Rambus Inc.
RAMBUS INC (Form: 10-Q, Received: 08/04/2008 06:01:23)
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
OR
     
o   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
 
RAMBUS INC.
(Exact name of registrant as specified in its charter)
 
     
Delaware
(State or other jurisdiction of
incorporation or organization)
  94-3112828
(I.R.S. Employer
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
 
     Indicate by check mark whether the 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 þ No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  þ Accelerated filer  o   Non-accelerated filer  o
(Do not check if a smaller reporting company)
Smaller reporting company  o
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No  þ
     The number of shares outstanding of the registrant’s Common Stock, par value $.001 per share, was 105,017,169 as of June 30, 2008.
 
 

 


 

RAMBUS INC.
TABLE OF CONTENTS
             
        PAGE
 
        3  
PART I.  
FINANCIAL INFORMATION
       
Item 1.  
Financial Statements:
       
        5  
        6  
        7  
        8  
Item 2.       30  
Item 3.       39  
Item 4.       41  
PART II.       43  
Item 1.       43  
Item 1A.       43  
Item 2.       58  
Item 3.       58  
Item 4.       58  
Item 5.       58  
Item 6.       58  
Signature  
 
    59  
Exhibit Index  
 
    60  
  EXHIBIT 3.3
  EXHIBIT 31.1
  EXHIBIT 31.2
  EXHIBIT 32.1
  EXHIBIT 32.2

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NOTE REGARDING FORWARD-LOOKING STATEMENTS
     This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements. These forward-looking statements include, without limitation, predictions regarding the following aspects of our future:
    Outcome and effect of current and potential future intellectual property litigation;
 
    Litigation expenses;
 
    Resolution of the Federal Trade Commission and European Commission matters involving us;
 
    Protection of intellectual property;
 
    Amounts owed under licensing agreements;
 
    Terms of our licenses;
 
    Indemnification and technical support obligations;
 
    Success in the markets of our or our licensees’ products;
 
    Research and development costs and improvements in technology;
 
    Sources, amounts and concentration of revenue, including royalties;
 
    Effective tax rates;
 
    Realization of deferred tax assets;
 
    Product development;
 
    Sources of competition;
 
    Pricing policies of our licensees;
 
    Success in renewing license agreements;
 
    Operating results;
 
    International licenses and operations, including our design facility in Bangalore, India;
 
    Methods, estimates and judgments in accounting policies;
 
    Growth in our business;
 
    Acquisitions, mergers or strategic transactions;
 
    Ability to identify, attract, motivate and retain qualified personnel;
 
    Trading price of our Common Stock;
 
    Internal control environment;
 
    Corporate governance;

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    Accounting, tax, regulatory, legal and other outcomes and effects of the stock option investigation;
 
    Consequences of the derivative, class-action and other lawsuits related to the stock option investigation;
 
    The level and terms of our outstanding debt;
 
    Engineering, marketing and general and administration expenses;
 
    Contract revenue;
 
    Interest and other income, net;
 
    Adoption of new accounting pronouncements; and
 
    Likelihood of paying dividends.
     You can identify these and other forward-looking statements by the use of words such as “may,” “future,” “shall,” “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 Item 1A, “Risk Factors.” All forward-looking statements included in this document are based on our assessment of information available to us at this time. We assume no obligation to update any forward-looking statements.

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RAMBUS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
                 
    June 30,     December 31,  
    2008     2007  
    (In thousands, except shares  
    and per share amounts)  
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 131,792     $ 119,391  
Marketable securities
    262,386       321,491  
Accounts receivable
    2,050       442  
Unbilled receivables
    134       1,478  
Prepaids and other current assets
    8,746       8,349  
Deferred taxes
    233       11,595  
 
           
Total current assets
    405,341       462,746  
Restricted cash
    2,412       2,286  
Deferred taxes, long-term
    2,577       116,209  
Intangible assets, net
    11,028       13,441  
Property and equipment, net
    26,111       24,587  
Goodwill
    4,454       4,454  
Other assets
    5,350       3,624  
 
           
Total assets
  $ 457,273     $ 627,347  
 
           
LIABILITIES
               
Current liabilities:
               
Accounts payable
  $ 8,933     $ 11,283  
Accrued salaries and benefits
    6,070       9,985  
Accrued litigation expenses
    11,743       26,234  
Income taxes payable
    846       834  
Other accrued liabilities
    7,369       5,060  
Deferred revenue
    2,467       2,756  
 
           
Total current liabilities
    37,428       56,152  
Deferred revenue, less current portion
    57        
Convertible notes
    160,000       160,000  
Long-term income taxes payable
    2,992       2,917  
Other long-term liabilities
    1,031       1,194  
 
           
Total liabilities
    201,508       220,263  
 
           
Commitments and contingencies (Note 7 and 13)
               
 
               
STOCKHOLDERS’ EQUITY
               
Convertible preferred stock, $.001 par value:
               
Authorized: 5,000,000 shares
               
Issued and outstanding: no shares at June 30, 2008 and December 31, 2007
           
Common stock, $.001 par value:
               
Authorized: 500,000,000 shares
               
Issued and outstanding: 105,017,169 shares at June 30, 2008 and 105,294,534 shares at December 31, 2007
    105       105  
Additional paid-in capital
    631,629       601,821  
Accumulated deficit
    (375,400 )     (194,966 )
Accumulated other comprehensive (loss) income
    (569 )     124  
 
           
Total stockholders’ equity
    255,765       407,084  
 
           
Total liabilities and stockholders’ equity
  $ 457,273     $ 627,347  
 
           
See Notes to Unaudited Condensed Consolidated Financial Statements

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RAMBUS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2008     2007     2008     2007  
    (In thousands, except per share amounts)  
Revenue:
                               
Royalties
  $ 32,288     $ 39,190     $ 65,381     $ 82,936  
Contract revenue
    3,427       8,353       10,072       14,757  
 
                       
Total revenue
    35,715       47,543       75,453       97,693  
 
                       
Costs and expenses:
                               
Cost of contract revenue*
    6,567       6,882       13,800       13,097  
Research and development*
    20,035       18,597       41,537       42,027  
Marketing, general and administrative*
    23,768       24,778       57,089       49,743  
Costs of restatement and related legal activities
    2,260       7,453       3,172       14,462  
 
                       
Total costs and expenses
    52,630       57,710       115,598       119,329  
 
                       
Operating loss
    (16,915 )     (10,167 )     (40,145 )     (21,636 )
Interest and other income, net
    2,908       5,657       7,503       10,851  
 
                       
Loss before income taxes
    (14,007 )     (4,510 )     (32,642 )     (10,785 )
Provision for (benefit from) income taxes (Note 9)
    130,657       (1,790 )     124,656       (4,177 )
 
                       
Net loss
  $ (144,664 )   $ (2,720 )   $ (157,298 )   $ (6,608 )
 
                       
Net loss per share:
                               
Basic
  $ (1.38 )   $ (0.03 )   $ (1.50 )   $ (0.06 )
 
                       
Diluted
  $ (1.38 )   $ (0.03 )   $ (1.50 )   $ (0.06 )
 
                       
Weighted average shares used in per share calculation
                               
Basic
    104,804       103,820       104,743       103,820  
 
                       
Diluted
    104,804       103,820       104,743       103,820  
 
                       
 
 
* Includes stock-based compensation:
                               
Cost of contract revenue
  $ 1,365     $ 1,645     $ 3,283     $ 2,736  
Research and development
  $ 3,767     $ 3,248     $ 7,671     $ 6,631  
Marketing, general and administrative
  $ 3,821     $ 5,431     $ 8,528     $ 10,374  
See Notes to Unaudited Condensed Consolidated Financial Statements

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RAMBUS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Six Months Ended  
    June 30,  
    2008     2007  
    (In thousands)  
Cash flows from operating activities:
               
Net loss
  $ (157,298 )   $ (6,608 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
               
Stock-based compensation
    19,482       19,741  
Depreciation
    5,537       5,853  
Amortization of intangible assets
    2,713       2,640  
Deferred tax provision (benefit)
    124,315       (5,131 )
Loss on disposal of property and equipment
    10        
Change in operating assets and liabilities, net of effect of business acquisitions:
               
Accounts receivable and unbilled receivables
    (264 )     (811 )
Prepaids and other assets
    (1,246 )     (7,425 )
Accounts payable
    (2,639 )     10,786  
Accrued salaries and benefits and other accrued liabilities
    (2,965 )     (5,777 )
Accrued litigation expenses
    (14,491 )     1,141  
Income taxes payable
    87       3,451  
Increases in deferred revenue
    5,257       12,252  
Decreases in deferred revenue
    (5,489 )     (14,757 )
 
           
Net cash provided by (used in) operating activities
    (26,991 )     15,355  
 
           
Cash flows from investing activities:
               
Purchases of property and equipment
    (5,512 )     (5,589 )
Acquisition of intangible assets
    (300 )      
Purchases of marketable securities
    (246,479 )     (377,426 )
Maturities of or proceeds from the sale of marketable securities
    305,139       386,302  
Cash paid for acquisition of business
          (655 )
Increase in restricted cash
    (126 )     (12 )
 
           
Net cash provided by investing activities
    52,722       2,620  
 
           
Cash flows from financing activities:
               
Payments under installment payment arrangement
    (1,250 )     (4,250 )
Proceeds received from issuance of common stock under employee stock plans
    12,781        
Repurchase and retirement of common stock
    (24,921 )      
 
           
Net cash used in financing activities
    (13,390 )     (4,250 )
 
           
Effect of exchange rates on cash and cash equivalents
    60       32  
 
           
Net increase in cash and cash equivalents
    12,401       13,757  
Cash and cash equivalents at beginning of period
    119,391       73,304  
 
           
Cash and cash equivalents at end of period
  $ 131,792     $ 87,061  
 
           
Supplemental disclosure of cash flow information:
               
Property and equipment received and accrued in accounts payable and other accrued liabilities
  $ 2,367     $ 340  
Proceeds receivable from issuance of common stock under employee stock plans
  $ 28     $  
See Notes to Unaudited Condensed Consolidated Financial Statements

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RAMBUS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
     The accompanying unaudited condensed consolidated financial statements include the accounts of Rambus Inc. (“Rambus” or the “Company”) and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in the accompanying unaudited condensed consolidated financial statements. Investments in entities with less than 20% ownership and in which Rambus does not have the ability to significantly influence the operations of the investee are being accounted for using the cost method and are included in other assets.
     In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring items) necessary to state fairly the financial position and results of operations for each interim period shown. Interim results are not necessarily indicative of results for a full year.
     The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) applicable to interim financial information. Certain information and footnote disclosures included in financial statements prepared in accordance with generally accepted accounting principles have been omitted in these interim statements pursuant to such SEC rules and regulations. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto in Form 10-K for the year ended December 31, 2007.
     We have reclassified certain prior year balances to conform to the current year’s presentation. None of these reclassifications had an impact on reported net loss for any of the periods presented.
2. Recent Accounting Pronouncements
     In May 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 162, “The Hierarchy of General Accepted Accounting Principle.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. This statement shall be effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With General Accepted Accounting Principles.” The Company believes the adoption of this pronouncement will not have a material impact on the Company’s financial statements.
     In May 2008, the FASB issued FASB Staff Position (“FSP”) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”), which clarifies the accounting for convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement. FSP APB 14-1 specifies that an issuer of such instruments should separately account for the liability and equity components of the instruments in a manner that reflect the issuer’s non-convertible debt borrowing rate when interest costs are recognized in subsequent periods. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008, and retrospective application is required for all periods presented. The Company is currently evaluating the potential impact of the adoption of FSP APB 14-1 on its financial statements.
     In April 2008, the FASB issued FSP FAS 142-3, “Determination of Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS 142, “Goodwill and Other Intangible Assets.” FSP FAS 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. Earlier adoption is not permitted. The Company is currently evaluating the potential impact the adoption of FAS FSP 142-3 will have on its financial statements.
     In December 2007, the FASB issued SFAS No. 141R, “Business Combinations”. This Statement replaces SFAS No. 141. SFAS No. 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS No. 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company believes the adoption of this pronouncement will not have a material impact on the Company’s financial statements.
     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51”. SFAS No. 160 requires that ownership interests in subsidiaries held by parties other than the parent, and the amount of consolidated net income, be clearly identified, labeled, and presented in the consolidated financial statements within

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equity, but separate from the parent’s equity. It also requires that once a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value. Sufficient disclosures are required to clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. The provisions of SFAS No. 160 will be effective for the Company beginning January 1, 2009. The Company believes the adoption of this pronouncement will not have a material impact on the Company’s financial statements.
     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115”. SFAS No. 159 is effective for the Company in the fiscal year beginning January 1, 2008. SFAS No. 159 permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. SFAS No. 159 became effective in the first quarter of fiscal 2008. The Company has not elected to apply the fair value option to any of its financial instruments that are presently accounted for at cost.
     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (“FSP 157-1”) and FSP 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”). FSP 157-1 amends SFAS No. 157 to remove certain leasing transactions from its scope. FSP 157-2 delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. These nonfinancial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and nonfinancial assets acquired and liabilities assumed in a business combination. The provisions of SFAS No. 157 were adopted by the Company, as it applies to its financial instruments, effective beginning January 1, 2008. The impact of adoption of SFAS No. 157 is discussed in Note 14, “Fair Value of Financial Instruments”.
3. Revenue Recognition
Overview
     Rambus recognizes revenue when persuasive evidence of an arrangement exists, Rambus has delivered the product or performed the service, the fee is fixed or determinable and collection is reasonably assured. If any of these criteria are not met, Rambus defers recognizing the revenue until such time as all criteria are met. Determination of whether or not these criteria have been met may require the Company to make judgments, assumptions and estimates based upon current information and historical experience.
     Rambus’ revenue consist of royalty revenue and contract revenue generated from agreements with semiconductor companies, system companies and certain reseller arrangements. Royalty revenue consist of patent license and product license royalties. Contract revenue consist of fixed license fees, fixed engineering fees and service fees associated with integration of Rambus’ chip interface products into its customers’ products. Contract revenue may also include support or maintenance. Reseller arrangements generally provide for the pass-through of a percentage of the fees paid to the reseller by the reseller’s customer for use of Rambus’ patent and product licenses. Rambus does not recognize revenue for these arrangements until it has received notice of revenue earned by and paid to the reseller, accompanied by the pass-through payment from the reseller. Rambus does not pay commissions to the reseller for these arrangements.
     Many of Rambus’ licensees have the right to cancel their licenses. In such arrangements, revenue is only recognized to the extent that is consistent with the cancellation provisions. Cancellation provisions within such contracts generally provide for a prospective cancellation with no refund of fees already remitted by customers for products provided and payment for services rendered prior to the date of cancellation. Unbilled receivables represent enforceable claims and are deemed collectible in connection with the Company’s revenue recognition policy.
Royalty Revenue
     Rambus recognizes royalty revenue upon notification by its licensees. The terms of the royalty agreements generally either require licensees to give Rambus notification and to pay the royalties within 60 days of the end of the quarter during which the sales occur or are based on a fixed royalty that is due within 45 days of the end of the quarter. From time to time, Rambus engages accounting firms

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other than its independent registered public accounting firm to perform, on Rambus’ behalf, periodic audits of some of the licensee’s reports of royalties to Rambus and any adjustment resulting from such royalty audits is recorded in the period such adjustment is determined. Rambus has two types of royalty revenue: (1) patent license royalties and (2) product license royalties.
      Patent licenses. Rambus licenses its broad portfolio of patented inventions to semiconductor and systems companies who use these inventions in the development and manufacture of their own products. Such licensing agreements may cover the license of part, or all, of Rambus’ patent portfolio. Rambus generally recognizes revenue from these arrangements as amounts become due. The contractual terms of the agreements generally provide for payments over an extended period of time.
      Product licenses. Rambus develops proprietary and industry-standard chip interface products, such as RDRAM and XDR that Rambus provides to its customers under product license agreements. These arrangements include royalties, which can be based on either a percentage of sales or number of units sold. Rambus recognizes revenue from these arrangements (except for those royalties subject to the FTC order discussed below) upon notification from the licensee of the royalties earned and when collectability is deemed reasonably assured.
     On February 2, 2007, the Federal Trade Commission (the “FTC”) issued an order requiring Rambus to limit the royalty rates charged for certain SDR and DDR SDRAM memory and controller products sold after April 12, 2007. The FTC stayed this requirement on March 16, 2007, subject to certain conditions. One such condition of the stay limits the royalties Rambus can receive under certain contracts so that they do not exceed the FTC’s Maximum Allowable Royalties (“MAR”). Amounts in excess of MAR that are subject to the order are excluded from revenue. As of June 30, 2008, $5.2 million has been excluded from revenue, including $1.3 million in the quarter ended June 30, 2008. On April 22, 2008, the United States Court of Appeals for the District of Columbia (the “CADC”) overturned the FTC decision and remanded the matter back to the FTC for further proceedings consistent with the Court’s opinion. The CADC’s order vacating the FTC’s order has not yet been issued. The Company will continue to defer revenue in accordance with the FTC’s order so long as it remains in effect (see Note 13 “Litigation and Asserted Claims”).
Contract Revenue
     Rambus generally recognizes revenue in accordance with the provisions of SOP 81-1 for development contracts related to licenses of its chip interface products, such as XDR and FlexIO that involve significant engineering and integration services. Revenue derived from such license and engineering services is recognized using the completed contract or percentage-of-completion method. For all license and service agreements accounted for using the percentage-of-completion method, Rambus determines progress to completion using input measures based upon contract costs incurred. Prior to the first quarter of 2008, Rambus determined progress to completion using labor-hours incurred. The change to input measures better reflects the overall gross margin over the life of the contract. This change did not have a significant impact on the Company’s results of operations. Rambus has evaluated use of output measures versus input measures and has determined that its output is not sufficiently uniform with respect to cost, time and effort per unit of output to use output measures as a measure of progress to completion. Part of these contract fees may be due upon the achievement of certain milestones, such as provision of certain deliverables by Rambus or production of chips by the licensee. The remaining fees may be due on pre-determined dates and include significant up-front fees.
     A provision for estimated losses on fixed price contracts is made, if necessary, in the period in which the loss becomes probable and can be reasonably estimated. If Rambus determines that it is necessary to revise the estimates of the total costs required to complete a contract, the total amount of revenue recognized over the life of the contract would not be affected. However, to the extent the new assumptions regarding the total efforts necessary to complete a project were less than the original assumptions, the contract fees would be recognized sooner than originally expected. Conversely, if the newly estimated total efforts necessary to complete a project were longer than the original assumptions, the contract fees will be recognized over a longer period.
     In certain periods, the estimated cost of contract revenue may exceed contract revenue that do not factor in the expected stream of future royalty payments. This can be further impacted by timing of expensing of pre-contract costs as research and development expenses and expensing of completed contract costs where the realizability of an asset is uncertain. As of June 30, 2008, the Company has accrued approximately $1.8 million related to estimated loss contracts. These expenses were recognized in cost of contract revenue during the quarter when such loss was determined.
     If application of the percentage-of-completion method results in recognizable revenue prior to an invoicing event under a customer contract, the Company will recognize the revenue and record an unbilled receivable. Amounts invoiced to Rambus’ customers in excess of recognizable revenue are recorded as deferred revenue. The timing and amounts invoiced to customers can vary significantly

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depending on specific contract terms and can therefore have a significant impact on deferred revenue or unbilled receivables in any given period.
     If there is significant uncertainty about the time to complete or the deliverables by either party, Rambus evaluates the appropriateness of applying the completed contract method of accounting under SOP 81-1. Such evaluation is completed on a contract-by-contract basis. For all contracts where revenue recognition must be delayed until the contract deliverables are substantially complete, Rambus evaluates the realizability of the assets which the accumulated costs would represent and defers or expenses as incurred based upon the conclusions of its realization analysis.
     Rambus also recognizes revenue in accordance with SOP 97-2, SOP 98-4 and SOP 98-9 for development contracts related to licenses of its chip interface products that involve non-essential engineering services and post contract support (“PCS”). These SOPs apply 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 products and services provided under these arrangements are comprised of license fees and engineering service fees which are not essential to the functionality of the product. Rambus’ rates for PCS and for engineering services are specific to each development contract and not standardized in terms of rates or length. Because of these characteristics, the Company does not have a sufficient population of contracts from which to derive vendor specific objective evidence for each of the elements.
     Therefore, as required by SOP 97-2, after Rambus delivers the product, if the only undelivered element is PCS, Rambus will recognize all revenue ratably over either the contractual PCS period or the period during which PCS is expected to be provided. Rambus reviews assumptions regarding the PCS periods on a regular basis. If Rambus determines that it is necessary to revise the estimates of the support periods, the total amount of revenue to be recognized over the life of the contract would not be affected. However, if the new estimated periods were shorter than the original assumptions, the contract fees would be recognized ratably over a shorter period. Conversely, if the new estimated periods were longer than the original assumptions, the contract fees would be recognized ratably over a longer period.
4. Comprehensive Loss
     Rambus’ comprehensive loss consists of its net loss plus other comprehensive income (loss) consisting of foreign currency translation adjustments and unrealized gains and losses on marketable securities, net of taxes.
     The components of comprehensive loss, net of tax, are as follows:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(In thousands)   2008     2007     2008     2007  
Net loss
  $ (144,664 )   $ (2,720 )   $ (157,298 )   $ (6,608 )
Other comprehensive income:
                               
Foreign currency translation adjustments, net of tax
    (85 )     10       60       32  
Unrealized gain (loss) on marketable securities, net of tax
    (1,208 )     71       (753 )     319  
 
                       
Other comprehensive income (loss)
    (1,293 )     81       (693 )     351  
 
                       
Total comprehensive loss
  $ (145,957 )   $ (2,639 )   $ (157,991 )   $ (6,257 )
 
                       
     As a result of providing a full valuation allowance of the net deferred tax assets in the U.S., the Company reversed $0.5 million previously recorded in other comprehensive income (loss) during the quarter ended June 30, 2008.
5. Stock-Based Compensation and Employee Stock Plans
     For the six months ended June 30, 2008 and 2007, the Company maintained stock plans covering a broad range of potential equity grants including stock options, nonvested equity stock and equity stock units and performance based instruments. In addition, the Company sponsors an ESPP, whereby eligible employees are entitled to purchase Common Stock semi-annually, by means of limited payroll deductions, at a 15% discount from the fair market value of the Common Stock as of specific dates.
      Stock Options : During the three and six months ended June 30, 2008, Rambus granted 91,930 and 1,763,890 stock options, respectively, with an estimated total grant-date fair value of $1.3 million and $20.1 million, respectively. During the three and six months ended June 30, 2008, Rambus recorded stock-based compensation related to stock options of $8.1 million and $17.3 million, respectively.

