Investment Agreement

INVESTMENT AGREEMENT


Between


AMATI COMMUNICATIONS CORPORATION,


QUANTUM INDUSTRIAL PARTNERS LDC,


S-C PHOENIX HOLDINGS, L.L.C.,


WINSTON PARTNERS, L.P.,


WINSTON PARTNERS II LDC


AND


WINSTON PARTNERS II L.L.C.


Dated as of October 3, 1996


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INVESTMENT AGREEMENT dated as of October 3, 1996 between Quantum Industrial Partners LDC, S-C Phoenix Holdings, L.L.C., Winston Partners, L.P., Winston Partners II LDC and Winston Partners II L.L.C. (collectively, the "Investors") and Amati Communications Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Company").


WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Investors shall invest up to $15,000,000 in the Company's Common Stock, par value $.20 per share (the "Common Stock").


NOW, THEREFORE, the parties hereto agree as follows:


Article I.
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Purchase and Sale of Common Stock
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Section 1.1. Purchase and Sale of Common Stock. Upon the terms and conditions set forth herein, the Company shall issue and sell to the Investors, and the Investors shall purchase from the Company, in proportion to the percentages set forth opposite the name of each Investor on Schedule I hereto (the "Participation Schedule"), up to an amount of Common Stock valued in accordance with the terms of this Agreement at $15,000,000.


Section 1.2. Delivery of Put Notices.


(a) At any time prior to the earlier of (i) the date which is two years from the date hereof (the "Notice Termination Date") or (ii) termination of this Agreement in accordance with Article V herein, the Company may deliver written notices to the Investors (each such notice hereinafter referred to as a "Put Notice") stating a dollar amount (the "Dollar Amount") of Common Stock which the Company intends to sell to the Investors five business days following the date (the "Put Notice Date") on which the Put Notice is given to the Investors by the Company in accordance with Section 6.4 herein. "Business day" shall mean any day on which the Nasdaq Stock Market's National Market is open for trading. The Dollar Amount designated by the Company in the first Put Notice given hereunder shall be an amount equal to $10,000,000 and the amount designated by the Company in the second Put Notice given hereunder shall equal $5,000,000 (the "Second Tranche"), in each case unless otherwise agreed in writing by the Investors or limited by operation of the proviso contained in this sentence, and, if so limited, shall be in increments of $500,000; provided that if the Dollar Amount designated by the Company in a Put Notice would cause the Valuation Period (as defined below) with respect to such Put Notice to exceed 90 days (a "Valuation Period Default"), the Dollar Amount designated by the Company and required to be purchased by the Investors shall be reduced by that amount that would cause a Valuation Period Default. The Put Notice shall


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include a representation of the Company as to the Common Stock outstanding on the Put Notice Date as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the regulations promulgated thereunder.


(b) Notwithstanding any of the foregoing, the Company may not deliver a Put Notice if: (i) the reported last trading price of the Common Stock on the Nasdaq Stock Market's National Market, American Stock Exchange or New York Stock Exchange (whichever is the principal trading exchange for the Common Stock, the "Principal Market"), as reported by the Principal Market, on the day of such Put Notice was less than $10.00; (ii) if trading of the Common Stock on the Principal Market is suspended or limited or the Common Stock is delisted from the Principal Market, or trading in securities generally as reported by the Principal Market, shall have been suspended or limited or minimum prices shall have been established on securities whose trades are reported by the Principal Market; (iii) if the Common Stock is not registered under the Exchange Act or if the Registration Statement is no longer effective or is subject to a stop order or is otherwise suspended; or (iv) if a Valuation Period is in progress. If any of the events described in clauses (i) to (iii) above occurs after a Put Notice is delivered but prior to the Closing associated with such Put Notice, such Put Notice shall be null, void and of no force and effect and a new Put Notice shall be required following the termination of any such events.


Section 1.3. Determination of Share Number; Valuation Period.


(a) The initial aggregate number of shares (an "Initial Share Number") that the Company shall be obligated to issue and sell and the Investors shall be obligated to purchase (in accordance with the Participation Schedule) in connection with a Put Notice shall be equal to the number obtained by (i) dividing (x) the Dollar Amount designated in such Put Notice by (y) 85% of the closing price of the Common Stock on the Principal Market on the Put Notice Date, as reported by the Principal Market (such closing trading price hereby defined as the "Initial Share Price") and (ii) rounding to the nearest whole number of shares.


