<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ARTISAN COMPONENTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 3674 77-0278185
(PRIOR TO REINCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
DELAWARE
(AFTER REINCORPORATION)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
</TABLE>
1195 BORDEAUX DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 734-5600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
MARK R. TEMPLETON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ARTISAN COMPONENTS, INC.
1195 BORDEAUX DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 734-5600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
ROBERT P. LATTA, ESQ. LAIRD H. SIMONS, III, ESQ.
ROSEMARY G. REILLY, ESQ. RICHARD L. DICKSON, ESQ.
JULIA REIGEL, ESQ. DAVID A. BELL, ESQ.
WILSON SONSINI GOODRICH & ROSATI FENWICK & WEST LLP
PROFESSIONAL CORPORATION TWO PALO ALTO SQUARE
650 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94306
PALO ALTO, CALIFORNIA 94304 (650) 494-0600
(650) 493-9300
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[_]
---------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.001 par value per share........ $30,015,000 $9,096
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee. The estimate is made pursuant to Rule 457(o) of the
Securities Act of 1933, as amended.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1997
[ARTISAN LOGO APPEARS HERE]
- --------------------------------------------------------------------------------
2,900,000 SHARES
COMMON STOCK
- --------------------------------------------------------------------------------
All of the 2,900,000 shares of Common Stock, par value $0.001 per share
("Common Stock"), are being sold by Artisan Components, Inc. ("Artisan" or
the "Company"). Prior to this offering (the "Offering"), there has been no
public market for the Common Stock. It is currently estimated that the
initial public offering price will be between $ and $ per share.
See "Underwriting" for a discussion of the factors considered in determining
the initial public offering price. The Company has applied to have the Common
Stock approved for listing on the Nasdaq National Market under the symbol
"ARTI."
FOR INFORMATION CONCERNING CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share $ $ $
Total(3) $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses estimated at $850,000, payable by the Company.
(3) The Company and certain stockholders of the Company (the "Selling
Stockholders") have granted the Underwriters a 30-day option to purchase
up to 435,000 additional shares of Common Stock solely to cover over-
allotments, if any. If such option is exercised in full, the total Price
to Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively, and the proceeds to the Selling
Stockholders will be $ . See "Underwriting."
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, and subject to
approval of certain legal matters by counsel and certain other conditions.
The Underwriters reserve the right to withdraw, cancel or modify such offer
and to reject orders in whole or in part. Delivery of the shares of Common
Stock offered hereby to the Underwriters is expected to be made in New York,
New York on or about , 1998.
DEUTSCHE MORGAN GRENFELL
HAMBRECHT & QUIST
WESSELS, ARNOLD & HENDERSON
The date of this Prospectus is , 1998.
<PAGE>
[SCHEMATIC DEPICTING CONCEPTUAL FRAMEWORK FOR COMPLEX SYSTEM-ON-A-CHIP ICS]
Artisan Components develops high performance, low power and high
density IP components including embedded memory, standard cell and I/O
products for use in System-on-a-Chip integrated circuits that combine
all the functionality of printed circuit board systems onto a single
chip.
Artisan, Process-Perfect and the Artisan logo are trademarks of the Company.
This Prospectus also includes product names and other trade names and
trademarks of the Company and of other organizations.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
Except as otherwise noted herein, information in this Prospectus assumes (i)
no exercise of the Underwriters' over-allotment option, (ii) an increase in
the authorized shares of Common Stock to 50,000,000 shares, (iii) the one-for-
two reverse stock split effected in November 1997, (iv) the reincorporation of
the Company from California to Delaware which will occur prior to the closing
of this Offering, (v) the conversion of all outstanding shares of Preferred
Stock of the Company into shares of Common Stock of the Company upon the
closing of this Offering, (vi) the exercise of a warrant to purchase 50,000
shares of Common Stock and (vii) the filing, upon the closing of this
Offering, of a Restated Certificate of Incorporation authorizing 5,000,000
shares of undesignated Preferred Stock.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with and is qualified in
its entirety by the more detailed information and Financial Statements and
Notes thereto appearing elsewhere in this Prospectus.
THE COMPANY
Artisan is a leading developer of high performance, low power and high
density embedded memory and other intellectual property ("IP") components for
the design and manufacture of complex integrated circuits ("ICs"). The Company
offers highly differentiated memory, standard cell and input/output ("I/O")
components that meet the acute needs of complex single chip system ("System-on-
a-Chip") ICs for performance, power and density. The Company's products are
optimized for each customer's manufacturing process and are delivered ready for
use with industry standard and proprietary IC design tools. Artisan's objective
is to be the leading supplier of high performance IP components to the
semiconductor market by (i) focusing on key IP components for high volume
System-on-a-Chip ICs, (ii) targeting leading semiconductor manufacturers, (iii)
generating revenue through an innovative business model, (iv) proliferating its
IP components throughout customer ICs, (v) leveraging its product development
process and (vi) maintaining its technological leadership. The Company licenses
its products to semiconductor manufacturers and fabless semiconductor companies
for the design of ICs used in complex, high volume applications such as
portable computing devices, cellular phones, consumer multimedia products,
automotive electronics, personal computers and workstations. Artisan has
licensed its products to many leading semiconductor manufacturers including
Chartered Semiconductor, Fujitsu Microelectronics, GEC Plessey, NEC
Electronics, OKI Electric, SGS-THOMSON, Toshiba and VLSI Technology.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company............... 2,900,000 shares
Common Stock outstanding after the Offering....... 11,979,953 shares(1)
Use of proceeds................................... General corporate purposes, including working
capital and capital expenditures. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol............ ARTI
</TABLE>
SUMMARY FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
1995 1996 1997
STATEMENT OF OPERATIONS DATA: -------- -------- --------
<S> <C> <C> <C>
Revenue............................................. $ 2,718 $ 4,147 $ 8,912
Total cost and expenses............................. 2,715 3,574 8,128
Operating income.................................... 3 573 784
Net income (loss)................................... (33) 532 725
Net income per share (historical)................... $ 0.08
Pro forma net income (unaudited)(2)................. $ 21 $ 409
Pro forma net income (unaudited) per share(2)....... $ 0.00 $ 0.05
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
ACTUAL AS ADJUSTED(3)
BALANCE SHEET DATA: ------- --------------
<S> <C> <C>
Cash, cash equivalents and marketable securities......... $ 4,554 $
Working capital.......................................... 4,352
Total assets............................................. 12,011
Long term liabilities, net of current portion(4)......... 49
Total stockholders' equity............................... 9,348
</TABLE>
- -------
(1) Based on the number of shares outstanding as of September 30, 1997.
Excludes (i) 1,406,908 shares of Common Stock issuable upon the exercise of
outstanding options under the Company's 1993 Stock Option Plan (the "1993
Plan") with a weighted average exercise price of $1.56 per share and
2,160,884 shares of Common Stock reserved for future issuance thereunder,
(ii) 600,000 shares of Common Stock reserved for issuance under the
Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") and (iii)
200,000 shares of Common Stock reserved for issuance under the Company's
1997 Director Option Plan (the "Director Plan"). See "Management--Stock
Plans," "Description of Capital Stock" and Notes 9 and 14 of Notes to
Financial Statements.
(2) Prior to March 1996, the Company was a subchapter S corporation and,
therefore, was not subject to entity level taxation. Pro forma net income
includes pro forma tax expense as if the Company was taxed as a C
corporation in fiscal 1995 and 1996.
(3) As adjusted to reflect the sale by the Company of the 2,900,000 shares of
Common Stock offered hereby, at an assumed initial public offering price of
$ per share and after deducting the estimated underwriting discount
and offering expenses, and receipt of the net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
(4) Long term liabilities consist of deferred rent. See Note 8 of Notes to
Financial Statements.
3
<PAGE>
THE COMPANY
Artisan is a leading developer of high performance, low power and high
density embedded memory and other IP components for the design and manufacture
of complex ICs. The Company offers highly differentiated memory, standard cell
and I/O components that meet the acute needs of complex System-on-a-Chip ICs
for performance, power and density. The Company's products are optimized for
each customer's manufacturing process and are delivered ready for use with
industry standard and proprietary IC design tools. Artisan's objective is to
be the leading supplier of high performance IP components to the semiconductor
market by (i) focusing on key IP components for high volume System-on-a-Chip
ICs, (ii) targeting leading semiconductor manufacturers, (iii) generating
revenue through an innovative business model, (iv) proliferating its IP
components throughout customer ICs, (v) leveraging its product development
process and (vi) maintaining its technological leadership. The Company
licenses its products to semiconductor manufacturers and fabless semiconductor
companies for the design of ICs used in complex, high volume applications,
such as portable computing devices, cellular phones, consumer multimedia
products, automotive electronics, personal computers and workstations.
The development of the merchant IP component market has resulted from the
continuing trend toward horizontal specialization in the semiconductor
industry, a trend that has been driven by a growth in manufacturing capacity
and an increasing focus on core competencies. Semiconductor manufacturers are
continuing to focus on semiconductor design and manufacturing processes and
are beginning to outsource the design of particular IP components critical to
the successful development of complex System-on-a-Chip ICs. This trend favors
the emergence of a substantial merchant IP component market that is estimated
by industry sources to grow from approximately $600 million in 1997 to
approximately $2.0 billion in the year 2001. In addition, advances in
semiconductor manufacturing processes have made it possible to place
approximately 40 million transistors on a single IC, a number that is widely
expected to increase to nearly 100 million transistors by the end of the
decade. Each of these transistors must be individually designed and tested
and, consequently, the gap is increasing between what can be manufactured and
what can be designed within the time to market requirements of the
semiconductor manufacturer.
Artisan provides high performance and low power embedded memory, standard
cell and I/O components customized to each customer's manufacturing process.
Together, these components constitute approximately 80% of the silicon area on
a typical System-on-a-Chip IC. Improvements in the performance of these
components, particularly memory, can have a significant impact on the overall
performance of the IC. The Company's IP components are designed to offer
semiconductor manufacturers high performance, cost effective solutions that
reduce the time required to bring new ICs to market. The Company believes that
it provides the fastest memory products and the most dense standard cell
products currently available in the merchant IP component market.
The Company primarily licenses its products on a nonexclusive, worldwide
basis to major semiconductor manufacturers and grants these manufacturers the
right to distribute its IP components freely to their internal design teams
and to fabless semiconductor companies that manufacture at the same facility.
The Company believes that this licensing approach encourages proliferation of
the Company's products and provides a highly efficient distribution channel
for its IP components. The Company's revenue increased from $2.7 million in
fiscal 1995 to $4.1 million in fiscal 1996 and to $8.9 million in fiscal 1997,
representing a compound annual growth rate of 81.4% over this two year period.
Artisan has licensed its products to many leading semiconductor manufacturers
including Chartered Semiconductor Manufacturing, Inc. ("Chartered"), Fujitsu
Microelectronics, Inc. ("Fujitsu"), GEC Plessey Semiconductor Ltd. ("GEC
Plessey"), NEC Electronics, Inc. ("NEC"), OKI Electric Industry Co., Ltd.
("OKI"), SGS-THOMSON MICROELECTRONICS S.r.l. ("SGS-THOMSON"), Toshiba
International Corporation ("Toshiba") and VLSI Technology, Inc. ("VLSI
Technology").
The Company was incorporated in California in April 1991 as VLSI Libraries
Incorporated and changed its name to Artisan Components, Inc. in March 1997.
The Company anticipates that it will reincorporate in Delaware prior to the
completion of this Offering. The Company's principal executive offices are
located at 1195 Bordeaux Drive, Sunnyvale, California 94089, and its telephone
number is (408) 734-5600.
4
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information in this Prospectus, the
following risk factors should be considered carefully in evaluating an
investment in the Common Stock offered by this Prospectus. When used in this
Prospectus, the words "expects," "anticipates," "estimates" and similar
expressions are intended to identify forward looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. These risks and
uncertainties include, but are not limited to, those risks discussed below and
elsewhere in this Prospectus. Actual results could differ materially from
those projected in the forward looking statements as a result of the risk
factors discussed below and elsewhere in this Prospectus.
FLUCTUATIONS IN OPERATING RESULTS. The Company's operating results have
fluctuated in the past as a result of a number of factors including the
relatively large size and small number of customer orders during a given
period; the timing of customer orders; delays in the design process due to
changes by a customer to its order after it is placed; the Company's ability
to achieve progress on percentage of completion contracts; the length of the
Company's sales cycle; the Company's ability to develop, introduce and market
new products and product enhancements; the timing of new product announcements
and introductions by the Company and its competitors; market acceptance of the
Company's products; the demand for semiconductors and end user products that
incorporate semiconductors; and general economic conditions. The Company's
future operating results may fluctuate from quarter to quarter and on an
annual basis as a result of these and other factors, in particular the
relatively large size and small number of customer orders during a given
period and the rate of royalties recognized in a given period. Accordingly, it
is likely that in some future quarter the Company's operating results will be
below the expectations of public market analysts and investors. In such event,
the price of the Company's Common Stock would likely decline, perhaps
substantially.
Revenue in any quarter is dependent on a number of factors, and is not
predictable with any degree of certainty. Since the Company's expense levels
are based in part on management's expectations regarding future revenue, if
revenue is below expectations in any quarter, the adverse effect may be
magnified by the Company's inability to adjust spending in a timely manner to
compensate for any revenue shortfall. The Company also intends to increase its
sales and marketing expenses in an attempt to broaden its market coverage. The
Company's costs and expenses will be based in part on the Company's
expectations of future revenue from product licenses. Accordingly, if the
Company does not realize its expected revenue, its business, operating results
and financial condition could be materially adversely affected.
The Company's sales cycle can be lengthy and is subject to a number of risks
over which the Company has little or no control. As a result of the
significant dollar amounts represented by a single customer order, the timing
of the receipt of an order can have a significant impact on the Company's
revenue for a particular period. In addition, because the Company's revenue is
concentrated among a small number of customers, a decline or a delay in the
recognition of revenue from one customer in a period may cause the Company's
business, operating results and financial condition in such period to be
materially adversely affected and may lead to significant fluctuations from
quarter to quarter. Any significant or ongoing failure to obtain new orders
from customers would have a material adverse effect on the Company's business,
operating results and financial condition.
To date, a substantial majority of the Company's revenue has been recognized
on a percentage of completion method. Provisions for estimated losses on the
uncompleted contracts are recognized in the period in which the likelihood of
such losses is determined. As
5
<PAGE>
the completion period ranges from three to six months, the revenue in any
quarter is dependent on the Company's progress toward completion of the
project. There can be no assurance that the Company's estimates will be
accurate, and, in the event they are not, the Company's business, operating
results and financial condition in subsequent periods could be materially
adversely affected. The Company has in the past experienced delays in the
progress of certain projects, and there can be no assurance that such delays
will not occur in the future. Any delay or failure to achieve such progress
could result in damage to customer relationships and the Company's reputation,
under-utilization of engineering resources or a delay in the market acceptance
of the Company's products, any of which could have a material adverse effect
on the Company's business, operating results and financial condition. In
addition, the Company's contracts with customers generally may be canceled
without cause, and, if a customer cancels or delays performance under any such
contracts, the Company's business, operating results and financial condition
could be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON EMERGENCE OF MERCHANT IP COMPONENT MARKET AND BROAD MARKET
ACCEPTANCE OF THE COMPANY'S PRODUCTS. The market for merchant IP components
has only recently begun to emerge. The Company's ability to achieve sustained
revenue growth and profitability in the future will depend on the continued
development of this market and, to a large extent, on the demand for System-
on-a-Chip ICs. There can be no assurance that the merchant IP component and
System-on-a-Chip markets will continue to develop or grow at a rate sufficient
to support the Company's business. If either of these markets fails to grow or
develops slower than expected, the Company's business, operating results and
financial condition would be materially adversely affected. To date, the
Company's IP products have been licensed only by a limited number of
customers. The vast majority of the Company's existing and potential customers
currently rely on components developed internally and/or by other vendors. The
Company's future growth, if any, is dependent on the adoption of, and
increased reliance on, merchant IP components by both existing and potential
customers. Moreover, if the Company's products do not achieve broad market
acceptance, the Company's business, operating results and financial condition
would be materially adversely affected.
COMPETITION. The Company's strategy of targeting semiconductor manufacturers
that participate in, or may enter, the System-on-a-Chip market requires the
Company to compete in intensely competitive markets. Within the merchant
segment of the IP component market, the Company competes primarily against
Aspec Technology, Inc. ("Aspec"), Avant! Corporation ("Avant!"), Cascade
Design Automation Inc., a subsidiary of OKI ("Cascade Design"), Mentor
Graphics Corporation ("Mentor Graphics"), and the Silicon Architects group of
Synopsys, Inc. ("Synopsys"). In addition, the Company may face competition
from consulting firms and companies that typically have operated in the
generic library segment of the IP market and that now seek to offer customized
IP components as enhancements to their generic solutions. The Company also
faces significant competition from the internal design groups of the
semiconductor manufacturers that are expanding their manufacturing
capabilities and portfolio of IP components to participate in the System-on-a-
Chip market. These internal design groups compete with the Company for access
to the parent's IP component requisitions and may eventually compete with the
Company to supply IP components to third parties on a merchant basis. There
can be no assurance that internal design groups will not expand their product
offerings to compete directly with those of the Company or will not actively
seek to participate as merchant vendors in the IP component market by selling
to third party semiconductor manufacturers or, if they do, that the Company
will be able to compete against them successfully. In addition to competition
from companies in the merchant IP component market, the Company faces
competition from vendors that supply electronic design automation ("EDA")
software tools, including certain of those mentioned above, and there can be
no assurance that the Company will be able to compete successfully against
them.
