agreement. Except as described in Sections 4 and 5, nothing in the
licenses granted hereunder or otherwise contained in this Agreement shall
expressly or by implication, estoppel or otherwise give either party any right
to license the other party's Patents to third parties. Nothing contained in this
Agreement shall be construed as:
8.1 a warranty or representation by either party, as to the
validity, enforceability, and/or scope of any Patents; or
8.2 imposing upon either party any obligation to institute any
suit or action for infringement of any Patents, or to defend any suit or action
brought by a third party which challenges or concerns the validity,
enforceability or scope of any Patents; or
8.3 imposing on either party any obligation to file any patent
application or other intellectual property right application or registration or
to secure or maintain in force a Patent; or
8.4 a warranty or representation by either party as to the
performance, operation or maintenance of any product of such party or, in the
case of Rambus, its sublicensees, manufactured, used or sold pursuant to this
Agreement; or.
8.5 an obligation by either party to furnish any engineering
support, technical information, or know-how under this Agreement.
9. Warranty Disclaimer.
- 10 -
ANY PATENTS OF EITHER PARTY, AND ANY CONFIDENTIAL INFORMATION OF
EITHER PARTY ARE PROVIDED AND/OR LICENSED "AS IS" WITHOUT WARRANTY OF ANY KIND,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
10. Indemnification.
10.1 Rambus disclaims and shall have no obligation of defense,
contribution, or indemnity with respect to any actual or alleged intellectual
property infringement with respect to Rambus intellectual property rights or
otherwise arising out of this Agreement. Rambus shall have no liability arising
out of any such actual or alleged intellectual property infringement. Rambus
shall have no obligation to intervene in any such infringement action against
Intel.
10.2 Intel disclaims and shall have no obligation of defense,
contribution, or indemnity with respect to any actual or alleged intellectual
property infringement with respect to Intel intellectual property rights or
otherwise arising out of this Agreement. Intel shall have no liability arising
out of any such actual or alleged intellectual property infringement. Intel
shall have no obligation to intervene in any such infringement action against
Rambus.
11. Limitation of Liability.
EXCEPT FOR BREACHES OF THE CONFIDENTIALITY PROVISIONS IN SECTION 20,
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, CONSEQUENTIAL,
INDIRECT, OR INCIDENTAL DAMAGES, HOWEVER CAUSED, ON ANY THEORY OF LIABILITY AND
WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
ARISING OUT OF THIS AGREEMENT PROVIDED PURSUANT TO THIS AGREEMENT. IN NO EVENT
WILL RAMBUS' LIABILITY ARISING OUT OF THIS AGREEMENT EXCEED THE FEES RECEIVED BY
RAMBUS HEREUNDER. IN NO EVENT WILL INTEL'S LIABILITY ARISING OUT OF THIS
AGREEMENT EXCEED THE FEES PAID OR PAYABLE BY INTEL HEREUNDER, PROVIDED, HOWEVER,
THAT THIS MAXIMUM LIABILITY OF INTEL SHALL BE IN ADDITION TO INTEL'S OBLIGATION
TO PAY ALL FEES PAYABLE, BUT UNPAID, BY INTEL. THESE LIMITATIONS, HOWEVER, SHALL
NOT APPLY TO INFRINGEMENT OF THE OTHER PARTY'S INTELLECTUAL PROPERTY RIGHTS.
12. Payments to Rambus. In recognition of the mutual covenants and
benefits contained herein, and in return for the license granted above, Intel
shall pay to Rambus the amounts, and at the times, specified in Exhibit C.
13. Intel Reports. If in any calendar quarter twenty percent (20%) or
more, on a unit volume basis, of Intel's main memory controllers shipped by
Intel in the prior quarter were "Compatible" (as such term is defined in the
1996 Agreement as Amended), then Intel shall so notify Rambus in writing by the
forty-fifth (45th) day of the following calendar quarter. If Intel so
- 11 -
notifies Rambus for two (2) consecutive calendar quarters, then Intel's notice
obligation pursuant to this section shall thereupon terminate.