(b) Subject to the extensions set forth in Section 1.3(c) below, the "Valuation Period" in connection with each purchase of Common Stock shall commence on the Trading Day immediately following the Put Notice Date with respect to such purchase and shall end on that Trading Day during which the aggregate number of shares of Common Stock traded on the Principal Market (determined by reference to the sum of the actual daily trading volume of the Common Stock, as reported in the Wall Street Journal for the applicable Trading Days) subsequent to the Put Notice Date applicable to such purchase is at least equal to twenty (20) times the applicable Initial


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Share Number; provided, however, that for purposes of determining whether a Valuation Period Default has occurred, the "Valuation Period" shall be deemed to equal that number of days determined by dividing (i) twenty (20) times the applicable Initial Share Number by (ii) the Average Daily Trading Volume during the thirty (30) Trading Days immediately preceding the Put Notice Date, rounded to the nearest whole number of Trading Days. For purposes of this Agreement "Average Daily Trading Volume" shall mean, with respect to any measuring period, the average of the daily trading volumes, as published in the Wall Street Journal, of the Common Stock on the Principal Market during such measuring period. For purposes of this section "Trading Days" shall mean days on which the Common Stock was traded on the Principal Market.


(c) (i) If the Average Daily Trading Volume during any Valuation Period is less than the Average Daily Trading Volume during the thirty (30) Trading Days immediately preceding the applicable Put Notice Date, the Investors shall have an option with respect to each Put Notice, exercisable in their sole discretion, to extend such Valuation Period to that number of days which would have comprised the Valuation Period had the Valuation Period been calculated using a factor of thirty (30) times the applicable Initial Share Number rather than the factor of twenty (20) set forth in Section 1.3(b) above. Such election shall be made by notifying the Company in writing, no later than three business days following the last day of the Valuation Period of their election to so extend such Valuation Period.


(ii) For each Trading Day during any Valuation Period (prior to any extension pursuant to Section 1.3(c)(i) above) that the low trading price per share of the Common Stock on the Principal Market, as reported by the Principal Market, is less than 75% of the Initial Share Price (a "Price Deficiency"), the Investors shall have the option, exercisable in their sole discretion, to extend such Valuation Period by one day. Such election shall be made by notifying the Company in writing, no later than three business days following the Trading Day on which the Price Deficiency exists.


(d) Notwithstanding Section 1.3(a) above, and except as hereinafter provided, if the Average Share Price (as defined below) during any Valuation Period is less than the Initial Share Price of the Common Stock purchased in connection with such Valuation Period, then the Company shall deliver to the Investors at the applicable Final Closing (as defined below), at no additional cost to the Investors, and in addition to the Initial Share Number associated with such Valuation Period, the number of shares of Common Stock ("Additional Shares") that is obtained by subtracting (x) such Initial Share Number from (y) the quotient obtained by dividing the Dollar Amount by 85% of the Average Share Price (rounded to the nearest whole number); provided that if such issuance of Additional Shares would result in (i) the Investors being the beneficial owner of 10% or more of the


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outstanding shares of Common Stock after taking into account all Warrant Shares (as defined below) and all other shares of Common Stock beneficially owned or deemed beneficially owned by the Investors (the "10% Limit") or (ii) the Company issuing more than twice the Initial Share Number (the "Issuance Maximum"), then in lieu of issuing such portion of Additional Shares as would cause the Investors to meet or exceed the 10% Limit or the Issuance Maximum, the Company shall pay at the applicable Final Closing and in accordance with the provisions of Section 1.5(b) hereof in cash to the Investors an amount (the "Dollar Amount Rebate") equal to the product of (A) the Average Share Price and (B) the Excess Additional Shares. For purposes of this Section 1.3(d), "Excess Additional Shares" shall mean, at the time of calculation, the difference between the amount of Additional Shares to which the investor would otherwise be entitled pursuant to this subsection 1.3(d) at such time and the greater of (x) the number of Additional Shares, if any, which, when added to all other shares of Common Stock beneficially owned by the Investors at such time, taking into account the Warrant Shares, would equal 10% or more of the outstanding shares of Common Stock at the time of calculation or (y) the number of Additional Shares, if any, which exceed the Issuance Maximum.