6
<PAGE>
The Company expects competition to increase in the future from existing
competitors and from new market entrants with products that may be less
expensive than the Company's IP components or that may provide better
performance or additional features not currently provided by the Company. Many
of the Company's current and potential competitors have substantially greater
financial, technical, manufacturing, marketing, distribution and other
resources, greater name recognition and market presence, longer operating
histories, lower cost structures and larger customer bases than the Company.
As a result, they may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements. In addition, certain of the
Company's principal competitors offer a single vendor solution, since, in the
case of EDA tools companies, they maintain their own EDA design tools and IP
libraries or, in the case of internal design groups, they provide IP
components developed to utilize the qualities of a given manufacturing
process, and may therefore benefit from certain capacity, cost and technical
advantages. The Company's ability to compete successfully in the emerging
market for IP components will depend upon certain factors, many of which are
beyond the Company's control including, but not limited to, success in
designing new products; implementing new designs at smaller process
geometries; access to adequate EDA tools (many of which are licensed from the
Company's current or potential competitors); the price, quality and timing of
new product introductions by the Company and its competitors; the emergence of
new IP component interchangeability standards; the widespread licensing of IP
components by semiconductor manufacturers or their design groups to third
party manufacturers; the ability of the Company to protect its intellectual
property; market acceptance of the Company's IP components; success of
competitive products; market acceptance of products using System-on-a-Chip
ICs; and industry and general economic conditions. There can be no assurance
that the Company will be able to compete successfully in the emerging merchant
IP component market. See "Business--Competition."
DEPENDENCE ON SEMICONDUCTOR MANUFACTURERS; DEPENDENCE ON SEMICONDUCTOR AND
ELECTRONICS INDUSTRIES. The Company's success is substantially dependent both
on the adoption of the Company's technology by semiconductor manufacturers and
on an increasing demand for products requiring complex System-on-a-Chip ICs,
such as portable computing devices, cellular phones, consumer multimedia
products, automotive electronics, personal computers and workstations. The
Company is subject to many risks beyond its control that influence the success
of its customers, including, among others, competition faced by each customer
in its particular industry, market acceptance of the customer's products that
incorporate the Company's technology, the engineering, sales and marketing
capabilities of the customer, and the financial and other resources of the
customer.
The semiconductor and electronics products industries are characterized by
rapid technological change, frequent introductions of new products, short
product life cycles, fluctuations in manufacturing capacity and pricing and
gross margin pressures. Each of these industries is highly cyclical and has
periodically experienced significant downturns, often in connection with or in
anticipation of declines in general economic conditions during which the
number of new IC design projects often decreases. Revenue from licenses of the
Company's products is influenced by the level of design efforts by its
customers and factors negatively affecting these industries could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company's business, operating results and financial
condition may fluctuate in the future from period to period as a consequence
of general economic conditions in the semiconductor and electronics
industries.
DEPENDENCE ON NEW BUSINESS MODEL. The Company has historically generated
revenue from license fees. Beginning in late fiscal 1996, however, the Company
began implementation of a royalty based business model that is intended to
generate revenue from both license fees
7
<PAGE>
and future royalties. The Company is still in the process of implementing this
royalty based business model and, to date, has had only limited success with
its introduction. Certain of the Company's customers, including some of its
largest customers, have initially resisted the adoption of the royalty based
model. There can be no assurance that the Company will be able to complete the
implementation of the royalty based model successfully, or that, when fully
implemented, this model will have the anticipated benefits. The failure of the
Company to implement its new business model successfully could have a material
adverse effect on the Company's business, operating results and financial
condition. To date, the Company has received no royalty revenue, and it does
not anticipate receiving any prior to fiscal 1999. There can be no assurance
that the Company will ever receive any royalty revenue or that, if it does,
the amount will be significant. See "--Dependence on Semiconductor
Manufacturers; Dependence on Semiconductor and Electronics Industries" and "--
Customer Concentration; Limited Customer Base."
The Company believes that its long term success will be substantially
dependent on future royalties. However, even if the Company successfully
implements its new business model, the Company will face risks inherent in
such a model. In particular, the Company's ability to forecast royalty revenue
will be limited by factors that are beyond the Company's ability to control or
assess in advance. Royalties, if any, will be recognized in the quarter in
which the Company receives a royalty report from its customers and will be
dependent upon fluctuating sales volumes. In addition, under the royalty based
business model, the Company's revenue will be dependent upon the sales by its
customers of products that incorporate the Company's technology. Even if the
Company's technology is adopted, there can be no assurance that it will be
used in a product that is ultimately brought to market, achieves commercial
acceptance or results in significant royalties to the Company. The Company
will also face risks relating to the accuracy and completeness of the royalty
collection process. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
CUSTOMER CONCENTRATION; LIMITED CUSTOMER BASE. The Company has been
dependent on a relatively small number of customers for a substantial portion
of its annual revenue, although the customers comprising this group have
changed from time to time. In fiscal 1995, SGS-THOMSON, NEC, the United States
Department of Defense (the "DOD"), Samsung Corporation ("Samsung") and LSI
Logic Corporation ("LSI Logic") accounted for 20%, 17%, 17%, 11% and 10% of
revenue, respectively. In fiscal 1996, ATI Technologies, Inc. ("ATI"), SGS-
THOMSON, OKI and the DOD accounted for 37%, 20%, 15% and 10% of revenue,
respectively. In fiscal 1997, SGS-THOMSON, Fujitsu, OKI and NEC accounted for
27%, 24%, 16% and 13% of revenue, respectively. The Company anticipates that
its revenue will continue to depend on a limited number of major customers for
the foreseeable future, although the companies considered to be major
customers and the percentage of revenue represented by each major customer may
vary from period to period depending on the addition of new contracts and the
number of designs utilizing the Company's products. None of the Company's
customers has a written agreement with the Company that obligates it to
license future generations of products or new products, and there can be no
assurance that any customer will license IP components from the Company in the
future. In addition, there can be no assurance that any of the Company's
customers will ship products incorporating the Company's technology or that,
if such shipments occur, they will generate significant revenue. The loss of
one or more of the Company's major customers, reduced orders by one or more of
such customers or the failure of a customer to ship products containing the
Company's IP components could materially adversely affect the Company's
business, operating results and financial condition. See "Business--
Customers."
The Company faces numerous risks in successfully obtaining orders from
customers on terms consistent with the Company's business model, including,
among others, the lengthy and
8
<PAGE>
expensive process of building a relationship with a potential customer before
reaching an agreement with such party to license the Company's products;
persuading large semiconductor manufacturers to work with, to rely for
critical technology on, and to disclose proprietary information to, a smaller
company, such as the Company; and persuading potential customers to bear
certain development costs associated with development of customized
components. There are a relatively limited number of semiconductor
manufacturers to which the Company can license its technology in a manner
consistent with its business model and there can be no assurance that such
manufacturers will rely on merchant IP components or adopt the Company's
products. See "--Competition" and "Business--Customers."
PRODUCT CONCENTRATION. The Company derives substantially all of its revenue
from sales of its memory and standard cell products that, together, accounted
for 83%, 79% and 94% of revenue in fiscal 1995, 1996 and 1997, respectively.
The Company expects that memory products, in combination with standard cell
products, will continue to account for a significant portion of the Company's
revenue, for the foreseeable future. There can be no assurance that the
Company will continue to derive revenue from memory or standard cell products
and a decline in revenue from such products would have a material adverse
effect on the Company's business, operating results and financial condition.
The Company's future financial performance will depend in significant part on
the successful development, introduction and customer acceptance of new
products. See "--New Product Development and Technological Change."
LENGTHY SALES CYCLE AND DESIGN PROCESS. The license of the Company's
products typically involves a significant commitment of capital by the
customer and a purchase will often be timed to coincide with a customer's
migration to a new manufacturing process. Potential customers generally commit
significant resources to an evaluation of available IP solutions and require
the Company to expend substantial time, effort and resources to educate them
about the value of the Company's products. A variety of factors, including
factors over which the Company has little or no control, may cause potential
customers to favor an alternate solution or to delay or forego a license of
the Company's products. As a result of these and other factors, the sales
cycle for the Company's products is long, typically ranging from six to 12
months. The Company's ability to forecast the timing and scope of specific
sales is limited, and delay of or failure to complete one or more large
contracts could have a material adverse effect on the Company's business,
operating results and financial condition and could cause the Company's
operating results to fluctuate significantly from quarter to quarter.
Once the Company receives and accepts an order from a customer, the Company
must commit significant resources to customizing its products for the
customer's manufacturing process. This customization is complex and time
consuming and is subject to a number of risks over which the Company has
little or no control, including the customer's adjustments and alterations of
its manufacturing process or the timing of migration to a new process.
Typically, this customization takes from three to six months to complete.
Delays in product customization could have a material adverse effect on the
Company's business, operating results and financial condition and could cause
the Company's operating results to vary significantly from quarter to quarter.
RISKS ASSOCIATED WITH INTERNATIONAL CUSTOMERS. A substantial portion of the
Company's revenue is derived from customers outside the United States. In
fiscal 1995, 1996 and 1997, revenue derived from customers outside the United
States, primarily in Asia and Europe, represented approximately 55%, 47% and
67%, respectively, of the Company's revenue. The Company anticipates that
international revenue will remain a substantial portion of revenue in the
future. To date, all of the revenue from international customers has been
denominated in U.S. dollars. In the event that the Company's competitors
denominate their sales in a currency that becomes relatively inexpensive in
comparison to the U.S. dollar, the Company may
9
<PAGE>
experience fewer orders from international customers whose business is based
primarily on the less expensive currency. The Company intends to continue to
expand its sales and marketing activities in Asia and Europe. The Company's
expansion of its international business involves a number of risks including
the impact of possible recessionary environments in economies outside the
United States; political and economic instability; exchange rate fluctuations;
longer accounts receivable collection periods; greater difficulty in accounts
receivable collection; unexpected changes in regulatory requirements; reduced
or limited protection for intellectual property rights; export license
requirements; tariffs and other trade barriers and potentially adverse tax
consequences. There can be no assurance that the Company will be able to
sustain or increase revenue derived from international customers or that the
foregoing factors will not have a material adverse effect on the Company's
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Sales, Marketing and Distribution."
NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE. The Company's customers
compete in the semiconductor industry, which is subject to rapid technological
change, frequent introductions of new products, short product life cycles,
changes in customer demands and requirements and evolving industry standards.
The development of new manufacturing processes, the introduction of products
embodying new technologies and the emergence of new industry standards can
render existing products obsolete and unmarketable. Accordingly, the Company's
future success will depend on its ability to continue to enhance its existing
products and to develop and introduce new products that satisfy increasingly
sophisticated customer requirements and that keep pace with new product
introductions, emerging manufacturing process technologies and other
technological developments in the semiconductor industry. Any failure by the
Company to anticipate or respond adequately to changes in manufacturing
processes or customer requirements, or any significant delays in product
development or introduction, would have a material adverse effect on the
Company's business, operating results and financial condition. There can be no
assurance that the Company will not experience difficulties that could delay
or prevent the successful development, introduction and sale of new or
enhanced products or that such new or enhanced products will achieve market
acceptance. Any delay in release dates of new or enhanced products could
materially adversely affect the Company's business, operating results and
financial condition. The Company could also be exposed to litigation or claims
from its customers in the event that it does not satisfy its delivery
commitments. There can be no assurance that any such claim would not have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business--Product Development."
DEPENDENCE ON KEY PERSONNEL. The Company's success depends in large part on
the continued contributions of its key management, engineering, sales and
marketing personnel, many of whom are highly skilled and would be difficult to
replace. None of the Company's senior management or key technical personnel is
bound by an employment contract. In addition, the Company does not currently
maintain key man life insurance covering its key personnel. The Company
believes that its success depends to a significant extent on the ability of
its management to operate effectively, both individually and as a group.
Certain of the Company's senior management have only recently joined the
Company and there can be no assurance they and other newly hired employees
will be assimilated into the Company successfully. The Company must also
attract and retain highly skilled managerial, engineering, sales and marketing
and finance personnel. Competition for such personnel is intense, and there
can be no assurance that the Company will be successful in attracting and
retaining such personnel. The loss of the services of any of the key
personnel, the inability to attract or retain qualified personnel in the
future or delays in hiring required personnel, particularly engineers, could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Employees" and "Management--Executive
Officers and Directors."
10
<PAGE>
MANAGEMENT OF GROWTH. The ability of the Company to license its products and
manage its business successfully in a rapidly evolving market requires an
effective planning and management process. The Company's rapid growth has
placed, and is expected to continue to place, a significant strain on the
Company's managerial, operational and financial resources. From September 30,
1996 to September 30, 1997, the Company grew from 28 to 56 fulltime employees.
The Company's customers rely heavily on the Company's technological expertise
in designing, testing and manufacturing products incorporating the Company's
IP components. Relationships with new customers generally require significant
engineering support. As a result, any increase in the demand for the Company's
products will increase the strain on the Company's personnel, particularly its
engineers. The Company's financial and management controls, reporting systems
and procedures are also limited. Although some new controls, systems and
procedures have been implemented, the Company's future growth, if any, will
depend on its ability to continue to implement and improve operational,
financial and management information and control systems on a timely basis,
together with maintaining effective cost controls and any failure to do so
would have a material adverse effect on the Company's business, operating
results and financial condition. Further, the Company will be required to
manage multiple relationships with various customers and other third parties
and must successfully implement its new business model. There can be no
assurance that the Company's systems, procedures or controls will be adequate
to support the Company's operations or that the Company's management will be
able to achieve the rapid execution necessary to offer its services and
products successfully and to implement its business plan. The Company's
inability to manage any future growth effectively would have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business--Employees" and "Management."
RISKS ASSOCIATED WITH PROTECTION OF INTELLECTUAL PROPERTY. The Company
relies primarily on a combination of nondisclosure agreements and other
contractual provisions and patent, trademark, trade secret and copyright law
to protect its proprietary rights. Failure of the Company to enforce its
patents, trademarks or copyrights or to protect its trade secrets could have a
material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that such intellectual property
rights can be successfully asserted in the future or will not be invalidated,
circumvented or challenged. From time to time, third parties, including
competitors of the Company, may assert patent, copyright and other
intellectual property rights to technologies that are important to the
Company. There can be no assurance that third parties will not assert
infringement claims against the Company in the future, that assertions by
third parties will not result in costly litigation or that the Company would
prevail in any such litigation or be able to license any valid and infringed
patents from third parties on commercially reasonable terms. Litigation,
regardless of the outcome, could result in substantial cost and diversion of
resources of the Company. Any infringement claim or other litigation against
or by the Company could materially adversely affect the Company's business,
operating results and financial condition.
In certain instances, the Company has elected to rely on trade secret law
rather than patent law to protect its proprietary technology. However, trade
secrets are difficult to protect. The Company seeks to protect its proprietary
technology and processes, in part, by confidentiality agreements with its
employees and customers. There can be no assurance that these contracts will
not be breached, that the Company will have adequate remedies for any breach,
or that the Company's trade secrets will not otherwise become known or be
independently discovered by competitors. In addition, effective trade secret
protection may be unavailable or limited in certain foreign countries.
In addition, there can be no assurance that competitors of the Company, many
of which have substantial resources and have made substantial investments in
competing technologies,
11
<PAGE>
do not have, or will not seek to apply for and obtain, patents that will
prevent, limit or interfere with the Company's ability to make, use or sell
its products either in the United States or in international markets. There
can be no assurance that the Company will not in the future become subject to
patent infringement claims and litigation or interference proceedings declared
by the United States Patent and Trademark Office ("USPTO") to determine the
priority of inventions. The defense and prosecution of intellectual property
suits, USPTO interference proceedings and related legal and administrative
proceedings are both costly and time consuming. Any such suit or proceeding
involving the Company could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business--Patents
and Intellectual Property Protection."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company intends
to continue to invest heavily in the development of new products and
enhancements to its existing products. The Company's future liquidity and
capital requirements will depend upon numerous factors, including the costs
and timing of expansion of product development efforts and the success of
these development efforts, the costs and timing of expansion of sales and
marketing activities, the extent to which the Company's existing and new
products gain market acceptance, competing technological and market
developments, the costs involved in maintaining and enforcing patent claims
and other intellectual property rights, the level and timing of license
revenue, available borrowings under line of credit arrangements and other
factors. The Company believes that the proceeds from this Offering, together
with the Company's current cash balances and any cash generated from
operations and from available or future debt financing, will be sufficient to
meet the Company's operating and capital requirements for at least the next 12
months. However, there can be no assurance that the Company will not require
additional financing within this time frame. The Company's forecast period of
time through which its financial resources will be adequate to support its
operations implies assumptions about its business that are forward looking and
that involve risks and uncertainties, and actual results could vary. The
factors described in this paragraph will affect both the Company's future
capital requirements and the adequacy of its available funds. The Company may
be required to raise additional funds through public or private financing,
strategic relationships or other arrangements. There can be no assurance that
such funding, if needed, will be available on terms attractive to the Company,
or at all. Furthermore, any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve restrictive
covenants. Strategic arrangements, if necessary to raise additional funds, may
require the Company to relinquish its rights to certain of its technologies or
products. The failure of the Company to raise capital when needed could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operation."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK
PRICE. Prior to this Offering, there has been no public market for the
Company's Common Stock, and there can be no assurance that an active public
market will develop or that, if one does develop, it will be maintained. The
initial public offering price, which was determined through negotiations
between the Company and the Underwriters, may not be indicative of the market
price of the Common Stock after the Offering. In addition, the securities
markets have from time to time experienced significant price and volume
fluctuations that are unrelated and disproportionate to the operating
performance of particular companies. The market prices of the common stock of
many publicly traded companies have in the past been, and can in the future be
expected to be, especially volatile. The market price of the Company's Common
Stock is likely to be highly volatile and may be subject to wide fluctuations
in response to announcements of technological innovations or new products by
the Company, its customers or its competitors, release of reports by
securities analysts, developments or disputes concerning patents or
proprietary
12
<PAGE>
rights, economic and other external factors, as well as period to period
fluctuations in the Company's financial results. See "Underwriting."