14. This Agreement is Non Assignable. This Agreement, or any right or
obligation hereunder, is not assignable without the prior written consent of the
other party, except as provided in this section and Sections 15 and 17. Any
attempted assignment or transfer other than as provided in Sections 15 and 17
shall be considered a material breach of this Agreement by the party attempting
such assignment for which the sole and exclusive remedy for the non-assigning
party shall be to terminate this Agreement. Rambus shall be entitled to engage
in a Change of Control, subject to Section 15.
15. Change of Control. In the event of a Change of Control of Rambus,
Intel shall be entitled, at its option, on written notice to Rambus within
thirty (30) days after the later of written notice to Intel of the Change of
Control, or the effective date of the Change of Control, to terminate this
Agreement. If Intel does not so terminate the Agreement, then as of the
effective date of the Change of Control, (i) for purposes of Section 1.15
(Patents) (and therefore Sections 1.10 (Intel Patents) and 1.21 (Rambus
Patents)), "during the term of this Agreement" shall be deemed to mean during
the term of this Agreement until the effective date of the Change of Control,
and (ii) the definitions of Memory Interfaces and Other Interfaces shall be
revised to mean only those Memory Interfaces and Other Interfaces that are
commercially available as of the effective date of such Change of Control or
that become available within one hundred eighty (180) days following such date.
For the avoidance of doubt, Rambus Patents shall be limited to those Rambus
Patents licensed to or licensable to Intel under this Agreement immediately
prior to the Change of Control and such Change of Control shall not under any
circumstances cause Intel to be licensed under any additional Patents of an
entity acquiring control of Rambus or acquired by Rambus in connection with the
Change of Control.
16. Limited Right to Suspend Patent License for Sales to Affiliates.
16.1 For purposes of this Section 16, "Affiliate" means any entity,
other than a Subsidiary of Rambus, that is directly or indirectly controlled by,
under common control with or that controls Rambus. For purposes of this
definition control means direct or indirect ownership of or the right to
exercise (a) (i) at least fifty percent (50%) of the outstanding shares or
securities entitled to vote for the election of directors or similar managing
authority of the subject entity; or (ii) at least fifty percent (50%) of the
ownership interest representing the right to make the decisions for the subject
entity or (b) an interest sufficient to receive at least thirty percent (30%) of
the profits and/or losses of such entity.
16.2 Notwithstanding anything herein to the contrary, Intel shall
have the limited right to suspend the licenses granted under this Agreement to
Rambus with respect to sales to or on behalf of an Affiliate of Rambus if:
(a) the Affiliate is a direct or indirect customer of
Rambus; and
- 12 -
(b) the Affiliate initiates a legal or administrative
proceeding against Intel and/or any of its Subsidiaries ("Affiliate's
Proceeding") alleging that Intel or any of its Subsidiaries infringes a patent
right of the Affiliate, and
(c) the alleged infringing activity would have been licensed
to Intel had the identified patent right been owned or controlled by Rambus.
16.3 If Intel elects to suspend the licenses granted under this
Agreement pursuant to this Section 16, Intel shall give written notice of such
suspension to Rambus. The suspension shall apply with respect to products
licensed under this Agreement pursuant to the licenses and sublicenses granted
to Rambus and only for such products that are sold to such Affiliate. Such
suspension shall be effective sixty (60) days following the date of such written
notice, and shall allow Intel to assert a claim of infringement against the
Affiliate that brought the original claim against Intel. Such suspension shall
terminate upon resolution (by settlement, judgment (other than a judgment in
Intel's favor), or otherwise) of the Affiliate's Proceeding.