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     During the three and six months ended June 30, 2007, Rambus granted 62,350 and 2,759,450 stock options, respectively, with an estimated total grant-date fair value of $0.7 million and $34.3 million, respectively. During the three and six months ended June 30, 2007, Rambus recorded stock-based compensation expense related to stock options of $9.7 million and $18.6 million, respectively, for all unvested options granted, including the modification charge for the extension of expiring options discussed below.
     The effect of recording stock-based compensation for the three and six months ended June 30, 2007 includes a charge resulting from the Company’s modifying the terms of 88 and 105 grants, respectively, by offering an extension of time to exercise. An additional charge was taken during the six month period to extend the time of the extension of the 59 grants previously extended in 2006. The total modification charge was $0.8 million and $2.8 million during the three and six months ended June 30, 2007, respectively.
     The total intrinsic value of options exercised was $4.7 million and $10.2 million for the three and six months ended June 30, 2008, respectively. There were no option exercises in the first six months of 2007. Intrinsic value is the total value of exercised shares based on the price of the Company’s common stock at the time of exercise less the cash received from the employees to exercise the options.
     During the six months ended June 30, 2008, proceeds from employee stock option exercises totaled approximately $10.3 million.
     There were no tax benefits realized as a result of employee stock option exercises, stock purchase plan purchases, and vesting of equity stock and stock units for the six months ended June 30, 2008 and 2007 calculated in accordance with SFAS No. 123(R).
Valuation Assumptions
     The fair value of stock awards is estimated as of the grant date using the Black-Scholes Merton option-pricing model assuming a dividend yield of 0% and the additional weighted-average assumptions as listed in the following table:
                                 
    Stock Option Plans
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2008   2007   2008   2007
 
                               
Stock Option Plans
                               
Expected stock price volatility
    66 %     53%-61 %     63-66 %     53%-69 %
Risk free interest rate
    3.0 %     4.6%-4.9 %     3.0-3.1 %     4.5%-4.9 %
Expected term (in years)
    5.3       6.2       5.3       6.2  
Weighted-average fair value of stock options granted
  $ 13.64     $ 11.74     $ 11.41     $ 12.43  
                                 
    Employee Stock Purchase Plan
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2008   2007(1)   2008   2007(1)
 
                               
Employee Stock Purchase Plan
                               
Expected stock price volatility
    58 %           58 %      
Risk free interest rate
    1.7 %           1.7 %      
Expected term (in years)
    0.5             0.5        
Weighted-average fair value of purchase rights granted under the purchase plan
  $ 7.41           $ 7.41        
 
(1)   No grants were made under the employee stock purchase plan in the three and six months ended June 30 2007.
     In the first quarter of 2008, the Company changed its methodology for determining estimated expected term for employee stock options from the Monte Carlo simulation model to observed historical exercise patterns. The change in methodology resulted from an analysis of observed historical exercise patterns which better approximates the actual expected term. The impact of this change was not significant to the Company’s results from operations.
     See Note 9 “Income Taxes” for additional information related to tax effects of stock-based compensation.

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Summary of shares available for grant under stock option plans
     As of June 30, 2008, 2,735,293 shares of the 8,400,000 shares approved under the 2006 Plan remain available for grant. The 2006 Plan is now Rambus’ only plan for providing stock-based incentive compensation to eligible employees, executive officers and non-employee directors and consultants.
     A summary of shares available for grant under the Company’s plans is as follows:
         
    Shares Available
    for Grant
Shares available as of December 31, 2007
    4,589,131  
Stock options granted
    (1,763,890 )
Stock options forfeited
    475,159  
Stock options expired under former plans
    (269,607 )
Nonvested equity stock and stock units granted (1)
    (295,500 )
 
       
Total available for grant as of June 30, 2008
    2,735,293  
 
       
 
(1)   For purposes of determining the number of shares available for grant under the 2006 Plan against the maximum number of shares authorized, each restricted stock granted reduces the number of shares available for grant by 1.5 shares and each restricted stock forfeited increases shares available for grant by 1.5 shares.
General Stock Option Information
     The following table summarizes stock option activity under the 1997, 1999 and 2006 Plans for the six months ended June 30, 2008 and information regarding stock options outstanding, exercisable, and vested and expected to vest as of June 30, 2008.
                                 
    Options Outstanding        
                    Weighted    
            Weighted   Average    
            Average   Remaining   Aggregate
    Number of   Exercise Price   Contractual   Intrinsic
    Shares   Per Share   Term   Value
    (Dollars in thousands, except per share amounts)
Outstanding as of December 31, 2007
    18,750,738     $ 20.17                  
Options granted
    1,763,890       20.00                  
Options exercised
    (905,338 )     11.40                  
Options forfeited
    (475,159 )     19.90                  
 
                               
Outstanding as of June 30, 2008
    19,134,131       20.57       5.77     $ 66,899  
 
                               
Vested or expected to vest at June 30, 2008
    17,457,514       21.21       5.73       56,062  
Options exercisable at June 30, 2008
    11,228,628       21.40       4.51       49,851  
     The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value for in-the-money options at June 30, 2008, based on the $19.07 closing stock price of Rambus’ Common Stock on June 30, 2008 on the Nasdaq Global Select Market, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options outstanding and exercisable as of June 30, 2008 was 11,131,262 and 7,314,478 respectively.
     As of June 30, 2008, there was $64.7 million of total unrecognized compensation cost, net of expected forfeitures, related to unvested stock-based compensation arrangements granted under the stock option plans. That cost is expected to be recognized over a weighted-average period of 3.0 years. The total fair value of options vested as of June 30, 2008 was $211.4 million.
Employee Stock Purchase Plans
     Under the 2006 Employee Stock Purchase Plan, the Company issued 146,633 shares at a price of $16.77 per share during the six months ended June 30, 2008. No purchases were made under the Employee Stock Purchase Plans during the six months ended June 30, 2007. As of June 30, 2008, 1,453,367 shares under the 2006 Purchase Plan remain available for issuance. As of June 30, 2008, there was $0.7 million of total unrecognized compensation cost related to share-based compensation arrangements granted under the Employee Stock Purchase Plan. That cost is expected to be recognized over four months.

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Nonvested Equity Stock and Stock Units
     For the six months ended June 30, 2008, Rambus granted nonvested equity stock units to certain officers and employees, totaling 197,000 shares. These nonvested equity stock units have a service condition, generally a service period of four years. Included in the 2008 grants are 48,000 nonvested equity stock units which were granted to our chief executive officer with vesting subject to the achievement of certain performance conditions related to revenue goals and other factors. For the six months ended June 30, 2008, the Company has not recognized any compensation expense for these performance equity stock units granted to our chief executive officer since the Company does not currently believe that the performance conditions will be met. During the quarter ended June 30, 2008, the Company updated the estimated forfeiture rate for all other nonvested equity stock units based on management’s future expectations. The change in estimated forfeiture rate was not significant to the quarter. All of these nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $4.0 million.
     For the three and six months ended June 30, 2008, Rambus recorded stock-based compensation expense of approximately $0.4 million and $1.2 million, respectively, related to all outstanding unvested equity stock grants. For the three and six months ended June 30, 2007, Rambus recorded stock-based compensation expense of approximately $0.4 million and $0.8 million, respectively, related to all outstanding unvested equity stock grants. Unrecognized stock-based compensation related to all nonvested equity stock grants, net of an estimate of forfeitures, was approximately $6.4 million at June 30, 2008.
     The following table reflects the activity related to nonvested equity stock and stock units for the six months ended June 30, 2008:
                 
            Weighted-  
            Average  
            Grant-Date  
Nonvested Equity Stock and Stock Units   Shares     Fair Value  
Nonvested at December 31, 2007
    244,177     $ 21.41  
Granted
    197,000       20.15  
Vested
    (59,177 )     20.26  
 
           
Nonvested at June 30, 2008
    382,000     $ 20.94  
 
           
Contingent Unvested Options
     As of December 31, 2007, there were 635,348 contingent unvested options, which vest upon the achievement of certain milestones by Intel relating to shipment volumes of RDRAM 850E chipsets. Intel has since phased out the 850E chipset and as a result the unvested options will never vest. The impact of the unvested options has been excluded from the calculation of net loss per share. During the six months ended June 30, 2008, 29,500 contingent unvested options were forfeited. The forfeitures of the contingent unvested options are included in the forfeitures in the table summarizing stock option activity.
     As of June 30, 2008, there were 605,848 contingent unvested options, none of which are expected to vest.
6. Marketable Securities
     Rambus invests its excess cash primarily in U.S. government agency and treasury notes, commercial paper, corporate notes and bonds, and municipal notes and bonds that mature within three years.
     All cash equivalents and marketable securities are classified as available-for-sale and are summarized as follows:
                                 
    June 30, 2008  
                            Weighted  
                    Unrealized     Rate of  
(dollars in thousands)   Fair Value     Book Value     Gain (Loss), net     Return  
Money Market Funds
  $ 97,926     $ 97,926     $       2.45 %
Municipal Bonds and Notes
    3,051       3,045       6       3.82 %
U.S. Government Bonds and Notes
    185,760       185,858       (98 )     3.10 %
Corporate Notes, Bonds, and Commercial Paper
    103,510       103,698       (188 )     3.09 %
 
                         
Total cash equivalents and marketable securities
    390,247       390,527       (280 )        
Cash
    3,931       3,931                
 
                         
Total cash, cash equivalents and marketable securities
  $ 394,178     $ 394,458     $ (280 )        
 
                         

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    December 31, 2007  
                            Weighted  
                    Unrealized     Rate of  
(dollars in thousands)   Fair Value     Book Value     Gain, net     Return  
Money Market Funds
  $ 104,836     $ 104,836     $       4.82 %
Municipal Bonds and Notes
    3,008       3,000       8       4.81 %
U.S. Government Bonds and Notes
    108,660       108,568       92       4.39 %
Corporate Notes, Bonds, and Commercial Paper
    219,734       219,668       66       4.90 %
 
                         
Total cash equivalents and marketable securities
    436,238       436,072       166          
Cash
    4,644       4,644                
 
                         
Total cash, cash equivalents and marketable securities
  $ 440,882     $ 440,716     $ 166          
 
                         
     Available-for-sale securities are reported at fair value on the balance sheets and classified as follows:
                 
    June 30,     December 31,  
(dollars in thousands)   2008     2007  
Cash equivalents
  $ 127,861     $ 114,747  
Short term marketable securities
    262,386       321,491  
Total cash equivalents and marketable securities
  390,247     436,238  
Cash
    3,931       4,644  
Total cash, cash equivalents and marketable securities
  $ 394,178     $ 440,882  
 
           
     The estimated fair value of cash equivalents and marketable securities classified by date of contractual maturity and the associated unrealized gain (loss) at June 30, 2008 and December 31, 2007 are as follows:
                                 
    As of     Unrealized Gain (Loss), net  
    June 30,     December 31,     June 30,     December 31,  
    2008     2007     2008     2007  
    (In thousands)  
Contractual maturity:
                               
Due within one year
  $ 230,851     $ 361,974     $ (91 )   $ 27  
Due from one year through three years
    159,396       74,264       (189 )     139  
 
                       
 
  $ 390,247     $ 436,238     $ (280 )   $ 166  
 
                       
     The Company adopted SFAS No. 157 effective January 1, 2008 for financial assets and liabilities measured on a recurring basis. SFAS No. 157 applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. For the discussion regarding the impact of the adoption of SFAS No. 157 on the Company’s marketable securities, see Note 14, “Fair Value of Financial Instruments”.
7. Commitments and Contingencies
     On February 1, 2005, Rambus issued $300.0 million aggregate principal amount of zero coupon convertible senior notes (the “convertible notes”) due February 1, 2010 to Credit Suisse First Boston LLC and Deutsche Bank Securities as initial purchasers who then sold the convertible notes to institutional investors. Rambus elected to pay the principal amount of the convertible notes in cash when they are due. Subsequently, Rambus repurchased a total of $140.0 million face value of the outstanding convertible notes in 2005. The convertible notes outstanding as of June 30, 2008 are $160.0 million and are classified as a non-current liability in the accompanying condensed consolidated balance sheets.

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     As of June 30, 2008, Rambus’ material contractual obligations are:
                                                         
    Payment Due by Year  
            Remainder of                                
    Total     2008     2009     2010     2011     2012     Thereafter  
    (In thousands)  
Contractual obligations(1)
                                                       
Operating leases
  $ 17,775     $ 4,267     $ 6,583     $ 5,785     $ 622     $ 518     $  
Convertible notes
    160,000                   160,000                    
Purchased software license agreements(2)
    1,547       1,040       507                          
 
                                         
Total
  $ 179,322     $ 5,307     $ 7,090     $ 165,785     $ 622     $ 518     $  
 
                                         
 
(1)   The above table does not reflect possible payments in connection with uncertain tax benefits associated with FASB Interpretation No. (“FIN”) 48 of approximately $14.3 million, including $11.4 million recorded as a reduction of long-term deferred tax assets and $2.9 million in long-term income taxes payable, as of June 30, 2008. As noted below in Note 9, “Income Taxes”, although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the outcome at this time.
 
(2)   Rambus has commitments with various software vendors for non-cancellable license agreements that generally have terms greater than one year. The above table summarizes those contractual obligations as of June 30, 2008, which are also included on Rambus’ condensed consolidated balance sheets under current and other long-term liabilities.
     Rent expense was approximately $1.7 million and $3.5 million for the three and six months ended June 30, 2008, respectively. Rent expense was approximately $1.6 million and $3.2 million for the three and six months ended June 30, 2007, respectively.
     Deferred rent, included primarily in other long-term liabilities, was approximately $1.3 million and $1.5 million as of June 30, 2008 and December 31, 2007, respectively.
     In connection with certain litigation taking place in Germany, the German courts have requested that the Company set aside adequate funds to cover potential court cost claims. Accordingly, approximately $1.8 million is restricted as to withdrawal, managed by a third party subject to certain limitations under the Company’s investment policy and included in restricted cash, long-term, to cover the German court requirements.
      Indemnifications
     Rambus enters into standard license agreements in the ordinary course of business. Although Rambus does not indemnify most of its customers, there are times when an indemnification is a necessary means of doing business. Indemnifications cover customers for losses suffered or incurred by them as a result of any patent, copyright, or other intellectual property infringement claim by any third party with respect to Rambus’ products. The maximum amount of indemnification Rambus could be required to make under these agreements is generally limited to fees received by Rambus. Rambus estimates the fair value of its indemnification obligation as insignificant, based upon its history of litigation concerning product and patent infringement claims. Accordingly, Rambus has no liabilities recorded for indemnification under these agreements as of June 30, 2008 or December 31, 2007.
     Several securities fraud class actions, private lawsuits and shareholder derivative actions were filed in state and federal courts against certain of the Company’s current and former officers and directors related to the stock option granting actions. As permitted under Delaware law, Rambus has agreements whereby its officers and directors are indemnified for certain events or occurrences while the officer or director is, or was serving, at Rambus’ request in such capacity. The term of the indemnification period is for the officer’s or director’s term in such capacity. The maximum potential amount of future payments Rambus could be required to make under these indemnification agreements is unlimited. Rambus has a director and officer insurance policy that reduces Rambus’ exposure and enables Rambus to recover a portion of future amounts to be paid. As a result of these indemnification agreements, Rambus continues to make payments on behalf of current and former officers. As of June 30, 2008, the Company had made payments of approximately $6.4 million on their behalf, including $0.3 million in the quarter ended June 30, 2008. As of June 30, 2007, the Company had made payments of approximately $4.4 million on their behalf, including $2.1 million in the quarter ended June 30, 2007. These payments were recorded under costs of restatement and related legal activities in the condensed consolidated statements of operations.

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      Warranties
     Rambus offers some of its customers a warranty that its products will conform to their functional specifications. To date, there have been no payments or material costs incurred related to fulfilling these warranty obligations. Accordingly, Rambus has no liabilities recorded for these warranties as of June 30, 2008 or December 31, 2007, respectively. Rambus assesses the need for a warranty accrual on a quarterly basis, and there can be no guarantee that a warranty accrual will not become necessary in the future.
8. Stockholders’ Equity
Share Repurchase Program
     In October 2001, Rambus’ Board of Directors (the “Board”) approved a share repurchase program of its Common Stock, principally to reduce the dilutive effect of employee stock options. To date, the Board has approved the authorization to repurchase up to 19.0 million shares of the Company’s outstanding Common Stock over an undefined period of time. During the six months ended June 30, 2008, the Company repurchased approximately 1.4 million shares with an aggregate value of $24.9 million. As of June 30, 2008, Rambus had repurchased a cumulative total of approximately 14.6 million shares of its Common Stock since the commencement of this program. As of June 30, 2008, there remained an outstanding authorization to repurchase approximately 4.4 million shares of Rambus’ outstanding Common Stock. For the three months ended June 30, 2008, no shares were repurchased.
     Rambus records stock repurchases as a reduction to stockholders’ equity. As prescribed by Accounting Principles Board (“APB”) Opinion No. 6, “Status of Accounting Research Bulletins,” Rambus records a portion of the purchase price of the repurchased shares as an increase to accumulated deficit when the cost of the shares repurchased exceeds the average original proceeds per share received from the issuance of Common Stock. During the six months ended June 30, 2008, the cumulative price of the shares repurchased exceeded the proceeds received from the issuance of the same number of shares. The excess of $23.1 million was recorded as an increase to accumulated deficit for the six months ended June 30, 2008. During the six months ended June 30, 2007, the Company did not repurchase any Common Stock.
9. Income Taxes
     The effective tax rate for the quarter ended June 30, 2008 was 932.8% which is higher than the U.S. statutory tax rate applied to the Company’s net loss primarily due to the establishment of a full valuation allowance on our U.S. net deferred tax assets. The effective tax rate for the quarter ended June 30, 2007 was 39.7% which was higher than the U.S. statutory tax rate applied to the Company’s net loss primarily due to research and development tax credits, non-deductible stock-based compensation expense related to our executives and other employees, state income taxes and foreign income taxes.
     As of June 30, 2008, the Company’s condensed consolidated balance sheet included net deferred tax assets, before valuation allowance, of approximately $141.4 million, which consists of net operating loss carryovers, tax credit carryovers, depreciation and amortization, employee stock-based compensation expenses and certain liabilities.
     For the quarter ended June 30, 2008, the Company recorded a non-cash income tax provision of $130.5 million to establish a valuation allowance to fully reserve previously recorded net tax benefits generated from pre-tax losses in the U.S. Management periodically evaluates the realizability of the Company’s net deferred tax assets based on all available evidence, both positive and negative. The realization of net deferred tax assets is solely dependent on the Company’s ability to generate sufficient future taxable income during periods prior to the expiration of tax statutes to fully utilize these assets. As previously disclosed in the Company’s 2007 Form 10-K for the year ended December 31, 2007, the Company’s forecasted future operating results are highly influenced by, among other factors, assumptions regarding (1) the Company’s ability to achieve its forecasted revenue, (2) its ability to effectively manage its expenses in line with its forecasted revenue and (3) general trends in the semiconductor industry.
     The Company weighed both positive and negative evidence and determined that there is a need for the valuation allowance during the quarter ended June 30, 2008 due to the existence of three years of historical cumulative losses and a revised forecast that projected future losses from operations in the U.S., which the Company considered significant verifiable negative evidence. Though considered positive evidence, projected income from favorable patent litigation and related settlements were not included in the determination for the valuation allowance due to the Company’s inability to reliably estimate the timing and amounts of such settlements. The Company intends to maintain the valuation allowance until sufficient positive evidence exists to support reversal of the valuation allowance.

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     Rambus maintains liabilities for uncertain tax benefits within its non-current income taxes payable accounts. These liabilities involve judgment and estimation and are monitored by management based on the best information available including changes in tax regulations, the outcome of relevant court cases and other information.
     As of June 30, 2008, the Company had $14.3 million of unrecognized tax benefits, including $11.4 million recorded as a reduction of long-term deferred tax assets and $2.9 million in long-term income taxes payable. If recognized, approximately $0.5 million would be recorded as an income tax benefit. No benefit would be recorded for the remaining unrecognized tax benefits as the recognition would require a corresponding increase in the valuation allowance. As of December 31, 2007, the Company had $14.0 million of unrecognized tax benefits, including $8.5 million recorded as a reduction of long-term deferred tax assets, which is net of approximately $2.6 million of federal tax benefits, and including $2.9 million in long-term income taxes payable.
     Although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, the Company cannot reasonably estimate the outcome at this time.
     Rambus recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision (benefit). At December 31, 2007 and June 30, 2008, an insignificant amount of interest and penalties are included in long-term income taxes payable.
     Rambus files U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions. Rambus is currently under a payroll examination by the Internal Revenue Service for the years ended December 31, 2004 and 2005. The Company is also under examination by the California Franchise Tax Board for the fiscal year ended March 31, 2003 and the years ended December 31, 2003 and 2004. Although the outcome of any tax audit is uncertain, the Company believes it has adequately provided for any additional taxes that may be required to be paid as a result of such examinations. If the Company determines that no payment will ultimately be required, the reversal of these tax liabilities may result in tax benefits being recognized in the period when that conclusion is reached. However, if an ultimate tax assessment exceeds the recorded tax liability for that item, an additional tax provision may need to be recorded. The impact of such adjustments in the Company’s tax accounts could have a material impact on the consolidated results of operations in future periods. The Company is subject to general examination by the IRS for tax years ended 2004 through 2007. The Company is also subject to examination by the State of California for tax years ended March 31, 2003 through December 31, 2007. In addition, any research and development credit carryforward and net operating loss generated in prior years and utilized in these or future years may also be subject to examination by the IRS and the State of California. The Company is also subject to examination in various other jurisdictions for various periods.
10. Earnings (Loss) Per Share
     Earnings (loss) per share is calculated in accordance with SFAS No. 128, “Earnings Per Share”. Basic earnings (loss) per share is calculated by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing the earnings (loss) by the weighted average number of common shares and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of incremental common shares issuable upon exercise of stock options, employee stock purchases, restricted stock and restricted stock units and shares issuable upon the conversion of convertible notes. The dilutive effect of the convertible notes is calculated under the if-converted method. The dilutive effect of outstanding shares under the Company’s stock plans is reflected in diluted earnings per share by application of the treasury stock method. This method includes consideration of the amounts to be paid by the employees, the amount of excess tax benefits that would be recognized in equity if the instrument was exercised and the amount of unrecognized stock-based compensation related to future services. No potential dilutive common shares are included in the computation of any diluted per share amount when a net loss is reported.

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     The following table sets forth the computation of basic and diluted loss per share:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2008     2007     2008     2007  
    (In thousands, except per share amounts)  
Numerator:
                               
Net loss
  $ (144,664 )   $ (2,720 )   $ (157,298 )   $ (6,608 )
 
                       
Denominator:
                               
Weighted average shares used to compute basic EPS
    104,804       103,820       104,743       103,820  
Dilutive potential shares from stock options, ESPP and nonvested equity stock and stock units
                       
 
                       
Weighted average shares used to compute diluted EPS
    104,804       103,820       104,743       103,820  
 
                       
Net loss per share:
                               
Basic
  $ (1.38 )   $ (0.03 )   $ (1.50 )   $ (0.06 )
Diluted
  $ (1.38 )   $ (0.03 )   $ (1.50 )   $ (0.06 )
     For the three and six months ended June 30, 2008 and 2007, approximately 5.9 million shares that would be issued upon the conversion of the contingently issuable convertible notes were excluded from the calculation of earnings per share because the conversion price was higher than the average market price of the Common Stock during these periods. For the three months ended June 30, 2008 and 2007, options to purchase approximately 9.9 million and 10.0 million shares, respectively, and for the six months ended June 30, 2008 and 2007, options to purchase approximately 10.4 million and 10.9 million shares, respectively, were excluded from the calculation because they were anti-dilutive after considering proceeds from exercise, taxes and related unrecognized stock-based compensation expense. For the three and six months ended June 30, 2008, an additional 3.9 million and 3.6 million shares, respectively, including nonvested equity stock and stock units, that would be dilutive have been excluded from the weighted average dilutive shares because there was a net loss for the period.
11. Business Segments, Exports and Major Customers
     Rambus operates in a single industry segment, the design, development and licensing of chip interface technologies and architectures. Three customers accounted for 19%, 17% and 12%, respectively, of revenue in the three months ended June 30, 2008. Three customers accounted for 21%, 16% and 14%, respectively, of revenue in the three months ended June 30, 2007. Three customers accounted for 18%, 18% and 13%, respectively, of revenue in the six months ended June 30, 2008. Three customers accounted for 23%, 15% and 14%, respectively, of revenue in the six months ended June 30, 2007. Rambus expects that its revenue concentration will decrease over the long term as Rambus licenses new customers.