CONCENTRATION OF OWNERSHIP. The Company's founders, officers, directors and
their affiliates will, in the aggregate, beneficially own approximately 64.7%
of the Company's outstanding Common Stock following the completion of this
Offering (61.3% if the Underwriters' over-allotment option is exercised in
full). As a result, these stockholders, acting together, would effectively be
able to control substantially all matters requiring approval by the
stockholders, including the election of directors. Such concentration of
ownership may have the effect of delaying, deferring or preventing a change in
control of the Company. See "Principal Stockholders."
CERTAIN ANTI-TAKEOVER PROVISIONS. Upon the closing of this Offering, the
Board of Directors of the Company will have the authority to issue up to
5,000,000 shares of Preferred Stock and to determine the rights, preferences,
privileges and restrictions, including voting rights, of such shares without
any further vote or action by the stockholders. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no current
plans to issue shares of Preferred Stock. In addition, Section 203 of the
Delaware General Corporation Law ("Section 203"") restricts certain business
combinations with any "interested stockholder" as defined by such statute. In
addition, the Company's Certificate of Incorporation and Bylaws that will be
in effect upon the closing of this Offering will contain certain other
provisions that may have the effect of delaying, deferring or preventing a
change of control of the Company including cumulative voting for the election
of directors, the elimination of actions by written consent of stockholders
and the establishment of an advance notice procedure for stockholder proposals
and director nominations to be acted upon at annual meetings of the
stockholders. These provisions are designed to encourage potential acquirors
to negotiate with the Company's Board of Directors and give the Board of
Directors sufficient opportunity to consider various alternatives to maximize
stockholder value. These provisions are also intended to discourage certain
tactics that may be used in proxy contests. However, issuance of Preferred
Stock, charter and bylaw provisions or restrictions from Section 203 could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company and, as a consequence, they also may adversely
affect the market price of the Company's Common Stock. Such provisions may
also have the effect of preventing changes in the management of the Company.
See "Description of Capital Stock--Preferred Stock."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial number of shares of
Common Stock in the public market following this Offering could adversely
affect the market price of the Common Stock prevailing from time to time. The
number of shares of Common Stock available for sale in the public market is
limited by restrictions under the Securities Act of 1933, as amended (the
"Securities Act"), and lock-up agreements executed by officers, directors,
optionholders and substantially all stockholders of the Company under which
such security holders have agreed not to sell or otherwise dispose of any of
their shares for a period of 180 days after the date of this Prospectus
without the prior written consent of Deutsche Morgan Grenfell Inc. In addition
to the 2,900,000 shares of Common Stock offered hereby (assuming no exercise
of the Underwriters' over-allotment option), there will be 9,079,953 shares of
Common Stock outstanding as of the date of this Prospectus, all of which are
"restricted" shares under the Securities Act. As a result of the lock-up
agreements described above and the provisions of Rules 144(k), 144 and 701
promulgated under the Securities Act ("Rule 144(k)," "Rule 144" and "Rule
701," respectively), the restricted shares will be available for sale in the
public market as follows: (i) no shares will be eligible for immediate sale on
the date of this Prospectus,
13
<PAGE>
(ii) approximately 9,029,953 shares will become eligible for sale 180 days
after the date of this Prospectus (assuming no release from the lock-up
agreements) upon expiration of lock-up agreements and (iii) approximately
50,000 shares will become eligible for sale one year after the date of this
Prospectus. After this Offering, the holders of approximately 3,435,736 shares
of Common Stock issuable upon conversion of Preferred Stock or exercise of a
warrant will be entitled to certain demand and piggyback rights with respect to
registration of such shares under the Securities Act. If such holders, by
exercising their demand registration rights, cause a large number of securities
to be registered and sold in the public market, such sales could have an
adverse effect on the market price for the Company's Common Stock. If the
Company were to initiate a registration and include shares held by such holders
pursuant to the exercise of their piggyback registration rights, such sales
might have an adverse effect on the Company's ability to raise capital. See
"Shares Eligible for Future Sale" and "Underwriting."
DISCRETION AS TO USE OF PROCEEDS. Although the Company currently intends to
apply the net proceeds of this Offering in the manner described under "Use of
Proceeds," it has broad discretion within such proposed uses as to the
allocation of the net proceeds, the timing of expenditures and all other
aspects relating to the application of such proceeds. The Company reserves the
right to reallocate the net proceeds of this Offering as management, in its
discretion, deems necessary or advisable. There can be no assurance that the
actual allocation of the Offering proceeds will not differ materially from
their current or anticipated use.
ABSENCE OF DIVIDENDS; IMMEDIATE AND SUBSTANTIAL DILUTION. The Company does
not anticipate paying any dividends in the foreseeable future. See "Dividend
Policy." Investors participating in this Offering will incur immediate and
substantial dilution in the net tangible book value of their shares of Common
Stock. Additional dilution will occur upon the exercise of outstanding stock
options or warrants. See "Dilution."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,900,000 shares of
Common Stock offered hereby are estimated to be approximately $
(approximately $ if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $ per
share and after deducting the estimated underwriting discount and offering
expenses. The principal purposes of this Offering are to obtain additional
capital, to create a public market for the Company's Common Stock and to
facilitate future access by the Company to public equity markets.
The Company ultimately expects to use the net proceeds from this Offering
for general corporate purposes, including working capital and capital
expenditures. The Company anticipates spending at least $850,000 for equipment
lease and office lease payments and approximately $3.4 million for capital
expenditures over the next 12 months. As of the date of this Prospectus, the
Company has no specific plans regarding the use of the remainder of the net
proceeds of this Offering. A portion of the proceeds may also be used to
acquire or invest in complementary businesses or products or to obtain the
right to use complementary technologies. Although the Company evaluates such
potential acquisitions from time to time, the Company has no present
understandings, commitments or agreements with respect to any material
acquisitions of other businesses, products or technologies. Pending such uses,
the Company intends to invest the net proceeds received by it from this
Offering in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
Since March 1996, when the Company converted to a C corporation from a
subchapter S corporation, the Company has not declared or paid any cash
dividends on its Common Stock or other securities. The Company presently
intends to retain future earnings, if any, for use in the operation and
expansion of its business and does not anticipate paying cash dividends in the
foreseeable future.
15
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1997 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company giving effect to the conversion of all outstanding shares of Preferred
Stock into Common Stock and the issuance of 50,000 shares of Common Stock upon
the exercise of a warrant that expires automatically upon the closing of this
Offering, and (iii) the pro forma capitalization of the Company as adjusted to
give effect to the sale of the 2,900,000 shares of Common Stock offered hereby
at an assumed initial public offering price of $ per share and after
deducting the estimated underwriting discount and offering expenses. This
table should be read in conjunction with the Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long term liabilities, net of current portion(1).. $ 49 $ 49 $
Stockholders' equity:
Convertible Preferred Stock, $0.001 par value;
5,000,000 shares authorized, 3,385,736 issued
and outstanding, actual; none issued and
outstanding, pro forma and as adjusted......... 7,564 --
Common Stock, $0.001 par value; 50,000,000
shares authorized, 5,644,217 shares issued and
outstanding actual; 9,079,953 shares issued and
outstanding pro forma and 11,979,953 shares
issued and outstanding as adjusted(2).......... 6 9
Warrant......................................... 125 --
Additional paid in capital...................... 647 7,802
Retained earnings............................... 1,006 1,537
------ ------ ---
Total stockholders' equity.................... 9,348 9,348
------ ------ ---
Total capitalization........................ $9,397 $9,397 $
====== ====== ===
</TABLE>
- --------
(1) Long term liabilities consist of deferred rent. See Note 8 of Notes to
Financial Statements.
(2) Excludes (i) 1,406,908 shares of Common Stock issuable upon the exercise
of outstanding options under the 1993 Plan with a weighted average
exercise price of $1.56 per share and 2,160,884 shares of Common Stock
reserved for future issuance thereunder, (ii) 600,000 shares of Common
Stock reserved for issuance under the Purchase Plan and (iii) 200,000
shares of Common Stock reserved for issuance under the Director Plan. See
"Management--Stock Plans," "Description of Capital Stock" and Notes 9 and
14 of Notes to Financial Statements.
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<PAGE>
DILUTION
The net tangible book value of the Company as of September 30, 1997 was $9.3
million, or $1.03 per share of Common Stock. Net tangible book value per share
represents the amount of total tangible assets of the Company less total
liabilities divided by the total number of shares of Common Stock outstanding.
After giving effect to the sale by the Company of the 2,900,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$ per share (after deducting the estimated underwriting discount and
offering expenses), the adjusted pro forma net tangible book value as of
September 30, 1997 would have been approximately $ , or $ per
share. This represents an immediate increase in net tangible book value per
share of Common Stock of $ to existing stockholders and an immediate
dilution in net tangible book value of $ per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $
Net tangible book value per share as of September 30, 1997...... $1.03
Increase per share attributable to new investors................
-----
Adjusted pro forma net tangible book value per share after this
Offering.........................................................
----
Dilution per share to new investors............................... $
====
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1997, the number of shares of Common Stock purchased from the Company
(assuming the conversion of all outstanding Preferred Stock into Common
Stock), the total consideration paid and the average price per share paid by
the existing stockholders and by new investors purchasing shares in this
Offering (before deducting the estimated underwriting discount and offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
---------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 9,079,953 75.8% $ % $
New investors........... 2,900,000 24.2
------------ ------- --------- ---------- ---
Total................. 11,979,953 100.0% $ 100.0% $
============ ======= ========= ========== ===
</TABLE>
- --------
(1) The Company and certain Selling Stockholders have granted the Underwriters
an option, exercisable within 30 days of the date of this Prospectus, to
purchase up to an aggregate of 435,000 shares of Common Stock at the
initial public offering price less the underwriting discount, solely to
cover over-allotments, if any. In the event the Underwriters' over-
allotment option is exercised in full, sales by such Selling Stockholders
would reduce the number of shares of Common Stock held by existing
stockholders to 8,709,953 or approximately 72.3% of the total number of
shares of Common Stock outstanding after this Offering and will increase
the number of shares held by new investors to 3,335,000 or approximately
27.7% of the total number of shares of Common Stock outstanding after this
Offering. See "Principal Stockholders" and "Underwriting."
The foregoing analysis assumes (i) no exercise of the Underwriters' over-
allotment option, (ii) issuance of 50,000 shares of Common Stock upon the
exercise of a warrant that expires automatically upon the closing of this
Offering, (iii) no exercise of options after September 30, 1997 and (iv) the
conversion of all outstanding shares of Preferred Stock into Common Stock. As
of September 30, 1997, there were outstanding options to purchase an aggregate
of 1,406,908 shares of Common Stock at a weighted average exercise price of
$1.56 per share. To the extent the above options have been or are exercised,
there will be further dilution to new investors. See "Management--Stock
Plans," "Description of Capital Stock" and Note 9 of Notes to Financial
Statements.
17
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements and Notes thereto included
elsewhere in this Prospectus. The balance sheet data as of September 30, 1996
and 1997 and the statement of operations data for the fiscal years ended
September 30, 1995, 1996 and 1997 are derived from the financial statements
that have been audited by Coopers & Lybrand L.L.P., independent accountants,
included elsewhere in this Prospectus. The balance sheet data as of
September 30, 1995 is derived from the financial statements that have been
audited by Coopers & Lybrand L.L.P., independent accountants, not included in
this Prospectus. The balance sheet data as of September 30, 1993 and 1994 and
the statement of operations data for the fiscal years ended September 30, 1993
and 1994 are derived from unaudited financial statements not included in this
Prospectus that have been prepared on the same basis as the audited financial
statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's financial position and results of operations for
such periods. Historical results are not necessarily indicative of results to
be expected in the future.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.................................. $1,262 $2,768 $2,718 $4,147 $ 8,912
Cost and expenses:
Cost of revenue........................ 388 910 984 1,280 2,855
Product development.................... 434 847 1,044 1,080 1,914
Sales and marketing.................... 93 314 272 603 2,019
General and administrative............. 98 304 415 611 1,340
------ ------ ------ ------ -------
Total cost and expenses.............. 1,013 2,375 2,715 3,574 8,128
------ ------ ------ ------ -------
Operating income......................... 249 393 3 573 784
Other income (expense) net............... 1 (3) -- 96 297
------ ------ ------ ------ -------
Income before provision for income taxes. 250 390 3 669 1,081
Provision for income taxes............... -- -- 36 137 356
------ ------ ------ ------ -------
Net income (loss)........................ $ 250 $ 390 $ (33) $ 532 $ 725
====== ====== ====== ====== =======
Net income per share (historical)........ $ 0.08
=======
Pro forma net income data (unaudited)(1):
Pro forma net income................... $ 175 $ 274 $ 21 $ 409
====== ====== ====== ======
Pro forma net income per share......... $ 0.03 $ 0.05 $ 0.00 $ 0.05
====== ====== ====== ======
Shares used in per share calculation(2).. 5,879 5,885 5,997 8,049 9,536
====== ====== ====== ====== =======
<CAPTION>
AS OF SEPTEMBER 30,
-------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities.............................. $ 1 $ 80 $ 6 $2,958 $ 4,554
Working capital.......................... 276 450 141 2,268 4,352
Total assets............................. 669 2,524 1,261 5,172 12,011
Long term liabilities, net of current
portion(3).............................. -- -- -- 15 49
Total stockholders' equity............... 264 587 410 4,292 9,348
</TABLE>
- --------
(1) Prior to March 1996, the Company was a subchapter S corporation and,
therefore, was not subject to entity level taxation. Pro forma net income
includes pro forma tax expense as if the Company was taxed as a C
corporation from fiscal 1993 to 1996.
(2) For an explanation of net income (loss) per share and shares used in per
share calculations, see Note 2 of Notes to Financial Statements included
elsewhere in this Prospectus.
(3) Long term liabilities consist of deferred rent. See Note 8 of Notes to
Financial Statements.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto included elsewhere in this Prospectus. Certain
statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are forward looking statements. The
forward looking statements contained herein are based on current expectations
and entail various risks and uncertainties that could cause actual results to
differ materially from those expressed in such forward looking statements. For
a more detailed discussion of these and other business risks, see "Risk
Factors."
OVERVIEW
Artisan is a leading developer of high performance, low power and high
density embedded memory and other IP components for the design and manufacture
of complex ICs. The Company licenses its products to semiconductor
manufacturers and fabless semiconductor companies for the design of ICs used
in complex, high volume applications, such as portable computing devices,
cellular phones, consumer multimedia products, automotive electronics,
personal computers and workstations.
Revenue consists of license fees for the Company's IP component products.
Typically, a customer licenses one or more products that are accompanied by
layout databases, views to support a customer's IC design tool environment and
design methodology documentation. The license of the Company's products
typically involves a sales cycle of six to 12 months and often coincides with
a customer's migration to a new manufacturing process. The Company's contracts
generally require a customer to pay a license fee to Artisan ranging from
approximately $400,000 to $800,000 for each product delivered under a
contract. A contract typically calls for an upfront payment of approximately
one third of the full contract value with the remainder due upon delivery,
generally three to six months later. See "Risk Factors--Lengthy Sales Cycle
and Design Process."
To date, the substantial majority of the Company's revenue has been
recognized on a percentage of completion method. Provisions for estimated
losses on the uncompleted contracts are recognized in the period in which the
likelihood of such losses is determined. As the completion period for a
project ranges from three to six months, revenue in any quarter is dependent
on the Company's progress toward completion of the project. There can be no
assurance that the Company's estimates will be accurate, and, in the event
they are not, the Company's business, operating results and financial
condition in subsequent periods could be materially adversely affected.
Currently, license fees represent substantially all of revenue. Beginning in
late fiscal 1996, however, the Company began implementation of a royalty based
business model that is intended to generate revenue from both license fees and
future royalties. Royalties will be based on per unit sales of ICs and will
generally be based on the silicon area of an IC occupied by the Company's IP
components. To date, the Company has received no royalty revenue, and it does
not anticipate receiving any until fiscal 1999. There can be no assurance that
the Company will be successful in expanding the number of royalty bearing
contracts with customers. The Company generally licenses its products on a
nonexclusive, worldwide basis to major semiconductor manufacturers and grants
these manufacturers the right to distribute the Company's IP components freely
to their internal design teams and to fabless semiconductor companies that
manufacture at the same facility. Given that Artisan provides its products
early in the customer's IC design process, there will be a significant delay
between the delivery of a product and the generation of royalty revenue. There
can be no assurance that the Company will receive any royalty revenue or that,
if it does, the amount will be significant. See "Risk Factors--Dependence on
New Business Model."
19
<PAGE>
The Company has been dependent on a relatively small number of customers for
a substantial portion of its annual revenue, although the customers comprising
this group have changed from time to time. In fiscal 1995, SGS-THOMSON, NEC,
the DOD, Samsung and LSI Logic accounted for 20%, 17%, 17%, 11% and 10% of
revenue, respectively. In fiscal 1996, ATI, SGS-THOMSON, OKI and the DOD
accounted for 37%, 20%, 15% and 10% of revenue, respectively. In fiscal 1997,
SGS-THOMSON, Fujitsu, OKI and NEC accounted for 27%, 24%, 16% and 13% of
revenue, respectively. The Company anticipates that its revenue will continue
to depend on a limited number of major customers for the foreseeable future,
although the companies considered to be major customers and the percentage of
revenue represented by each major customer may vary from period to period
depending on the addition of new contracts and the number of designs utilizing
the Company's products. See "Risk Factors--Customer Concentration; Limited
Customer Base" and "Business--Customers."