16.4 Intel agrees that it shall not seek monetary damages against
Rambus but rather shall look to the Affiliate for monetary damages. Intel shall
not assert a patent claim directly against Rambus until it has first exhausted
its legal remedies directly against the Affiliate. If Intel resolves its patent
dispute with the Affiliate, either through entrance of a judgment or by
settlement of the dispute, Intel agrees that it shall not bring a separate
action against Rambus with respect to products sold to such Affiliate.
17. Intel Assignment to Successor. Intel may transfer or assign this
Agreement to a person or entity into which it has merged or which has otherwise
succeeded to all or substantially all of its business or assets, and which has
assumed in writing or by operation of law its obligations under this Agreement.
18. Term and Termination.
18.1 This Agreement shall begin on the Effective Date and, unless
earlier terminated, shall remain in force until September 30, 2006 (hereafter
the "Expiration Date"). Thereafter, unless this Agreement is terminated prior to
the Expiration Date, the licenses and rights described in Sections 3 and 4, and
Sections 5, 6, 7 and 8, shall continue for the life of all Rambus Patents and
Intel Patents in existence or having a first filing date prior to the Expiration
Date (or, as applicable, pursuant to the second sentence of Section 15, prior to
the effective date of a Change of Control of Rambus).
18.2 Either party may terminate this Agreement prior to the
Expiration Date in the event of a material breach by the other party which is
not cured within 30 days following receipt of a written notice of such material
breach under the provisions contained in Section 25.5 below.
18.3 Intel may, at its option, terminate this Agreement for
convenience upon sixty (60) days prior written notice to Rambus.
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18.4 In the event that Intel or any of its Subsidiaries initiates
any judicial (including arbitration, International Trade Commission, and similar
proceedings, but not including simple disputes over inventorship by Intel or its
Subsidiaries, or an employee or other individual obligated to assign the
applicable patent to Intel or its Subsidiaries, in the form of interferences in
the Patent and Trademark Office or an action under 35 U.S.C. Section 146 or 256
(or any foreign equivalent thereof)) or administrative action or proceeding to
challenge the validity and/or enforceability of any Rambus Patent, Rambus may,
at its option and as its sole and exclusive remedy therefor under this
Agreement, (i) terminate Intel and its Subsidiaries' license to such challenged
Patents, or (ii) in the case of the initiation by Intel of any judicial,
arbitration, International Trade Commission, or similar proceeding, terminate
this Agreement, in each case on written notice to Intel pursuant to Section
18.2, it being expressly agreed that neither Intel nor its Subsidiaries may
enjoy a license to such Patent(s) while at the same time seeking to invalidate
or render such Patent unenforceable. The parties agree, however, that no right
of termination under this section shall arise if the challenge is (a) in
response to or defense of an action initiated by Rambus, or (b) required by
virtue of a contractual obligation to indemnify a third party in a patent
infringement action initiated by Rambus.
18.5 In the event of a termination prior to the Expiration Date,
all licenses, rights, benefits, and obligations shall cease as of the effective
date of termination, provided however, that (i) any payment amounts accrued
prior to the effective date of termination shall remain due and payable, and
(ii) the provisions of Sections 2, 8, 9, 10, 11, 13, 14, 17, 18.5, 18.6, 19 (to
the extent such licenses survive), 20, 21, 22, 23, 24 and 25 (except 25.3) shall
survive any expiration or termination of this Agreement for any reason.
18.6 Upon (a) any failure by Intel to [*], and thereafter Intel
fails to [*], or (b) [*], then immediately [*]:
(i) Intel shall be [*] obligated to [*];
(ii) Intel shall [*];
(iii) Intel agrees that this [*] obligation is unconditional and shall not
be subject to any defenses, claims, or counterclaims, Intel may have
(including without limitation any default by Rambus), which
defenses, claims, and counterclaims Intel hereby irrevocably waives;
and
(iv) Rambus shall be entitled to [*].
19. Remedies. The parties stipulate that in any action between the
parties for breach of this Agreement or infringement of the Patents licensed
herein, money damages in an amount to be determined at the trial or in an
alternative dispute resolution proceeding will be a complete and adequate remedy
and that in no event will either party seek equitable remedies of any sort.