(e) For purposes hereof, "Average Share Price" shall mean the lower of (i) the average during the applicable Valuation Period of the average of the high and low per share trading prices of the Company's Common Stock for each day during the applicable Valuation Period, as reported by the Principal Market and (ii) (x) in the case of the purchase and sale pursuant to the first Put Notice, the per share daily low trading price of the Company's Common Stock on the date hereof or (y) in the case of the purchase and sale pursuant to the second Put Notice, the per share low trading price of the Company's Common Stock on the applicable Put Notice Date; provided, however, that the Average Share Price in respect of the first $5,000,000 of the $10,000,000 in Dollar Amount to be purchased and sold pursuant to the first Put Notice (such $5,000,000 in Dollar Amount being referred to herein as the "First Tranche") shall not exceed the average of the per share closing prices of the Company's Common Stock for the twenty (20) Trading Days ending August 15, 1996.


(f) In the event that during a Valuation Period there is any stock split, reverse split or combination, stock dividend or similar such event with respect to the Common Stock, there shall be effected an appropriate adjustment to the Initial Share Number, Initial Share Price, Average Share Price and Additional Shares to place the Investors in the same position as they would have been had such event not occurred, and in the event of any dispute in connection with this paragraph, the adjustment shall be determined by arbitration before a single arbitrator in New York, New York, in accordance with the prevailing rules of the American Arbitration Association.


Section 1.4. Initial Closings.


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(a) Each initial closing of the purchase and sale of Common Stock (an "Initial Closing") shall take place at the offices of the Investors, at 10:00 a.m., New York time, on the fifth business day following the Put Notice Date to which such Initial Closing relates, or the earliest date thereafter on which all conditions to Closing have been satisfied or waived in accordance with the terms of this Agreement. Each date on which an Initial Closing occurs is referred to herein as an "Initial Closing Date." Initial Closings and Final Closings are sometimes referred to herein as a "Closing".


(b) (i) On each Initial Closing Date, the Company shall deliver to the Investors in accordance with the Participation Schedule certificates representing the Initial Share Number to be issued and sold to the Investors on such date and registered in the name of the Investors or deposit such Initial Share Number into the accounts designated by the Investors and (ii) on each Initial Closing Date, the Investors shall in accordance with the Participation Schedule deliver to the Company 50% of the Dollar Amount (the remaining 50% of the Dollar Amount being referred to herein as the "Dollar Amount Balance") with respect to such closing by cashier's check or wire transfer in immediately available funds to such account as shall be designated in writing by the Company no later than two business days prior to such Initial Closing Date. In addition, each of the Company and the Investors shall deliver all documents, instruments and writings required to be delivered by any of them pursuant to this Agreement at or prior to each Closing.


Section 1.5. Final Closings; Adjustments.


(a) Each final closing of the purchase and sale of Common Stock (a "Final Closing") shall take place at the offices of the Investors, at 10:00 a.m., New York time, on the fifth business day following the end of the Valuation Period to which such Final Closing relates, or the earliest date thereafter on which all conditions to Closing have been satisfied or waived in accordance with the terms of this Agreement. Each date on which a Final Closing occurs is referred to herein as a "Final Closing Date".


(b) On each Final Closing Date, (i) to the extent the Investors are entitled to the issuance of Additional Shares as provided in Section 1.3(d), the Company shall deliver to the Investors one or more certificates representing the Additional Shares so to be delivered in accordance with this Agreement, registered in the name of the Investors, or deposit such Additional Shares into accounts designated by the Investors and (ii) the Investors shall deliver to the Company the excess, if any, of (x) the Dollar Amount Balance with respect to such Final Closing over (y) the amount, if any, of the Dollar Amount Rebate with respect to such Final Closing to which the Investors are entitled pursuant to Section 1.3(d), by cashier's check or wire


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transfer in immediately available funds to such account as shall be designated in writing by the Company no later than two business days prior to such Final Closing Date; provided, however, that to the extent that the Dollar Amount Rebate with respect to such Final Closing exceeds the Dollar Amount Balance with respect to such Final Closing, the Company shall refund and deliver to the Investors, or accounts designated by the Investors, such excess by cashier's check or wire transfer in immediately available funds to such account as shall be designated in writing by the Investors no later than two business days prior to such Final Closing Date.


Section 1.6. Registration.