A substantial portion of the Company's revenue is derived from customers
outside the United States. In fiscal 1995, 1996 and 1997, revenue from
customers outside the United States, primarily in Asia and Europe, represented
approximately 55%, 47% and 67%, respectively of the Company's revenue. The
Company anticipates that international revenue will remain a substantial
portion of its revenue in the future. To date, all of the revenue from
international customers has been denominated in U.S. dollars. See "Risk
Factors--Risks Associated with International Customers" and Note 11 of Notes
to Financial Statements.
The Company derives substantially all of its revenue from sales of its
memory and standard cell products that, together, accounted for 83%, 79% and
94% of revenue in fiscal 1995, 1996 and 1997, respectively. The Company
expects that memory products, in combination with standard cell products, will
continue to account for a significant portion of the Company's revenue, for
the foreseeable future. There can be no assurance that the Company will
continue to derive revenue from memory or standard cell products and a decline
in revenue from such products would have a material adverse effect on the
Company's business, operating results and financial condition. The Company's
future financial performance will depend in significant part on the successful
development, introduction and customer acceptance of new products.
Since the Company's inception in April 1991, each of the Company's cost and
expense categories has progressively increased as the Company has added
personnel and increased its activities in these areas. The Company intends to
continue making significant expenditures associated with engineering costs and
sales and marketing, and expects that these costs and expenses will continue
to be a significant percentage of revenue in future periods. Whether such
expenses increase or decrease as a percentage of revenue will be substantially
dependent upon the rate of change of the Company's revenue. See Note 2 of
Notes to Financial Statements.
The Company in the past has experienced delays in the progress of certain
projects, and there can be no assurance that such delays will not occur in the
future. Any delay or failure to achieve such progress could result in damage
to customer relationships and the Company's reputation, under-utilization of
engineering resources or a delay in the market acceptance of the Company's
products, any of which could have a material adverse effect on the Company's
business, operating results and financial condition. In addition, the
Company's contracts with customers may generally be canceled without cause,
and if a customer cancels or delays performance under any such contracts, the
Company's business, operating results and financial condition could be
materially adversely affected. The Company's costs and expenses will be based
in part on the Company's expectations of future revenue from license fees.
Accordingly, if the Company does not realize its expected revenue, its
business, operating results and financial condition could be materially
adversely affected. See "Risk Factors--Fluctuations in Operating Results."
20
<PAGE>
RESULTS OF OPERATIONS--YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
The following table sets forth for the periods indicated selected statements
of operations data as a percentage of revenue:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue.......................................... 100.0% 100.0% 100.0%
Cost and expenses:
Cost of revenue................................ 36.2 30.9 32.0
Product development............................ 38.4 26.0 21.5
Sales and marketing............................ 10.0 14.6 22.7
General and administrative..................... 15.3 14.7 15.0
-------- -------- --------
Total cost and expenses...................... 99.9 86.2 91.2
-------- -------- --------
Operating income................................. 0.1 13.8 8.8
Other income, net................................ -- 2.3 3.3
-------- -------- --------
Income before provision for income taxes......... 0.1 16.1 12.1
Provision for income taxes....................... 1.3 3.3 4.0
-------- -------- --------
Net income (loss)................................ (1.2)% 12.8% 8.1%
======== ======== ========
Pro forma net income data:
Income before provision for income taxes....... 0.1 16.1
Pro forma income tax benefit (expense)......... 0.6 (6.3)
-------- --------
Pro forma net income........................... 0.7% 9.8%
======== ========
</TABLE>
Revenue
Revenue increased by 52.6% from $2.7 million in fiscal 1995 to $4.1 million
in fiscal 1996 and by 114.9% to $8.9 million in fiscal 1997. The growth in
revenue in 1996 was primarily attributable to increased licensing of the
Company's standard cell products and, to a lesser extent, I/O products,
partially offset by a reduction in license revenue from memory products. The
increase in revenue in fiscal 1997 resulted primarily from increases in the
number of licenses of, and prices for, the Company's memory products and, to a
lesser extent, from increases in the number of licenses of, and prices for,
standard cell products. The increase in the number of licenses for standard
cell products in fiscal 1996 and memory products in fiscal 1997 corresponded
to the introduction of new products in each category.
Cost and Expenses
Engineering costs are allocated between cost of revenue and product
development expenses. Engineering efforts devoted to developing products for
specific customer projects are recognized as cost of revenue. The balance of
engineering costs, incurred for general development of Artisan's technology,
is charged to product development. Engineering costs are generally charged as
incurred and do not necessarily correspond to the recognition of revenue under
related contracts. Engineering costs increased by 16.4% from $2.0 million in
fiscal 1995 to $2.4 million in fiscal 1996 and by 102.1% to $4.8 million in
fiscal 1997. Engineering costs as a percentage of revenue were 74.6%, 56.9%
and 53.5% for fiscal 1995, 1996 and 1997, respectively. The increase in the
level of engineering costs was due primarily to an increase in engineering
personnel, and the decrease as a percentage of revenue stemmed from revenue
growth in excess of the growth in engineering expenses.
Cost of Revenue. Cost of revenue increased by 30.1% from $984,000 in
fiscal 1995 to $1.3 million in fiscal 1996 and by 123.0% to $2.9 million in
fiscal 1997. As a percent of
21
<PAGE>
revenue, cost of revenue was 36.2%, 30.9% and 32.0% for fiscal 1995, 1996
and 1997, respectively. The increases in absolute dollars in fiscal 1996
and 1997 were due to increases in headcount and costs associated with
customer support for a growing customer base.
Product Development Expenses. Product development expenses increased by
3.4% from $1.0 million in fiscal 1995 to $1.1 million 1996 and by 77.2% to
$1.9 million in fiscal 1997. Product development expenses as a percentage
of revenue were 38.4%, 26.0% and 21.5% for fiscal 1995, 1996 and 1997,
respectively. The increase in absolute dollars from fiscal 1996 to fiscal
1997 was attributable to increased headcount and infrastructure
investments, including workstations and EDA tool purchases necessary for
the development of a new generation of high speed memory products and
enhancements to the Company's standard cell products. The decrease in
product development expenses as a percentage of revenue during these
periods was primarily the result of the growth in revenue. The Company
expects that product development expenses will continue to increase in
absolute dollars. Whether such expenses increase or decrease as a
percentage of revenue will be substantially dependent upon the rate of
change of the Company's revenue.
Sales and Marketing Expenses. Sales and marketing expenses include
salaries, commissions, travel expenses and costs associated with trade
shows, advertising and other marketing efforts. Costs of pre-sale customer
support are also charged to sales and marketing. Sales and marketing
expenses increased by 121.7% from $272,000 in fiscal 1995 to $603,000 in
fiscal 1996 and by 234.8% to $2.0 million in fiscal 1997. Sales and
marketing expenses as a percentage of revenue were 10.0%, 14.6% and 22.7%
for fiscal 1995, 1996 and 1997, respectively. The growth in sales and
marketing expenses was primarily attributable to increased trade show
participation and headcount as well as, in fiscal 1997, advertising and
costs associated with the Company's name change. The Company expects sales
and marketing expenses to increase in absolute dollars in the future as the
Company increases headcount to expand account coverage and provide
increased customer support. The rate of increase of, and the percentage of
revenue represented by, sales and marketing expenses in the future will
vary from period to period based on the trade show, advertising,
promotional and other sales and marketing activities undertaken, the change
in sales and marketing headcount in any given period and the rate of change
in the Company's revenue.
General and Administrative Expenses. General and administrative expenses
increased by 47.2% from $415,000 in fiscal 1995 to $611,000 in fiscal 1996
and by 119.3% to $1.3 million in fiscal 1997. General and administrative
expenses as a percentage of revenue were 15.3%, 14.7% and 15.0% for fiscal
1995, 1996 and 1997, respectively. Increases in general and administrative
expenses during these periods are the result of increases in headcount and
in legal, accounting and other professional expenses. The Company expects
general and administrative expenses to grow in absolute dollars in future
periods as the Company expands its operations and as a result of expenses
associated with being a public company. The rate of increase of and the
percentage of revenue represented by general and administrative expenses in
the future will depend on the rate of change of the Company's revenue.
Other Income
Other income increased from zero in 1995 to $96,000 in fiscal 1996 and by
209.4% to $297,000 in fiscal 1997. Other income as a percentage of revenue was
0%, 2.3% and 3.3% in fiscal 1995, 1996 and 1997, respectively. The growth in
other income in fiscal 1996 and 1997 reflects interest income earned on the
proceeds of the Company's Series A and Series B Preferred Stock financings in
March 1996 and December 1996, respectively.
22
<PAGE>
Income Taxes
The provision for income taxes was $36,000, $137,000 and $356,000 in fiscal
1995, 1996 and 1997, respectively. The Company's effective tax rate was 32.9%
in fiscal 1997. Prior to March 1996, the Company was a subchapter S
corporation and, therefore, was not subject to entity level taxation. Fiscal
1995 taxes consist of foreign income and franchise taxes. In March 1996, the
Company converted to a C corporation and thereafter has been a cash basis
taxpayer for federal and state income tax purposes. Pro forma net income
includes pro forma tax expense as if the Company was taxed as a C corporation
in fiscal 1995 and 1996.
23
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited quarterly results in absolute dollar
amounts and as a percentage of revenue for each quarter of fiscal 1997. In the
opinion of management, this information has been presented on the same basis
as the audited financial statements appearing elsewhere in this Prospectus,
and all necessary adjustments, representing only normal recurring adjustments,
have been included in the amounts stated below to present fairly the unaudited
quarterly results when read in conjunction with the audited financial
statements of the Company. Results of operations for any quarter are not
necessarily indicative of the results to be expected for the entire fiscal
year or for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1997 1997 1997
-------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Revenue.................................... $1,385 $1,770 $2,738 $3,019
Cost and expenses:
Cost of revenue.......................... 425 501 937 992
Product development...................... 352 472 477 613
Sales and marketing...................... 353 351 620 695
General and administrative............... 185 316 415 424
------ ------ ------ ------
Total cost and expenses................ 1,315 1,640 2,449 2,724
------ ------ ------ ------
Operating income........................... 70 130 289 295
Other income............................... 42 90 87 78
------ ------ ------ ------
Income before provision for income taxes... 112 220 376 373
Provision for income taxes................. 37 72 124 123
------ ------ ------ ------
Net income................................. $ 75 $ 148 $ 252 $ 250
------ ------ ------ ------
Net income per share....................... $ 0.01 $ 0.02 $ 0.03 $ 0.03
====== ====== ====== ======
Shares used in per share calculation....... 9,129 9,593 9,711 9,713
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUE
------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1997 1997 1997
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenue.................................... 100.0% 100.0% 100.0% 100.0%
Cost and expenses:
Cost of revenue.......................... 30.7 28.3 34.2 32.9
Product development...................... 25.4 26.7 17.4 20.3
Sales and marketing...................... 25.5 19.8 22.6 23.0
General and administrative............... 13.3 17.9 15.2 14.0
----- ----- ----- -----
Total cost and expenses................ 94.9 92.7 89.4 90.2
----- ----- ----- -----
Operating income........................... 5.1 7.3 10.6 9.8
Other income............................... 3.0 5.1 3.2 2.6
----- ----- ----- -----
Income before provision for income taxes... 8.1 12.4 13.8 12.4
Provision for income taxes................. 2.7 4.1 4.5 4.1
----- ----- ----- -----
Net income................................. 5.4% 8.3% 9.3% 8.3%
===== ===== ===== =====
</TABLE>
The Company's revenue increased in each quarter of fiscal 1997. Revenue
growth during these periods was primarily due to increased licensing of the
Company's memory and standard cell products. Quarter to quarter results
fluctuated significantly as a result of the small number of projects in
various stages of completion at any point in time.
24
<PAGE>
Engineering costs, which are allocated between cost of revenue and product
development, generally increased in proportion to the growth in revenue. The
relative contribution, however, of cost of revenue and product development
expenses to total engineering costs has tended to fluctuate from quarter to
quarter in fiscal 1997. The Company expects this fluctuation to continue due
to a number of factors, including the number and mix of customer projects and
the extent and duration of new product and technology development initiatives
underway in any given quarter.
Sales and marketing expenses fluctuated in the quarters presented due to
variations in sales and marketing efforts for advertising and promotional
activities, trade shows, increased headcount and costs associated with the
Company's name change. The Company expects sales and marketing expenses to
increase in the future as the Company continues to build the infrastructure
necessary to sell to and support a growing number of customers. The rate of
increase of, and the percentage of revenue represented by, sales and marketing
expenses in the future will vary from period to period based on trade show,
advertising, promotion and other sales and marketing activities undertaken,
the change in sales and marketing headcount in any given period and the rate
of change in the Company's revenue.
General and administrative expenses increased in absolute dollars in each
quarter of fiscal 1997 as a result of increased administrative efforts
necessary to manage the Company's growth. However, general and administrative
expenses decreased as a percentage of revenue due to more rapidly increasing
revenue in the third and fourth quarters of fiscal 1997. The Company expects
general and administrative expenses to grow in absolute dollars in future
periods as the Company expands its operations and as a result of costs
associated with being a public company. The rate of increase of, and the
percentage of revenue represented by, general and administrative expenses in
the future will depend on the rate of change of the Company's revenue.
Other income increased significantly in the second quarter of fiscal 1997
because of interest earned on the proceeds of sales of the Company's Series B
Preferred Stock. Other income declined in the fourth quarter of 1997 from the
previous quarter as the Company used a portion of its cash to fund tenant
improvements for its new facilities.
The Company's operating results have fluctuated in the past as a result of a
number of factors including the relatively large size and small number of
customer orders during a given period; the timing of customer orders; delays
in the design process due to changes by a customer to its order after it is
placed; the Company's ability to achieve progress on percentage of completion
contracts; the length of the Company's sales cycle; the Company's ability to
develop, introduce and market new products and product enhancements; the
timing of new product announcements and introductions by the Company and its
competitors; market acceptance of the Company's products; the demand for
semiconductors and end user products that incorporate semiconductors; and
general economic conditions. The Company's future operating results may
fluctuate from quarter to quarter and on an annual basis as a result of these
and other factors, in particular the relatively large size and small number of
customer orders during a given period and the rate of royalties recognized in
a given period. Accordingly, it is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely decline, perhaps substantially. See "Risk Factors--Fluctuations
in Operating Results" and "Overview."
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily from approximately $20.3
million in license revenue received from inception to September 30, 1997 and,
to a lesser extent, the sale of approximately $7.7 million of Preferred Stock
and a warrant.
25
<PAGE>
The Company's operating activities were essentially cash neutral in fiscal
1995, provided net cash of $566,000 in fiscal 1996, and provided net cash of
$757,000 in fiscal 1997. Net cash provided by operating activities in fiscal
1996 and fiscal 1997 was due primarily to net income plus depreciation and
amortization.
Net cash used in investing activities was $86,000, $3.0 million and $4.6
million in fiscal 1995, 1996 and 1997, respectively. Investing activities have
consisted primarily of net purchases of marketable securities and purchases of
property and equipment. See Notes 5 and 6 of Notes to Financial Statements.
Net cash provided by financing activities was $57,000, $3.2 million and $4.2
million in fiscal 1995, fiscal 1996 and fiscal 1997, respectively. Financing
activities have consisted primarily of sales of convertible Preferred Stock
partially offset, in 1996, by payments on the Company's line of credit. See
Note 9 of Notes to Financial Statements.
At September 30, 1997, the Company had cash, cash equivalents and current
and noncurrent marketable securities of $4.6 million. As of September 30,
1997, the Company had retained earnings of $1.0 million and working capital of
$4.4 million, including a short term component comprised of deferred revenue
of $1.4 million. The Company anticipates spending at least $850,000 for
equipment lease and office lease payments and approximately $3.4 million for
capital expenditures over the next 12 months. See Note 8 of Notes to Financial
Statements.
The Company entered into a $300,000 line of credit with Union Bank of
California, N.A. ("Union Bank") in March 1996, and renewed such agreement.
Pursuant to its agreement with Union Bank, the Company is required to satisfy
certain financial covenants, including those relating to working capital,
tangible net worth and after tax profit levels. As of September 30, 1997, the
Company had no borrowings under this credit facility.
The Company intends to continue to invest heavily in the development of new
products and enhancements to its existing products. The Company's future
liquidity and capital requirements will depend upon numerous factors,
including the costs and timing of expansion of product development efforts and
the success of these development efforts, the costs and timing of expansion of
sales and marketing activities, the extent to which the Company's existing and
new products gain market acceptance, competing technological and market
developments, the costs involved in maintaining and enforcing patent claims
and other intellectual property rights, the level and timing of license
revenue, available borrowings under line of credit arrangements and other
factors. The Company believes that the proceeds from this Offering, together
with the Company's current cash balances and any cash generated from
operations and from available or future debt financing, will be sufficient to
meet the Company's operating and capital requirements for at least the next 12
months. However, there can be no assurance that the Company will not require
additional financing within this time frame. The Company's forecast period of
time through which its financial resources will be adequate to support its
operations is a forward looking statement that involves risks and
uncertainties, and actual results could vary. The factors described in this
paragraph will affect the Company's future capital requirements and the
adequacy of its available funds. The Company may be required to raise
additional funds through public or private financing, strategic relationships
or other arrangements. There can be no assurance that such funding, if needed,
will be available on terms attractive to the Company, or at all. Furthermore,
any additional equity financing may be dilutive to stockholders, and debt
financing, if available, may involve restrictive covenants. Strategic
arrangements, if necessary to raise additional funds, may require the Company
to relinquish its rights to certain of its technologies or products. The
failure of the Company to raise capital when needed could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Risk Factors--Future Capital Needs; Uncertainty of Additional
Funding" and "Use of Proceeds."