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     Rambus sells its chip interfaces and licenses to customers in the Far East, North America, and Europe. Revenue from customers in the following geographic regions were recognized as follows:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(In thousands)   2008     2007     2008     2007  
 
                       
Japan
  $ 29,579     $ 32,185     $ 60,561     $ 68,366  
North America
    5,813       7,521       12,661       13,861  
Taiwan
    180       50       521       150  
Korea
    56       62       439       486  
Singapore
    75             174        
Europe
    12       7,725       1,097       14,830  
 
                       
 
  $ 35,715     $ 47,543     $ 75,453     $ 97,693  
 
                       
     Revenue is attributed to individual countries according to the countries in which the licensees are headquartered. At June 30, 2008, of the $26.1 million of total long-lived assets, approximately $22.3 million are located in the United States, $3.1 million are located in India and $0.7 million are located in other foreign locations. At December 31, 2007, of the $24.6 million of total long-lived assets, approximately $20.2 million were located in the United States, $3.6 million were located in India and $0.8 million were located in other foreign locations.
12. Amortizable Intangible Assets
     The components of the Company’s intangible assets as of June 30, 2008 and December 31, 2007 were as follows:
                         
    As of June 30, 2008  
    Gross Carrying     Accumulated     Net Carrying  
    Amount     Amortization     Amount  
    (In thousands)  
Patents
  $ 9,941     $ (4,945 )   $ 4,996  
Intellectual property
    10,384       (9,098 )     1,286  
Customer contracts and contractual relationships
    8,000       (3,788 )     4,212  
Existing technology
    2,700       (2,166 )     534  
Non-competition agreement
    100       (100 )      
 
                 
Total intangible assets
  $ 31,125     $ (20,097 )   $ 11,028  
 
                 
                         
    As of December 31, 2007  
    Gross Carrying     Accumulated     Net Carrying  
    Amount     Amortization     Amount  
    (In thousands)  
Patents
  $ 9,941     $ (4,363 )   $ 5,578  
Intellectual property
    10,084       (7,759 )     2,325  
Customer contracts and contractual relationships
    8,000       (3,344 )     4,656  
Existing technology
    2,700       (1,828 )     872  
Non-competition agreement
    100       (90 )     10  
 
                 
Total intangible assets
  $ 30,825     $ (17,384 )   $ 13,441  
 
                 
     Amortization expense for intangible assets for the three and six months ended June 30, 2008 was $1.3 million and $2.7 million, respectively. Amortization expense for intangible assets for the three and six months ended June 30, 2007 was $1.3 million and $2.6 million, respectively.
     The estimated future amortization expense of intangible assets as of June 30, 2008 was as follows (amounts in thousands):
         
Years Ending December 31:   Amount  
2008 (remaining 6 months)
  $ 1,793  
2009
    3,108  
2010
    1,921  
2011
    1,593  
2012
    1,321  
Thereafter
    1,292  
 
     
 
  $ 11,028  
 
     

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     The valuation and useful lives of the acquired intangible assets were allocated based on estimated fair values at the acquisition dates. The value of the agreements, along with interviews and management’s estimates were used to determine the useful lives of the assets. The income approach, which includes an analysis of the cash flows and risks associated with achieving such cash flows, was the primary technique utilized in valuing the acquired patented technology. Key assumptions included estimates of revenue growth, cost of revenue, operating expenses and income taxes. The discount rates used in the valuation of intangible assets reflected the level of risk associated with the particular technology and the current return on investment requirements of the market.
13. Litigation and Asserted Claims
      Hynix Litigation
      U.S District Court of the Northern District of California
     On August 29, 2000, Hynix (formerly Hyundai) and various subsidiaries filed suit against Rambus in the U.S. District Court for the Northern District of California. The complaint, as amended and narrowed through motion practice, asserts claims for fraud, violations of federal antitrust laws and deceptive practices in connection with Rambus’ participation in a standards setting organization called JEDEC, and seeks a declaratory judgment that the Rambus patents-in-suit are unenforceable, invalid and not infringed by Hynix, compensatory and punitive damages, and attorneys’ fees. Rambus denied Hynix’s claims and filed counterclaims for patent infringement against Hynix.
     The case was divided into three phases. In the first phase, Hynix tried its unclean hands defense beginning on October 17, 2005 and concluding on November 1, 2005. In its January 4, 2006 Findings of Fact and Conclusions of Law, the court held that Hynix’s unclean hands defense failed. Among other things, the court found that Rambus did not adopt its document retention policy in bad faith, did not engage in unlawful spoliation of evidence, and that while Rambus disposed of some relevant documents pursuant to its document retention policy, Hynix was not prejudiced by the destruction of Rambus documents.
     The second phase of the Hynix-Rambus trial — on patent infringement, validity and damages — began on March 15, 2006, and was submitted to the jury on April 13, 2006. On April 24, 2006, the jury returned a verdict in favor of Rambus on all issues and awarded Rambus a total of approximately $307 million in damages, excluding prejudgment interest. Specifically, the jury found that each of the ten selected patent claims was supported by the written description, and was not anticipated or rendered obvious by prior art; therefore, none of the patent claims were invalid. The jury also found that Hynix infringed all eight of the patent claims for which the jury was asked to determine infringement; the court had previously determined on summary judgment that Hynix infringed the other two claims at issue in the trial. On July 17, 2006, the court granted Hynix’s motion for a new trial on the issue of damages unless Rambus agreed to a reduction of the total jury award to approximately $134 million. The court found that the record supported a maximum royalty rate of 1% for SDR SDRAM and 4.25% for DDR SDRAM, which the court applied to the stipulated U.S. sales of infringing Hynix products through December 31, 2005. On July 27, 2006, Rambus elected remittitur of the jury’s award to approximately $134 million. On June 24, 2008, the court heard oral argument on Rambus’ motion to supplement the damages award and for equitable relief related to Hynix’s infringement of Rambus patents. No opinion has issued to date on Hynix’s post-trial motions for judgment as a matter of law and new trial on certain issues relating to validity and infringement, nor has any opinion issued to date on Rambus’ motions for equitable relief, supplemental damages, and prejudgment interest. Hynix filed a motion on July 7, 2008 to reduce the amount of remitted damages and any supplemental damages that the court may award, as well as to limit the products that could be affected by any injunction that the court may grant, on the grounds of patent exhaustion. Briefing on this motion is not yet complete and a hearing on this motion is set for August 29, 2008.
     The third phase of the Hynix-Rambus trial involved Hynix’s affirmative JEDEC-related antitrust and fraud allegations against Rambus. On April 24, 2007, the court ordered a coordinated trial of certain common JEDEC-related claims alleged by the manufacturer parties (i.e., Hynix, Micron, Nanya and Samsung) and defenses asserted by Rambus in Hynix v Rambus , Case No. C 00-20905 RMW, and three other cases pending before the same court ( Rambus Inc. v. Samsung Electronics Co. Ltd. et al. , Case No. 05-02298 RMW, Rambus Inc. v. Hynix Semiconductor Inc., et al. , Case No. 05-00334, and Rambus Inc. v. Micron Technology, Inc., et al. , Case No. C 06-00244 RMW, each described in further detail below). On December 14, 2007, the court excused Samsung from the coordinated trial based on Samsung’s agreement to certain conditions, including trial of its claims against Rambus by the court within six months following the conclusion of the coordinated trial. The coordinated trial involving Rambus, Hynix, Micron and Nanya began on January 29, 2008, and was submitted to the jury on March 25, 2008. On March 26, 2008, the jury returned a verdict in favor of Rambus and against Hynix, Micron, and Nanya on each of their claims. Specifically, the jury found that Hynix, Micron, and Nanya failed to meet their burden of proving that: (1) Rambus engaged in anticompetitive conduct; (2) Rambus made important

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representations that it did not have any intellectual property pertaining to the work of JEDEC and intended or reasonably expected that the representations would be heard by or repeated to others including Hynix, Micron or Nanya; (3) Rambus uttered deceptive half-truths about its intellectual property coverage or potential coverage of products compliant with synchronous DRAM standards then being considered by JEDEC by disclosing some facts but failing to disclose other important facts; or (4) JEDEC members shared a clearly defined expectation that members would disclose relevant knowledge they had about patent applications or the intent to file patent applications on technology being considered for adoption as a JEDEC standard. Hynix, Micron, and Nanya filed motions for a new trial and for judgment on certain of their equitable claims and defenses. A hearing on those motions was held on May 1, 2008. A further hearing on the equitable claims and defenses was held on May 27, 2008. On July 24, 2008, the court issued an order denying Hynix, Micron, and Nanya’s motion for new trial. The court has not yet ruled on their equitable claims and defenses.
      European Patent Infringement Case
     Beginning on September 4, 2000, Rambus filed suit against Hynix in multiple European jurisdictions for infringement of EP 0 525 068 (the “‘068 patent”). Rambus later filed a further infringement action against Hynix in Mannheim, Germany on a second patent, EP 1 022 642 (the “‘642 patent”). Both patents were opposed by Hynix, Micron, and Infineon in the European Patent Office (EPO). The ‘068 patent was revoked by an Appeal Board in 2004, and a hearing in the opposition with respect to the ‘642 patent has not yet been scheduled. On January 8, 2008, the Mannheim court issued an Order of Cost with respect to the ‘068 proceeding requiring Rambus to reimburse Hynix court fees in the amount of $0.6 million. This amount has since been paid.
Micron Litigation
      U.S District Court in Delaware: Case No. 00-792-SLR
     On August 28, 2000, Micron filed suit against Rambus 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 Rambus’ participation in JEDEC. Micron seeks a declaration of monopolization by Rambus, 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. Rambus has filed an answer and counterclaims disputing Micron’s claims and asserting infringement by Micron of twelve U.S. patents.
     This case has been divided into three phases in the same general order as in the Hynix 00-20905 action: (1) unclean hands; (2) patent infringement; and (3) antitrust, equitable estoppel, and other JEDEC-related issues. A bench trial on Micron’s unclean hands defense began on November 8, 2007 and concluded on November 15, 2007. The court ordered post-trial briefing on the issue of when Rambus became obligated to preserve documents because it anticipated litigation. A hearing on that issue was held on May 20, 2008. The matter was taken under submission, and no decision has issued to date. The court ordered further post-trial briefing on the remaining issues from the unclean hands trial, and scheduled a hearing on those issues for September 19, 2008.
      U.S. District Court of the Northern District of California
     On January 13, 2006, Rambus filed suit against Micron in the U.S. District Court in the Northern District of California. Rambus alleges that fourteen Rambus patents are infringed by Micron’s DDR2, DDR3, GDDR3, and other advanced memory products. Rambus seeks compensatory and punitive damages, attorneys’ fees, and injunctive relief. Micron has denied Rambus’ allegations and is alleging counterclaims for violations of federal antitrust laws, unfair trade practices, equitable estoppel, fraud and negligent misrepresentation in connection with Rambus’ participation in JEDEC. Micron seeks a declaration of monopolization by Rambus, injunctive relief, compensatory and punitive damages, attorneys’ fees, and a declaratory judgment of invalidity, unenforceability, and noninfringement of the fourteen patents in suit.
     As explained above, the court ordered a coordinated trial (without Samsung) of certain common JEDEC-related claims and defenses asserted in Hynix v Rambus , Case No. C 00-20905 RMW, Rambus Inc. v. Samsung Electronics Co. Ltd. et al. , Case No. 05-02298 RMW, Rambus Inc. v. Hynix Semiconductor Inc., et al. , Case No. 05-00334, and Rambus Inc. v. Micron Technology, Inc., et al. , Case No. C 06-00244 RMW. The coordinated trial involving Rambus, Hynix, Micron and Nanya began on January 29, 2008, and was submitted to the jury on March 25, 2008. On March 26, 2008, the jury returned a verdict in favor of Rambus and against Hynix, Micron, and Nanya on each of their claims. Specifically, the jury found that Hynix, Micron, and Nanya failed to meet their burden of proving that: (1) Rambus engaged in anticompetitive conduct; (2) Rambus made important representations that it did not have any intellectual property pertaining to the work of JEDEC and intended or reasonably expected that the representations would be heard by

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or repeated to others including Hynix, Micron or Nanya; (3) Rambus uttered deceptive half-truths about its intellectual property coverage or potential coverage of products compliant with synchronous DRAM standards then being considered by JEDEC by disclosing some facts but failing to disclose other important facts; or (4) JEDEC members shared a clearly defined expectation that members would disclose relevant knowledge they had about patent applications or the intent to file patent applications on technology being considered for adoption as a JEDEC standard. Hynix, Micron, and Nanya filed motions for a new trial and for judgment on certain of their equitable claims and defenses. A hearing on those motions was held on May 1, 2008. A further hearing on the equitable claims and defenses was held on May 27, 2008. On July 24, 2008, the court issued an order denying Hynix, Micron, and Nanya’s motion for new trial. The court has not yet ruled on their equitable claims and defenses.
     In these cases (except for the Hynix 00-20905 action), a hearing on claim construction and the parties’ cross-motions for summary judgment on infringement and validity was held on June 4 and 5, 2008. On July 10, 2008, the court issued its claim construction order relating to the Farmwald/Horowitz patents in suit and denied Hynix, Micron, Nanya, and Samsung’s (collectively, the “Manufacturers”) motions for summary judgment of noninfringement and invalidity based on their proposed claim construction. The court issued a claim construction order relating to the Ware patents in suit on July 25, 2008, and denied Manufacturers’ motion for summary judgment of noninfringement of certain claims; the court also ordered further briefing on one of the disputed terms. One or more trials on Rambus’ patent infringement claims is set to begin on January 19, 2009.
      European Patent Infringement Cases
     On September 11, 2000, Rambus filed suit against Micron in multiple European jurisdictions for infringement of its ‘068 patent (described above), which was later revoked. Additional suits were filed pertaining to the ‘642 patent and a third Rambus patent, EP 1 004 956 (the “‘956 patent”). Rambus’ suit against Micron for infringement of the ‘642 patent in Mannheim, Germany, has not been active.
     One proceeding in Italy relating to the ‘642 patent was adjourned at a hearing on June 15, 2007, each party bearing its own costs. In a second proceeding in Italy relating to the ‘956 patent, the court has scheduled a hearing for October 22, 2008, regarding continuation of the proceedings. On September 29, 2005, Rambus received a letter from Micron seeking to toll a statute of limitations period in Italy for a purported cause of action resulting from a seizure of evidence in Italy in 2000 carried out by Rambus pursuant to a court order. Micron asserts that its damages allegedly caused by this seizure equal or exceed $30.0 million. Micron formally filed suit against Rambus relating to this seizure in February 2006. Rambus filed its written defense on April 24, 2006. The Italian court has ordered further briefing on issues related to Rambus’ suit in Italy for infringement of its ‘068 patent. No decision has issued to date.
      DDR2, GDDR2 & GDDR3 Litigation (“DDR2”)
      U.S District Court in the Northern District of California
     On January 25, 2005, Rambus filed a patent infringement suit in the U.S. District Court in the Northern District of California court against Hynix, Infineon, Nanya, and Inotera. Infineon and Inotera were subsequently dismissed from this litigation and Samsung was added as a defendant. Rambus alleges that certain of its patents are infringed by certain of the defendants’ SDRAM, DDR, DDR2, DDR3, gDDR2, GDDR3, GDDR4 and other advanced memory products. Hynix, Samsung and Nanya have denied Rambus’ claims and asserted counterclaims against Rambus for, among other things, violations of federal antitrust laws, unfair trade practices, equitable estoppel, and fraud in connection with Rambus’ participation in JEDEC.
     As explained above, the court ordered a coordinated trial of certain common JEDEC-related claims and defenses asserted in Hynix v Rambus , Case No. C 00-20905 RMW, Rambus Inc. v. Samsung Electronics Co. Ltd. et al. , Case No. 05-02298 RMW, Rambus Inc. v. Hynix Semiconductor Inc., et al. , Case No. 05-00334, and Rambus Inc. v. Micron Technology, Inc., et al. , Case No. C 06-00244 RMW. The court subsequently excused Samsung from the coordinated trial on December 14, 2007, based on Samsung’s agreement to certain conditions, including trial of its claims against Rambus within six months following the conclusion of the coordinated trial. That trial is currently scheduled to begin on September 22, 2008. The coordinated trial involving Rambus, Hynix, Micron and Nanya began on January 29, 2008, and was submitted to the jury on March 25, 2008. On March 26, 2008, the jury returned a verdict in favor of Rambus and against Hynix, Micron, and Nanya on each of their claims. Specifically, the jury found that Hynix, Micron, and Nanya failed to meet their burden of proving that: (1) Rambus engaged in anticompetitive conduct; (2) Rambus made important representations that it did not have any intellectual property pertaining to the work of JEDEC and intended or reasonably expected that the representations would be heard by or repeated to others including Hynix, Micron or Nanya; (3) Rambus uttered deceptive half- truths about its intellectual property coverage or potential coverage of products compliant with synchronous DRAM standards then

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being considered by JEDEC by disclosing some facts but failing to disclose other important facts; or (4) JEDEC members shared a clearly defined expectation that members would disclose relevant knowledge they had about patent applications or the intent to file patent applications on technology being considered for adoption as a JEDEC standard. Hynix, Micron, and Nanya filed motions for a new trial and for judgment on certain of their equitable claims and defenses. A hearing on those motions was held on May 1, 2008. A further hearing on the equitable claims and defenses was held on May 27, 2008. On July 24, 2008, the court issued an order denying Hynix, Micron, and Nanya’s motion for new trial. The court has not yet ruled on their equitable claims and defenses.
     In these cases (except for the Hynix 00-20905 action), a hearing on claim construction and the parties’ cross-motions for summary judgment on infringement and validity was held on June 4 and 5, 2008. On July 10, 2008, the court issued its claim construction order relating to the Farmwald/Horowitz patents in suit and denied the Manufacturers’ motions for summary judgment of noninfringement and invalidity based on their proposed claim construction. The court issued a claim construction order relating to the Ware patents in suit on July 25, 2008, and denied Manufacturers’ motion for summary judgment of noninfringement of certain claims; the court also ordered further briefing on one of the disputed terms. One or more trials on Rambus’ patent infringement claims is set to begin on January 19, 2009.
      Samsung Litigation
      U.S District Court in the Northern District of California
     On June 6, 2005, Rambus filed a patent infringement suit against Samsung in the U.S. District Court in the Northern District of California alleging that Samsung’s SDRAM and DDR SDRAM parts infringe nine of Rambus’ patents. Samsung has denied Rambus’ claims and asserted counterclaims for non-infringement, invalidity and unenforceability of the patents, violations of various antitrust and unfair competition statutes, breach of license, and breach of duty of good faith and fair dealing. Samsung has also counterclaimed that Rambus aided and abetted breach of fiduciary duty and intentionally interfered with Samsung’s contract with a former employee by knowingly hiring a former Samsung employee who allegedly misused proprietary Samsung information. Rambus has denied Samsung’s counterclaims.
     As explained above, the court ordered a coordinated trial of certain common JEDEC-related claims and defenses asserted in Hynix v Rambus , Case No. C 00-20905 RMW, Rambus Inc. v. Samsung Electronics Co. Ltd. et al. , Case No. 05-02298 RMW, Rambus Inc. v. Hynix Semiconductor Inc., et al. , Case No. 05-00334, and Rambus Inc. v. Micron Technology, Inc., et al. , Case No. C 06-00244 RMW. The court subsequently excused Samsung from the coordinated trial on December 14, 2007, based on Samsung’s agreement to certain conditions, including trial of its claims against Rambus within six months following the conclusion of the coordinated trial. That trial is currently scheduled to begin on September 22, 2008. In these cases (except for the Hynix 00-20905 action), a hearing on claim construction and the parties’ cross-motions for summary judgment on infringement and validity was held on June 4 and 5, 2008. On July 10, 2008, the court issued its claim construction order relating to the Farmwald/Horowitz patents in suit and denied the Manufacturers’ motions for summary judgment of noninfringement and invalidity based on their proposed claim construction. The court issued a claim construction order relating to the Ware patents in suit on July 25, 2008, and denied Manufacturers’ motion for summary judgment of noninfringement of certain claims; the court also ordered further briefing on one of the disputed terms. One or more trials on Rambus’ patent infringement claims is set to begin on January 19, 2009.
      U.S District Court in the Eastern District of Virginia
     On June 7, 2005, Samsung sued Rambus in the U.S. District Court in the Eastern District of Virginia seeking a declaratory judgment that four Rambus patents are invalid, unenforceable and/or not infringed. Rambus answered the complaint, disputing Samsung’s claims. Rambus granted Samsung covenants not to sue Samsung for infringement of the four patents for which Samsung sought declaratory relief. Rambus subsequently offered to pay Samsung’s attorneys’ fees, but Samsung did not accept the offer. On November 8, 2005, the Virginia court granted Rambus’ motion to dismiss with respect to Samsung’s claims for declaratory judgment but denied Rambus’ motion with respect to Samsung’s claim for attorneys’ fees pursuant to 35 U.S.C. § 285. On July 19, 2006, the Virginia court issued orders finding that: (1) it had subject matter jurisdiction over Samsung’s motions; (2) Samsung is a “prevailing party;” (3) Rambus had spoliated evidence in anticipation of litigation against DRAM manufacturers such as Samsung; (4) Rambus’ spoliation rendered the case exceptional; (5) Rambus did not assert its counterclaims in subjective bad faith or for the purpose of vexation; (6) Rambus’ counterclaims were not objectively baseless at the time they were filed; and (7) Samsung was not entitled to an award of attorneys’ fees.

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     Rambus filed a notice of appeal to the United States Court of Appeals for the Federal Circuit (the “CAFC”) on August 16, 2006. Oral argument was heard on August 7, 2007. On April 29, 2008, the CAFC vacated the orders of the Virginia court denying Samsung’s application for attorney fees and entering findings with respect to the alleged spoliation of evidence. The CAFC held that the Virginia court’s findings with respect to alleged spoliation constituted an impermissible advisory opinion. The CAFC further held that Rambus’s offer to pay Samsung’s attorneys’ fees rendered the case moot, and that the Virginia court did not thereafter have independent jurisdiction to assess whether the case was exceptional. The CAFC remanded the matter to the Virginia court with the instruction that the court dismiss Samsung’s complaint. On May 30, 2008, the Virginia court dismissed Samsung’s complaint pursuant to the CAFC’s opinion.
     On July 28, 2009, Samsung filed a petition seeking review of the CAFC decision by the United States Supreme Court.
      FTC Complaint
     On June 19, 2002, the FTC filed a complaint against Rambus. The FTC alleged that through Rambus’ action and inaction at JEDEC, Rambus violated Section 5 of the FTC Act in a way that allowed Rambus to obtain monopoly power in — or that by acting with intent to monopolize it created a dangerous probability of monopolization in — synchronous DRAM technology markets. The FTC also alleged that Rambus’ action and practices at JEDEC constituted unfair methods of competition in violation of Section 5 of the FTC Act. As a remedy, the FTC sought to enjoin Rambus’ right to enforce patents with priority dates prior to June 1996 as against products made pursuant to certain existing and future JEDEC standards.
     On February 17, 2004, the FTC Chief Administrative Law Judge issued his initial decision dismissing the FTC’s complaint against Rambus on multiple independent grounds (the “Initial Decision”). The FTC’s Complaint Counsel appealed this decision.
     On August 2, 2006, the FTC released its July 31, 2006, opinion and order reversing and vacating the Initial Decision and determining that Rambus violated Section 5 of the Federal Trade Commission Act. Following further briefing and oral argument on issues relating to remedy, the FTC released its opinion and order on remedy on February 5, 2007. The remedy order sets the maximum royalty rate that Rambus can collect on the manufacture, use or sale in the United States of certain JEDEC-compliant parts after the effective date of the Order, as follows: 0.25% for SDRAM products; 0.5% for DDR SDRAM products; 0.5% for SDRAM memory controllers or other non-memory chip components; and 1.0% for DDR SDRAM memory controllers or other non-memory chip components. The order specifies that these maximum rates will be in effect for three years, after which time the maximum rates for these products will be 0%. The order also mandates that Rambus offer a license for these products at rates no higher than the maximums set by the FTC, including a further cap on rates for the affected non-memory products. The order further requires Rambus to take certain steps to comply with the terms of the order and applicable disclosure rules of any standard setting organization of which it may become a member.
     The FTC’s order explicitly does not set maximum rates or other conditions with respect to Rambus’ royalty rates for DDR2 SDRAM, other post-DDR JEDEC standards, or for non-JEDEC-standardized technologies such as those used in RDRAM or XDR DRAM.
     On March 16, 2007, the FTC issued an order granting in part and denying in part Rambus’ motion for a stay of the remedy pending appeal. The March 16 order permits Rambus to acquire rights to royalty payments for use of the patented technologies affected by the February 2 remedy order during the period of the stay in excess of the FTC-imposed maximum royalty rates on SDRAM and DDR SDRAM products, provided that funds above the maximum allowed rates be placed into an escrow account to be distributed in accordance with the ultimate decision of the court of appeals. In an opinion accompanying its order, the FTC clarified that it intended its remedy to be “forward-looking” and “prospective only,” and therefore unlikely to be construed to require Rambus to refund royalties already paid or to restrict Rambus from collecting royalties for the use of its technologies during past periods.
     On April 27, 2007, the FTC issued an order granting in part and denying in part Rambus’ petition for reconsideration of the remedy order. The FTC’s order and accompanying opinion on Rambus’ petition for reconsideration clarified the remedy order in certain respects. For example, (a) the FTC explicitly stated that the remedy order does not require Rambus to make refunds or prohibit it from collecting royalties in excess of maximum allowable royalties that accrue up to the effective date of the remedy order; (b) the remedy order was modified to specifically permit Rambus to seek damages in litigation up to three times the specified maximum allowable royalty rates on the ground of willful infringement and any allowable attorneys’ fees; and (c) under the remedy order, licensees may pay Rambus a flat fee in lieu of running royalties, even if this results in payments above the FTC’s rate caps in certain circumstances.