Intel and Rambus agree that this Agreement may not be used, in any way, to
establish or prove a reasonable royalty under the Rambus Patents.
- 14 -
20. Confidentiality of Agreement. The parties hereto shall keep this
Agreement and the terms of this Agreement confidential and shall not now or
hereafter divulge these terms to any third party except:
20.1 with the prior written consent of the other party; or
20.2 to any governmental body having jurisdiction to call therefor;
or
20.3 subject to Section 20.4 below, as otherwise may be required by
applicable securities and other law and regulation or by legal process,
including to legal and financial advisors in their capacity of advising a party
in such matters; or
20.4 during the course of litigation so long as the disclosure of
such terms and conditions are restricted in the same manner as is the
confidential information of other litigating parties and so long as (a) the
restrictions are embodied in a court-entered protective order limiting
disclosure to counsel and (b) the disclosing party informs the other party in
writing at least ten (10) business days in advance of the disclosure;
20.5 in confidence to legal counsel, accountants, banks and
financing sources and their advisors; or
20.6 by Rambus, to other Rambus licensees to the extent necessary
(in Rambus' reasonable opinion) to satisfy contractual obligations to such other
Rambus Licensees but only after consulting with Intel regarding the identity of
such licensee and obtaining Intel's consent regarding the scope of the
disclosure to such Licensee.
21. Prior Licenses. The 1996 Agreement as Amended shall terminate as of
the Effective Date, and the rights and licenses of each party under,
or with respect to the patents or other intellectual property of the
other party and its Subsidiaries, shall be governed by this
Agreement. Any other agreement between the parties (including
without limitation, the parties' SerDes Semiconductor Technology
Agreement, executed May 24, 2001 ("SerDes Agreement")) shall not be
affected by this Agreement. Notwithstanding the foregoing and
notwithstanding Section 9.3 or any other provision of the 1996
Agreement as Amended, (i) only the following sections of the 1996
Agreement as Amended shall survive, and only as to acts or events
occurring during the term of the 1996 Agreement as Amended: Sections
1, 4.7, 4.8, 6, 7, 8, and 11 (except 11.1 (f)(i)-(f)(iv)); and (ii)
Section 3.1(a) of the 1996 Agreement as Amended shall survive
(provided that it is understood and agreed that, with respect to the
definition of "Applicable Intel Intellectual Property Rights" in
Section 1.27 of the 1996 Agreement as Amended, "the term of this
Agreement" shall mean and be limited to the term of the 1996
Agreement as Amended). In addition, the trade secret, copyright, and
mask work right licenses granted in the 1996 Agreement as Amended
shall continue in full force and effect (but only as to trade
secrets, copyrights, and mask work rights licensed prior to the
Effective Date of this Agreement), but shall not survive termination
of this Agreement prior to the Expiration Date. For the avoidance of
doubt, Sections 4.6 and 9 of the 1996 Agreement as Amended are void,
and neither party shall have any rights arising out of Section 4.6
or 9 of the 1996 Agreement as Amended.
- 15 -
22. Warrant Termination. The parties agree that all Intel warrants to
purchase Rambus stock, and associated rights, which were granted to Intel in
connection with the 1996 Agreement as Amended, are terminated. Within thirty
(30) days after the Effective Date of this Agreement, the parties shall enter
into such termination agreements as may be necessary to effect such
terminations.
23. [*]. Within [*] of the Effective Date of this Agreement, both
parties agree [*]. Both parties agree that [*]. The [*] is intended [*] as [*],
and shall not be construed as [*].