(a) All shares (including Additional Shares) of Common Stock issued to the Investors pursuant to this Agreement shall, at the time of such issuance and for so long thereafter as is required by this Agreement, be subject to an effective registration statement on Form S-3 or an equivalent thereof, covering the resale or other disposition by the Investors of the Shares and Additional Shares to be issued by the Company to the Investors hereunder at any time and from time to time after each such issuance. In addition, all shares of Common Stock issuable upon exercise of the Warrants ("Warrant Shares") shall, on the earlier to occur of (i) 90 days following the date of this Agreement and (ii) delivery to the Investors of the first Put Notice hereunder, be subject to an effective registration statement on Form S-3 or an equivalent thereof covering (x) the issuance of the Warrant Shares by the Company to any holder of a Warrant (each a "Warrant Holder" and collectively, the "Warrant Holders") and (y) the resale or other disposition thereof by any Warrant Holder at any time and from time to time after each such issuance. The Initial Share Number, Additional Shares and Warrant Shares shall be referred to collectively herein as the "Shares". The registration statements described in this Section 1.6(a) (together with all amendments and supplements thereto, a "Registration Statement") shall, in accordance with Section 1.6(b) below, remain effective pursuant to the provisions of Regulation 230.415 of the Securities Act of 1933, as amended (the "1933 Act"), or successor provision, at all times during the period commencing on the date of the first Put Notice and ending on the later to occur of (1) the second anniversary of such date or (2) the 180th day following the delivery by the Company to the Investors of (A) a notice indicating that the Company will not deliver a Put Notice in respect of the Second Tranche or (B) a Put Notice in respect of the Second Tranche (the "Registration Period"). Any notice delivered by the Company pursuant to clause (A) above shall be irrevocable and shall relieve the Investors from any obligation to purchase Additional Shares under this Agreement.


(b) The Company shall, as expeditiously as reasonably possible and in accordance with Section 1.6(a) herein:


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(i) Prepare and file with the Securities and Exchange Commission ("SEC") such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to comply with the provisions of the 1933 Act with respect to the disposition of all securities covered by such Registration Statement.


(ii) Furnish to the Investors or any Warrant Holder, as the case may be, such numbers of copies of a prospectus, in conformity with the requirements of the 1933 Act, and such other documents as the Investors or Warrant Holder, as the case may be, may reasonably require in order to facilitate the disposition of shares sold pursuant to this Agreement or issued pursuant to the Warrants and owned by such Investors or Warrant Holder.


(iii) Insure that all Shares subject to the Registration Statement shall at all times during the applicable Registration Period be registered and qualified under such other securities or "Blue Sky" laws of such jurisdictions as shall be reasonably requested by the Investors or the Warrant Holders, as the case may be, provided that the Company shall not be required in connection herewith or as a condition hereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions where the Company is not otherwise required to be so qualified.


(iv) Notify the Investors and/or any Warrant Holder of the happening of any event or the existence of any circumstance (without any obligation to disclose the specific actual event or circumstance) as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing and either (A) as soon as may be practicable, prepare and file with the SEC such amendments and supplements to such Registration Statement and prospectus used in connection therewith as may be necessary to eliminate or correct such untrue statement or omission and otherwise to cause such registration statement and prospectus to remain current and useable for the purposes intended hereunder, or (B) further notify the Investors and/or the Warrant Holders, as the case may be, at the time of any notification to Investors and/or the Warrant Holders, as the case may be, pursuant to the foregoing provisions of this Section 1.6(b)(iv) of the Company's election to suspend and extend for a period of up to thirty (30) calendar days (a "Suspension Period") the Company's obligations pursuant to the pr4ceding clause (A) of this Section 1.6(b)(iv) or the Company's obligation to file or maintain the effectiveness of a Registration Statement under the Registration Rights Agreement; provided that the Company will, at or before the expiration of any such Suspension Period, fully satisfy and discharge its obligations pursuant to such preceding clause (A); and provided


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further that no Suspension Period may commence less than ninety (90) days after the expiration of the then most recent Suspension Period, and the Company may establish no more than two (2) Suspension Periods in any twelve (12) consecutive months during which the Registration Statement is to remain effective pursuant to Section 1.6(a). The Company, the Investors and the Warrant Holders understand and acknowledge that, during any Suspension Period, the Company will be unable to sell Common Stock to the Investors in accordance with or under the Registration Statement and that Investors and/or the Warrant Holders may be unable to sell or otherwise dispose of Shares of Common Stock theretofore acquired by the Investors and/or the Warrant Holders hereunder or pursuant to the Warrants in accordance with the Registration Statement or otherwise. The foregoing shall not, however, limit or interfere in any way with the acquisition or disposition by the Investors and/or the Warrant Holders of the Shares, or any other shares or securities of the Company by other lawful means. Any Valuation Period falling within any Suspension Period, in whole or in part, shall be suspended during such Suspension Period and shall be extended by the entire length of that portion of the applicable Suspension Period which occurred during the original applicable Valuation Period.