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     Rambus appealed the FTC’s liability and remedy orders to the United States Court of Appeals for the District of Columbia (the “CADC”). Oral argument was heard February 14, 2008. On April 22, 2008, the CADC issued an opinion which requires vacatur of the FTC’s orders. The CADC held that the FTC failed to demonstrate that Rambus’s conduct was exclusionary, and thus failed to establish its allegation that Rambus unlawfully monopolized any relevant market. The CADC’s opinion sets aside the FTC’s orders and remands the matter to the FTC for further proceedings consistent with the opinion. Regarding the chance of further proceedings on remand, the CADC expressed serious concerns about the strength of the evidence relied on to support some of the Commission’s crucial finding regarding the scope of JEDEC’s patent disclosure policies and Rambus’s alleged violation of those policies. On June 6, 2008, the FTC petitioned the CADC to rehear the case en banc. No decision on the petition for rehearing has issued to date.
      Indirect Purchaser Class Action
     On August 10, 2006, the first of nine class action lawsuits were filed against Rambus in 2006 alleging violations of federal and state antitrust laws, violations of state consumer protection laws, and various common law claims based almost entirely on the same conduct which was the subject of the FTC’s July 31, 2006 opinion. Three of these lawsuits filed outside of California were dismissed pursuant to agreement of the parties. The remaining six of these cases were consolidated under the caption, In re Rambus Antitrust Litigation , 06-4852 RMW (N.D. Cal.). The consolidated complaint seeks injunctive and declaratory relief, disgorgement, restitution and compensatory and punitive damages in an unspecified amount, and attorneys’ fees and costs. On March 28, 2007, Rambus filed a motion to dismiss the consolidated complaint. On July 27, 2007, the court heard oral argument on Rambus’ motion and took the matter under submission. No final order has been issued to date.
      European Commission Competition Directorate-General
     On or about April 22, 2003, Rambus was notified by the European Commission Competition Directorate-General (Directorate) (the “European Commission”) that it had received complaints from Infineon and Hynix. Rambus answered the ensuing requests for information prompted by those complaints on June 16, 2003. Rambus obtained a copy of Infineon’s complaint to the European Commission in late July 2003, and on October 8, 2003, at the request of the European Commission, filed its response. The European Commission sent Rambus a further request for information on December 22, 2006, which Rambus answered on January 26, 2007. On August 1, 2007, Rambus received a statement of objections from the European Commission. The statement of objections alleges that through Rambus’ participation in the JEDEC standards setting organization and subsequent conduct, Rambus violated European Union competition law. Rambus filed a response to the statement of objections on October 31, 2007, and a hearing was held on December 4 and 5, 2007. The matter is currently under submission by the European Commission.
      Superior Court of California for the County of San Francisco
     On May 5, 2004, Rambus filed a lawsuit against Micron, Hynix, Infineon and Siemens in San Francisco Superior Court (the “San Francisco court”) seeking damages for conspiring to fix prices (California Bus. & Prof. Code §§ 16720 et seq. ), conspiring to monopolize under the Cartwright Act (California Bus. & Prof. Code §§ 16720 et seq. ), intentional interference with prospective economic advantage, and unfair competition (California Bus. & Prof. Code §§ 17200 et seq. ). This lawsuit alleges that there were concerted efforts beginning in the 1990’s to deter innovation in the DRAM market and to boycott Rambus and/or deter market acceptance of Rambus’ RDRAM product. Subsequently, Infineon and Siemens were dismissed from this action (as a result of a settlement with Infineon) and three Samsung-related entities were added as defendants.
     On June 28, 2007, Hynix filed a motion for summary judgment on the ground that Rambus’ claims should be dismissed on the grounds that they allegedly were compulsory counterclaims in the Hynix 00-20905 action. Following briefing and oral argument, the court denied Hynix’s motion in an order filed November 2, 2007. Hynix sought review of the trial court’s order by the California Court of Appeal, which the appellate court summarily denied on January 17, 2008. On January 28, 2008, Hynix filed a petition for review of this decision by the California Supreme Court. Rambus filed an answer requesting that Hynix’s petition be denied. On March 19, 2008, the California Supreme Court issued an order denying Hynix’s petition.
     A hearing on defendants’ motion for judgment on the pleadings in their favor on what they refer to as Rambus’ cause of action for “price fixing in and of itself” is set for July 23, 2008. A hearing on Rambus’ motion for summary judgment on the grounds that Micron’s cross-complaint is barred by the statute of limitations is set for August 1, 2008.
     Trial is scheduled to begin on March 16, 2009.

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      Stock Option Investigation Related Claims
     On May 30, 2006, the Audit Committee commenced an internal investigation of the timing of past stock option grants and related accounting issues.
     On May 31, 2006, the first of three shareholder derivative actions was filed in the Northern District of California against Rambus (as a nominal defendant) and certain current and former executives and board members. These actions have been consolidated for all purposes under the caption, In re Rambus Inc. Derivative Litigation , Master File No. C-06-3513-JF (N.D. Cal.), and Howard Chu and Gaetano Ruggieri were appointed lead plaintiffs. The consolidated complaint, as amended, alleges violations of certain federal and state securities laws as well as other state law causes of action. The complaint seeks disgorgement and damages in an unspecified amount, unspecified equitable relief, and attorneys’ fees and costs.
     On August 22, 2006, another shareholder derivative action was filed in Delaware Chancery Court against Rambus (as a nominal defendant) and certain current and former executives and board members ( Bell v. Tate et al. , 2366-N (Del. Chancery)). On May 16, 2008, this case was dismissed pursuant to a notice filed by the plaintiff.
     On October 18, 2006, the Board of Directors formed a Special Litigation Committee (the “SLC”) to evaluate potential claims or other actions arising from the stock option granting activities. The Board of Directors has appointed J. Thomas Bentley, Chairman of the Audit Committee, and Abraham Sofaer, a retired federal judge and Chairman of the Legal Affairs Committee, both of whom joined the Rambus Board of Directors in 2005, to comprise the SLC.
     On August 24, 2007, the final written report setting forth the findings of the SLC was filed with the court. As set forth in its report, the SLC determined that all claims should be terminated and dismissed against the named defendants in In re Rambus Inc. Derivative Litigation with the exception of claims against named defendant Ed Larsen, who served as Vice President, Human Resources from September 1996 until December 1999, and then Senior Vice President, Administration until July 2004. The SLC entered into settlement agreements with certain former officers of the Company. These settlements are conditioned upon the dismissal of the claims asserted against these individuals in In re Rambus Inc. Derivative Litigation . The aggregate value of the settlements to the Company exceeds $6.5 million in cash and estimated equivalent value as well as substantial additional value to the Company relating to the relinquishment of claims to over 2.7 million stock options. The SLC stated its intention to assert control over the litigation. The conclusions and recommendations of the SLC are subject to review by the court. On October 5, 2007, Rambus filed a motion to terminate in accordance with the SLC’s recommendations. Pursuant to the parteis’ agreement, that motion was taken off calendar.
     On August 30, 2007, another shareholder derivative action was filed in the Southern District of New York against Rambus (as a nominal defendant) and PricewaterhouseCoopers LLP ( Francl v. PricewaterhouseCoopers LLP et al. , No. 07-Civ. 7650 (GBD)). On November 21, 2007, the New York court granted PricewaterhouseCoopers LLP’s motion to transfer the action to the Northern District of California.
     Subject to court approval, the parties have agreed in principle to settle In re Rambus Inc. Derivative Litigation and Francl v. PricewaterhouseCoopers LLP et al. , No. 07-Civ. 7650 (GBD). The settlement, which is subject to final documentation as well as review by the court, provides for a payment by Rambus of $2.0 million and would lead to a dismissal with prejudice of all claims against all defendants, with the exception of claims against Ed Larsen, in these actions. The $2.0 million has been accrued for during the quarter ended June 30, 2008 within accrued litigation expenses.
     On July 17, 2006, the first of six class action lawsuits was filed in the Northern District of California against Rambus and certain current and former executives and board members. These lawsuits were consolidated under the caption, In re Rambus Inc. Securities Litigation , C-06-4346-JF (N.D. Cal.). The settlement of this action was preliminarily approved by the court on March 5, 2008. Pursuant to the settlement agreement, Rambus paid $18.3 million into a settlement fund on March 17, 2008. Some alleged class members requested exclusion from the settlement. A final fairness hearing was held on May 14, 2008. That same day the court entered an order granting final approval of the settlement agreement and entered judgment dismissing with prejudice all claims against all defendants in the consolidated class action litigation.
     On March 1, 2007, a pro se lawsuit was filed in the Northern District of California by two alleged Rambus shareholders against Rambus, certain current and former executives and board members, and PricewaterhouseCoopers LLP ( Kelley et al. v. Rambus, Inc. et al. C-07-01238-JF (N.D. Cal.)). This action was consolidated with a substantially identical pro se lawsuit filed by another purported

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Rambus shareholder against the same parties. The consolidated complaint against Rambus alleges violations of federal and state securities laws, and state law claims for fraud and breach of fiduciary duty. Following several rounds of motions to dismiss, on April 17, 2008, the court dismissed all claims with prejudice except for plaintiffs’ claims under sections 14(a) and 18(a) of the Securities and Exchange Act of 1934 as to which leave to amend was granted. On June 2, 2008, plaintiffs filed an amended complaint containing substantially the same allegations as the prior complaint although limited to claims under sections 14(a) and 18(a) of the Securities and Exchange Act of 1934. Rambus and the other defendants’ motions to dismiss the amended complaint are due on or before July 25, 2008. A hearing on Rambus’s motion is scheduled for September 12, 2008.
      NVIDIA Litigation
      U.S District Court in the Northern District of California
     On July 10, 2008, Rambus filed suit against NVIDIA Corporation (“NVIDIA”) in the U.S. District Court for the Northern District of California alleging that NVIDIA’s products with memory controllers for at least the SDR, DDR, DDR2, DDR3, GDDR and GDDR3 technologies infringe 17 patents. NVIDIA’s response to the complaint is not yet due.
      U.S. District Court in the Middle District of North Carolina
     On July 11, 2008, one day after Rambus filed suit, NVIDIA filed its own action against Rambus in the U.S. District Court for the Middle District of North Carolina alleging that Rambus committed antitrust violations of the Sherman Act; committed antitrust violations of North Carolina law; and engaged in unfair and deceptive practices in violation of North Carolina law. NVIDIA seeks injunctive relief, damages, and attorneys’ fees and costs. Rambus’ response to the complaint is not yet due.
      Potential Future Litigation
     In addition to the litigation described above, participants in the DRAM and controller markets continue to adopt Rambus technologies into various products. Rambus has notified many of these companies of their use of Rambus technology and continues to evaluate how to proceed on these matters. There can be no assurance that any ongoing or future litigation will be successful. Rambus spends substantial company resources defending its intellectual property in litigation, which may continue for the foreseeable future given the multiple pending litigations. The outcomes of these litigations — as well as any delay in their resolution — could affect Rambus’ ability to license its intellectual property going forward.
     The Company records a contingent liability when it is probable that a loss has been incurred and the amount is reasonably estimable in accordance with SFAS No. 5, “Accounting for Contingencies”.
14. Fair Value of Financial Instruments
     The Company adopted SFAS No. 157 effective January 1, 2008 for financial assets and liabilities measured on a recurring basis. SFAS No. 157 applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. There was no impact for adoption of SFAS No. 157 to the consolidated financial statements. SFAS No. 157 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurement be classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

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     The following table summarizes the valuation of our cash equivalents and marketable securities by the above SFAS No. 157 pricing levels as of June 30, 2008:
                                 
    As of June 30, 2008
            Quoted        
            market   Significant    
            prices in   other   Significant
            active   observable   unobservable
            markets   inputs   inputs
(in thousands)   Total   (Level 1)   (Level 2)   (Level 3)
Available-for-sale securities
  $ 390,247     $ 97,926     $ 292,321     $  —  
     The following table presents the financial instruments that are not carried at fair value but which require fair value disclosure as of June 30, 2008 and December 31, 2007:
                                 
    As of June 30, 2008   As of December 31, 2007
    Carrying           Carrying    
(in thousands)   Value   Fair Value   Value   Fair Value
Convertible notes
  $ 160,000     $ 169,459     $ 160,000     $ 164,482  
     The fair value of the convertible notes are determined based on recent quoted market prices for these notes. The carrying value of other financial instruments, including cash, accounts receivable, accounts payable and other payables, approximate fair value due to their short maturities.
     The Company monitors its investments for other than temporary losses by considering current factors, including the economic environment, market conditions, operational performance and other specific factors relating to the business underlying the investment, and records reductions in carrying values when necessary. Any other than temporary loss is reported under “Interest and other income, net “ in the condensed consolidated statement of operations. As of June 30, 2008 and December 31, 2007, the Company has not incurred any impairment loss on its investments.
     The Company has adopted SFAS No. 159 effective January 1, 2008. The Company has not elected the fair value option for financial instruments not already carried at fair value.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
      This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to our expectations for future events and time periods. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including any statements regarding trends in future revenue or results of operations, gross margin or operating margin, expenses, earnings or losses from operations, synergies or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning developments, performance or industry ranking; any statements regarding future economic conditions or performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Generally, the words “anticipate,” “believes,” “plans,” “expects,” “future,” “intends,” “may,” “should,” “estimates,” “predicts,” “potential,” “continue” and similar expressions identify forward-looking statements. Our forward-looking statements are based on current expectations, forecasts and assumptions and are subject to risks, uncertainties and changes in condition, significance, value and effect. As a result of the factors described herein, and in the documents incorporated herein by reference, including, in particular, those factors described under “Risk Factors,” we undertake no obligation to publicly disclose any revisions to these forward-looking statements to reflect events or circumstances occurring subsequent to filing this report with the Securities and Exchange Commission.
     Rambus, RDRAM, XDR, FlexIO and FlexPhase are trademarks or registered trademarks of Rambus Inc. Other trademarks that may be mentioned in this quarterly report on Form 10-Q are the property of their respective owners.
     Industry terminology, used widely throughout this annual report, has been abbreviated and, as such, these abbreviations are defined below for your convenience:
     
Advanced Backplane
  ABP
Double Data Rate
  DDR
Dynamic Random Access Memory
  DRAM
Fully Buffered-Dual Inline Memory Module
  FB-DIMM
Gigabits per second
  Gb/s
Graphics Double Data Rate
  GDDR
Input/Output
  I/O
Peripheral Component Interconnect
  PCI
Rambus Dynamic Random Access Memory
  RDRAM
Single Data Rate
  SDR
Synchronous Dynamic Random Access Memory
  SDRAM
eXtreme Data Rate
  XDR
     From time to time we will refer to the abbreviated names of certain entities and, as such, have provided a chart to indicate the full names of those entities for your convenience.
     
Advanced Micro Devices Inc.
  AMD
ARM Holdings plc
  ARM
Cadence Design Systems, Inc.
  Cadence
Cisco Systems, Inc.
  Cisco
Elpida Memory, Inc.
  Elpida
Fujitsu Limited
  Fujitsu
GDA Technologies, Inc.
  GDA
Hewlett-Packard Company
  Hewlett-Packard
Hynix Semiconductor, Inc.
  Hynix
Infineon Technologies AG
  Infineon
Inotera Memories, Inc.
  Inotera
Intel Corporation
  Intel
International Business Machines Corporation
  IBM
Joint Electron Device Engineering Council
  JEDEC
Juniper Networks, Inc.
  Juniper
Matsushita Electrical Industrial Co.
  Matsushita
Micron Technologies, Inc.
  Micron

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Nanya Technology Corporation
  Nanya
NEC Electronics Corporation
  NECEL
Optical Internetworking Forum
  OIF
Qimonda AG (formerly Infineon’s DRAM operations)
  Qimonda
Peripheral Component Interconnect — Special Interest Group
  PCI-SIG
Renesas Technology Corporation
  Renesas
S3 Graphics, Inc.
  S3 Graphics
Samsung Electronics Co., Ltd.
  Samsung
Sony Computer Electronics
  Sony
Spansion, Inc.
  Spansion
ST Microelectronics
  ST Micro
Synopsys Inc.
  Synopsys
Tessera Technologies, Inc.
  Tessera
Texas Instruments Inc.
  Texas Instruments
Toshiba Corporation
  Toshiba
Velio Communications
  Velio
Business Overview
     We design, develop and license chip interface technologies and architectures that are foundational to nearly all digital electronics products. Our chip interface technologies are designed to improve the time-to-market, performance and cost-effectiveness of our customers’ semiconductor and system products for computing, communications and consumer electronics applications.
     As of June 30, 2008, our chip interface technologies are covered by more than 700 U.S. and foreign patents. Additionally, we have approximately 510 patent applications pending. These patents and patent applications cover important inventions in memory and logic chip interfaces, in addition to other technologies. We believe that our chip interface technologies provide a higher performance, lower risk, and more cost-effective alternative for our customers than can be achieved through their own internal research and development efforts.
     We offer our customers two alternatives for using our chip interface technologies in their products:
     First, we license our broad portfolio of patented inventions to semiconductor and system companies who use these inventions in the development and manufacture of their own products. Such licensing agreements may cover the license of part, or all, of our patent portfolio. Patent license agreements are royalty bearing.
     Second, we develop “leadership” (which are Rambus-proprietary products widely licensed to our customers) and industry-standard chip interface products that we provide to our customers under license for incorporation into their semiconductor and system products. Because of the often complex nature of implementing state-of-the art chip interface technology, we offer our customers a range of engineering services to help them successfully integrate our chip interface products into their semiconductors and systems. Product license agreements may have both a fixed price (non-recurring) component and ongoing royalties. Engineering services are customarily bundled with our product licenses, and are performed on a fixed price basis. Further, under product licenses, our customers may receive licenses to our patents necessary to implement the chip interface in their products with specific rights and restrictions to the applicable patents elaborated in their individual contracts with us.
     We derive the majority of our annual revenue by licensing our broad portfolio of patents for chip interfaces to our customers. Such licenses may cover part or all of our patent portfolio. Leading semiconductor and system companies such as AMD, Elpida, Fujitsu, Qimonda, Intel, Matsushita, NECEL, Renesas, Spansion and Toshiba have licensed our patents for use in their own products.
     We derive additional revenue by licensing our leadership and industry-standard chip interface products to our customers for use in their semiconductor and system products. Our customers include leading companies such as Fujitsu, Elpida, IBM, Intel, Matsushita, Texas Instruments, Sony, ST Micro, Qimonda and Toshiba. Due to the complex nature of implementing our technologies, we provide engineering services under certain of these licenses to help successfully integrate our chip interface products into their semiconductors and systems. Additionally, product licensees may receive, as an adjunct to their chip interface license agreements, patent licenses as necessary to implement the chip interface in their products with specific rights and restrictions to the applicable patents elaborated in their individual contracts.

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     Royalties represent a substantial portion of our total revenue. The remaining part of our revenue is contract services revenue which includes license fees and engineering services fees. The timing and amounts invoiced to customers can vary significantly depending on specific contract terms and can therefore have a significant impact on deferred revenue or unbilled receivables in any given period.
     We have a high degree of revenue concentration, with our top five licensees representing approximately 69% and 68% of our revenue for the three and six months ended June 30, 2008, respectively. This compares with the three and six months ended June 30, 2007, in which revenue from our top five licensees accounted for approximately 68% and 69% of our revenue respectively. For the three months ended June 30, 2008, revenue from Fujitsu, Elpida, Sony, AMD, Matsushita and NEC each accounted for 10% or more of our total revenue. For the six months ended June 30, 2008, revenue from Fujitsu, Elpida, Sony and AMD each accounted for 10% or more of our total revenue. For the three months ended June 30, 2007, revenue from Fujitsu, Qimonda and Elpida each accounted for 10% or more of our total revenue. For the six months ended June 30, 2007, revenue from Fujitsu, Qimonda and Elpida each accounted for 10% or more of our total revenue.
     Our revenue from companies headquartered outside of the United States accounted for approximately 84% and 83% of our total revenue for the three and six months ended June 30, 2008, respectively, as compared to 84% and 86% for the three and six months ended June 30, 2007, respectively. We expect that we may continue to experience significant revenue concentration and have significant revenue from sources outside the United States for the foreseeable future.
     Historically, we have been involved in significant litigation stemming from the unlicensed use of our inventions. Our litigation expenses have been high and difficult to predict and we anticipate future litigation expenses will continue to be significant, volatile and difficult to predict. If we are successful in the litigation and/or related licensing, our revenue could be substantially higher in the future; if we are unsuccessful, our revenue would likely decline. Furthermore, our success in litigation matters pending before courts and regulatory bodies that relate to our intellectual property rights have impacted and will likely continue to impact our ability and the terms upon which we are able to negotiate new or renegotiate existing licenses for our technology.
     We expect that revenue derived from international licensees will continue to represent a significant portion of our total revenue in the future. To date, all of the revenue from international licensees have been denominated in U.S. dollars. However, to the extent that such licensees’ sales to systems companies are not denominated in U.S. dollars, any royalties that we receive as a result of such sales could be subject to fluctuations in currency exchange rates. In addition, if the effective price of licensed semiconductors sold by our foreign licensees were to increase as a result of fluctuations in the exchange rate of the relevant currencies, demand for licensed semiconductors could fall, which in turn would reduce our royalties. We do not use financial instruments to hedge foreign exchange rate risk.