26
<PAGE>
BUSINESS
Artisan is a leading developer of high performance, low power and high
density embedded memory and other IP components for the design and manufacture
of complex ICs. The Company offers highly differentiated memory, standard cell
and I/O components that meet the acute needs of complex System-on-a-Chip ICs
for performance, power and density. Together, memory, standard cell and I/O
components constitute approximately 80% of the silicon area on a typical
System-on-a-Chip IC. The Company's products are optimized for each customer's
manufacturing process and are delivered ready for use with industry standard
and proprietary IC design tools. The Company licenses its products to
semiconductor manufacturers and fabless semiconductor companies for the design
of ICs used in complex, high volume applications, such as portable computing
devices, cellular phones, consumer multimedia products, automotive
electronics, personal computers and workstations.
INDUSTRY BACKGROUND
The development of the merchant IP component market has resulted from the
continuing trend toward horizontal specialization in the semiconductor
industry, a trend that has been driven by a growth in manufacturing capacity
and an increasing focus on core competencies. In the 1970s, semiconductor
companies were vertically integrated and responsible for all aspects of IC
production, including IC design, EDA tool design, IP component design and IC
manufacturing. In the 1980s, application specific integrated circuit ("ASIC")
companies developed a new approach that allowed their customers to perform the
logic design of an IC while they performed the detailed physical
implementation of the design and manufactured the IC. In addition, standalone
EDA tool vendors achieved success by providing software design tools to
complement those developed by internal divisions of semiconductor companies.
The early 1990s saw the emergence of a number of fabless semiconductor
companies that chose to focus on specific design expertise, take advantage of
the availability of excess semiconductor manufacturing capacity and avoid the
capital expenditures necessary to build fabrication facilities. Throughout
this period, semiconductor manufacturers continued to focus on their core
competencies: semiconductor design and manufacturing processes. Today, with
the emergence of System-on-a-Chip ICs, semiconductor manufacturers are
beginning to outsource the design of particular IP components critical to the
successful development of System-on-a-Chip ICs. This trend favors the
emergence of a substantial merchant IP component market that is estimated by
industry sources to grow from approximately $600 million in 1997 to
approximately $2.0 billion in the year 2001.
Over the past three decades, advances in semiconductor manufacturing
processes have enabled the transistor density on ICs to double every 18
months. Today, it is possible to place approximately 40 million transistors on
a single IC, a number that is widely expected to increase to nearly 100
million transistors by the end of the decade. State of the art fabrication
facilities of the 1980s produced ICs using process geometries of 1.0^ (one
millionth of a meter). Current state of the art fabrication facilities use
0.25^ process geometries, and many semiconductor manufacturers have begun the
transition to facilities using 0.18^ processes. These advances enable the
manufacture of highly complex System-on-a-Chip ICs, resulting in substantial
performance, power, cost and reliability improvements over conventional multi-
chip systems on printed circuit boards ("PCB Systems"). System-on-a-Chip ICs
combine all of the functionality of PCB systems onto a single IC and are
optimal for use in complex, high volume applications such as portable
computing devices, cellular phones, consumer multimedia products, automotive
electronics, personal computers and workstations.
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[Schematic depiction of a printed circuit board and a System-on-a-Chip]
As shown above, in both a PCB System and a System-on-a-Chip, the primary
building blocks include memory, standard cell (logic), I/O, microprocessor,
digital signal processor ("DSP"), mixed-signal and analog components. However,
integration of these components into System-on-a-Chip ICs at deep submicron
process geometries is far more complex than the design of a traditional PCB
System. With continuing advances in manufacturing processes, an increasing
number of individual transistors must be designed and tested and,
consequently, the gap is increasing between what can be manufactured and what
can be designed within the time to market requirements of the semiconductor
manufacturer. As a result, the full value of today's semiconductor
manufacturing processes is rarely realized, with designers settling for
partial utilization of the process in the interest of meeting cost and
schedule requirements. Given shorter product life cycles and the importance of
reducing time to market, the use of merchant IP components to leverage design
and manufacturing capabilities can be a significant competitive advantage to
semiconductor manufacturers.
Semiconductor manufacturers require solutions that fully utilize their
manufacturing processes in order to maximize performance, speed and density
while reducing time to market. Although the merchant EDA industry has
successfully developed partial solutions to increase design productivity, EDA
tools have not completely overcome the time constraints posed by the need to
create IP components for each IC design in a compressed time to market window.
Merchant suppliers of portable generic IP libraries have also improved design
productivity by offering products designed to work with many manufacturing
processes. However, these generic libraries do not fully utilize the depth and
strengths of a particular manufacturing process. Semiconductor manufacturers
have also tried to expand their design resources, but establishing and
maintaining a large internal design group may divert finite resources from a
semiconductor manufacturer's core competencies. Despite the development and
use of EDA tools and generic libraries, and the expansion of internal design
resources, the rapid pace of manufacturing process improvements has continued
to outstrip design capabilities. As a result, the Company believes many
semiconductor manufacturers will utilize merchant IP components in order to
maximize the performance of their product offerings and improve their time to
market.
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THE ARTISAN SOLUTION
Artisan is a leading developer of high performance, low power and high
density embedded memory, standard cell and I/O components for the design and
manufacture of complex ICs. The Company provides IP components that are
optimized for each customer's manufacturing process.
The Company's IP components are designed to offer customers the following
benefits:
Performance, Power and Reliability. Artisan delivers high performance, low
power and reliable IP components through a combination of design expertise and
proprietary technology and design tools. The Company's IP components, which
are customized, verified and tested for a particular manufacturing process,
require little or no integration by customers and have been proven by use in
25 different manufacturing processes. Many of the Company's products are
designed to achieve speeds in excess of 300 MHz.
Significant Time to Market Advantages. The Company enables semiconductor
manufacturers to reduce the time required to bring new ICs to market by (i)
eliminating the customer's need to design IP components, (ii) delivering
products designed for a specific manufacturing process and (iii) delivering
products ready for use with industry standard and proprietary IC design tools.
The Company's products can be reused in multiple customer designs, which
reduces design time and decreases time to market for new ICs.
Long Term Product Development Path. Artisan's IP component technology pro-
vides semiconductor manufacturers with reliable building blocks for future
generations of their complex IC designs. Artisan's ability to adapt and cus-
tomize IP components used in one process and one design for use in additional
designs and processes provides each customer with a clear development path for
future designs and processes. This enables the Company's customers to stan-
dardize on Artisan products, accelerate their product development and focus
internal engineering resources on core competencies, including semiconductor
design and manufacturing processes.
Cost Effective Solutions. As semiconductor dies shrink and the complexity of
IC designs increases, the cost to design System-on-a-Chip ICs increases
significantly. By providing reliable products with significant time to market
benefits, Artisan enables customers to reduce design costs, minimize
integration costs and increase manufacturing yield. Moreover, by using the
Company's products, semiconductor manufacturers avoid the cost of recruiting
and training a significant group of engineers dedicated to IP component
design.
ARTISAN STRATEGY
The Company's objective is to be the leading supplier of high performance IP
components to the semiconductor industry. The Company's strategy is based upon
the following key elements:
Focus on Key Components For High Volume System-on-a-Chip ICs. The Company
has targeted the rapidly growing System-on-a-Chip industry with high
performance memory, standard cell and I/O components. Together, these
components constitute approximately 80% of the silicon area on a typical
System-on-a-Chip IC. Improvements in the performance of these components,
particularly memory, can have a substantial impact on the overall performance
of the IC.
Target Leading Semiconductor Manufacturers. The Company focuses on licensing
its products to the world's leading semiconductor manufacturers. These
manufacturers represent the largest revenue potential for the Company because
they utilize the most advanced
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manufacturing processes, manufacture the largest number of ICs, have the most
pressing need for high performance IP components and face the greatest time to
market pressures. To date, the Company has licensed its products to many
leading semiconductor manufacturers including Chartered, Fujitsu, GEC Plessey,
NEC, OKI, SGS-THOMSON, Toshiba and VLSI Technology.
Generate Revenue Through Innovative Business Model. In late fiscal 1996, the
Company began implementation of a royalty based business model that is
intended to generate revenue from both license fees and future royalties.
Although the Company currently generates revenue solely from license fees, the
Company expects to recognize royalty revenue beginning in fiscal 1999.
Royalties will be based on per unit sales of ICs and will generally be based
on the silicon area of an IC occupied by the Company's IP components. In order
to maximize royalties, the Company primarily licenses its products on a
nonexclusive, worldwide basis to major semiconductor manufacturers and grants
these manufacturers the right to distribute the Company's IP components freely
to their internal design teams and to fabless semiconductor companies that
manufacture at the same facility. As a result, the Company believes its
license agreements will facilitate the broad and rapid penetration of the
Company's products into multiple designs, and thereby increase potential
royalty revenue.
Proliferate Artisan's IP Components Throughout Customer Designs. The Company
intends to establish itself as the DE FACTO supplier of key IP components
across multiple IC designs and new product generations for each customer. By
making its components easy to integrate into the customer's design
methodologies and supporting both industry standard and proprietary IC design
tools, Artisan facilitates the ready inclusion of its IP components in a large
number of designs. For example, SGS-THOMSON has licensed Artisan's embedded
memory products that, in 1996, were used in more than 200 of SGS-THOMSON's IC
designs.
Leverage Product Development Process. Artisan has developed a large
portfolio of IP building blocks and design tools that allows the Company to
rapidly develop new products. As its customer relationships mature, the
Company believes that the development time for additional products for a
customer will decrease due to the Company's growing base of knowledge and
understanding of the customer's manufacturing processes. The Company intends
to continue to improve the efficiency of its product development process in
order to decrease product delivery time.
Maintain Technological Leadership. The Company believes that it provides the
fastest memory products and the most dense standard cell product currently
available in the merchant IP component market. The Company intends to maintain
its technological leadership position by continuing to develop a significant
portfolio of IP building blocks upon which it can base new generations of
products and make enhancements to existing products. The Company also intends
to maintain its expertise in state of the art manufacturing processes by
working with customers during their new process development efforts.
PRODUCTS AND APPLICATIONS
Products
Artisan's current family of IP components includes high performance and low
power memory, standard cell and I/O components. Initial license fees typically
range from $400,000 to $800,000 per component, depending on the amount of
customization and the number of design views and models required.
Artisan's products are developed and delivered using a proprietary
methodology that includes a set of design tools, techniques and specific
design expertise that the Company calls "Process-Perfect." This methodology
ensures that the IP components produced by Artisan are
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designed to achieve the best combination of performance, power, density and
yield for a given manufacturing process. In addition, the Company has created
a flexible portfolio of IP building blocks. This portfolio, combined with the
Process-Perfect methodology, allows the Company to satisfy its customers'
schedule and quality requirements in a cost effective manner. Artisan's IP
components are easily integrated into a variety of customer design
methodologies and support industry standard IC design tools, including those
from EDA tool vendors such as Cadence, Synopsys and Avant!, as well as
customers' proprietary IC design tools. To support these various IC design
tool environments, each of the Company's products includes a comprehensive set
of verified tool models.
MEMORY PRODUCTS. Artisan's embedded memory products include random access
memories ("RAMs"), read only memories ("ROMs") and register files. The
Company's HS300 and LP133 products include single- and dual-port RAM and ROM
products and dual- and triple-port register files. The Company's embedded
memory products are configurable and vary in size to meet the customer's
specification. For example, the Company's RAM products will support sizes from
2 to 128 bits wide and from 16 to 8,192 words. All of the Company's memory
products include features such as a power down mode, low voltage data
retention and fully static operation. In addition, the Company's memory
products include built-in test interfaces that support popular test
methodologies.
HS300. The HS300 products are designed to achieve speeds in excess of 300
MHz for .25^ manufacturing processes. The Company achieves the high
performance of its HS300 products through a combination of proprietary
design innovations that include latch based sense amplifiers, high speed
row select technology, precise core cell balancing and rapid recovery
bitlines.
LP133. The LP133 products are designed to operate at low power levels and
to achieve speeds in excess of 133 MHz for .25^ manufacturing processes.
The LP133 products achieve low power through a combination of proprietary
design innovations that include latch based sense amplifiers, a power
efficient banked memory architecture, precise core cell balancing and
unique address decoder and driver circuitry.
STANDARD CELL PRODUCT. Artisan's standard cell product includes over 400
cells optimized for each customer's manufacturing process and IC design tool
environment resulting in greater density as compared to competitive standard
cell products. The Company's standard cell product utilizes each customer's
proprietary manufacturing process rules including stacked contact-via,
silicided diffusion and local interconnect layers. All functions are available
in at least four drive strengths, and the Company's inverters, buffers and 3-
state drivers are each available in nine drive strengths.
I/O PRODUCTS. The Company's I/O products comply with industry standard
specifications and conform to the ESD and electrical guidelines of each
customer's manufacturing process, resulting in improved manufacturing yield
and reliability. Examples of the Company's I/O products include oscillator
circuits, slew-rate controlled I/Os and I/Os with selectable output drive
strengths. The Company's I/O products are designed to support ICs
incorporating industry standard PCI, GTL and PECL interfaces or custom
interfaces.
Applications
SGS-THOMSON has licensed memory products from Artisan since 1992 because
such products have met SGS-THOMSON's demanding requirements for performance,
density, power and yield. SGS-THOMSON believes that Artisan's memory products
significantly increase the value of its IC offerings to customers. In 1996,
SGS-THOMSON used Artisan's embedded
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memory products in more than 200 of its IC designs. SGS-THOMSON has licensed
Artisan's embedded memory products for six different manufacturing processes,
including its 0.5 micron, 0.35 micron and 0.25 micron process geometries.
In 1994, NEC began developing a complex IC for the Nintendo 64 video
entertainment system. NEC selected Artisan's memory products because they
would enable NEC to show a clear competitive advantage in the workstation,
graphics/multimedia and networking market segments. Artisan was able to deliver
memory products that were customized for NEC's manufacturing process on an
aggressive delivery schedule which allowed NEC to focus on other design
attributes of the IC for the Nintendo 64. NEC has since licensed Artisan's
memory products for its 0.5 micron, 0.35 micron and 0.25 micron manufacturing
processes.
In June 1997, Fujitsu signed an agreement with Artisan to purchase a variety
of Artisan's products, including embedded memory, standard cell and I/O cell
products, for initial implementation into Fujitsu's advanced 3D graphics ICs
that will support the "Talisman" graphics standard. Talisman is a development
effort to turn the 3D graphics architecture developed by Microsoft into a
single IC for mainstream multimedia applications, and Fujitsu is a founding
member of the Talisman Consortium. By utilizing the Company's products, Fujitsu
can accelerate its product development and meet the needs of the Talisman
architecture. The Talisman ICs will be built using Fujitsu's 0.25 micron
manufacturing process and will use a variety of Artisan's products, including
the HS300 embedded memory, standard cell and I/O products to support Fujitsu's
high performance requirements.
PRODUCT DEVELOPMENT
The Company has targeted the rapidly growing System-on-a-Chip market with
high performance and low power memory, standard cell and I/O products. The
ability of the Company to compete in the future will be substantially
dependent on its ability to continually create competitive technologies to
meet changing market needs. To this end, the Company's engineers are involved
in the development of more advanced versions of the Company's products as well
as the development of new products. The Company has assembled a team of highly
skilled engineers whose activities are focused on the development of IP
components for current and anticipated manufacturing processes. Because of the
complexity of these activities, the design and development process at Artisan
is a multidisciplinary effort requiring expertise in electronic circuit
design, process technology, physical layout, design software, model
generation, data analysis and processing and general IC design.
As of September 30, 1997, Artisan had 41 employees in the engineering
department. In fiscal 1995, 1996 and 1997, total engineering costs were
approximately $2.0 million, $2.4 million and $4.8 million, respectively.
Engineering costs are allocated between cost of revenue and product
development expense. Engineering efforts devoted to developing products for
specific customer projects are recognized as cost of revenue while the balance
of engineering costs, incurred for general development of Artisan's
technology, is charged to product development. The Company expects that it
will continue to invest substantial funds for engineering activities. There
can be no assurance that the Company can develop and introduce new technology
in a timely fashion or that such new technology will be accepted by the
market. See "Risk Factors--New Product Development and Technological Change."
The Company's customers compete in the semiconductor industry, which is
subject to rapid technological change, frequent introductions of new products,
short product life cycles, changes in customer demands and requirements and
evolving industry standards. Accordingly, the Company's future success will
depend on its ability to continue to enhance its existing products and to
develop and introduce new products that satisfy increasingly sophisticated
customer
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requirements and that keep pace with new product introductions, emerging
manufacturing processes and other technological developments in the
semiconductor industry. The development of new manufacturing processes,
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. Any
failure by the Company to anticipate or respond adequately to changes in
manufacturing processes or customer requirements, or any significant delays in
product development or introduction, would have a material adverse effect on
the Company's business, operating results and financial condition. There can
be no assurance that the Company will not experience difficulties which could
delay or prevent the successful development, introduction and sale of new or
enhanced products or that such new or enhanced products will achieve market
acceptance. Any delay in release dates of new or enhanced products could
materially adversely affect the Company's business, operating results and
financial condition. The Company could also be exposed to litigation or claims
from its customers in the event that it does not satisfy its delivery
commitments. There can be no assurance that any such claim would not have a
material adverse effect on the Company's business, operating results and
financial condition.
CUSTOMERS
The Company is focused on licensing its products to manufacturers in the
semiconductor market. Many of the world's leading semiconductor manufacturers
are among the Company's customers, and since inception the Company has sold
its products to 19 semiconductor manufacturers and fabless semiconductor
companies. The following chart identifies all customers that initiated new
licenses of IP components from the Company since the beginning of fiscal 1995.