24. Merger: The terms and conditions herein contained constitute the
entire agreement between the parties and supersedes all previous agreements and
understandings, whether oral or written, between the parties hereto with respect
to the subject matter hereof, with the exception of the SerDes Agreement. All
prior, contemporaneous, and future discussions involving the subject matter set
forth in this Agreement are merged in this Agreement. This Agreement may not be
amended except in writing signed by a duly authorized representative of the
respective parties. Except as set forth in Section 21 above, any other
agreements between the parties, including nondisclosure agreements, shall not be
affected by this Agreement. No other rights are granted herein except as
expressly set forth in this Agreement.
25. Miscellaneous.
25.1 Controlling Law. This Agreement and the interpretation of the
---------------
terms set forth herein shall be governed by and made in accordance with Delaware
law.
25.2 Jurisdiction. Intel and Rambus agree that all disputes and
------------
litigation regarding this Agreement and matters connected with its performance
shall be subject to the exclusive jurisdiction of the courts of the State of
Delaware or of the federal courts sitting therein.
25.3 Announcement. Upon execution of this Agreement by both
------------
parties, Rambus shall have the right to issue a press release as attached as
Exhibit A, announcing this Agreement and stating that the Agreement has a term
of five (5) years and covers the licensing of Patents; and that the Agreement
includes a lump-sum quarterly payment. Any other disclosure to third parties
regarding this Agreement shall be governed by section 20.
25.4 Dispute Resolution. All disputes arising directly under the
------------------
express terms of this Agreement or the grounds for termination thereof shall be
resolved as follows: First, the senior management of both parties shall meet to
attempt to resolve such disputes. If the disputes cannot be resolved by the
senior management, either party may make a written demand for formal dispute
resolution. Within thirty (30) days after such written demand, the parties agree
to meet for one day with an impartial mediator and consider dispute resolution
alternatives other than litigation. If an alternative method of dispute
resolution is not agreed upon within thirty (30) days after the one day
mediation, either party may begin litigation proceedings.
- 16 -
25.5 Notice. All notices required or permitted to be given
------
hereunder shall be in writing and shall be delivered by hand, or if dispatched
by prepaid air courier or by registered or certified airmail, postage prepaid,
addressed as follows:
If to Rambus: If to Intel:
Rambus Inc. Intel Corporation
4440 El Camino Real 2200 Mission College Boulevard
Los Altos, California 94022 Santa Clara, California 95052
Attention: Vice President, Attention: General Counsel
Intellectual Property
Such notices shall be deemed to have been served when received by addressee or,
if delivery is not accomplished by reason of some fault of the addressee, when
tendered for delivery. Either party may give written notice of a change of
address and, after notice of such change has been received, any notice or
request shall thereafter be given to such party as above provided at such
changed address.
25.6 Compliance with Laws. Anything contained in this Agreement to
--------------------
the contrary notwithstanding, the obligations of the parties hereto and of the
Subsidiaries of the parties shall be subject to all laws, present and future, of
any government having jurisdiction over the parties hereto or the Subsidiaries
of the parties, and to orders, regulations, directions or requests of any such
government.
25.7 Force Majeure. The parties hereto shall be excused for any
-------------
delay in performing any obligation hereunder, other than payment obligations, to
the extent such delay is caused by war, acts of public enemies, strikes or other
labor disturbances, fires, floods, acts of God or any causes of like or
different kind beyond the reasonable control of the parties.
25.8 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will be deemed to be an original, but all of which
together will constitute one and the same instrument.
- 17 -
IN WITNESS WHEREOF, the Parties hereto have cause this Agreement to be
signed by duly authorized officers or representatives as of the dates below
written.
INTEL CORPORATION RAMBUS INC.
By: /s/ P. S. Otellini By: /s/ David Mooring
-------------------------------- --------------------------------------
Printed Name: P. S. Otellini Printed Name: David Mooring
---------------------- ----------------------------
Title: EVP Title: President
---------------------------- -----------------------------------
Date: 9/14/01 Date: 9/14/01
----------------------------- ------------------------------------
- 18 -
EXHIBIT A
---------
RAMBUS AND INTEL SIGN NEW COMPREHENSIVE PATENT
CROSS LICENSE AGREEMENT
Los Altos/Santa Clara, California. - Sept XX, 2001 -- Rambus Inc.