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Results of Operations
     The following table sets forth, for the periods indicated, the percentage of total revenue represented by certain items reflected in our unaudited condensed consolidated statements of operations:
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2008   2007   2008   2007
Revenue:
                               
Royalties
    90.4 %     82.4 %     86.7 %     84.9 %
Contract revenue
    9.6 %     17.6 %     13.3 %     15.1 %
 
                               
Total revenue
    100.0 %     100.0 %     100.0 %     100.0 %
 
                               
Costs and expenses:
                               
Cost of contract revenue*
    18.4 %     14.5 %     18.3 %     13.4 %
Research and development*
    56.1 %     39.1 %     55.1 %     43.0 %
Marketing, general and administrative*
    66.5 %     52.1 %     75.7 %     50.9 %
Costs of restatement and related legal activities
    6.3 %     15.7 %     4.2 %     14.8 %
 
                               
Total costs and expenses
    147.3 %     121.4 %     153.3 %     122.1 %
 
                               
Operating loss
    (47.3 )%     (21.4 )%     (53.3 )%     (22.1 )%
Interest and other income, net
    8.1 %     11.9 %     9.9 %     11.1 %
 
                               
Loss before income taxes
    (39.2 )%     (9.5 )%     (43.4 )%     (11.0 )%
Provision for (benefit from) income taxes
    365.8 %     (3.8 )%     165.2 %     (4.3 )%
 
                               
Net loss
    (405.0 )%     (5.7 )%     (208.6 )%     (6.7 )%
 
                               
* Includes stock-based compensation:
                               
Cost of contract revenue
    3.8 %     3.5 %     4.4 %     2.8 %
Research and development
    10.5 %     6.8 %     10.2 %     6.8 %
Marketing, general and administrative
    10.7 %     11.4 %     11.3 %     10.6 %
                                                 
    Three Months             Six Months        
    Ended June 30,     Change in     Ended June 30,     Change in  
(Dollars in millions)   2008     2007     Percentage     2008     2007     Percentage  
Total Revenue
                                               
Royalties
  $ 32.3     $ 39.1       (17.6 )%   $ 65.4     $ 82.9       (21.2 )%
Contract revenue
    3.4       8.4       (59.0 )%     10.1       14.8       (31.7 )%
 
                                       
Total revenue
  $ 35.7     $ 47.5       (24.9 )%   $ 75.5     $ 97.7       (22.8 )%
 
                                       
Royalty Revenue
Patent Licenses
     In the three and six months ended June 30, 2008, our largest source of royalties was related to the license of our patents for SDR and DDR-compatible products. Royalties decreased approximately $8.1 million and $22.0 million for SDR and DDR-compatible products in the three and six months ended June 30, 2008, respectively, as compared to the same periods in 2007, primarily due to decreased revenue from Fujitsu and Qimonda.
     We are in negotiations with prospective and existing licensees. We expect SDR and DDR-compatible royalties will continue to vary from period to period based on our success in renewing existing license agreements and adding new licensees, as well as the level of variation in our licensees’ reported shipment volumes, sales price and mix, offset in part by the proportion of licensee payments that are fixed. In July 2008, we announced our decision to defer negotiations with Elpida related to patent license renewal, which will decrease revenue from patent royalties in future quarters.
     On February 2, 2007, the Federal Trade Commission (the “FTC”) issued an order requiring us to limit the royalty rates charged for certain SDR and DDR SDRAM memory and controller products sold after April 12, 2007. The FTC stayed this requirement on March 16, 2007, subject to certain conditions. One such condition of the stay limits the royalties we can receive under certain contracts so that they do not exceed the FTC’s Maximum Allowable Royalties (“MAR”). We are using our best efforts to comply with these orders. Amounts in excess of MAR that are subject to the order are excluded from revenue. As of June 30, 2008, $5.2 million has been excluded from revenue, including $1.3 million in the quarter ended June 30, 2008. On April 22, 2008, the United States Court of

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Appeals for the District of Columbia (the “CADC”) overturned the FTC decision and remanded the matter back to the FTC for further proceedings consistent with the Court’s opinion. The CADC’s order vacating the FTC’s order has not yet been issued. We will continue to defer revenue in accordance with the FTC’s order so long as it remains in effect. See Note 13 “Litigation and Asserted Claims” of Notes to Unaudited Condensed Consolidated Financial Statements.
Product Licenses
     In the three and six months ended June 30, 2008, royalties from XDR, FlexIO, DDR and serial link-compatible products represented the second largest category of royalties. Royalties from XDR, FlexIO, DDR and serial link-compatible products increased approximately $0.9 million and $3.6 million during the three and six months ended June 30, 2008, respectively, as compared to the same period in 2007. Royalties from the shipment of the Sony PLAYSTATION ® 3 product remained relatively flat and increased $1.0 million during the three and six months ended June 30, 2008, respectively, as compared to the same periods in 2007. This increase was primarily due to higher royalties from DDR and serial link-compatible products. In the future, we expect royalties from XDR, FlexIO, DDR and serial link-compatible products will continue to vary from period to period based on our licensees’ shipment volumes, sales prices and product mix.
     In the three and six months ended June 30, 2008, royalties from RDRAM-compatible products represented the third largest source of royalties. Royalties from RDRAM memory chips and controllers increased approximately $0.3 million and $0.9 million during the three and six months ended June 30, 2008, respectively, as compared to the same period in 2007. The increase was primarily due to higher royalties from RDRAM controllers.
Contract Revenue
Percentage-of-Completion Contracts
     Percentage of completion contract revenue decreased approximately $3.3 million and $0.9 million for the three and six months ended June 30, 2008, respectively, as compared to the same period in 2007 due to lower revenue from various leadership chip interface contracts. We believe that percentage-of-completion contract revenue recognized will continue to fluctuate over time based on our ongoing contractual requirements, the amount of work performed, and by changes to work required, as well as new contracts booked in the future.
Other Contracts
     Revenue for other contracts decreased approximately $1.6 million and $3.8 million for the three and six months ended June 30, 2008, respectively, as compared to the corresponding period in 2007 due to decreased revenue from leadership chip interface contracts including FlexIO and XDR, offset in part by an increase in revenue from industry standard chip interface contracts. We believe that other contracts revenue will continue to fluctuate over time based on our ongoing contract requirements, the timing of completing engineering deliverables, as well as new contracts booked in the future.
Engineering costs:
                                                 
    Three Months Ended             Six Months Ended        
    June 30,     Change in     June 30,     Change in  
(Dollars in millions)   2008     2007     Percentage     2008     2007     Percentage  
Engineering costs
                                               
Cost of contract revenue
  $ 5.2     $ 5.3       (0.7 )%   $ 10.5     $ 10.4       1.5 %
Stock-based compensation
    1.4       1.6       (17.0 )%     3.3       2.7       20.0 %
 
                                       
Total cost of contract revenue
    6.6       6.9       (4.6 )%     13.8       13.1       5.4 %
 
                                       
Research and development
    16.3       15.4       6.0 %     33.9       35.4       (4.3 )%
Stock-based compensation
    3.7       3.2       16.0 %     7.6       6.6       15.7 %
 
                                       
Total research and development
    20.0       18.6       7.7 %     41.5       42.0       (1.2 )%
 
                                       
Total engineering costs
  $ 26.6     $ 25.5       4.4 %   $ 55.3     $ 55.1       0.4 %
 
                                       
     Total engineering costs increased 4.4% for the three months ended June 30, 2008 as compared to the same period in 2007 primarily due to increased facilities costs related to the new facility in India, increased stock-based compensation expense, increased patent expenses and increased manpower costs due to annual salary increases.

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     Total engineering costs were relatively flat for the six months ended June 20, 2008 as compared to the same period in 2007 as the lack of charges associated with the one-time tax reimbursement expenses of approximately $4.1 million recorded in the first quarter of 2007 were offset by increases in facilities costs, patent expenses, stock-based compensation expense and salary expenses. The tax reimbursement expenses were associated with our decision to reimburse current and former non-executive employees for Internal Revenue Code Section 409A penalty taxes imposed on them in connection with their exercise of repriced options in 2006.
     In certain periods, the estimated cost of contract revenue may exceed contract revenue that do not factor in the expected stream of future royalty payments. This can be further impacted by timing of expensing of pre-contract costs as research and development expenses and expensing of completed contract costs where the realizability of an asset is uncertain. As of June 30, 2008, we have accrued approximately $1.8 million related to estimated loss contracts. These expenses were recognized in cost of contract revenue during the quarter when such loss was determined.
     In the near term, we expect engineering costs will remain constant or decline due to potential workforce reduction.
Marketing, general and administrative costs:
                                                 
    Three Months Ended             Six Months Ended        
    June 30,     Change in     June 30,     Change in  
(Dollars in millions)   2008     2007     Percentage     2008     2007     Percentage  
Marketing, general and administrative costs
                                               
Marketing, general and administrative costs
  $ 10.9     $ 12.7       (13.9 )%   $ 26.3     $ 27.6       (5.1 )%
Litigation expense
    9.1       6.7       34.8 %     22.3       11.7       90.9 %
Stock-based compensation
    3.8       5.4       (29.7 )%     8.5       10.4       (17.8 )%
 
                                       
Total marketing, general and administrative costs
  $ 23.8     $ 24.8       (4.1 )%   $ 57.1     $ 49.7       14.8 %
 
                                       
     Total marketing, general and administrative costs decreased 4.1% and increased 14.8% for the three and six months ended June 30, 2008, respectively, as compared to the comparable periods in 2007.
     The decrease for the three month period ended June 30, 2008 from the comparable period in 2007 was due primarily to decreased stock-based compensation expense due to the lack of modification charges related to extensions of expiring options which were recorded in the second quarter of 2007 and lower travel and advertising expenses in 2008, offset by increased litigation expenses related to major cases that went to trial during the first quarter of 2008.
     The increase for the six month period ended June 30, 2008 was due primarily to increased litigation expenses of $10.6 million, of which a majority of the expenses were related to major cases that went to trial during the first quarter of 2008. The decrease in stock based compensation expense for the six month period ended June 30, 2008 from the comparable period in 2007 was due primarily to the lack of modification charges related to extensions of expiring options which were recorded in 2007. Non-litigation related marketing, general and administrative expenses also decreased in the six month period ended June 30, 2008 from the comparable period in 2007 primarily due to the lack of charges in 2008 associated with the one-time tax reimbursement expenses of approximately $2.5 million recorded in the first quarter of 2007, partially offset by increases in legal and professional service fees. The tax reimbursement expenses were associated with our decision in 2007 to reimburse current and former non-executive employees for the Internal Revenue Code Section 409A penalty taxes imposed on them in connection with their exercise of repriced options in 2006.
     In the future, marketing, general and administrative costs 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. Litigation expenses are expected to vary from period to period due to the variability of litigation activities, but are expected to remain at levels higher than 2007 for the foreseeable future. In the near term, we expect marketing, general and administrative costs will remain constant or decline due to potential workforce reduction.
Costs of restatement and related legal activities:
                                                 
    Three Months Ended             Six Months Ended        
    June 30,     Change in     June 30,     Change in  
(Dollars in millions)   2008     2007     Percentage     2008     2007     Percentage  
Cost of restatement and related legal activities
  $ 2.3     $ 7.5       (69.7 )%   $ 3.2     $ 14.5       (78.1 )%
 
                                       

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     Costs of restatement and related legal activities consist primarily of investigation, audit, legal and other professional fees related to the 2006-2007 stock option investigation and the filing of the restated financial statements and related litigation.
     Costs of restatement and related legal activities were $2.3 million and $3.2 million for the three and six months ended June 30, 2008 due primarily to litigation expenses associated with the derivative lawsuit related to this stock option investigation. Costs in the second quarter and first half of 2008 were significantly lower than in the second quarter and first half of 2007 because the majority of the investigation was completed during 2007. Until all the litigation and related issues are resolved, we anticipate that there could be additional amounts relating to these matters in the future.
Interest and other income, net:
                                                 
    Three Months Ended             Six Months Ended        
    June 30,     Change in     June 30,     Change in  
(Dollars in millions)   2008     2007     Percentage     2008     2007     Percentage  
Interest and other income, net
  $ 2.9     $ 5.7       (48.6 )%   $ 7.5     $ 10.9       (30.9 )%
 
                                       
     Interest and other income, net consists primarily of interest income generated from investments in high quality fixed income securities. The decrease in interest and other income, net for the three and six months ended June 30, 2008 as compared to the same period in 2007 was primarily due to lower average investment balances and lower yields on invested balances during the first half of 2008.
     In the future, we expect that interest and other income, net will vary from period to period based on the amount of cash and marketable securities, interest rates and foreign currency exchange rates.
Provision for (benefit from) income taxes:
                                                 
    Three Months Ended             Six Months Ended        
    June 30,     Change in     June 30,     Change in  
(Dollars in millions)   2008     2007     Percentage     2008     2007     Percentage  
Provision for (benefit from) income taxes
  $ 130.7     $ (1.8 )   NM   $ 124.7     $ (4.2 )   NM
 
                                       
Effective tax rate
    (932.8 )%     39.7 %             (381.9 )%     38.7 %        
*   NM — percentage is not meaningful as the change is too large.
     Our effective tax rate for the three and six months ended June 30, 2008 is higher than the U.S. statutory tax rate applied to our net losses primarily due the establishment of a full valuation allowance on our U.S. net deferred tax assets.
     Our effective tax rate for the three and six months ended June 30, 2007 was higher than the U.S. statutory tax rate primarily due to research and development tax credits, non-deductible stock-based compensation expense related to our executives and other employees, state income taxes and foreign income taxes.
     For the quarter ended June 30, 2008, we have recorded a non-cash income tax provision of $130.5 million to establish a valuation allowance. Management periodically evaluates the realizability of our net deferred tax assets based on all available evidence, both positive and negative. The realization of net deferred tax assets is solely dependent on the Company’s ability to generate sufficient future taxable income during periods prior to the expiration of tax statutes to fully utilize these assets. As previously disclosed in the Form 10-K for the year ended December 31, 2007, our forecasted future operating results are highly influenced by, among other factors, assumptions regarding (1) our ability to achieve our forecasted revenue, (2) our ability to effectively manage our expenses in line with our forecasted revenue and (3) general trends in the semiconductor industry.
     We weighed both positive and negative evidence and determined that there is a need for the valuation allowance during the quarter ended June 30, 2008 due to the existence of three years of historical cumulative losses and a revised forecast that projected future losses from operations in the U.S., which we considered significant verifiable negative evidence. Though considered positive evidence, projected income from favorable patent and related settlement litigation were not included in the determination for the valuation allowance due to our inability to reliably estimate the timing and amounts of such settlements. We intend to maintain the valuation allowance until sufficient positive evidence exists to support reversal of the valuation allowance.

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Liquidity and Capital Resources
                 
    As of  
    June 30,     December 31,  
    2008     2007  
    (In millions)  
Cash and cash equivalents
  $ 131.8     $ 119.4  
Marketable securities
    262.4       321.5  
 
           
Total cash, cash equivalents, and marketable securities
  $ 394.2     $ 440.9  
 
           
                 
    Six Months Ended
    June 30,
    2008   2007
    (In millions)
Net cash provided by (used in) operating activities
  $ (27.0 )   $ 15.4  
Net cash provided by investing activities
  $ 52.7     $ 2.6  
Net cash used in financing activities
  $ (13.4 )   $ (4.3 )
Liquidity
     Although we used cash for operating activities in the first half of 2008, our management continues to believe that total cash and marketable securities will continue at adequate levels to finance our operations, projected capital expenditures and commitments for the next twelve months. Cash needs for the first half of 2008 were funded primarily from investing activities, as investments in marketable securities matured and were not reinvested.
      Operating Activities
     Cash used in operating activities of $27.0 million for the six months ended June 30, 2008 was primarily attributable to the net loss adjusted for non-cash items, including the tax provision related to the deferred tax asset valuation allowance, stock-based compensation expense, depreciation and amortization expense, and increases in our non-cash working capital. Items in our working capital changes in the six months ended June 30, 2008 included primarily a decrease in accrued litigation expenses due to payments related to the class action lawsuit settlement.
     Cash provided by operating activities of $15.4 million for the six months ended June 30, 2007 was primarily attributable to the net loss adjusted for non-cash items including stock-based compensation expense, depreciation and amortization, and increases in our non-cash working capital. Items in our working capital changes in the six months ended June 30, 2007 included increases in prepaids and other assets for new maintenance agreements and decreases in accrued salaries and benefits and other accrued liabilities.
      Investing Activities
     Cash provided by investing activities of approximately $52.7 million for the six months ended June 30, 2008 primarily consisted of proceeds from the maturities of available-for-sale marketable securities of $305.1 million, of which only $246.5 million was reinvested in available-for-sale marketable securities. We also purchased $5.5 million of property and equipment, primarily computer software licenses.
     Cash provided in investing activities for the six months ended June 30, 2007 primarily consisted of proceeds from the maturities of available-for-sale investments of $386.3 million, offset by purchases of available-for-sale investments of $377.4 million.
      Financing Activities
     Cash used in financing activities was $13.4 million for the six months ended June 30, 2008. We used more cash under the stock repurchase program than we received from stock option exercises during the period. See “Share Repurchase Program” below, for further discussion of our stock repurchase activities. We also made payments under installment payment plans used to acquire software license agreements. During the six months ended June 30, 2008, proceeds from employee stock option exercises totaled approximately $12.8 million and we repurchased stock with an aggregate value of $24.9 million under our share repurchase program.

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     We did not engage in any stock-related financing activities for the six months ended June 30, 2007 primarily due to the stock option investigation and restatement, during which time we suspended our common stock repurchase program and suspended employee stock option exercises and purchases under our employee stock purchase plan. We used approximately $4.3 million to make payments under installment payment arrangements.
     We currently anticipate that existing cash and cash equivalent balances and cash flows from operations will be adequate to meet our cash needs for at least the next 12 months. As described elsewhere in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and this Quarterly Report on Form 10-Q, we are involved in ongoing litigation related to our intellectual property and our past stock option investigation. Any adverse settlements or judgments in any of this litigation could have a material adverse impact on our results of operations, cash balances and cash flows in the period in which such events occur. In addition, we may incur additional expenditures related to future potential restructuring activities.
Contractual Obligations
     On February 1, 2005, we issued $300.0 million aggregate principal amount of zero coupon convertible senior notes (the “convertible notes”) due February 1, 2010 to Credit Suisse First Boston LLC and Deutsche Bank Securities as initial purchasers who then sold the convertible notes to institutional investors. We elected to pay the principal amount of the convertible notes in cash when they are due. Subsequently, we repurchased a total of $140.0 million face value of the outstanding convertible notes in 2005. The convertible notes outstanding and payable as of June 30, 2008 are $160.0 million and are classified as a non-current liability in the accompanying condensed consolidated balance sheets.
     As of June 30, 2008, our material contractual obligations are:
                                                         
    Payments Due by Year  
            Remainder                                
    Total     of 2008     2009     2010     2011     2012     Thereafter  
    (In thousands)  
Contractual obligations(1)
                                                       
Operating leases
  $ 17,775     $ 4,267     $ 6,583     $ 5,785     $ 622     $ 518     $  
Convertible notes
    160,000                   160,000                    
Purchased software license agreements(2)
    1,547       1,040       507                          
 
                                         
Total
  $ 179,322     $ 5,307     $ 7,090     $ 165,785     $ 622     $ 518     $  
 
                                         
 
(1)   The above table does not reflect possible payments in connection with uncertain tax benefits associated with FIN 48 of approximately $14.3 million, including $11.4 million recorded as a reduction of long-term deferred tax assets and $2.9 million in long-term income taxes payable, as of June 30, 2008. Although it is possible that some of the unrecognized tax benefits could be settled within the next 12 months, we cannot reasonably estimate the outcome at this time.
 
(2)   We have commitments with various software vendors for non-cancellable license agreements that generally have terms greater than one year. The above table summarizes those contractual obligations as of June 30, 2008, which are also included on our condensed consolidated balance sheets under current and other long-term liabilities.
Share Repurchase Program
     In October 2001, our Board of Directors (the “Board”) approved a share repurchase program of our Common Stock, principally to reduce the dilutive effect of employee stock options. To date, the Board has approved the authorization to repurchase up to 19.0 million shares of our outstanding Common Stock over an undefined period of time. During the six months ended June 30, 2008, we repurchased approximately 1.4 million shares with an aggregate value of $24.9 million. As of June 30, 2008, we had repurchased a cumulative total of approximately 14.6 million shares of our Common Stock since the commencement of this program. As of June 30, 2008, there remained an outstanding authorization to repurchase approximately 4.4 million shares of our outstanding Common Stock. For the three months ended June 30, 2008, no shares were repurchased.
     We record stock repurchases as a reduction to stockholders’ equity. As prescribed by APB Opinion No. 6, “Status of Accounting Research Bulletins,” we record a portion of the purchase price of the repurchased shares as an increase to accumulated deficit when the cost of the shares repurchased exceeds the average original proceeds per share received from the issuance of Common Stock. During the six months ended June 30, 2008, the cumulative price of the shares repurchased exceeded the proceeds received from the

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issuance of the same number of shares. The excess of $23.1 million was recorded as an increase to accumulated deficit for the six months ended June 30, 2008. During the six months ended June 30, 2007, we did not repurchase any Common Stock.
Critical Accounting Policies and Estimates
     The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, investments, income taxes, litigation and other contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting estimates include those regarding (1) revenue recognition, (2) litigation, (3) income taxes and (4) stock-based compensation. For a discussion of our critical accounting estimates, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2007.
Recent Accounting Pronouncements
     See Note 2 “Recent Accounting Pronouncements” of Notes to Unaudited Condensed Consolidated Financial Statements for discussion of recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
     We are exposed to financial market risks, primarily arising from the effect of interest rate fluctuations on our investment portfolio. Interest rate fluctuation may arise from changes in the market’s view of the quality of the security issuer, the overall economic outlook, and the time to maturity of our portfolio. We mitigate this risk by investing only in high quality, highly liquid instruments. Securities with original maturities of one year or less must be rated by two of the three industry standard rating agencies as follows: A1 by Standard & Poor’s, P1 by Moody’s and/or F-1 by Fitch. Securities with original maturities of greater than one year must be rated by two of the following industry standard rating agencies as follows: AA- by Standard & Poor’s, Aa3 by Moody’s and/or AA- by Fitch. By corporate policy, we limit the amount of our credit exposure to $10.0 million for any one commercial issuer. Our policy requires that at least 10% of the portfolio be in securities with a maturity of 90 days or less. In addition, we may make investments in securities with maturities up to 36 months. However, the bias of our investment policy is toward shorter maturities.
     We invest our cash equivalents and short-term marketable securities in a variety of U.S. dollar financial instruments such as Treasuries, Government Agencies, Repurchase Agreements, Commercial Paper and Corporate Notes. Our policy specifically prohibits trading securities for the sole purposes of realizing trading profits. However, we may liquidate a portion of our portfolio if we experience unforeseen liquidity requirements. In such a case if the environment has been one of rising interest rates we may experience a realized loss, similarly, if the environment has been one of declining interest rates we may experience a realized gain. As of June 30, 2008, we had an investment portfolio of fixed income marketable securities of $390.2 million including cash equivalents. If market interest rates were to increase immediately and uniformly by 10% from the levels as of June 30, 2008, the fair value of the portfolio would decline by approximately $0.9 million. Actual results may differ materially from this sensitivity analysis.
     We bill our customers in U.S. dollars. Although the fluctuation of currency exchange rates may impact our customers, and thus indirectly impact us, we do not attempt to hedge this indirect and speculative risk. Our overseas operations consist primarily of small business development offices in any one country and one design center in India. We monitor our foreign currency exposure; however, as of June 30, 2008, we believe our foreign currency exposure is not material enough to warrant foreign currency hedging.

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     The table below summarizes the fair value, book value, unrealized gain (loss), net and related weighted rate of return for our marketable securities portfolio as of June 30, 2008 and December 31, 2007.
                                 