SELECTED CUSTOMERS FOR ARTISAN'S PRODUCTS
<TABLE>
<CAPTION>
MANUFACTURING PROCESSES
ORIGINAL -------------------------------
CUSTOMER LICENSE DATE PRODUCT(S)* 1.0^ 0.8^ 0.6^ 0.5^ 0.35^ 0.25^
- -------- ------------ ----------- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Analog Devices.......... 3/94 SC X
ATI..................... 8/95 SC, I/O X X X
Chartered............... 2/97 M X
DOD..................... 4/93 SC X X X
Fujitsu................. 5/96 M, SC, I/O X X+
GEC Plessey............. 7/94 SC X X
ITT Electronics......... 1/97 SC X
LSI Logic............... 1/95 M X X X
NEC..................... 6/94 M X X X
OKI..................... 6/96 M, SC X X X
Quickturn Design
Systems................ 8/91 M X X
SGS-THOMSON............. 3/92 M X X X
Toshiba................. 8/96 M X
Tseng Labs.............. 11/93 SC, I/O X X
VLSI Technology......... 11/97 M X+
</TABLE>
- --------
* For purposes of this table, "M" refers to memory products, "SC" refers to
standard cell products and "I/O" refers to I/O cell products.
+ The Company is currently in the process of completing delivery of an initial
product for this manufacturing process.
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The Company has been dependent on a relatively small number of customers for
a substantial portion of its annual revenue, although the customers comprising
this group have changed from time to time. In fiscal 1995, SGS-THOMSON, NEC,
the DOD, Samsung and LSI Logic accounted for 20%, 17%, 17%, 11% and 10% of
revenue, respectively. In fiscal 1996, ATI, SGS-THOMSON, OKI and the DOD
accounted for 37%, 20%, 15% and 10% of revenue, respectively. In fiscal 1997,
SGS-THOMSON, Fujitsu, OKI and NEC accounted for 27%, 24%, 16% and 13% of
revenue, respectively. The Company anticipates that its revenue will continue
to depend on a limited number of major customers for the foreseeable future,
although the companies considered to be major customers and the percentage of
revenue represented by each major customer may vary from period to period
depending on the addition of new contracts and the number of designs utilizing
the Company's products. None of the Company's customers has a written
agreement with the Company that obligates it to license additional products,
and there can be no assurance that any customer will license IP components
from the Company in the future. The loss of one or more of the Company's major
customers, or reduced orders by one or more of such customers, could
materially adversely affect the Company's business, operating results and
financial condition. See "Risk Factors--Customer Concentration" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
There can be no assurance that the Company will be successful in continuing
to license its products to current customers or entering into licenses with
additional semiconductor manufacturers. The Company faces numerous risks in
successfully obtaining orders from customers on terms consistent with the
Company's business model including, among others, the lengthy and expensive
process of building a relationship with a potential customer before reaching
an agreement with such party to license the Company's products; persuading
large semiconductor manufacturers to work with, disclose proprietary
information to and rely upon, a smaller company, such as the Company; and
persuading potential customers to bear certain development costs associated
with development of customized components. In addition, there are a relatively
limited number of semiconductor manufacturers to which the Company can license
its technology in a manner consistent with its business model. The Company
also faces significant competition from internal design groups of
semiconductor manufacturers. See "--Competition" and "Risk Factors--
Competition."
SALES, MARKETING AND DISTRIBUTION
The Company primarily licenses its products on a nonexclusive, worldwide
basis to major semiconductor manufacturers and grants these manufacturers the
right to distribute its IP components freely to their internal design teams
and to fabless semiconductor companies that manufacture at the same facility.
The Company's sales, marketing and distribution approach gives it an advantage
over its competitors since the Company is able to leverage its customers'
sales and marketing organizations and avoid the costs associated with hiring,
training and compensating the large sales force necessary to sell directly to
each end user customer. As of September 30, 1997, the Company's sales and
marketing organization was comprised of four sales and four marketing
employees. In parts of Asia, the Company relies in part on a consulting
company to assist its sales efforts.
A substantial portion of the Company's revenue is derived from customers
outside the United States. In fiscal 1995, 1996 and 1997, revenue derived from
customers outside the United States, primarily in Asia and Europe, represented
approximately 55%, 47% and 67%, respectively, of the Company's revenue. The
Company anticipates that international revenue will remain a substantial
portion of its revenue in the future. To date, all of the revenue from
international customers has been denominated in U.S. dollars. In the event
that the Company's
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competitors denominate their sales in currencies that become relatively
inexpensive in comparison to the U.S. dollar, the Company may experience fewer
orders from international customers whose business is based primarily on the
less expensive currencies. The Company intends to continue to expand its sales
and marketing activities in Asia and Europe. The Company's expansion of its
international business involves a number of risks including the impact of
possible recessionary environments in economies outside the United States;
political and economic instability; exchange rate fluctuations; longer
receivables collection periods and greater difficulty in accounts receivable
collection from customers; unexpected changes in regulatory requirements;
reduced or limited protection for intellectual property rights; export license
requirements; tariffs and other trade barriers; and potentially adverse tax
consequences. There can be no assurance that the Company will be able to
sustain or increase revenue derived from international customers or that the
foregoing factors will not have a material adverse effect on the Company's
business, operating results and financial condition. See "Risk Factors--Risks
Associated with International Sales."
COMPETITION
The Company's strategy of targeting semiconductor manufacturers that
participate in, or may enter, the System-on-a-Chip market requires the Company
to compete in intensely competitive markets. Within the merchant segment of
the IP market, the Company competes primarily against Aspec, Avant!, Cascade
Design, Mentor Graphics and Synopsys. In addition, the Company may face
competition from consulting firms and companies that typically have operated
in the generic library segment of the IP market and that now seek to offer
customized IP components as an enhancement to their generic solutions. The
Company also faces significant competition from internal design groups of the
semiconductor manufacturers that are expanding their portfolio of IP
components to participate in the System-on-a-Chip market. These internal
design groups compete with the Company for access to the parent's IP component
requisitions and may eventually compete with the Company to supply IP
components to third parties on a merchant basis. There can be no assurance
that internal design groups will not expand their product offerings to compete
directly with those of the Company or will not actively seek to participate as
merchant vendors in the IP component market by selling to third party
semiconductor manufacturers or, if they do, that the Company will be able to
compete against them successfully. In addition to competition from companies
in the merchant IP component market, the Company faces competition from
vendors that supply EDA software tools, including certain of those mentioned
above, and there can be no assurance that the Company will be able to compete
successfully against them.
The Company expects competition to increase in the future from existing
competitors and from new market entrants with products that may be less costly
than the Company's IP components or that may provide better performance or
additional features not currently provided by the Company. The Company
believes that the principal competitive factors for IP components are speed,
power usage, density, reliability and price. The Company believes that, on
balance, it competes favorably with respect to the above factors.
Many of the Company's current and potential competitors have substantially
greater financial, technical, manufacturing, marketing, distribution and other
resources, greater name recognition and market presence, longer operating
histories, lower cost structures and larger customer bases than the Company.
As a result, they may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements. In addition, certain of the
Company's principal competitors offer a single vendor solution, since, in the
case of EDA companies, they maintain their own EDA design tools and IP
component libraries, or, in the case of internal design groups, they provide
IP components developed to utilize the qualities of a
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<PAGE>
given manufacturing process, and may therefore benefit from certain capacity,
cost and technical advantages. The Company's ability to compete successfully
in the emerging market for IP components will depend upon certain factors,
many of which are beyond the Company's control including, but not limited to,
success in designing new products; implementing new designs at smaller process
geometries; access to adequate EDA tools (many of which are licensed from the
Company's current or potential competitors); the price, quality and timing of
new product introductions by the Company and its competitors; the emergence of
new IP component interchangeability standards; the widespread licensing of IP
components by semiconductor manufacturers or their design groups to third
party manufacturers; the ability of the Company to protect its intellectual
property; market acceptance of the Company's IP components; success of
competitive products; market acceptance of products using System-on-a-Chip
ICs; and industry and general economic conditions. There can be no assurance
that the Company will be able to compete successfully in the emerging merchant
IP component market. See "Risk Factors--Competition."
PATENTS AND INTELLECTUAL PROPERTY PROTECTION
The Company relies primarily on a combination of nondisclosure agreements
and other contractual provisions and patent, trademark, trade secret, and
copyright law to protect its proprietary rights. The Company has an active
program to protect its proprietary technology through the filing of patents.
As of September 30, 1997, the Company had applications for 13 patents on file
with the USPTO. To date, the USPTO has issued a notice of allowance with
respect to one patent relating to reducing power consumption of the Company's
memory products. As of September 30, 1997, the Company had no filings for
foreign patents, but the Company intends to file such foreign patent
applications as appropriate in the future. There can be no assurance that the
Company's pending patent applications will be approved, that any issued
patents will protect the Company's intellectual property or will not be
challenged by third parties, or that the patents of others will not have an
adverse effect on the Company's ability to do business. Furthermore, there can
be no assurance that others will not independently develop similar or
competing technology or design around any patents that may be issued to the
Company.
The Company also relies on trademark and trade secret laws to protect its
intellectual property. The Company protects its trade secrets and other
proprietary information through confidentiality agreements with its employees
and customers and other security measures. Despite these efforts, there can be
no assurance that others will not gain access to the Company's trade secrets,
that such trade secrets will not be independently discovered by competitors or
that the Company can meaningfully protect its intellectual property. In
addition, effective trade secret protection may be unavailable or limited in
certain foreign countries. Although the Company intends to protect its rights
vigorously, there can be no assurance that such measures will be successful.
Failure of the Company to enforce its patents, trademarks or copyrights or
to protect its trade secrets could have a material adverse effect on the
Company's business, operating results and financial condition. There can be no
assurance that such intellectual property rights can be successfully asserted
in the future or will not be invalidated, circumvented or challenged. From
time to time, third parties, including competitors of the Company, may assert
patent, copyright and other intellectual property rights to technologies that
are important to the Company. There can be no assurance that third parties
will not assert infringement claims against the Company in the future, that
assertions by third parties will not result in costly litigation or that the
Company would prevail in any such litigation or be able to license any valid
and infringed patents from third parties on commercially reasonable terms.
Litigation, regardless of the
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<PAGE>
outcome, could result in substantial cost and would divert resources of the
Company. Any infringement claim or other litigation against or by the Company
could materially adversely affect the Company's business, operating results
and financial condition.
In addition, there can be no assurance that competitors of the Company, many
of which have substantial resources and have made substantial investments in
competing technologies, do not have, or will not seek to apply for and obtain,
patents that will prevent, limit or interfere with the Company's ability to
make, use or sell its products either in the United States or in international
markets. There can be no assurance that the Company will not in the future
become subject to patent infringement claims and litigation or interference
proceedings declared by the USPTO to determine the priority of inventions. The
defense and prosecution of intellectual property suits, USPTO interference
proceedings and related legal and administrative proceedings are both costly
and time consuming. Any such suit or proceeding involving the Company could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Risk Factors--Risks Associated with Protection
of Intellectual Property."
EMPLOYEES
As of September 30, 1997, the Company had 56 fulltime employees. Of this
total, 41 were in engineering, eight were in sales and marketing and seven
were in finance and administration. None of the Company's employees is
represented by a labor union or is subject to a collective bargaining
agreement. The Company has never experienced a work stoppage and believes that
its relations with employees are good.
The Company's success depends in large part on the continued contributions
of its key management, engineering, sales and marketing personnel, many of
whom are highly skilled and would be difficult to replace. None of the
Company's senior management or key technical personnel is bound by an
employment contract. In addition, the Company does not currently maintain key
man life insurance covering its key personnel. The Company believes that its
success depends to a significant extent on the ability of its management to
operate effectively, both individually and as a group. The Company must also
attract and retain highly skilled managerial, engineering, sales and marketing
and finance personnel. Competition for such personnel is intense, and there
can be no assurance that the Company will be successful in attracting and
retaining such personnel. The loss of the services of any of the key
personnel, the inability to attract or retain qualified personnel in the
future or delays in hiring required personnel, particularly engineers, could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Management--Executive Officers and Directors."
FACILITIES
The Company's executive, administrative and technical offices currently
occupy 32,660 square feet in Sunnyvale, California, under a lease that expires
in 2004. The Company sublets to a third party the 16,797 square foot space it
formerly occupied in San Jose, California. The lease on the San Jose space
expires in 2001. The Company believes that its existing facilities are
adequate to meet its current needs but that it may need to seek additional
space in the future. The Company believes that suitable additional space will
be available on commercially reasonable terms as needed.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, their positions and
their ages (as of November 26, 1997) are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark R. Templeton........... 39 President, Chief Executive Officer and Director
Scott T. Becker............. 37 Chief Technical Officer and Director
Robert D. Selvi............. 41 Vice President, Finance and Chief Financial
Officer
Larry J. Fagg............... 51 Vice President, Worldwide Sales
Dhrumil Gandhi.............. 40 Vice President, Engineering
Jeffrey A. Lewis............ 37 Vice President, Marketing
Daniel I. Rubin............. 37 Vice President, Business Development
Lucio L. Lanza(1)(2)........ 53 Chairman of the Board of Directors
Dr. Eli Harari(1)(2)........ 52 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
MARK R. TEMPLETON has served as President, Chief Executive Officer and a
director of the Company since April 1991 when he co-founded the Company. From
April 1990 to March 1991, Mr. Templeton was director of the Custom IC Design
Group at Mentor Graphics, an EDA company. From October 1984 to March 1990, he
held a variety of positions with Silicon Compilers Systems Corporation
("Silicon Compilers"), an EDA company, with the last position being Director
of Custom IC Design Group. Mr. Templeton received a B.S.E.E. from Boston
University.
SCOTT T. BECKER has served as Chief Technical Officer and a director of the
Company since April 1991 when he co-founded the Company. From April 1990 to
April 1991, he was the manager of the library development group at the IC
Division of Mentor Graphics. From May 1985 to April 1990, he was responsible
for library development at Silicon Compilers. Mr. Becker received a B.S.E.E.
from the University of Illinois and a M.S.E.E. from Santa Clara University.
ROBERT D. SELVI has served as Vice President, Finance and Chief Financial
Officer of the Company since June 1997. From May 1995 until May 1997, Mr.
Selvi served as Vice President and Chief Financial Officer of Cooper & Chyan
Technology, Inc., an EDA company. From February 1992 to April 1995, he served
as Senior Vice President, Operations and Finance and Chief Financial Officer
of Claris Corp., a software subsidiary of Apple Computer, Inc. ("Apple"), a
computer hardware and software company. From October 1982 to January 1992, Mr.
Selvi served in a variety of managerial capacities at Apple, including, among
others, Senior Manager of Corporate Development, Assistant Treasurer and
Manager of Financial Services. Mr. Selvi received a B.S. in Finance and a
M.B.A. from Santa Clara University.
LARRY J. FAGG has served as Vice President of Worldwide Sales of the Company
since August 1997. From May 1995 to August 1997, he served as Director, North
American Sales at Silicon Architects group of Synopsys, an EDA company. From
May 1994 to May 1995, he served as Vice President of North American Sales at
CrossCheck Technology, Inc., an EDA company. From December 1988 to May 1994,
he served as Vice President, Strategic Alliances of Cadence, an EDA company.
DHRUMIL GANDHI has served as Vice President of Engineering of the Company
since May 1993. From July 1983 to May 1993, he served as Senior Manager for
Advanced ASIC Design
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<PAGE>
Systems at Mentor Graphics. He received a B.S.E.E. from the Indian Institute
of Technology and a M.S.E.E. from the California Institute of Technology.
JEFFREY A. LEWIS has served as Vice President of Marketing of the Company
since September 1996. From August 1994 to September 1996, he served in several
managerial capacities at Compass Design Automation, Inc. ("Compass"), an EDA
company, the most recent of which was Vice President of Corporate Marketing.
Prior to joining Compass, from April 1992 to August 1994, Mr. Lewis was
Director of Marketing at Redwood Design Automation, Inc., an EDA company. Mr.
Lewis received a B.S.E.E., a B.A. in Economics and a M.B.A., all from the
University of California, Berkeley.
DANIEL I. RUBIN has served as Vice President of Business Development of the
Company since April 1991 when he co-founded the Company. From June 1988 to
June 1990, he served as managing director of the Hong Kong subsidiary of
Ultratech Stepper, Inc., a semiconductor capital equipment manufacturer, and
was responsible for all sales, marketing and service. Mr. Rubin received a
B.A. in Physics from Pomona College.
LUCIO L. LANZA has served as a director of the Company since March 1996 and
was named Chairman of the Board of Directors in November 1997. Mr. Lanza
joined U.S. Venture Partners as a partner in 1990 and became a general partner
in 1996. From 1990 to 1995, Mr. Lanza also served as an independent consultant
to companies in the semiconductor, communications and computer-aided design
companies. From 1986 to 1989, he served as Chief Executive Officer of EDA
Systems, Inc., a design automation software company. Mr. Lanza also serves on
the boards of directors of Raster Graphics, Inc. and several private companies
including CAD.LAB, Inc., PDF Solutions, Inc., and Veridicom, Inc. Mr. Lanza
received a Ph.D. in Electronic Engineering from Politecnico of Milano.
DR. ELI HARARI has served as a director of the Company since November 1997.
Dr. Harari is the founder of Sandisk Corporation ("Sandisk"), a flash memory
data storage product company, and has served as the President, Chief Executive
Officer and a director of Sandisk since June 1988. Dr. Harari founded Wafer
Scale Integration, a privately held semiconductor company, in 1983 and was its
President and Chief Executive Officer from 1983 to 1986, and Chairman and
Chief Technical Officer from 1986 to 1988. From 1973 to 1983, Dr. Harari held
various management positions with Honeywell Inc., Intel Corporation and Hughes
Aircraft Microelectronics. Dr. Harari received a Ph.D. in Solid State Sciences
from Princeton University.