(v) Make available for inspection by the Investors' designated representatives, upon request from time to time, all SEC Documents (as defined below), require the Company's officers and the Company's employees to supply all information requested by the Investors or their designated representatives in connection with the Registration Statement, require the Company's officers and the Company's employees to meet with representatives of the Investors' designated representatives, during normal business hours and on such basis as the Investors' designated representatives may reasonably request, invite the Investors' designated representatives to attend any and all meetings organized by the Company for purposes of disseminating information about the Company to securities analysts generally and make available to the Investors' designated representatives, contemporaneously with the provision of such information, any and all information about the Company provided by the Company to securities analysts. In addition, the Company will permit Investors' designated representatives access to the Company's premises and, personnel, consultants, agents, attorneys, accountants, customers, suppliers, bankers, and others who have significant relationships or agreements with the Company and the Company's assets, books and records and the Company will provide Investors' designated representatives with information (financial and otherwise) concerning the Company to enable Investors' designated representatives to conduct ongoing due diligence review of the Company. The Company will disseminate to the Investors' designated representatives all press releases and public information disseminated by the Company at the same time it disseminates such releases and information to others. Notwithstanding anything herein to the contrary, and in any event prior to any Closing, the Company will notify the Investors'


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designated representatives of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) constituting non-public information (whether or not requested of the Company specifically or generally during the course of due diligence by the Investors' designated representatives) which, if not disclosed in the prospectus included in the Registration Statement required to be effective at the time of each Closing would cause such prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements therein, in light of the circumstances in which they were made, not misleading.


(vi) Except as required, in the opinion of the Company's counsel, by law or consented to in advance by Investors (which consent shall not be unreasonably withheld) refrain from using the name of Investors in the Registration Statement or other regulatory filings (including SEC Documents).


(c) The Company, the Investors and certain other parties shall have the rights to indemnification and contribution set forth in the Registration Rights Agreement (as defined below).


(d) All fees, costs and expenses of and incidental to the Registration Statement shall be borne by the Company. The fees, costs and expenses of registration to be borne by the Company as provided in this subsection (e) shall include, without limitation, all registration, filing and NASD fees, printing expenses, fees and disbursements of counsel and accountants for the Company, fees and expenses of one counsel for the Investors and Warrant Holders and all legal fees and disbursements and other expenses of complying with state securities or Blue Sky laws of any jurisdiction or jurisdictions in which securities to be offered are to be registered and qualified.


Section 1.7. Rescheduling. If after the date of any Put Notice and prior to the expiration of the Valuation Period relating to such Put Notice (a) the Company shall distribute to its shareholders any property or assets outside the ordinary course of business (including without limitation spin-offs and the like) or (b) any person shall (x) publicly announce a tender offer or exchange offer for the Company's Common Stock, or (y) publicly announce plans for a merger, consolidation or potential change in control of the Company, the Investors may in their sole discretion elect by written notice to the Company to shorten the Valuation Period relating to such Put Notice so as to end on a date which is either before or after the consummation of the record date for the consummation of any such transaction, which election must be made prior to consummation of any such transaction. For purposes of the foregoing, it is understood and agreed that the Investors may, but shall not be required to, reduce or entirely eliminate a Valuation Period pursuant to this Section 1.7.


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Section 1.8. Delisting/Deregistration. If, during any Valuation Period or within twenty (20) days after the end of such Valuation Period, (i) the Common Stock is delisted from the Principal Market or (ii) the Common Stock is not registered under the Exchange Act, Investors shall have the right, at their option in their sole discretion, which right shall be exercised within twenty (20) days of such delisting or deregistration, to sell to the Company, and the Company agrees to buy, promptly upon the exercise of such right by Investors, all or any part of the Initial Share Number and Additional Shares issued to and then held by the Investors in connection with the most recent Put Notice at a price equal to the Initial Share Price (if prior to the end of the Valuation Period) and at a price equal to the Average Share Price (if subsequent to the Valuation Period) for each such Share and Additional Share.


Section 1.9. Su ...