    June 30, 2008  
                            Weighted  
                    Unrealized     Rate of  
Available-for-sale securities (dollars in thousands)   Fair Value     Book Value     Gain (Loss), net     Return  
Money Market Funds
  $ 97,926     $ 97,926     $       2.45 %
Municipal Bonds and Notes
    3,051       3,045       6       3.82 %
U.S. Government Bonds and Notes
    185,760       185,858       (98 )     3.10 %
Corporate Notes, Bonds, and Commercial Paper
    103,510       103,698       (188 )     3.09 %
 
                         
Total cash equivalents and marketable securities
    390,247       390,527       (280 )        
Cash
    3,931       3,931                
 
                         
Total cash, cash equivalents and marketable securities
  $ 394,178     $ 394,458     $ (280 )        
 
                         
                                 
    December 31, 2007  
                            Weighted  
                    Unrealized     Rate of  
Available-for-sale securities (dollars in thousands)   Fair Value     Book Value     Gain, net     Return  
Money Market Funds
  $ 104,836     $ 104,836     $       4.82 %
Municipal Bonds and Notes
    3,008       3,000       8       4.81 %
U.S. Government Bonds and Notes
    108,660       108,568       92       4.39 %
Corporate Notes, Bonds, and Commercial Paper
    219,734       219,668       66       4.90 %
 
                         
Total cash equivalents and marketable securities
    436,238       436,072       166          
Cash
    4,644       4,644                
 
                         
Total cash, cash equivalents and marketable securities
  $ 440,882     $ 440,716     $ 166          
 
                         

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Item 4. Controls and Procedures
Disclosure Controls and Procedures
     Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such terms are defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 2008, the end of the period covered by this Quarterly Report on Form 10-Q. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported on a timely basis and that such information is accumulated and communicated to management, including our CEO and CFO. To the extent that components of our internal control over financial reporting are included within our disclosure controls and procedures, they are included in the scope of management’s annual assessment of our internal control over financial reporting.
     Based on this evaluation, our management, including our CEO and CFO, has concluded that the Company has made substantial progress in remediating the material weakness. We will continue to monitor remediation throughout the year and final assessment will be determined as part of year end testing of internal control over financial reporting.
     Previously, we did not maintain a sufficient complement of personnel with an appropriate level of accounting knowledge, experience and training in the application of generally accepted accounting principles commensurate with our financial reporting requirements. Specifically, this deficiency resulted in audit adjustments that corrected an understatement of revenue and audit adjustments to deferred revenue, deferred rent, property and equipment, depreciation, consulting expenses and certain accrual accounts and disclosures in the consolidated financial statements for the year ended December 31, 2006 and in an audit adjustment that corrected an understatement of operating expenses and related legal accrual accounts and disclosures in the consolidated financial statements for the year ended December 31, 2007, primarily arising from an insufficient review by us of relevant information obtained through communications with third parties. Additionally, this deficiency could result in misstatements of the aforementioned accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management previously determined this control deficiency constituted a material weakness.
     We have undertaken the remedial actions described below and in connection with the preparation of this Quarterly Report, our management performed additional analyses, reconciliations and other post-closing procedures and has concluded that the Company’s consolidated financial statements for the periods covered by and included in this Quarterly Report are fairly stated in all material respects in accordance with generally accepted accounting principles in the U.S. for each of the periods presented herein.
Implemented or Planned Remedial Actions of the Material Weakness
     In response to the identification of the material weakness described above, management initiated the following corrective actions:
    During the quarter ended December 31, 2007, we hired a new VP of Finance, with experience in public accounting as well as in senior accounting roles in a public company, who will oversee all of our accounting functions.
 
    During the quarter ended December 31, 2007 and prior to filing the financial statements, we hired two Assistant Corporate Controllers; one to oversee revenue recognition and financial systems and the other to oversee external reporting. We have also hired a General Ledger and Consolidations Manager.
 
    During the quarter ended December 31, 2007, we required all of our finance, accounting and stock administration staff to attend training in various areas of U.S. generally accepted accounting principles. In this regard, members of our finance, accounting and operations departments have attended revenue recognition, SEC reporting and stock administration training in the fourth quarter of 2007.
 
    We have on-going efforts to improve communications between finance personnel responsible for completing reviews of our accrual accounts and operations personnel responsible for the execution of the work on those transactions and have instituted quarterly close meetings involving finance and operations personnel; and

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    We are continuing our efforts to review our internal control over financial reporting with the intent to automate previously manual processes specifically in the areas of legal billing administration.
     Additionally, management is investing in on-going efforts to continuously improve the control environment and has committed considerable resources to the continuous improvement of the design, implementation, documentation, testing and monitoring of our internal controls.
     Management believes the Company has made substantial progress in remediating the material weakness based on the measure addressed above. We will continue to monitor remediation throughout the year and final assessment will be determined as part of year end testing of internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
     There have been no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting except as described above in the section, “Implemented or Planned Remedial Actions of the Material Weakness.”
      Limitation on Effectiveness of Controls
     Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on its financial statements.
     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
     The information required by this item regarding legal proceedings is incorporated by reference to the information set forth in Note 13 “Litigation and Asserted Claims” of the Notes to Unaudited Condensed Consolidated Financial Statements of this Form 10-Q.
Item 1A. Risk Factors
     Because of the following factors, as well as other variables affecting our operating results, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. See also “Forward-looking Statements” elsewhere in this report.
Risks Associated With Our Business, Industry and Market Conditions
If market leaders do not adopt our chip interface products, our results of operations could decline.
     An important part of our strategy is to penetrate market segments for chip interfaces by working with leaders in those market segments. This strategy is designed to encourage other participants in those segments to follow such leaders in adopting our chip interfaces. If a high profile industry participant adopts our chip interfaces but fails to achieve success with its products or adopts and achieves success with a competing chip interface, our 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 our memory solutions adopted by their competitors or a strategy of otherwise undermining the market adoption of our solutions.
     We target system companies to adopt our chip interface technologies, particularly those that develop and market high volume business and consumer products, which have traditionally been focused on PCs, including PC graphics processors, and video game consoles, but also are expanding to include HDTVs, cellular and digital phones, PDAs, digital cameras and other consumer electronics that incorporate all varieties of memory and chip interfaces. In particular, our strategy includes gaining acceptance of our technology in high volume consumer applications, including video game consoles, such as the Sony PlayStation ® 2 and Sony PLAYSTATION ® 3, HDTVs and set top boxes. We are subject to many risks beyond our control that influence whether or not a particular system company will adopt our chip interfaces, including, among others:
    competition faced by a system company in its particular industry;
 
    the timely introduction and market acceptance of a system company’s products;
 
    the engineering, sales and marketing and management capabilities of a system company;
 
    technical challenges unrelated to our chip interfaces faced by a system company in developing its products;
 
    the financial and other resources of the system company;
 
    the supply of semiconductors from our licensees in sufficient quantities and at commercially attractive prices;
 
    the ability to establish the prices at which the chips containing our chip interfaces are made available to system companies; and
 
    the degree to which our licensees promote our chip interfaces to a system company.
     There can be no assurance that consumer products that currently use our technology will continue to do so, nor can there be any assurance that the consumer products that incorporate our technology will be successful in their segments thereby generating expected royalties, nor can there be any assurance that any of our technologies selected for licensing will be implemented in a commercially developed or distributed product.

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     If any of these events occur and market leaders do not successfully adopt our technologies, our strategy may not be successful and, as a result, our results of operations could decline.
To continue to grow, we may have to invest more resources in research and development than anticipated, which could increase our operating expenses and negatively impact our operating results.
     If new competitors, technological advances by existing competitors, our entry into new markets, or other competitive factors require us to invest significantly greater resources than anticipated in our research and development efforts, our operating expenses would increase. For the three and six months ended June 30, 2008, research and development expenses were $20.0 million and $41.5 million, respectively, including stock-compensation of approximately $3.8 million and $7.7 million, respectively. If we are required to invest significantly greater resources than anticipated in research and development efforts without an increase in revenue, our operating results could decline. Research and development expenses are likely to fluctuate from time to time to the extent we make periodic incremental investments in research and development and these investments may be independent of our level of revenue. In order to grow, which may include entering new markets, we anticipate that we will continue to devote substantial resources to research and development, and we expect these expenses to increase in absolute dollars in the foreseeable future due to the increased complexity and the greater number of products under development as well as hiring additional employees.
Our revenue is concentrated in a few customers, and if we lose any of these customers, our revenue may decrease substantially.
     We have a high degree of revenue concentration, with our top five licensees representing approximately 69% and 68% of our revenue for the three and six months ended June 30, 2008, respectively, and 68% and 69% of our revenue for the three and six months ended June 30, 2007, respectively. For the three months ended June 30, 2008, revenue from Fujitsu, Elpida, Sony, AMD, Matsushita and NEC each accounted for 10% or more of our total revenue. For the six months ended June 30, 2008, revenue from Fujitsu, Elpida, Sony and AMD each accounted for 10% or more of our total revenue. For the three months ended June 30, 2007, revenue from Fujitsu, Qimonda and Elpida each accounted for 10% or more of our total revenue. For the six months ended June 30, 2007, revenue from Fujitsu, Qimonda and Elpida each accounted for 10% or more of our total revenue. We may continue to experience significant revenue concentration for the foreseeable future.
     Substantially all of our licensees have the right to cancel their licenses. Failure to renew licenses and/or the loss of any of our top five licensees would cause revenue to decline substantially. Intel has been one of our largest customers and is an important catalyst for the development of new memory and logic chip interfaces in the semiconductor industry. We have a patent cross-license agreement with Intel that expired in September 2006. Intel now has a paid up license for the use of all of our patents which claimed priority prior to September 2006. We have other licenses with Intel, in addition to the patent cross-license agreement, for the development of serial link chip interfaces. If we do not continue to replace the revenue we previously received under the Intel contract, our results of operations may decline significantly.
     In addition, some of our commercial agreements require us to provide certain customers with the lowest royalty rate that we provide to other customers for similar technologies, volumes and schedules. These clauses may limit our ability to effectively price differently among our customers, to respond quickly to market forces, or otherwise to compete on the basis of price. The particular licensees which account for revenue concentration have varied from period to period as a result of the addition of new contracts, expiration of existing contracts, industry consolidation, the expiration of deferred revenue schedules under existing contracts, and the volumes and prices at which the licensees have recently sold licensed semiconductors to system companies. These variations are expected to continue in the foreseeable future, although we anticipate that revenue will continue to be concentrated in a limited number of licensees.
     We are in negotiations with licensees and prospective licensees to reach SDR and DDR patent license agreements. We expect SDR and DDR patent license royalties will continue to vary from period to period based on our success in renewing existing license agreements and adding new licensees, as well as the level of variation in our licensees’ reported shipment volumes, sales price and mix, offset in part by the proportion of licensee payments that are fixed. If we are unsuccessful in renewing any of our SDR and DDR-compatible contracts, our results of operations may decline significantly.

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Our business and operating results will be harmed if we are unable to manage growth in our business or if we undertake any restructuring activities.
     Our business historically has experienced periods of rapid growth that have placed, and may continue to place, significant demands on our managerial, operational and financial resources. In managing this growth, we must continue to improve and expand our management, operational and financial systems and controls. We also need to continue to expand, train and manage our employee base. We cannot assure you that we will be able to timely and effectively meet demand and maintain the quality standards required by our existing and potential customers and licensees. If we ineffectively manage our growth or we are unsuccessful in recruiting and retaining personnel, our business and operating results will be harmed.
     From time to time, we may undertake to restructure our business. There are several factors that could cause a restructuring to have an adverse effect on our business, financial condition and results of operations. These include potential disruption of our operations, the development of our technology, the deliveries to our customers and other aspects of our business. Employee morale and productivity could also suffer and we may lose employees whom we want to keep. Loss of sales, service and engineering talent, in particular, could damage our business. Any restructuring would require substantial management time and attention and may divert management from other important work. If we undertake employee reductions or other restructuring activities, we will likely incur restructuring and related expenses. Moreover, we could encounter delays in executing any restructuring plans, which could cause further disruption and additional unanticipated expense.
Unanticipated changes in our tax rates or in the tax laws and regulations could expose us to additional income tax liabilities which could affect our operating results and financial condition.
     We are subject to income taxes in both the United States and various foreign jurisdictions. Significant judgment is required in determining our worldwide provision (benefit) for income taxes and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is uncertain. Our effective tax rate could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws as well as other factors. Our tax determinations are regularly subject to audit by tax authorities and developments in those audits could adversely affect our income tax provision. Although we believe that our tax estimates are reasonable, the final determination of tax audits or tax disputes may be different from what is reflected in our historical income tax provisions which could affect our operating results.
If we cannot respond to rapid technological change in the semiconductor industry by developing new innovations in a timely and cost effective manner, our operating results will suffer.
     The semiconductor industry is characterized by rapid technological change, with new generations of semiconductors being introduced periodically and with ongoing improvements. We derive most of our revenue from our chip interface technologies that we have patented. We expect that this dependence on our fundamental technology will continue for the foreseeable future. The introduction or market acceptance of competing chip interfaces that render our chip interfaces less desirable or obsolete would have a rapid and material adverse effect on our business, results of operations and financial condition. The announcement of new chip interfaces by us could cause licensees or system companies to delay or defer entering into arrangements for the use of our current chip interfaces, which could have a material adverse effect on our business, financial condition and results of operations. We are dependent on the semiconductor industry to develop test solutions that are adequate to test our chip interfaces and to supply such test solutions to our customers and us.
     Our continued success depends on our ability to introduce and patent enhancements and new generations of our chip interface technologies that keep pace with other changes in the semiconductor industry and which achieve rapid market acceptance. We must continually devote significant engineering resources to addressing the ever increasing need for higher speed chip interfaces associated with increases in the speed of microprocessors and other controllers. The technical innovations that are required for us to be successful are inherently complex and require long development cycles, and there can be no assurance that our development efforts will ultimately be successful. In addition, these innovations must be:
    completed before changes in the semiconductor industry render them obsolete;
 
    available when system companies require these innovations; and
 
    sufficiently compelling to cause semiconductor manufacturers to enter into licensing arrangements with us for these new technologies.

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     Finally, significant technological innovations generally require a substantial investment before their commercial viability can be determined. There can be no assurance that we have accurately estimated the amount of resources required to complete the projects, or that we will have, or be able to expend, sufficient resources required for these types of projects. In addition, there is market risk associated with these products, and there can be no assurance that unit volumes, and their associated royalties, will occur. If our technology fails to capture or maintain a portion of the high volume consumer market, our business results could suffer.
     If we cannot successfully respond to rapid technological changes in the semiconductor industry by developing new products in a timely and cost effective manner our operating results will suffer.

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We face intense competition that may cause our results of operations to suffer.
     The semiconductor industry is intensely competitive and has been impacted by price erosion, rapid technological change, short product life cycles, cyclical market patterns and increasing foreign and domestic competition. Some semiconductor companies have developed and support competing logic chip interfaces including their own serial link chip interfaces and parallel bus chip interfaces. We also face competition from semiconductor and intellectual property companies who provide their own DDR memory chip interface technology and solutions. In addition, most DRAM manufacturers, including our XDR licensees, produce versions of DRAM such as SDR, DDRx and GDDRx SDRAM which compete with XDR chips. We believe that our principal competition for memory chip interfaces may come from our licensees and prospective licensees, some of which are evaluating and developing products based on technologies that they contend or may contend will not require a license from us. In addition, our competitors are also taking a system approach similar to ours in seeking to solve the application needs of system companies. Many of these companies are larger and may have better access to financial, technical and other resources than we possess. Wider applications of other developing memory technologies, including FLASH memory, may also pose competition to our licensed memory solutions.
     As the semiconductor industry is highly cyclical, significant economic downturns characterized by diminished demand, erosion of average selling prices, production overcapacity and production capacity constraints could affect the semiconductor industry. As a result, we may face a reduced number of licensing wins, tightening of customers’ operating budgets, extensions of the approval process for new licenses and consolidation among our customers, all of which may adversely affect the demand for our technology and may cause us to experience substantial period-to-period fluctuations in our operating results.
     JEDEC has standardized what it calls extensions of DDR, known as DDR2 and DDR3. Other efforts are underway to create other products including those sometimes referred to as GDDR4 and GDDR5, as well as new ways to integrate products such as system-in-package DRAM. To the extent that these alternatives might provide comparable system performance at lower or similar cost than XDR memory chips, or are perceived to require the payment of no or lower royalties, or to the extent other factors influence the industry, our licensees and prospective licensees may adopt and promote alternative technologies. Even to the extent we determine that such alternative technologies infringe our patents, there can be no assurance that we would be able to negotiate agreements that would result in royalties being paid to us without litigation, which could be costly and the results of which would be uncertain. In the industry standard and leadership serial link chip interface business, we face additional competition from semiconductor companies that sell discrete transceiver chips for use in various types of systems, from semiconductor companies that develop their own serial link chip interfaces, as well as from competitors, such as ARM and Synopsys, who license similar serial link chip interface products and digital controllers. At the 10 Gb/s speed, competition will also come from optical technology sold by system and semiconductor companies. There are standardization efforts under way or completed for serial links from standard bodies such as PCI-SIG and OIF. We may face increased competition from these types of consortia in the future that could negatively impact our serial link chip interface business.
     In the FlexIO processor bus chip interface market segment, we face additional competition from semiconductor companies who develop their own parallel bus chip interfaces, as well as competitors who license similar parallel bus chip interface products. We may also see competition from industry consortia or standard setting bodies that could negatively impact our FlexIO processor bus chip interface business.
     As with our memory chip interface products, to the extent that competitive alternatives to our serial or parallel logic chip interface products might provide comparable system performance at lower or similar cost, or are perceived to require the payment of no or lower royalties, or to the extent other factors influence the industry, our licensees and prospective licensees may adopt and promote alternative technologies, which could negatively impact our memory and logic chip interface business.
     If for any of these reasons we cannot effectively compete in these primary market segments, our results of operations could suffer.
Some of our revenue is subject to the pricing policies of our licensees over whom we have no control.
     We have no control over our licensees’ pricing of their products and there can be no assurance that licensee products using or containing our chip interfaces will be competitively priced or will sell in significant volumes. One important requirement for our memory chip interfaces is for any premium charged by our licensees in the price of memory and controller chips over alternatives to be reasonable in comparison to the perceived benefits of the chip interfaces. If the benefits of our technology do not match the price premium charged by our licensees, the resulting decline in sales of products incorporating our technology could harm our operating results.

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Our licensing cycle is lengthy and costly and our marketing and sales efforts may be unsuccessful.
     The process of persuading customers to adopt and license our chip interface technologies can be lengthy and, even if successful, there can be no assurance that our chip interfaces will be used in a product that is ultimately brought to market, achieves commercial acceptance, or results in significant royalties to us. We generally incur significant marketing and sales expenses prior to entering into our license agreements, generating a license fee and establishing a royalty stream from each licensee. The length of time it takes to establish a new licensing relationship can take many months. In addition, our ongoing intellectual property litigation and regulatory actions have and will likely continue to have an impact on our ability to enter into new licenses and renewals of licenses. As such, we may incur costs in any particular period before any associated revenue stream begins. If our marketing and sales efforts are very lengthy or unsuccessful, then we may face a material adverse effect on our business and results of operations as a result of delay or failure to obtain royalties.
Future revenue is difficult to predict for several reasons, and our failure to predict revenue accurately may cause us to miss analysts’ estimates and result in our stock price declining.
     Our lengthy and costly license negotiation cycle makes our future revenue difficult to predict in the event that we are not successful entering into licenses with our customers on our estimated timelines. In addition, a portion of our revenue comes from development and support services provided to our licensees. Depending upon the nature of the services, a portion of the related revenue may be recognized ratably over the support period, or may be recognized according to contract accounting. Contract revenue accounting may result in deferral of the service fees to the completion of the contract, or may be recognized over the period in which services are performed on a percentage-of-completion basis. There can be no assurance that the product development schedule for these projects will not be changed or delayed. All of these factors make it difficult to predict future licensing revenue and may result in our missing previously announced earnings guidance or analysts’ estimates which would likely cause our stock price to decline.
Our quarterly and annual operating results are unpredictable and fluctuate, which may cause our stock price to be volatile and decline.
     Since many of our revenue components fluctuate and are difficult to predict, and our expenses are largely independent of revenue in any particular period, it is difficult for us to accurately forecast revenue and profitability. Factors other than those set forth above, which are beyond our ability to control or assess in advance, that could cause our operating results to fluctuate include:
    semiconductor and system companies’ acceptance of our chip interface products;
 
    the success of high volume consumer applications, such as the Sony PLAYSTATION ® 3;
 
    the dependence of our royalties upon fluctuating sales volumes and prices of licensed chips that include our technology;
 
    the seasonal shipment patterns of systems incorporating our chip interface products;
 
    the loss of any strategic relationships with system companies or licensees;
 
    semiconductor or system companies discontinuing major products incorporating our chip interfaces;
 
    the unpredictability of the timing and amount of any litigation expenses;
 
    changes in our chip and system company customers’ development schedules and levels of expenditure on research and development;
 
    our licensees terminating or failing to make payments under their current contracts or seeking to modify such contracts; and
 
    changes in our strategies, including changes in our licensing focus and/or possible acquisitions of companies with business models different from our own.

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     For the three and six months ended June 30, 2008, royalties accounted for 90.4% and 86.7%, respectively, and for the three and six months ended June 30, 2007, royalties accounted for 82.4% and 84.9%, respectively, of our total revenue, and we believe that royalties will continue to represent a majority of total revenue for the foreseeable future. Royalties are generally recognized in the quarter in which we receive a report from a licensee regarding the sale of licensed chips in the prior quarter; however, royalties are recognized only if collectibility is assured. As a result of these uncertainties and effects being outside of our control, royalty revenue are difficult to predict and make accurate financial forecasts difficult to achieve, which could cause our stock price to become volatile and decline.
A substantial portion of our revenue is derived from sources outside of the United States and these revenue and our business generally are subject to risks related to international operations that are often beyond our control.
     For the three and six months ended June 30, 2008, revenue from our sales to international customers constituted approximately 84% and 83% of our total revenue, respectively, and for the three and six months ended June 30, 2007, revenue from our sales to international customers constituted approximately 84% and 86% of our total revenue, respectively. We currently have international operations in India (design), Japan (business development), Taiwan (business development), Germany (business development) and Korea (business development). As a result of our continued focus on international markets, we expect that future revenue derived from international sources will continue to represent a significant portion of our total revenue.
     To date, all of the revenue from international licensees have been denominated in U.S. dollars. However, to the extent that such licensees’ sales to systems companies are not denominated in U.S. dollars, any royalties which are based as a percentage of the customer’s sales that we receive as a result of such sales could be subject to fluctuations in currency exchange rates. In addition, if the effective price of licensed semiconductors sold by our foreign licensees were to increase as a result of fluctuations in the exchange rate of the relevant currencies, demand for licensed semiconductors could fall, which in turn would reduce our royalties. We do not use financial instruments to hedge foreign exchange rate risk.
     Our international operations and revenue are subject to a variety of risks which are beyond our control, including:
    export controls, tariffs, import and licensing restrictions and other trade barriers;
 
    profits, if any, earned abroad being subject to local tax laws and not being repatriated to the United States or, if repatriation is possible, limited in amount;
 
    changes to tax codes and treatment of revenue from international sources, including being subject to foreign tax laws and potentially being liable for paying taxes in that foreign jurisdiction;
 
    foreign government regulations and changes in these regulations;
 
    social, political and economic instability;
 
    lack of protection of our intellectual property and other contract rights by jurisdictions in which we may do business to the same extent as the laws of the United States;
 
    changes in diplomatic and trade relationships;
 
    cultural differences in the conduct of business both with licensees and in conducting business in our international facilities and international sales offices;
 
    operating centers outside the United States;
 
    hiring, maintaining and managing a workforce remotely and under various legal systems; and
 
    geo-political issues.