All directors are elected at the Annual Meeting of Stockholders and hold
office until the election and qualification of their successors at the next
Annual Meeting of Stockholders. Officers serve at the discretion of the Board
of Directors and, therefore, the term of office for each officer is
indefinite. There are no family relationships among any of the Company's
directors or executive officers.
BOARD COMMITTEES
The Company's Board of Directors has an Audit Committee and a Compensation
Committee. The Audit Committee, currently comprised of directors Lanza and
Harari, reviews the internal accounting procedures of the Company and consults
with and reviews the services provided by the Company's independent auditors.
The Compensation Committee, currently comprised of directors Lanza and Harari,
reviews and recommends to the Board of Directors the compensation and benefits
of all officers, directors and consultants of the Company and reviews general
policy relating to compensation and benefits of the Company.
39
<PAGE>
DIRECTOR COMPENSATION
Board of Directors members do not receive any cash fees for their service on
the Board of Directors or any committee of the Board of Directors, but they
are entitled to reimbursement of all reasonable out of pocket expenses
incurred in connection with their attendance at Board of Directors and Board
of Directors committee meetings. All Board of Directors members are eligible
to receive stock options pursuant to the discretionary option grant program in
effect under the 1993 Plan and, upon the closing of this Offering, nonemployee
directors will receive stock options pursuant to the automatic option grant
program in effect under the Director Plan. See "--Stock Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company and administers various incentive compensation and
benefit plans. Mr. Templeton intends to participate in the discussions of the
Compensation Committee regarding all officers' compensation other than his
own.
No interlocking relationship exists between any member of the Company's
Compensation Committee and any member of any other company's board of
directors or compensation committee.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Articles of Incorporation that
eliminate, to the fullest extent permissible under California law, the
liability of its directors to the Company for monetary damages. Such
limitation of liability does not affect the availability of equitable remedies
such as injunctive relief or rescission. The Company's California Bylaws
provide that the Company shall indemnify its directors and officers to the
fullest extent permitted by California law, including in circumstances in
which indemnification is otherwise discretionary under California law.
In connection with the Company's reincorporation in Delaware, the Company's
Certificate of Incorporation limits the liability of directors to the maximum
extent permitted by Delaware law. Delaware law provides that directors of a
corporation will not be personally liable for monetary damages for breach of
their fiduciary duties as directors, except for liability (i) for any breach
of their duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law or (iv) for any transaction from which the director
derived an improper personal benefit.
The Company's Delaware Bylaws provide that the Company will indemnify its
directors and executive officers and may indemnify its other officers and
employees and other agents to the fullest extent permitted by law. The Company
believes that indemnification under its Delaware Bylaws covers negligence and
may cover gross negligence on the part of indemnified parties. The Company's
Delaware Bylaws also permit the Company to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of
his or her actions in such capacity, regardless of whether the Delaware Bylaws
would permit indemnification.
Prior to the effective date of this Offering, the Company will enter into
agreements to indemnify its directors and officers, in addition to
indemnification provided for in the Company's Bylaws. These agreements, among
other things, will indemnify the Company's
40
<PAGE>
directors and officers for certain expenses (including attorneys' fees and
other costs), judgments, fines, penalties and settlement amounts incurred by
any such person in any action or proceeding, including any action by or in the
right of the Company, arising out of such person's services as a director or
officer of the Company, any subsidiary of the Company or any other Company or
enterprise to which the person provides services at the request of the
Company. The Company believes that these provisions and agreements are
necessary to attract and retain qualified directors and officers.
At the present time, there is no pending litigation or proceeding involving
a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of
any threatened litigation or proceeding that may result in a claim for such
indemnification.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding the
compensation of the Company's Chief Executive Officer and the Company's next
four most highly compensated executive officers (collectively, the "Named
Executive Officers") for the fiscal year ended September 30, 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND POSITION SALARY BONUS(1) OPTIONS(2) COMPENSATION(3)
- ----------------- ---------- ---------- ----------- ---------------
<S> <C> <C> <C> <C>
Mark R. Templeton........... $ 172,800 $ 2,500 -- $4,474
President and Chief
Executive Officer
Scott T. Becker............. 172,800 2,500 -- 1,728
Chief Technical Officer
Dhrumil Gandhi.............. 172,800 2,500 -- 2,376
Vice President, Engineering
Daniel I. Rubin............. 172,800 2,500 -- 2,375
Vice President, Business
Development
Jeffrey A. Lewis............ 140,000 22,500 253,705 2,375
Vice President, Marketing
</TABLE>
- --------
(1) Represents the fair market value on the date of grant of a stock bonus of
500 shares of Common Stock granted to each Named Executive Officer in
September 1997, plus, in the case of Mr. Lewis, a cash bonus of $20,000.
See "Certain Transactions--Transactions with Directors and Executive
Officers."
(2) These shares are subject to stock options granted under the 1993 Plan.
(3) Represents matching contributions under the Company's 401(k) plan. See "--
401(k) Plan."
41
<PAGE>
OPTION GRANTS IN FISCAL 1997
The following table sets forth certain information regarding options to
purchase the Company's Common Stock granted to each Named Executive Officer in
fiscal 1997:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------ ANNUAL RATES OF
NUMBER OF PERCENTAGE STOCK PRICE
SECURITIES OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS EXERCISE OPTION TERM(1)
OPTIONS GRANTED TO PRICE PER EXPIRATION ---------------------
NAME GRANTED(2) EMPLOYEES SHARE(3) DATE 5% 10%
- ---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mark R. Templeton....... -- -- -- -- -- --
Scott T. Becker......... -- -- -- -- -- --
Dhrumil Gandhi.......... -- -- -- -- -- --
Daniel I. Rubin......... -- -- -- -- -- --
Jeffrey A. Lewis........ 253,705 33.9% $0.15 10/6/2006 $ 23,933 $ 60,651
</TABLE>
- --------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of stock price appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price. Actual gains, if
any, on stock option exercises are dependent on the future financial
performance of the Company, overall conditions and the option holder's
continued employment through the vesting period and option term. This
table does not take into account any appreciation in the fair market value
of the Common Stock from the date of grant to the date of this offering,
other than the columns reflecting assumed rates of appreciation of 5% and
10%.
(2) The option granted during fiscal 1997 to Mr. Lewis was granted under the
1993 Plan. Subject to Mr. Lewis' continued employment with the Company,
the option becomes exercisable as to 25% of the option shares on the first
anniversary of the date of grant and as to 6.25% per quarter thereafter,
with full vesting occurring on the fourth anniversary of the date of
grant. See "--Stock Plans."
(3) Options were granted at an exercise price equal to the fair market value
of the Company's Common Stock on the date of grant, as determined by the
Board of Directors. The Company's Common Stock was not traded publicly at
the time of the foregoing grant to Mr. Lewis.
42
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL 1997
AND OPTION VALUES AS OF SEPTEMBER 30, 1997
The following table sets forth certain information with respect to the
number and value of the stock options held by each Named Executive Officer as
of September 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE SEPTEMBER 30, 1997 SEPTEMBER 30, 1997(2)
ON REALIZED ------------------------- -------------------------
NAME EXERCISE ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark R. Templeton....... -- -- -- -- -- --
Scott T. Becker......... -- -- -- -- -- --
Dhrumil Gandhi(3)....... 219,088 $39,184 $110,957 76,837 $540,766 $372,659
Daniel I. Rubin......... -- -- -- -- -- --
Jeffrey A. Lewis........ -- -- 63,426 190,279
</TABLE>
- --------
(1) "Value realized" is calculated on the basis of the fair market value of
the Common Stock on the date of exercise minus the exercise price, does
not necessarily indicate that the optionee sold such stock and does not
take into account that some of such shares are subject to rights of
repurchase on the part of the Company that lapse at various times over
four years after the date of grant.
(2) Based upon the fair market value of $5.00 per share as of fiscal year end
minus the exercise price.
(3) Consists of three options with exercise prices of $0.01, $0.15 and $0.15,
respectively.
STOCK PLANS
1993 Stock Option Plan. The 1993 Plan was adopted by the Board of Directors
and approved by the Company's stockholders in October 1993. A total of
4,291,396 shares of Common Stock has been reserved for issuance under the 1993
Plan. The 1993 Plan provides for grants of incentive stock options to
employees (including officers and employee directors) and nonstatutory stock
options to consultants (including nonemployee directors) of the Company. The
purpose of the 1993 Plan is to attract and retain the best available personnel
for positions of substantial responsibility and to provide additional
incentive to employees and consultants to promote the success of the Company's
business. The 1993 Plan is presently being administered by the Board of
Directors, which determines the optionees and the terms of options granted,
including the exercise price, number of shares subject to the option and the
exercisability thereof.
The term of an option granted under the 1993 Plan is stated in the option
agreement. However, the term of an incentive stock option may not exceed 10
years and, in the case of an incentive or nonstatutory stock option granted to
an optionee who, at the time of grant, owns stock representing more than 10%
of the Company's outstanding capital stock, the term of such option may not
exceed five years. Options granted under the 1993 Plan vest and become
exercisable as set forth in each option agreement. In general, no option may
be transferred by the optionee other than by will or the laws of descent or
distribution, and each option may be exercised, during the lifetime of the
optionee, only by such optionee. An optionee whose relationship with the
Company or any related corporation ceases for any reason (other than by death
or total and permanent disability) may exercise options in the three month
period following such cessation, unless such options terminate or expire
sooner (or for nonstatutory stock options later), by their terms, but only to
the extent the option had vested on such date of cessation. In the event of
death or total and permanent disability, the option may be exercised in the
six month period following the date of death or total and permanent disability
unless such options terminate or expire sooner (or for nonstatutory stock
options, later), but only to the extent the option had vested as of six months
after the date of death or disability. In the event of a merger of the Company
with or into another corporation, all outstanding options may be
43
<PAGE>
assumed or an equivalent option may be substituted by the surviving entity. If
such options are not assumed or substituted, such options will become
exercisable as to all of the shares subject to the options, including shares
as to which they would not otherwise be exercisable. In the event that options
become exercisable in lieu of assumption or substitution, the Board of
Directors will notify optionees that all options will be fully exercisable for
a period of 15 days, after which such options will terminate. The Board of
Directors determines the exercise price of options granted under the 1993 Plan
at the time of grant, provided that the exercise price of all incentive stock
options must be at least equal to the fair market value of the shares on the
date of grant. With respect to any participant who owns stock possessing more
than 10% of the voting rights of the Company's outstanding capital stock, the
exercise price of any incentive stock option granted must equal at least 110%
of the fair market value on the grant date. The consideration for exercising
any incentive stock option or any nonstatutory stock option may consist of
cash, check, promissory note, delivery of already-owned shares of the
Company's Common Stock subject to certain conditions, delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds required
to pay the exercise price, a reduction in the amount of any Company liability
to an optionee, or any combination of the foregoing methods of payment or such
other consideration or method of payment to the extent permitted under
applicable law. No incentive stock options may be granted to a participant
that when aggregated with all other incentive stock options granted to such
participant, would have an aggregate fair market value in excess of $100,000
becoming exercisable in any calendar year. No employee may be granted, in any
fiscal year of the Company, options to purchase more than 250,000 shares (or
1,000,000 shares in the case of an employee's initial year of employment). The
1993 Plan will terminate in October 2003, unless sooner terminated by the
Board of Directors.
As of September 30, 1997, 723,604 shares of Common Stock had been issued
upon the exercise of options granted under the 1993 Plan, options to purchase
1,406,908 shares of Common Stock at a weighted average exercise price of $1.56
per share were outstanding and 2,160,884 shares remain available for future
option grants under the 1993 Plan.
1997 EMPLOYEE STOCK PURCHASE PLAN. The Purchase Plan was adopted by the
Board of Directors and approved by the Company's stockholders in November
1997. A total of 600,000 shares of Common Stock has been reserved for issuance
under the Purchase Plan, together with an annual increase to the number of
shares reserved thereunder on each anniversary date of the adoption of the
Purchase Plan equal to the lesser of (i) 200,000 shares, (ii) one percent of
the outstanding shares of the Company on such date or (iii) a lesser amount
determined by the Board of Directors. The Purchase Plan, which is intended to
qualify under Section 423 of the Code, will be administered by the Board of
Directors and may be administered by a committee appointed by the Board of
Directors. Employees (including officers and employee directors of the
Company, but excluding 5% stockholders) are eligible to participate if they
are customarily employed for at least 20 hours per week and for more than five
months in any calendar year. The Purchase Plan permits eligible employees to
purchase Common Stock through payroll deductions, which may not exceed 15% of
an employee's compensation. The Purchase Plan will be implemented in a series
of overlapping offering periods, each to be approximately 24 months in
duration. The initial offering period under the Purchase Plan will begin on
the effective date of this Offering and subsequent offering periods will begin
on the first trading day on or after February 1 and August 1 of each year.
Each participant will be granted an option on the first day of the offering
period and such option will be automatically exercised on the last day of each
semi-annual period throughout the offering period. If the fair market value of
the Common Stock on any purchase date is lower than such fair market value on
the start date of that offering period, then all participants in that offering
period will be automatically withdrawn
44
<PAGE>
from such offering period and re-enrolled in the immediately following
offering period. The purchase price of the Common Stock under the Purchase
Plan will be equal to 85% of the lesser of the fair market value per share of
Common Stock on the start date of the offering period or on the date on which
the option is exercised. Employees may end their participation in an offering
period at any time during that period, and participation ends automatically on
termination of employment with the Company. In the event of a proposed
dissolution or liquidation of the Company, the offering periods terminate
immediately prior to the consummation of the proposed action, unless otherwise
provided by the Board of Directors. In the event of a proposed sale of all or
substantially all of the Company's assets or the merger of the Company with or
into another corporation, each outstanding option will be assumed or an
equivalent option substituted by the successor, parent or subsidiary. If the
successor corporation refuses to assume or substitute the option, then the
offering period in progress will be shortened by setting a new exercise date
that is the day before the sale or merger and the offering period in progress
will end on the new exercise date. In the event of a dissolution, liquidation,
merger or asset sale, each participant will be notified at least ten business
days prior to the new exercise date, and unless such participant ends his or
her participation, the option will be exercised automatically on the new
exercise date. The Purchase Plan will terminate in November 2007, unless
sooner terminated by the Board of Directors.
1997 DIRECTOR OPTION PLAN. The Director Plan, which becomes effective upon
the effective date of this Offering, was adopted by the Board of Directors and
approved by the Company's stockholders in November 1997. A total of 200,000
shares of Common Stock has been reserved for issuance under the Director Plan.
The option grants under the Director Plan are automatic and nondiscretionary,
and the exercise price of the options will be equal to 100% of the fair market
value of the Common Stock on the grant date. The Director Plan provides for
the grant of an initial option to purchase 25,000 shares to each nonemployee
director of the Company upon the effective date of this Offering at a per
share exercise price equal to the initial public offering price. In addition,
each new nonemployee director joining the Board of Directors after this
Offering will automatically be granted an option to purchase 25,000 shares of
Common Stock upon joining the Board of Directors. Subsequently, each
nonemployee director will automatically be granted an additional option to
purchase 5,000 shares of Common Stock at the next meeting of the Board of
Directors following the annual meeting of stockholders in each year beginning
with the 1998 Annual Meeting of Stockholders, if on such date such director
has served on the Board of Directors for the preceding six months. The term of
such options is ten years, provided that such options will terminate three
months following the termination of the optionee's status as a director (or 12
months if the termination is due to death or disability). The initial 25,000
share grants vest at a rate of 25% on the first anniversary of the date of
grant and at a rate of 1/48th of the shares subject to the option per month
thereafter. The subsequent 5,000 share grants vest at a rate of 1/48th of the
shares subject to the option per month following the date of grant. In the
event of a merger of the Company with or into another corporation, all
outstanding options may be assumed or an equivalent option may be substituted
by the surviving entity. If such options are not assumed or substituted, such
options will become exercisable as to all of the shares subject to the
options, including shares as to which they would not otherwise be exercisable.
In the event that options become exercisable in lieu of assumption or
substitution, the Board of Directors will notify optionees that all options
will be fully exercisable for a period of 30 days, after which such options
will terminate. The Director Plan will terminate upon the tenth anniversary of
the effective date of the initial public offering, unless sooner terminated by
the Board of Directors.
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<PAGE>
401(K) PLAN
As of June 1, 1991, the Company adopted a tax-qualified employee savings and
retirement plan (the "401(k) Plan") covering the Company's employees. Pursuant
to the 401(k) Plan, eligible employees may elect to reduce their current
compensation by up to the lesser of 15% of their annual compensation or the
statutorily prescribed annual limit ($9,500 in calendar years 1996 and 1997)
and have the amount of such reduction contributed to the 401(k) Plan. The
Company currently matches contributions by employees up to 25% of the
individual employee's contributions. The trustees under the 401(k) Plan, at
the direction of each participant, invest the assets of the 401(k) Plan in
designated investment options. The 401(k) Plan is intended to qualify under
Section 401 of the Code, so that contributions to the 401(k) Plan, and income
earned on the 401(k) Plan contributions, are not taxable until withdrawn, and
so that the contributions by the Company will be deductible when made.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
Pursuant to the terms of a September 5, 1996 amendment to his offer letter,
Jeffrey A. Lewis, Vice President, Marketing of the Company, is also entitled,
under specified conditions, to partial acceleration of vesting of an option to
purchase 253,705 shares of the Company's Common Stock. In the event Mr. Lewis'
employment is terminated other than for cause following a change of control of
the Company, 25% of Mr. Lewis' original option grant will vest and become
immediately exercisable.