(Nasdaq:RMBS) and Intel Corporation today signed a comprehensive patent cross
license agreement that supercedes the prior agreement between the companies.
The new cross license provides complete patent coverage to Intel for all
patents while providing Rambus license coverage necessary for Rambus high-speed
interface businesses. The agreement will have positive material impact on
Rambus' current financial which Rambus will discuss during its webcast on
Monday, September 17, 2001 at 6:00 a.m. Pacific Daylight Time. The specific
terms of the agreement are confidential.
"We have had a long and mutually beneficial relationship with Intel. As an
R&D hub for high speed interfaces, Rambus' objective is to produce innovations
that will benefit the semiconductor and system industries, and by licensing
these innovations to generate a return on our investment to our shareholders."
said Geoff Tate, Rambus' chief executive officer. "We believe the RDRAM standard
is the best solution for the majority of the market and our top priority, but as
evidenced by this license with Intel, we are pleased to license our other
memory, communications, and backplane inventions as well."
"This broad agreement will help Intel continue to be a leader in providing
high performance chipsets," said Craig Barrett, Intel president and chief
executive officer. "We also look forward to continued cooperation with Rambus in
the further development of RDRAM compatible chipsets and communications chips as
well their support of Infiniband and other future initiatives."
About Rambus Inc.
Rambus Inc. designs, develops and licenses high bandwidth chip-connection
technology and provides the comprehensive engineering support necessary for a
complete system solution. Rambus' technology and intellectual property are
licensed to leading semiconductor suppliers including DRAM, controller and
microprocessor manufacturers, ASIC developers, and foundries for use in
computer, consumer and networking systems such as personal computers,
workstations, servers, game consoles, set top boxes, digital HDTVs, high-speed
switches and routers.
About Intel Corporation
Intel, the world's largest chip maker, is also a leading manufacturer of
computer, networking and communications products. Additional information about
Intel is available at http://www.intel.com/pressroom.
------------------------------
EXH A-1
Rambus and RDRAM are registered trademark of Rambus Inc. Other trademarks
that may be mentioned in this release are the intellectual property of their
respective owners.
Intel is a trademark or registered trademark of Intel Corporation or its
subsidiaries in the United States and other countries
EXH A-2
EXHIBIT B
---------
CERTAIN RIGHTS
Intel and its Subsidiaries, will, upon request, grant to Rambus and its
Subsidiaries, a [*] pertaining to [*], provided:
(a) such [*] shall be under terms and conditions that [*]. For purposes
of clarification, [*] shall mean [*];
(b) Intel [*] provided by Intel [*] shall [*]. For the purposes of this
Agreement, [*] shall mean [*];
(c) Intel and its Subsidiaries, will, [*], grant to Rambus and its
Subsidiaries, a [*] pertaining to [*], provided:
(d) nothing herein shall require that Intel provide Rambus with [*]; and
(e) [*] shall be granted under this Exhibit B with respect to [*].
Promptly upon Rambus' request for [*], the parties shall commence and
diligently continue good faith negotiations, using their diligent efforts to
conclude such an agreement as soon as possible.
EXH B-1
EXHIBIT C
---------
PAYMENTS
During the term as described in Section 18 of this Agreement, Intel shall pay to
Rambus the following amounts no later than the following dates:
Payment Date Payment Amount
------------ --------------
[*] [*]
[*] [*]
In addition, Intel shall thereafter pay to Rambus [*]. Except for [*],
which shall be due as described hereinabove, the foregoing [*] payments shall
accrue, [*], and shall be due and payable [*].
EXH C-1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-28597, 333-38855, 333-67457,
333-93427,333-48730, and 333-52158) of Rambus Inc. of our report dated October
16, 2001, except as to Note 13, which is as of November 26, 2001, relating to
the financial statements, which appears in this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
November 30, 2001