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     We and our licensees are subject to many of the risks described above with respect to companies which are located in different countries, particularly home 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 our international operations could not result in a material adverse effect on our business, financial condition or results of operations.
Our results of operations could vary as a result of the methods, estimates, and judgments we use in applying our accounting policies.
     The methods, estimates, and judgments we use in applying our accounting policies have a significant impact on our results of operations, as described elsewhere in this report. Such methods, estimates, and judgments are, by their nature, subject to substantial risks, uncertainties, and assumptions, and factors may arise over time that lead us to change our methods, estimates, and judgments. Changes in those methods, estimates, and judgments could significantly affect our results of operations. In particular, the calculation of share-based compensation expense under Statement of Financial Accounting Standards No. 123(R) (“SFAS No. 123(R)”) requires us to use valuation methodologies which were not developed for use in valuing employee stock options and a number of assumptions, estimates, and conclusions regarding matters such as expected forfeitures, expected volatility of our share price, and the exercise behavior of our employees. Furthermore, there are no means, under applicable accounting principles, to compare and adjust our expense if and when we learn about additional information that may affect the estimates that we previously made, with the exception of changes in expected forfeitures of share-based awards. Factors may arise that lead us to change our estimates and assumptions with respect to future share-based compensation arrangements, resulting in variability in our share-based compensation expense over time. Changes in forecasted stock-based compensation expense could impact our cost of contract revenue, research and development expenses, marketing, general and administrative expenses and our effective tax rate, which could have an adverse impact on our results of operations.
We may make future acquisitions or enter into mergers, strategic transactions or other arrangements that could cause our business to suffer.
     We may continue to make investments in companies, products or technologies or enter into mergers, strategic transactions or other arrangements. If we buy a company or a division of a company, we may experience difficulty integrating that company’s or division’s personnel and operations, which could negatively affect our operating results. In addition:
    the key personnel of the acquired company may decide not to work for us;
 
    we may experience additional financial and accounting challenges and complexities in areas such as tax planning, cash management and financial reporting;
 
    our ongoing business may be disrupted or receive insufficient management attention;
 
    we may not be able to recognize the cost savings or other financial benefits we anticipated; and
 
    our increasing international presence resulting from acquisitions may increase our exposure to international currency, tax and political risks.
     In connection with future acquisitions or mergers, strategic transactions or other arrangements, we may incur substantial expenses regardless of whether the transaction occurs. In addition, we may be required to assume the liabilities of the companies we acquire. By assuming the liabilities, we may incur liabilities such as those related to intellectual property infringement or indemnification of customers of acquired businesses for similar claims, which could materially and adversely affect our business. We may have to incur debt or issue equity securities to pay for any future acquisition, the issuance of which could involve restrictive covenants or be dilutive to our existing stockholders.
If we are unable to attract and retain qualified personnel, our business and operations could suffer.
     Our success is dependent upon our ability to identify, attract, compensate, motivate and retain qualified personnel, especially engineers, who can enhance our existing technologies and introduce new technologies. Competition for qualified personnel, particularly those with significant industry experience, is intense, in particular in the San Francisco Bay Area where we are headquartered and in the area of Bangalore, India where we have a design center. We are also dependent upon our senior management

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personnel. The loss of the services of any of our senior management personnel, or key sales personnel in critical markets, or critical members of staff, or of a significant number of our engineers could be disruptive to our development efforts or business relationships and could cause our business and operations to suffer.
Decreased effectiveness of equity-based compensation could adversely affect our ability to attract and retain employees.
     We have historically used stock options and other forms of stock-based compensation as key components of our employee compensation program in order to align employees’ interests with the interests of our stockholders, encourage employee retention and provide competitive compensation and benefit packages. As a result of changes in accounting principles, we have incurred increased compensation costs associated with our stock-based compensation programs. As a result and as part of our overall compensation philosophy, we have worked to reduce the issuance of equity as a percentage of overall compensation and the number of equity awards issued annually as a percentage of our total outstanding shares. In addition, if we face any difficulty relating to obtaining stockholder approval of our equity compensation plans, it could make it harder or more expensive for us to grant stock-based payments to employees in the future. As a result of these factors leading to lower equity compensation of our employees, we may find it difficult to attract, retain and motivate employees, and any such difficulty could materially adversely affect our business.
Our operations are subject to risks of natural disasters, acts of war, terrorism or widespread illness at our domestic and international locations, any one of which could result in a business stoppage and negatively affect our operating results.
     Our business operations depend on our ability to maintain and protect our facility, computer systems and personnel, which are primarily located in the San Francisco Bay Area. The San Francisco Bay Area is in close proximity to known earthquake fault zones. Our facility and transportation for our employees are susceptible to damage from earthquakes and other natural disasters such as fires, floods and similar events. Should an earthquake or other catastrophes, such as fires, floods, power loss, communication failure or similar events disable our facilities, we do not have readily available alternative facilities from which we could conduct our business, which stoppage could have a negative effect on our operating results. Acts of terrorism, widespread illness and war could also have a negative effect at our international and domestic facilities.
Risks Related to Corporate Governance and Capitalization Matters
The price of our Common Stock may fluctuate significantly, which may make it difficult for holders to resell their shares when desired or at attractive prices.
     Our Common Stock is listed on The Nasdaq Global Select Market under the symbol “RMBS.” The trading price of our Common Stock has been subject to wide fluctuations which may continue in the future in response to, among other things, the following:
    any progress, or lack of progress, in the development of products that incorporate our chip interfaces;
 
    our signing or not signing new licensees;
 
    new litigation or developments in current litigation as discussed above;
 
    announcements of our technological innovations or new products by us, our licensees or our competitors;
 
    positive or negative reports by securities analysts as to our expected financial results;
 
    developments with respect to patents or proprietary rights and other events or factors; and
 
    any delisting of our Common Stock from The Nasdaq Global Select Market.
     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.

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If we fail to remediate any material weaknesses in our internal control over financial reporting, we may be unable to accurately report our financial results or reasonably prevent fraud which could result in a loss of investor confidence in our financial reports and have an adverse effect on our business and operating results and our stock price.
     Effective internal control over financial reporting is essential for us to produce reliable financial reports and prevent fraud. If we cannot provide reliable financial information or prevent fraud, our business and operating results, as well as our stock price, could be harmed. During the year ended December 31, 2007, we discovered, and may in the future discover, material weaknesses in our internal control over financial reporting. A failure to implement and maintain effective internal control over financial reporting, could harm our operating results, result in a material misstatement of our financial statements, cause us to fail to meet our financial reporting obligations or prevent us from providing reliable and accurate financial reports or avoiding or detecting fraud. This, in turn, could result in a loss of investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.
Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.
     Changing laws, regulations and standards relating to corporate governance and public disclosure, including new SEC regulations and Nasdaq rules, are creating uncertainty for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our reputation may be harmed.
The matters relating to the independent investigation of our historical stock option granting practices and the restatement of our previous financial statements could adversely affect our business, financial condition, results of operations and cash flows.
     During 2006 and 2007, our Audit Committee conducted an internal investigation of the timing of stock option grant practices and related accounting issues, and, as a result of the findings, we restated various previously filed financial statements. The costs of the investigation and restatement and any settlements, payment of claims, fines, taxes and other costs led to substantial expenses that materially affected our cash balance and cash flows from operations, and significant expenditures may continue to be incurred in the future. In addition, the recent restatement of our financial results and any negative outcome that may occur from these investigations could impact our reputation, including our relationships with our investors and our licensees, our ability to hire and retain qualified personnel, our ability to acquire new licensees and other business partners and, ultimately, our ability to generate revenue.
     Future government actions may result from the completion of the investigation of stock option grants. We are also under examination by the Internal Revenue Service (“IRS”) on the various tax reporting implications resulting from the investigation. There is no assurance that other regulatory inquiries will not be commenced by other U.S. federal, state or foreign regulatory agencies, including the IRS and other tax authorities. The unfavorable resolution of any potential tax or other regulatory proceeding or action could require us to make significant payments in overdue taxes, penalties and fines or otherwise record charges (or reduce tax assets) that may adversely affect our results of operations and financial condition.
     In addition, our bylaws and certain indemnification agreements require us to indemnify our current and former directors, officers, employees and agents against most actions of a civil, criminal, administrative or investigative nature unless such person acted criminally, in a manner opposed to our best interests or did not act in good faith. Generally, we are required to advance indemnification expenses prior to any final adjudication of an individual’s culpability. Therefore, the expense of indemnifying our current and former directors, officers and employees and agents in their defense or related expenses as a result of the derivative, class action and any regulatory actions related to the investigation and financial restatement may be significant. Therefore, our indemnification obligations could result in the diversion of our financial resources that adversely affects our business, financial condition and results of operations.

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We have been named as a party to several lawsuits arising from matters relating to our stock option investigation which may result in unfavorable outcomes and significant judgments, settlements and legal expenses which could cause our business, financial condition and results of operations to suffer.
     Several shareholder derivative actions were filed in state and federal courts against certain of our current and former officers and directors, as well as our current auditors, related to the stock option investigation. The actions were brought by persons identifying themselves as shareholders and purporting to act on our behalf. We are named solely as a nominal defendant against whom the plaintiffs seek no recovery. The complaints allege that certain of these defendants violated securities laws and/or breached their fiduciary duties to us and obtained unjust enrichment in connection with grants of stock options to certain of our officers that were allegedly improperly dated. The complaints seek unspecified monetary damages and disgorgement from the defendants, as well as unspecified equitable relief.
     Additionally, several securities fraud class actions and individual lawsuits were filed in federal court against us and certain of our current and former officers and directors. The complaints generally allege that the defendants violated the federal securities laws by filing documents with the SEC containing false statements regarding our accounting treatment of the stock option granting actions under investigation. The individual lawsuits allege not only federal and state securities law violations, but also state law claims for fraud and breach of fiduciary duty. The class actions were consolidated into a single proceeding and have settled. The settlement provides for a payment of $18.3 million, which we paid into a settlement fund in March 2008, for a dismissal with prejudice of all claims against all defendants. Some potential class members requested exclusion from the settlement. On May 8, 2008, the court entered an order granting final approval of the settlement agreement and entered judgment dismissing with prejudice all claims against all defendants in the consolidated class action litigation. For more information about the litigation described above, see Note 13 “Litigation and Asserted Claims” of Notes to Unaudited Condensed Consolidated Financial Statements.
     The amount of time to resolve these current and any future lawsuits is uncertain, and these matters could require significant management and financial resources which could otherwise be devoted to the operation of our business. Although we have expensed or accrued for certain liabilities that we believe will result from certain of these actions, the actual costs and expenses to defend and satisfy all of these lawsuits and any potential future litigation will exceed our current estimated accruals, possibly significantly. Unfavorable outcomes and significant judgments, settlements and legal expenses in the litigation related to our past stock option granting practices could have material adverse impacts on our business, financial condition, results of operations, cash flows and the trading price of our Common Stock.
We are leveraged financially, which could adversely affect our ability to adjust our business to respond to competitive pressures and to obtain sufficient funds to satisfy our future research and development needs, and to defend our intellectual property.
     We have indebtedness. On February 1, 2005, we issued $300.0 million aggregate principal amount of zero coupon convertible senior notes (“convertible notes”) due February 1, 2010, of which $160.0 million remains outstanding as of the date of this report.
     The degree to which we are leveraged could have important consequences, including, but not limited to, the following:
    our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes may be limited;
 
    a substantial portion of our cash flows from operations will be dedicated to the payment of the principal of our indebtedness as we are required to pay the principal amount of the convertible notes in cash when due;
 
    if we elect to pay any premium on the convertible notes with shares of our Common Stock or we are required to pay a “make-whole” premium with our shares of Common Stock, our existing stockholders’ interest in us would be diluted; and
 
    we may be more vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in responding to changing business and economic conditions.
     A failure to comply with the covenants and other provisions of our debt instruments could result in events of default under such instruments, which could permit acceleration of the convertible notes under such instruments and in some cases acceleration of any future debt under instruments that may contain cross-default or cross-acceleration provisions. Any required repayment of the convertible notes as a result of an acceleration would lower our current cash on hand such that we would not have those funds available for the use in our business.

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     If we are at any time unable to generate sufficient cash flow from operations to service our indebtedness when payment is due, we may be required to attempt to renegotiate the terms of the instruments relating to the indebtedness, seek to refinance all or a portion of the indebtedness or obtain additional financing. There can be no assurance that we will be able to successfully renegotiate such terms, that any such refinancing would be possible or that any additional financing could be obtained on terms that are favorable or acceptable to us.
Our certificate of incorporation and bylaws, our stockholder rights plan, and Delaware law contain provisions that could discourage transactions resulting in a change in control, which may negatively affect the market price of our Common Stock.
     Our certificate of incorporation, our bylaws, our stockholder rights plan and Delaware law contain provisions that might enable our management to discourage, delay or prevent change in control. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our Common Stock. Among these provisions are:
    our board of directors is authorized, without prior stockholder approval, to create and issue preferred stock, commonly referred to as “blank check” preferred stock, with rights senior to those of Common Stock;
 
    our board of directors is staggered into two classes, only one of which is elected at each annual meeting;
 
    stockholder action by written consent is prohibited;
 
    nominations for election to our board of directors and the submission of matters to be acted upon by stockholders at a meeting are subject to advance notice requirements;
 
    certain provisions in our bylaws and certificate of incorporation such as notice to stockholders, the ability to call a stockholder meeting, advanced notice requirements and the stockholders acting by written consent may only be amended with the approval of stockholders holding 66 2 / 3 % of our outstanding voting stock;
 
    the ability of our stockholders to call special meetings of stockholders is prohibited; and
 
    our board of directors is expressly authorized to make, alter or repeal our bylaws.
     In addition, the provisions in our stockholder rights plan could make it more difficult for a potential acquirer to consummate an acquisition of our company. We are also subject to Section 203 of the Delaware General Corporation Law, which provides, subject to enumerated exceptions, that if a person acquires 15% or more of our outstanding voting stock, the person is an “interested stockholder” and may not engage in any “business combination” with us for a period of three years from the time the person acquired 15% or more of our outstanding voting stock.

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Litigation, Regulation and Business Risks Related to our Intellectual Property
We face current and potential adverse determinations in litigation stemming from our efforts to protect and enforce our patents and intellectual property, which could broadly impact our intellectual property rights, distract our management and cause a substantial decline in our revenue and stock price.
     We seek to diligently protect our intellectual property rights. In connection with the extension of our licensing program to SDR SDRAM-compatible and DDR SDRAM-compatible products, we became involved in litigation related to such efforts against different parties in multiple jurisdictions, including our recently filed lawsuit against NVIDIA for patent infringement. In each of these cases, we have claimed infringement of certain of our patents, while the manufacturers of such products have generally sought damages and a determination that the patents in suit are invalid, unenforceable, and not infringed. Among other things, the opposing parties have alleged that certain of our patents are unenforceable because we engaged in document spoliation, litigation misconduct and/or acted improperly during our 1991 to 1995 participation in the JEDEC standard setting organization (including allegations of antitrust violations and unfair competition). See Note 13 “Litigation and Asserted Claims” of Notes to Unaudited Condensed Consolidated Financial Statements for additional information regarding certain cases that are active as of the date of this report.
     There can be no assurance that any or all of the opposing parties will not succeed, either at the trial or appellate level, with such claims or counterclaims against us or that they will not in some other way establish broad defenses against our patents, achieve conflicting results, or otherwise avoid or delay paying royalties for the use of our patented technology. Moreover, there is a risk that if one party prevails against us, other parties could use the adverse result to defeat or limit our claims against them; conversely, there can be no assurance that if we prevail against one party, we will succeed against other parties on similar claims, defenses, or counterclaims. In addition, there is the risk that the pending litigations and other circumstances may cause us to accept less than what we now believe to be fair consideration in settlement. Among other things, there can be no assurance that we will succeed in negotiating future settlements or licenses on terms better than those extended in our Infineon settlement. There can be no assurances that the circumstances under which we negotiated our Infineon settlement will turn out to be significantly different from the circumstances of future cases and future settlements, although we currently believe that significant differences do exist.
     Any of these matters, whether or not determined in our favor or settled by us, is costly, may cause delays (including delays in negotiating licenses with other actual or potential licensees), will tend to discourage future design partners, will tend to impair adoption of our existing technologies and divert the efforts and attention of our management and technical personnel from other business operations. In addition, we may be unsuccessful in our litigation if we have difficulty obtaining the cooperation of former employees and agents who were involved in our business during the relevant periods related to our litigation and are now needed to assist in cases or testify on our behalf. Furthermore, any adverse determination or other resolution in litigation could result in our losing certain rights beyond the rights at issue in a particular case, including, among other things: our being effectively barred from suing others for violating certain or all of our intellectual property rights; our patents being held invalid or unenforceable or not infringed; our being subjected to significant liabilities; our being required to seek licenses from third parties; our being prevented from licensing our patented technology; or our being required to renegotiate with current licensees on a temporary or permanent basis. Delay of any or all of these adverse results could cause a substantial decline in our revenue and stock price.
An adverse resolution by or with a governmental agency, such as the Federal Trade Commission or the European Commission, could result in severe limitations on our ability to protect and license our intellectual property, and would cause our revenue to decline substantially .
     In addition to private litigations, we are involved in proceedings brought against us by one or more government agencies and we may become involved in future proceedings by other government agencies. The FTC brought an administrative action against us alleging, among other things, that we had failed to disclose certain patents and patent applications during our membership in JEDEC while it established SDRAM standards and that we, therefore, should be precluded from enforcing certain of our intellectual property rights in patents with a priority date prior to June 1996. See Note 13 “Litigation and Asserted Claims” of Notes to Unaudited Condensed Consolidated Financial Statements” for a discussion of the FTC action. At the conclusion of this proceeding, the FTC found that our conduct at JEDEC was improper and issued an order on February 2, 2007, that, among other things, limits the royalty rates we may charge to license certain patents that cover certain JEDEC-compliant SDR and DDR SDRAM memory and controller products sold after April 12, 2007. Although we obtained a partial stay of the remedy order pending our appeal of the FTC decision, the FTC’s adverse decision and remedy order has already impaired our ability to enforce or license our patents or collect royalties from existing or potential licensees. See “Managements’ Discussion and Analysis of Financial Condition and Results of Operations —

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Royalty Revenue — Patent Licenses” for a discussion of the terms of the FTC order. However, on April 22, 2008, the U.S. Court of Appeals for the DC Circuit overturned the FTC decisions regarding Rambus, and remanded the matter back to the FTC for further proceedings consistent with the Court’s opinion. Additionally, the European Commission has instituted similar proceedings against us but has not yet issued a decision. These proceedings, or one by any other governmental agency, have already resulted in and may result in further adverse determination against us or in other outcomes that could limit our ability to enforce or license our intellectual property, and could cause our revenue to decline substantially.
     In addition, third parties have and may attempt to use adverse findings by a government agency to limit our ability to enforce our patents in private litigations and to assert claims for monetary damages against us. Although we have successfully defeated certain attempts to do so, there can be no assurance that other third parties will not be successful in the future or that additional claims or actions arising out of adverse findings by a government agency will not be asserted against us.
     Further, third parties have sought and may seek review and reconsideration of the patentability of inventions claimed in certain of our patents by the United States Patent & Trademark Office (the “PTO”) and/or the European Patent Office (the “EPO”). An adverse decision by the PTO or EPO could invalidate some or all of these patent claims and could also result in additional adverse consequences affecting other related U.S. or European patents. If a sufficient number of such patents are impaired, our ability to enforce or license our intellectual property would be significantly weakened and this could cause our revenue to decline substantially.
Litigation or other third-party claims of intellectual property infringement could require us to expend substantial resources and could prevent us from developing or licensing our technology on a cost-effective basis.
     Our research and development programs are in highly competitive fields in which numerous third parties have issued patents and patent applications with claims closely related to the subject matter of our research and development programs. We have also been named in the past, and may in the future be named, as a defendant in lawsuits claiming that our technology infringes upon the intellectual property rights of third parties. In the event of a third-party claim or a successful infringement action against us, we may be required to pay substantial damages, to stop developing and licensing our infringing technology, to develop non-infringing technology, and to obtain licenses, which could result in our paying substantial royalties or our granting of cross licenses to our technologies. Threatened or ongoing third-party claims or infringement actions may prevent us from pursuing additional development and licensing arrangements for some period. For example, we may discontinue negotiations with certain customers for additional licensing of our patents due to the uncertainty caused by our ongoing litigation on the terms of such licenses or of the terms of such licenses on our litigation. We may not be able to obtain licenses from other parties at a reasonable cost, or at all, which could cause us to expend substantial resources, or result in delays in, or the cancellation of, new product.
If we are unable to successfully protect our inventions through the issuance and enforcement of patents, our operating results could be adversely affected.
     We have an active program to protect our proprietary inventions through the filing of patents. There can be no assurance, however, that:
    any current or future U.S. or foreign patent applications will be approved and not be challenged by third parties;
 
    our issued patents will protect our intellectual property and not be challenged by third parties;
 
    the validity of our patents will be upheld;
 
    our patents will not be declared unenforceable;
 
    the patents of others will not have an adverse effect on our ability to do business;
 
    Congress or the U.S. courts or foreign countries will not change the nature or scope of rights afforded patents or patent owners or alter in an adverse way the process for seeking patents;
 
    changes in law will not be implemented that will affect our ability to protect and enforce our patents and other intellectual property;

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    new legal theories and strategies utilized by our competitors will not be successful; or
 
    others will not independently develop similar or competing chip interfaces or design around any patents that may be issued to us.
     If any of the above were to occur, our operating results could be adversely affected.
Our inability to protect and own the intellectual property we create would cause our business to suffer.
     We rely primarily on a combination of license, development and nondisclosure agreements, trademark, trade secret and copyright law, and contractual provisions to protect our non-patentable intellectual property rights. If we fail to protect these intellectual property rights, our licensees and others may seek to use our technology without the payment of license fees and royalties, which could weaken our competitive position, reduce our operating results and increase the likelihood of costly litigation. The growth of our business depends in large part on the use of our intellectual property in the products of third party manufacturers, and our ability to enforce intellectual property rights against them to obtain appropriate compensation. In addition, effective trade secret protection may be unavailable or limited in certain foreign countries. Although we intend to protect our rights vigorously, if we fail to do so, our business will suffer.
We rely upon the accuracy on our licensees recordkeeping, and any inaccuracies or payment disputes for amounts owed to us under our licensing agreements may harm our results of operations.
     Many of our license agreements require our licensees to document the manufacture and sale of products that incorporate our technology and report this data to us on a quarterly basis. While licenses with such terms give us the right to audit books and records of our licensees to verify this information, audits rarely are undertaken because they can be expensive, time consuming, and potentially detrimental to our ongoing business relationship with our licensees. Therefore, we rely on the accuracy of the reports from licensees without independently verifying the information in them. Our failure to audit our licensees’ books and records may result in our receiving more or less royalty revenue than we are entitled to under the terms of our license agreements. If we conducted royalty audits in the future, such audits may trigger disagreements over contract terms with our licensees and such disagreements could hamper customer relations, divert the efforts and attention of our management from normal operations and impact our business operations and financial condition.
We may not be able to satisfy the requirements under the Qimonda settlement and license agreement that would require Qimonda to pay us up to an additional $100.0 million in royalty payments.
     On March 21, 2005, we entered into a settlement and license agreement with Infineon (and its former parent Siemens), which was assigned to Qimonda (formerly Infineon’s DRAM operations) in October 2006 in connection with Infineon’s spin-off of Qimonda. The settlement and license agreement, among other things, requires Qimonda to pay to us aggregate royalties of $50.0 million in quarterly installments of approximately $5.85 million, which started on November 15, 2005. The settlement and license agreement further provides that if we enter into licenses with certain other DRAM manufacturers, Qimonda will be required to make additional royalty payments to us that may aggregate up to $100.0 million. As we have not yet succeeded in entering into these additional license agreements necessary to trigger Qimonda’s obligations, Qimonda’s quarterly payment decreased to $3.2 million in the fourth quarter of 2007, and has ceased as of the first quarter of 2008. The quarterly payments with Qimonda will not recommence until we enter into additional license agreements with certain other DRAM manufacturers. We may not succeed in entering into these additional license agreements necessary to trigger Qimonda’s obligations under the settlement and license agreement to pay to us additional royalty payments, thereby reducing the value of the settlement and license agreement to us.
An acquisition by Qimonda of a third party DRAM manufacturer could make it more difficult for us to obtain royalty rates we believe are appropriate and could reduce the number of companies in our antitrust litigation.
     The Company recently amended its patent license agreement with Qimonda. The amended license grants a supplemental term license of approximately the same scope as the original term license originally provided for in the agreement, but specifies that in the event Infineon ceases to control or otherwise own a majority of Qimonda shares, certain competitors would not accede to this license upon such competitor’s acquisition of control of Qimonda. Furthermore, such acquiring competitor would not receive the benefit of a release from Rambus for past damages, including past infringement of Rambus’ patent portfolio. To the extent that Qimonda acquires another company, including such certain competitors, the acquired company would accede to the license and would be eligible to receive the benefit of the release from Rambus for past damages. Following such an acquisition by Qimonda, the combined entity would be required to pay a stepped up royalty payment calculated in accordance with the percentage increase in the DRAM volume brought about by the acquisition. Such an increase in the payments could make it more difficult for us to obtain the royalties we believe are appropriate from the market as a whole. Such an acquisition by Qimonda of any of the certain competitors would in addition reduce the number of companies from which we may seek compensation for the antitrust injury alleged by us in our pending price-fixing action in San Francisco. Except in the case of the certain competitors, the extension of any such benefits to a third party entity, whether acquiring control or otherwise a majority of shares of Qimonda or being acquired by Qimonda, could, in addition, result in the release of claims to such third party entity, thus reducing the number of companies from which we may seek compensation for patent damages.

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Any dispute regarding our intellectual property may require us to indemnify certain licensees, the cost of which could severely hamper our business operations and financial condition.
     In any potential dispute involving our patents or other intellectual property, our licensees could also become the target of litigation. While we generally do not indemnify our licensees, some of our license agreements provide limited indemnities, some require us to provide technical support and information to a licensee that is involved in litigation involving use of our technology, and we may agree to indemnify others in the future. Our indemnification and support obligations could result in substantial expenses. In addition to the time and expense required for us to indemnify or supply such support to our licensees, a licensee’s development, marketing and sales of licensed semiconductors could be severely disrupted or shut down as a result of litigation, which in turn could severely hamper our business operations and financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
     On May 9, 2008, Rambus held its 2008 Annual Meeting of Stockholders. The matters voted upon at the meeting for shareholders of record as of March 10, 2008 and the vote with respect to each such matter are set forth below:
     (i) Election of five Class I directors for a term of two years expiring in 2010:
                 
    For   Withheld
Sunlin Chou, Ph.D.
    79,599,543       4,223,839  
Bruce Dunlevie
    79,862,911       3,960,471  
Mark Horowitz, Ph.D.
    80,258,948       3,564,434  
Harold Hughes
    79,773,326       4,050,056  
Abraham D. Sofaer
    79,565,126       4,258,256  
     (ii) Ratification of appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the period ending December 31, 2008:
         
For: 82,295,412
  Against: 1,005,532   Abstentions: 522,438
     The term for Class II continuing directors will expire at the annual meeting of stockholders to be held in 2009. There were 104,059,454 shares issued, outstanding and eligible to vote at the meeting.
Item 5. Other Information
Not Applicable
Item 6. Exhibits
     Please refer to the Exhibit Index of this quarterly report on Form 10-Q.

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SIGNATURE
     Pursuant to the requirements 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: August 1, 2008  By:   /s/ Satish Rishi    
    Satish Rishi   
    Senior Vice President, Finance and
Chief Financial Officer 
 
 

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INDEX TO EXHIBITS
     
Exhibit    
Number   Description of Document
3.1(1)
  Amended and Restated Certificate of Incorporation of Registrant filed May 29, 1997.
 
   
3.2(2)
  Certificate of Amendment of Amended and Restated Certificate of Incorporation of Registrant filed June 14, 2000.
 
   
3.3
  Amended and Restated Bylaws of Registrant dated November 13, 2007.
 
   
31.1
  Certification of Principal Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2
  Certification of Principal Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32.1
  Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
   
32.2
  Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
(1)   Incorporated by reference to the Form 10-K filed on December 15, 1997.
 
(2)   Incorporated by reference to the Form 10-Q filed on May 4, 2001.

60

Exhibit 3.3
AMENDED AND RESTATED
BYLAWS
OF
RAMBUS INC.

 


 

TABLE OF CONTENTS
         
        Page
 
ARTICLE I CORPORATE OFFICES   1
1.1
  REGISTERED OFFICE   1
1.2
  OTHER OFFICES   1
 
       
ARTICLE II MEETINGS OF STOCKHOLDERS   1
2.1
  PLACE OF MEETINGS   1
2.2
  ANNUAL MEETING   1
2.3
  SPECIAL MEETING   1
2.4
  NOTICE OF STOCKHOLDERS' MEETINGS   2
2.5
  MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE   2
2.6
  QUORUM   2
2.7
  ADJOURNED MEETING; NOTICE   2
2.8
  CONDUCT OF BUSINESS   3
2.9
  VOTING   3
2.10
  WAIVER OF NOTICE   3
2.11
  STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING   3
2.12
  RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS   3
2.13
  PROXIES   4
2.14
  LIST OF STOCKHOLDERS ENTITLED TO VOTE   4
2.15
  ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS   5
2.16
  INSPECTORS OF ELECTION   6
 
       
ARTICLE III DIRECTORS   6
3.1
  POWERS   6
3.2
  NUMBER OF DIRECTORS   7
3.3
  ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS   7
3.4
  RESIGNATION AND VACANCIES   7
3.5
  PLACE OF MEETINGS; MEETINGS BY TELEPHONE   8
3.6
  CHAIRPERSON OF THE BOARD   8
3.7
  REGULAR MEETINGS   8
3.8
  SPECIAL MEETINGS; NOTICE   9
3.9
  QUORUM   9
3.10
  ADJOURNED MEETING; NOTICE   9
3.11
  WAIVER OF NOTICE   9
3.12
  BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING   10
3.13
  FEES AND COMPENSATION OF DIRECTORS   10
3.14
  APPROVAL OF LOANS TO EMPLOYEES   10

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TABLE OF CONTENTS
(Continued)
         
        Page
 
3.15
  REMOVAL OF DIRECTORS   10
 
       
ARTICLE IV COMMITTEES   11
4.1
  COMMITTEES OF DIRECTORS   11
4.2
  COMMITTEE MINUTES   11
4.3
  MEETINGS AND ACTION OF COMMITTEES   11
 
       
ARTICLE V OFFICERS   12
5.1
  OFFICERS   12
5.2
  APPOINTMENT OF OFFICERS   12
5.3
  SUBORDINATE OFFICERS   12
5.4
  REMOVAL AND RESIGNATION OF OFFICERS   12
5.5
  VACANCIES IN OFFICES   12
5.6
  RESERVED   13
5.7
  CHIEF EXECUTIVE OFFICER   13
5.8
  PRESIDENT   13
5.9
  VICE PRESIDENTS   13
5.10
  SECRETARY   13
5.11
  CHIEF FINANCIAL OFFICER   14
5.12
  ASSISTANT SECRETARY   14
5.13
  ASSISTANT TREASURER   14
5.14
  REPRESENTATION OF SHARES OF OTHER CORPORATIONS   15
5.15
  AUTHORITY AND DUTIES OF OFFICERS   15
 
       
ARTICLE VI INDEMNITY   15
6.1
  THIRD PARTY ACTIONS   15
6.2
  ACTIONS BY OR IN THE RIGHT OF THE CORPORATION   15
6.3
  SUCCESSFUL DEFENSE   16
6.4
  DETERMINATION OF CONDUCT   16
6.5
  PAYMENT OF EXPENSES IN ADVANCE   16
6.6
  INDEMNITY NOT EXCLUSIVE   17
6.7
  INSURANCE INDEMNIFICATION   17
6.8
  THE CORPORATION   17
6.9
  EMPLOYEE BENEFIT PLANS   17
6.10
  CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES   18
 
       
ARTICLE VII RECORDS AND REPORTS   18
7.1
  MAINTENANCE AND INSPECTION OF RECORDS   18
7.2
  INSPECTION BY DIRECTORS   18
7.3
  ANNUAL STATEMENT TO STOCKHOLDERS   18

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TABLE OF CONTENTS
(Continued)
         
        Page
 
ARTICLE VIII GENERAL MATTERS   19
8.1
  CHECKS   19
8.2
  EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS   19
8.3
  STOCK CERTIFICATES; PARTLY PAID SHARES   19
8.4
  SPECIAL DESIGNATION ON CERTIFICATES   20
8.5
  LOST CERTIFICATES   20
8.6
  CONSTRUCTION; DEFINITIONS   20
8.7
  DIVIDENDS   20
8.8
  FISCAL YEAR   21
8.9
  SEAL   21
8.10
  TRANSFER OF STOCK   21
8.11
  STOCK TRANSFER AGREEMENTS   21
8.12
  REGISTERED STOCKHOLDERS   21
 
       
ARTICLE IX AMENDMENTS   21

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AMENDED AND RESTATED BYLAWS
OF
RAMBUS INC.
(As Amended and Restated as of November 13, 2007)
ARTICLE I
CORPORATE OFFICES
     1.1 REGISTERED OFFICE
     The registered office of the corporation shall be fixed in the corporation’s certificate of incorporation, as the same may be amended from time to time.
     1.2 OTHER OFFICES
     The board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
     2.1 PLACE OF MEETINGS
     Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders’ meetings shall be held at the corporation’s principal executive office.
     2.2 ANNUAL MEETING
     The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. At the meeting, directors shall be elected and any other proper business may be transacted.
     2.3 SPECIAL MEETING
     A special meeting of the stockholders may be called at any time by a majority of the board of directors of the corporation. No other person or persons are permitted to call a special meeting. No business may be conducted at a special meeting other than the business specified by the board of directors as specified in its notice of calling of the meeting delivered to the corporation as provided

 


 

below by Section 2.4 (notice of stockholders’ meetings) and 2.5 (manner of giving notice; affidavit of notice).
     2.4 NOTICE OF STOCKHOLDERS’ MEETINGS
     All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 (manner of giving notice; affidavit of notice) of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.
     2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
     Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
     2.6 QUORUM
     The holders of a majority of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairperson of the meeting or (ii) the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.
     2.7 ADJOURNED MEETING; NOTICE
     When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

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     2.8 CONDUCT OF BUSINESS
     The chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business.
     2.9 VOTING
     The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 (record date for stockholder notice; voting; giving consents) of these bylaws, subject to the provisions of Sections 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and 218 (relating to voting trusts and other voting agreements) of the General Corporation Law of Delaware.
     Except as may be otherwise provided in the certificate of incorporation or as may be otherwise required by applicable law, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.
     2.10 WAIVER OF NOTICE
     Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws.
     2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
     The stockholders of the corporation may not take action by written consent without a meeting but must take any such actions at a duly called annual or special meeting.
     2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
     In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action.

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     If the board of directors does not so fix a record date:
          (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.
          (ii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto.
     A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided , however , that the board of directors may fix a new record date for the adjourned meeting.
     2.13 PROXIES
     Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for the stockholder by proxy, authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder’s name is placed on the proxy (whether by manual signature, typewriting, electronic transmission or otherwise) by the stockholder or the stockholder’s attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the General Corporation Law of Delaware.
     2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
     The officer who has charge of the stock ledger of a corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.

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     2.15 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
     To be properly brought before an annual meeting or special meeting, nominations for the election of director or other business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder. For such nominations or other business to be considered properly brought before the meeting by a stockholder, such stockholder must have given timely notice and in proper form of his or her intent to bring such business before such meeting. To be timely, such stockholder’s notice must be delivered to or mailed and received by the secretary of the corporation not less than 90 days prior to the meeting; provided , however , that in the event that less than 100 days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. To be in proper form, a stockholder’s notice to the secretary shall set forth:
          (i) the name and address of the stockholder who intends to make the nominations, propose the business, and, as the case may be, the name and address of the person or persons to be nominated or the nature of the business to be proposed;
          (ii) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or introduce the business specified in the notice;
          (iii) if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder;
          (iv) such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the board of directors; and
          (v) if applicable, the consent of each nominee to serve as director of the corporation if so elected.
     The chairperson of the meeting may refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure.

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     2.16 INSPECTORS OF ELECTION
     A written proxy may be in the form of a telegram, cablegram, or other means of electronic transmission which sets forth or is submitted with information from which it can be determined that the telegram, cablegram, or other means of electronic transmission was authorized by the person.
     Before any meeting of stockholders, the board of directors shall appoint an inspector or inspectors of election to act at the meeting or its adjournment. The number of inspectors shall be either one (1) or three (3). If any person appointed as inspector fails to appear or fails or refuses to act, then the chairperson of the meeting may, and upon the request of any stockholder or a stockholder’s proxy shall, appoint a person to fill that vacancy.
     Such inspectors shall:
          (i) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies;
          (ii) receive votes, ballots or consents;
          (iii) hear and determine all challenges and questions in any way arising in connection with the right to vote;
          (iv) count and tabulate all votes or consents;
          (v) determine when the polls shall close;
          (vi) determine the result; and
          (vii) do any other acts that may be proper to conduct the election or vote with fairness to all stockholders.
     The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.
ARTICLE III
DIRECTORS
     3.1 POWERS
     Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the

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stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors.
     3.2 NUMBER OF DIRECTORS
     The exact number of directors shall be determined from time to time by resolution of the board of directors, provided the board of directors shall consist of no more than ten (10) directors. The maximum number of directors constituting the entire board of directors may be changed by an amendment to this bylaw duly adopted by resolution of the board of directors or stockholders in accordance with these bylaws. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.
     3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
     Except as provided in Section 3.4 (resignation and vacancies) of these bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until the director’s earlier death, resignation or removal. The certificate of incorporation or these bylaws may prescribe other qualifications for directors.
     If so provided in the certificate of incorporation, the directors of the corporation shall be divided into classes.
     Elections of directors need not be by written ballot.
     3.4 RESIGNATION AND VACANCIES
     Any director may resign at any time upon written notice to the attention of the secretary of the corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies.
     Unless otherwise provided in the certificate of incorporation or these bylaws, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If the directors are divided into classes, a person so elected by the directors then in office to fill a vacancy or newly created directorship shall hold office until the next election of the class for which such director shall have been chosen and until his or her successor shall have been duly elected and qualified.

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     If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware.
     If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board of directors (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable.
     3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
     The board of directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware.
     Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
     3.6 CHAIRPERSON OF THE BOARD
     The chairperson of the board shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him or her by the board of directors or as may be prescribed by these bylaws. If there is no chief executive officer and no president, then the chairperson of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 (chief executive officer) of these bylaws.
     3.7 REGULAR MEETINGS
     Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board of directors.

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     3.8 SPECIAL MEETINGS; NOTICE
     Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairperson of the board of directors, the president, the secretary or a majority of the authorized number of directors.
     Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director’s address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation.
     3.9 QUORUM
     At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum present shall be the act of the board of directors, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
     A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
     3.10 ADJOURNED MEETING; NOTICE
     If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
     3.11 WAIVER OF NOTICE
     Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the

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beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws.
     3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
     Unless otherwise restricted by the certificate of incorporation or bylaws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing, or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of the proceedings of the board, or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
     3.13 FEES AND COMPENSATION OF DIRECTORS
     Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors.
     3.14 APPROVAL OF LOANS TO EMPLOYEES
     The corporation may lend money to, or guarantee any obligation of, or otherwise assist officers or employees of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or of its subsidiary, whenever, in the judgment of the board of directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Notwithstanding the foregoing, the corporation may not, directly or indirectly, including through any subsidiary, extend or maintain credit, arrange for the extension of credit, or renew an extension of credit, in the form of a personal loan to or for any director or executive officer (or equivalent thereof) of the corporation.
     3.15 REMOVAL OF DIRECTORS
     Unless otherwise restricted by statute, by the certificate of incorporation or by these bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors.
     No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.

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ARTICLE IV
COMMITTEES
     4.1 COMMITTEES OF DIRECTORS
     The board of directors may, by resolution passed by a majority of the whole board of directors, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in the bylaws of the corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) approve, adopt or recommend to the stockholders any action or matter expressly required by the General Corporation Law of Delaware to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the corporation.
     4.2 COMMITTEE MINUTES
     Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required.
     4.3 MEETINGS AND ACTION OF COMMITTEES
     Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings; meetings by telephone), Section 3.7 (regular meetings), Section 3.8 (special meetings; notice), Section 3.9 (quorum), and Section 3.12 (board action by written consent without a meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided , however , that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.

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ARTICLE V
OFFICERS
     5.1 OFFICERS
     The officers of the corporation shall be a president and a secretary. The corporation may also have, at the discretion of the board of directors, a chief executive officer, a chief financial officer or treasurer, one or more vice presidents, one or more assistant vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.
     5.2 APPOINTMENT OF OFFICERS
     The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 (subordinate officers) of these bylaws, shall be appointed by the board of directors, subject to the rights, if any, of an officer under any contract of employment.
     5.3 SUBORDINATE OFFICERS
     The board of directors may appoint, or empower the chief executive officer or the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine.
     5.4 REMOVAL AND RESIGNATION OF OFFICERS
     Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board of directors or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors.
     Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.
     5.5 VACANCIES IN OFFICES
     Any vacancy occurring in any office of the corporation shall be filled by the board of directors.

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     5.6 [ reserved ]
     5.7 CHIEF EXECUTIVE OFFICER
     Subject to the supervisory powers, if any, as may be given by the board of directors to the chairperson of the board, if there be such a director so designated, the chief executive officer, if any, shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. In the absence or nonexistence of a chairperson of the board, the chief executive officer shall preside at meetings of the board of directors. The chief executive officer shall preside at all meetings of the stockholders. The chief executive officer shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. If there be a chief executive officer, all rights assigned by these bylaws to the president shall be deemed to be those of the chief executive officer.
     5.8 PRESIDENT
     The president shall preside at all meetings of the stockholders in the absence or nonexistence of a chairperson of the board or a chief executive officer. The president shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. If there is no chief executive officer, then the president shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 (chief executive officer) of these bylaws.
     5.9 VICE PRESIDENTS
     In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws or the president.
     5.10 SECRETARY
     The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors’ meetings or committee meetings, the number of shares present or represented at stockholders’ meetings, and the proceedings thereof.
     The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation’s transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names

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of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation.
     The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these bylaws. The secretary shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws.
     5.11 CHIEF FINANCIAL OFFICER
     The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director.
     The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the board of directors. The chief financial officer shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all his or her transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the board of directors or these bylaws.
     The chief financial officer shall be the treasurer of the corporation.
     5.12 ASSISTANT SECRETARY
     The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as may be prescribed by the board of directors or these bylaws.
     5.13 ASSISTANT TREASURER
     The assistant treasurer, or, if there is more than one, the assistant treasurers, in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the chief financial officer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the chief financial officer and shall perform such other duties and have such other powers as may be prescribed by the board of directors or these bylaws.

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     5.14 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
     The president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.
     5.15 AUTHORITY AND DUTIES OF OFFICERS
     All officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors or the stockholders and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the board of directors.
ARTICLE VI
INDEMNITY
     6.1 THIRD PARTY ACTIONS
     The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the corporation, which approval shall not be unreasonably withheld) actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
     6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
     The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer,

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employee or agent of corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) and amounts paid in settlement (if such settlement is approved in advance by the corporation, which approval shall not be unreasonably withheld) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if the person acted in good faith and in manner the person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Notwithstanding any other provision of this Article VI, no person shall be indemnified hereunder for any expenses or amounts paid in settlement with respect to any action to recover short-swing profits under Section 16(b) of the Securities Exchange Act of 1934, as amended.
     6.3 SUCCESSFUL DEFENSE
     To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 6.1 (third party actions) and 6.2 (actions by or in the right of the corporation), or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection therewith.
     6.4 DETERMINATION OF CONDUCT
     Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that the indemnification of the director, officer, employee or agent is proper in the circumstances because the person has met the applicable standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (3) by the stockholders. Notwithstanding the foregoing, a director, officer, employee or agent of the corporation shall be entitled to contest any determination that the director, officer, employee or agent has not met the applicable standard of conduct set forth in Sections 6.1 and 6.2 by petitioning a court of competent jurisdiction.
     6.5 PAYMENT OF EXPENSES IN ADVANCE
     Expenses incurred in defending a civil or criminal action, suit or proceeding, by an individual who may be entitled to indemnification pursuant to Section 6.1 or 6.2, shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that the individual is not entitled to be indemnified by the corporation as authorized in this Article VI.

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     6.6 INDEMNITY NOT EXCLUSIVE
     The indemnification and advancement of expenses provided by or granted pursuant to the other sections of this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in their official capacity and as to action in another capacity while holding such office.
     6.7 INSURANCE INDEMNIFICATION
     The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against the person and incurred by the person in any such capacity or arising out of the person’s status as such, irrespective of whether the corporation would have the power to indemnify such person against such liability under the provisions of this Article VI.
     6.8 THE CORPORATION
     For purposes of this Article VI, references to “the corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under and subject to the provisions of this Article VI (including, without limitation the provisions of Section 6.4 (determination of conduct)) with respect to the resulting or surviving corporation as the person would have with respect to such constituent corporation if its separate existence had continued.
     6.9 EMPLOYEE BENEFIT PLANS
     For purposes of this Article VI, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the corporation” shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred to in this Article VI.

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     6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
     The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person.
ARTICLE VII
RECORDS AND REPORTS
     7.1 MAINTENANCE AND INSPECTION OF RECORDS
     The corporation shall, either at its principal executive officer or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records.
     Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation’s stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent so to act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business.
     7.2 INSPECTION BY DIRECTORS
     Any director shall have the right to examine the corporation’s stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court of Chancery may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court of Chancery may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as it may deem just and proper.
     7.3 ANNUAL STATEMENT TO STOCKHOLDERS
     The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation.

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ARTICLE VIII
GENERAL MATTERS
     8.1 CHECKS
     From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments.
     8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
     The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
     8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
     The shares of the corporation shall be represented by certificates, provided that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Every holder of stock in the corporation represented by certificates shall be entitled to have a certificate signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the chief financial officer, or the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, director, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if the person were such officer, transfer agent or registrar at the date of issue.
     The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.

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     8.4 SPECIAL DESIGNATION ON CERTIFICATES
     If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided , however , that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
     8.5 LOST CERTIFICATES
     Except as provided in this Section 8.5 (lost certificates), no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and canceled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or the owner’s legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
     8.6 CONSTRUCTION; DEFINITIONS
     Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.
     8.7 DIVIDENDS
     The directors of the corporation, subject to any restrictions contained in (i) the General Corporation Law of Delaware or (ii) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation’s capital stock.
     The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies.

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     8.8 FISCAL YEAR
     The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors.
     8.9 SEAL
     The corporation may adopt a corporate seal, which shall be adopted and which may be altered by the board of directors, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
     8.10 TRANSFER OF STOCK
     Stock of the corporation shall be transferable in the manner prescribed by law and in these bylaws. Transfers of stock shall be made on the books of the corporation only by the record holder of such stock or by his or her attorney lawfully constituted in writing and, if such stock is certificated, upon the surrender of the certificate therefor, which shall be canceled before a new certificate shall be issued.
     8.11 STOCK TRANSFER AGREEMENTS
     The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware.
     8.12 REGISTERED STOCKHOLDERS
     The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE IX
AMENDMENTS
     The bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided , however , that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws.

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Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Harold Hughes, certify that:
     1. I have reviewed this quarterly report on Form 10-Q of Rambus Inc.;
     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
  Date: August 1, 2008
 
 
  By:   /s/ Harold Hughes    
    Name:   Harold Hughes   
    Title:   Chief Executive Officer and President   

 

         
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Satish Rishi, certify that:
     1. I have reviewed this quarterly report on Form 10-Q of Rambus Inc.;
     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
     4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
     5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
  Date: August 1, 2008
 
 
  By:   /s/ Satish Rishi    
    Name:   Satish Rishi   
    Title:   Senior Vice President, Finance and
Chief Financial Officer 
 

 

         
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
     I, Harold Hughes, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Rambus Inc. on Form 10-Q for the quarter ended June 30, 2008, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Rambus Inc.
         
     
Date: August 1, 2008  By:   /s/ Harold Hughes    
    Name:   Harold Hughes   
    Title:   Chief Executive Officer and President   

 

         
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
     I, Satish Rishi, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Rambus Inc. on Form 10-Q for the quarter ended June 30, 2008, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Rambus Inc.
         
     
Date: August 1, 2008  By:   /s/ Satish Rishi    
    Name:   Satish Rishi   
    Title:   Senior Vice President, Finance and
Chief Financial Officer