In June 1997, the Company granted to Robert D. Selvi, Vice President Finance
and Chief Financial Officer of the Company, an incentive stock option to
purchase 251,693 shares of Common Stock at $4.50 per share, subject to the
vesting provisions under the 1993 Plan. Pursuant to a severance agreement
entered into with Mr. Selvi, in the event that Mr. Selvi is terminated other
than voluntarily or for cause, he shall be entitled to receive (i) his base
salary, as then in effect, for a period of six months plus any targeted bonus
amount pro rated for such six months period as determined by the Board of
Directors and (ii) the option granted to him for 251,693 shares of Common
Stock will continue to vest for an additional 18 months following such
termination. Termination other than for cause includes constructive
termination resulting from (i) the reduction of rate of compensation, (ii) the
reduction of the scope of Mr. Selvi's engagement, (iii) the requirement that
Mr. Selvi provide services at a location more than 25 miles from the Company's
current principal office location or from Mr. Selvi's residence or (iv)
subjection of Mr. Selvi to unreasonable working conditions. In addition, if
there is a change of control of the Company and Mr. Selvi is terminated other
than for cause within six months following the effective date of such change
of control, Mr. Selvi will be entitled to a cash payment of an amount equal to
six months of his base salary as then in effect plus any targeted bonus amount
pro rated for such six month period and the option granted to him for 251,693
shares will be 100% vested and exercisable.
Pursuant to the terms of his July 31, 1997 offer letter, Larry J. Fagg, Vice
President, Worldwide Sales of the Company is entitled, under specified
conditions, to partial acceleration of vesting of options to purchase 109,432
shares of the Company's Common Stock and certain severance and benefit
payments. In the event Mr. Fagg's employment is terminated other than for
cause following a change of control of the Company, 50% of the remaining
unvested shares of Mr. Fagg's original option grant will vest and become
immediately exercisable, Mr. Fagg will be entitled to receive a severance
payment equal to six month's base salary and commissions at target and he will
be entitled to continue to participate in the Company's benefit programs for a
period of six months after the effective date of his termination at no cost to
him. For purposes of Mr. Fagg's employment, a change in control of the Company
is defined as the acceptance by the Company of any offer that would result in
the acquiror owning more than 50% of the Company's assets or voting stock then
outstanding.
46
<PAGE>
CERTAIN TRANSACTIONS
PRIVATE PLACEMENT OF SECURITIES
Between March and December 1996, the Company sold 2,263,805 shares of Series
A Preferred Stock at a price of approximately $1.55 per share and 1,121,931
shares of Series B Preferred Stock at a price of $3.77 per share in private
placement transactions. In December 1996, the Company also issued a warrant
for the purchase of up to 50,000 shares of Series B Preferred Stock with an
exercise price of $3.77 per share plus a variable amount of shares of Series B
Preferred Stock, subject to certain contingencies, at a price to be determined
at the time of issuance.
The purchasers of Preferred Stock and the warrant described above were the
following holders of more than 5% of the Company's voting securities:
<TABLE>
<CAPTION>
SHARES OF
PREFERRED STOCK(1)
------------------- AGGREGATE CASH
SERIES A SERIES B CONSIDERATION
--------- --------- --------------
<S> <C> <C> <C>
ENTITIES AFFILIATED WITH DIRECTOR LUCIO L.
LANZA
Venture capital funds affiliated with
U.S. Venture Partners .................... 2,263,805 280,483 $4,557,481
OTHER 5% STOCKHOLDERS
Synopsys(2)................................ -- 841,448 3,172,259
</TABLE>
- --------
(1) The purchasers of these securities are entitled to registration rights.
See "Description of Capital Stock--Registration Rights."
(2) Excludes a warrant to purchase 50,000 shares plus a number of additional
shares to address dilution resulting from the exercise of options
outstanding as of December 16, 1996 and a right of participation to raise
Synopsys' proportional interest in the Company's capital stock on an as-
converted basis to 9.9%.
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
In September 1997, the Company issued an aggregate of 20,613 shares of
Common Stock to its employees as a stock bonus. The Company's executive
officers received shares of Common Stock in the following amounts:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Scott T. Becker................................................. 500
Dhrumil Gandhi.................................................. 500
Jeffrey A. Lewis................................................ 500
Daniel I. Rubin................................................. 500
Mark R. Templeton............................................... 500
Robert D. Selvi................................................. 125
Larry J. Fagg................................................... 42
</TABLE>
TRANSACTIONS WITH SYNOPSYS, INC.
In December 1996, Synopsys purchased 841,448 shares of Series B Preferred
Stock of the Company at a purchase price of $3.77 per share. In connection
with such purchase, Synopsys was granted certain registration rights. See
"Description of Capital Stock--Registration Rights." The Company also granted
Synopsys a warrant to purchase 50,000 shares of Series B Preferred Stock (or
Common Stock in connection with an initial public offering) at a purchase
price of $3.77 per share, subject to adjustments for stock splits and the
like, as well as an additional variable amount of shares of Series B Preferred
Stock, at a price to be determined at
47
<PAGE>
the time of issuance of such shares. The aggregate number of shares issuable
upon exercise of the warrant will be increased such that Synopsys will be able
to purchase additional shares to offset the dilution resulting from the
exercise of options to purchase Common Stock outstanding as of December 16,
1996. However, the aggregate number of shares that Synopsys may purchase
pursuant to the warrant will be limited to that number which if held would
give Synopsys an aggregate percentage ownership of 9.9% of the Company. On
November 17, 1997, Synopsys irrevocably exercised such warrant for 50,000
shares. This transaction will close immediately prior to the closing of this
Offering.
In connection with such financing the Company granted to Synopsys, for so
long as Synopsys holds at least 420,000 of the Company's stock, the right to
receive notice of and to designate a representative to attend the Board of
Directors of the Company in a nonvoting, observer capacity, subject to
exclusion for discussions about matters involving Synopsys or any Synopsys'
competitor, where attendance could adversely affect attorney client privilege
between the Company and its attorneys or if, in the discretion of the Board of
Directors, where attendance would violate the fiduciary duties of the Board of
Directors. The observer rights granted to Synopsys will terminate upon the
consummation of the Offering.
In December 1996, the Company also entered into an OEM Agreement with
Synopsys (the "OEM Agreement"), pursuant to which the Company granted Synopsys
a nonexclusive, nontransferable, worldwide right to distribute certain of the
Company's technology, including certain products that are integrated with some
of Synopsys' technology. Synopsys is obligated to pay a royalty to the Company
in connection with the OEM Agreement, and Synopsys was granted the right to be
the exclusive seller of the products integrating both the Company's and
Synopsys' technology. A portion of such royalty payments were payable in
advance, with subsequent royalties due to the Company to offset such initial
payment. The Company does not anticipate recognizing any revenue under the OEM
Agreement. Under the agreement, Synopsys granted the Company a nonexclusive,
nontransferable license to use certain Synopsys products in connection
therewith. Pursuant to the OEM Agreement, the Company agreed to provide
certain engineering and porting services, as well as maintenance and support
services. The OEM Agreement has a five-year term and may be extended for an
additional 18 months. The OEM Agreement may be terminated by either party upon
the breach by the other party, or if the other party becomes insolvent, fails
to pay its debts or perform its obligations as they mature, admits in writing
to its insolvency or inability to pay its debts or perform its obligations as
they mature, or makes an assignment for the benefit of creditors. In addition,
either party may terminate the OEM Agreement upon eighteen months' written
notice to the other party. In the event that the Company terminates the OEM
Agreement as a result of a change of control of the Company, Synopsys will,
upon the occurrence of certain events, be entitled to have access to the
Company's source code for those products of the Company that are marketed by
Synopsys.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including
a majority of the independent and disinterested outside directors, and will
continue to be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
48
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Stock as of September 30, 1997,
and as adjusted to reflect the sale of the securities offered by the Company in
the Offering, (i) by each person (or group of affiliated persons) who is known
by the Company to own beneficially more than 5% of the Company's Common Stock,
(ii) by each of the Company's directors and Named Executive Officers and (iii)
by all directors and executive officers as a group. Except as indicated in the
footnotes to this table and subject to applicable community property laws, the
persons named in the table, based on information provided by such persons, have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them. If the Underwriters' over-allotment option
is exercised in full, the Selling Stockholders will sell an aggregate of
370,000 shares of Common Stock in this Offering.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
BENEFICIALLY
NUMBER OF OWNED(1)
SHARES -----------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------------------ ------------ -------- --------
<S> <C> <C> <C>
Entities affiliated with U.S. Venture 2,544,288 28.0% 21.2%
Partners(2)....................................
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
Duane R. Hook(3)................................ 1,000,500 11.0 8.4
1195 Bordeaux Drive
Sunnyvale, CA 94089
John G. Malecki(4).............................. 1,000,500 11.0 8.4
1195 Bordeaux Drive
Sunnyvale, CA 94089
Synopsys, Inc.(5)............................... 891,448 9.8 7.4
700 East Middlefield Road
Mountain View, CA 94043
Lucio L. Lanza(2)............................... 2,544,288 28.0 21.2
Mark R. Templeton............................... 1,000,500 11.0 8.4
Scott T. Becker(6).............................. 1,000,500 11.0 8.4
Daniel I. Rubin(7).............................. 1,000,500 11.0 8.4
Dhrumil Gandhi(8)............................... 334,912 3.6 2.6
Jeffrey A. Lewis(9)............................. 63,927 * *
Dr. Eli Harari.................................. -- * *
All directors and executive officers as a group 5,944,794 64.1 48.8
(9 persons)(10)................................
</TABLE>
- --------
* Less than 1%.
(1) Number of shares beneficially owned and the percentage of shares
beneficially owned are based on: (i) 9,079,953 shares outstanding as of
September 30, 1997 and (ii) 11,979,953 shares outstanding after this
Offering. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission, and includes voting and
investment power with respect to such shares. All shares of Common Stock
subject to options currently exercisable or exercisable within 60 days
after September 30, 1997 are deemed to be outstanding and to be
beneficially owned by the person holding such options for the purpose of
computing the number of shares beneficially owned and the percentage
ownership of such person, but are not deemed to be outstanding and to be
beneficially owned for the purpose of computing the percentage ownership of
any other person.
49
<PAGE>
(2) Includes 2,193,174 shares held by U.S. Venture Partners IV, L.P., 267,152
shares held by Second Ventures II, L.P., 76,328 shares held by USVP
Entrepreneur Partners II, L.P. and 7,634 shares held by 2180 Associates
Fund. Mr. Lanza, a director of the Company, is a general partner of these
entities. Mr. Lanza disclaims beneficial ownership of the shares held by
the limited partnerships except to the extent of his respective
proportionate partnership interests therein. The other general partners
of each of U.S. Venture Partners IV, L.P., Second Ventures II, L.P., USVP
Entrepreneur Partners II, L.P. and 2180 Associates Fund are William K.
Bowes, Jr., Irwin B. Federman, Steven M. Krausz, Dale J. Vogel and Philip
M. Young.
(3) Mr. Hook has granted the Underwriters an option, exercisable within 30
days of the date of this Prospectus, to acquire up to 100,000 shares of
Common Stock at the initial public offering price less the underwriting
discount solely for the purpose of covering over-allotments, if any.
(4) Mr. Malecki has granted the Underwriters an option, exercisable within 30
days of the date of this Prospectus, to acquire up to 50,000 shares of
Common Stock at the initial public offering price less the underwriting
discount solely for the purpose of covering over-allotments, if any.
(5) Includes 50,000 shares subject to issuance under an outstanding warrant
upon the closing of this transaction.
(6) Mr. Becker has granted the Underwriters an option, exercisable within 30
days of the date of this Prospectus, to acquire up to 100,000 shares of
Common Stock at the initial public offering price less the underwriting
discount solely for the purpose of covering over-allotments, if any.
(7) Mr. Rubin has granted the Underwriters an option exercisable within 30
days of the date of this Prospectus, to acquire up to 100,000 shares of
Common Stock at the initial offering price less the underwriting discount
solely for the purpose of covering over-allotments, if any.
(8) Includes 126,324 shares subject to outstanding options held by Mr. Gandhi
and exercisable within 60 days after September 30, 1997. Mr. Gandhi has
granted the Underwriters an option, exercisable within 30 days of the
date of this Prospectus, to acquire up to 20,000 shares of Common Stock
at the initial public offering price less the underwriting discount
solely for the purpose of covering over-allotments, if any.
(9) Includes 63,427 shares subject to outstanding options held by Mr. Lewis
and exercisable within 60 days after September 30, 1997.
(10) Includes 189,751 shares subject to outstanding options exercisable within
60 days after September 30, 1997. See also notes 3, 4, 6 and 8 to this
table.
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this Offering, the Company will be authorized to
issue 50,000,000 shares of Common Stock, $0.001 par value, and 5,000,000
shares of undesignated Preferred Stock, $0.001 par value.
COMMON STOCK
As of September 30, 1997, there were 9,079,953 (including shares resulting
from the exercise of the warrant described below) shares of Common Stock
outstanding held of record by approximately 67 stockholders. As of September
30, 1997, options to purchase an aggregate of 1,406,908 shares of Common Stock
were also outstanding. See "Management--Stock Plans."
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders and have cumulative voting rights with
respect to the election of directors. Subject to the prior rights of holders
of Preferred Stock, if any, the holders of Common Stock are entitled to
receive such dividends, if any, as may be declared from time to time by the
Board of Directors in its discretion from funds legally available therefor.
Upon liquidation or dissolution of the Company, the remainder of the assets of
the Company will be distributed ratably among the holders of Common Stock
after payment of liabilities and the liquidation preferences of any
outstanding shares of Preferred Stock. The Common Stock has no preemptive or
other subscription rights and there are no conversion rights or redemption or
sinking fund provisions with respect to such shares. All of the outstanding
shares of Common Stock are, and the shares to be sold in this Offering will
be, fully paid and nonassessable.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation effective after
conversion of previously outstanding shares of Preferred Stock into an
aggregate of 3,435,736 (assuming the exercise of the warrant described below)
shares of Common Stock which conversion will be effected simultaneously with
the consummation of this Offering, the Board of Directors has the authority
without further action by the stockholders to issue up to 5,000,000 shares of
Preferred Stock. The Board of Directors has the authority to issue such
Preferred Stock in one or more series and to fix the price, rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting a series or the designation of such series, without any further
vote or action by the Company's stockholders. The issuance of Preferred Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders and may adversely affect the market price of, and the voting and
other rights of, the holders of Common Stock. The Company has no current plans
to issue any shares of Preferred Stock.
WARRANTS
As of September 30, 1997, a warrant was outstanding to purchase an aggregate
of 50,000 shares of the Company's Series B Preferred Stock at an exercise
price of $3.77 per share and an additional, variable amount of Preferred Stock
at the initial public offering price less the underwriting discount. The
holder of such warrant has irrevocably indicated its intention to exercise the
warrant solely for such 50,000 shares upon the closing of this Offering.
51
<PAGE>
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
The Company's Certificate of Incorporation provides for cumulative voting
for the election of directors. Cumulative voting provides that each share of
stock normally having one vote is entitled to a number of votes equal to the
number of directors to be elected. A stockholder may then cast all such votes
for a single candidate or may allocate them among as many candidates as the
stockholder may choose. In the absence of cumulative voting, the holders of a
majority of the shares present or represented at a meeting in which directors
are to be elected would have the power to elect all the directors to be
elected at such meeting, and no person could be elected without the support of
holders of a majority of the shares present or represented at such meeting.
Section 141 of the Delaware General Corporation Law provides that a director
elected by cumulative voting generally may not be removed without cause if the
number of votes cast against removal would be sufficient to elect such
director under cumulative voting.
The Company's Bylaws establish an advance notice procedure for stockholder
proposals to be brought before an annual meeting of stockholders of the
Company, including proposed nominations of persons for election to the Board
of Directors. Stockholders at an annual meeting may only consider proposals or
nominations specified in the notice of meeting or brought before the meeting
by or at the direction of the Board of Directors or by a stockholder who was a
stockholder of record on the record date for the meeting, who is entitled to
vote at the meeting and who has given to the Company's Secretary timely
written notice, in proper form, of the stockholder's intention to bring that
business before the meeting. Although the Bylaws do not give the Board of
Directors the power to approve or disapprove stockholder nominations of
candidates or proposals regarding other business to be conducted at a special
or annual meeting of the stockholders, the Bylaws may have the effect of
precluding the conduct of certain business at a meeting if the proper
procedures are not followed or may discourage or defer a potential acquiror
from conducting a solicitation of proxies to elect its own slate of directors
or otherwise attempting to obtain control of the Company.
Under Delaware law, a special meeting of stockholders may be called by the
Board of Directors or by any other person authorized to do so in the
Certificate of Incorporation or the Bylaws. The Company's Bylaws authorize the
Board of Directors, the Chairman of the Board (or the Chief Executive Officer
in the Chairman's absence), or one or more stockholders holding in the
aggregate 10% of votes, to call a special meeting of stockholders. However,
the Board of Directors may amend the Bylaws at any time to eliminate the right
to call a special meeting of stockholders. The elimination of the right of
stockholders to call a special meeting would mean that a stockholder could not
force stockholder consideration of a proposal over the opposition of the Board
of Directors by calling a special meeting of stockholders prior to such time
as the Board of Directors believed such consideration to be appropriate or
until the next annual meeting provided that the requestor met the notice
requirements. The restriction on the ability of stockholders to call a special
meeting would mean that a proposal to replace the Board could be delayed until
the next annual meeting.
Under Delaware law, stockholders may execute an action by written consent in
lieu of a stockholder meeting. Delaware law permits a corporation to eliminate
such actions by written consent. Elimination of written consents of
stockholders may lengthen the amount of time required to take stockholder
actions since certain actions by written consent are not subject to the
minimum notice requirement of a stockholders' meeting. The elimination of
stockholders' written consents, however, deters hostile takeover attempts.
Without the availability of stockholder's actions by written consent, a holder
or group of holders controlling a majority in interest of the Company's
capital stock would not be able to amend the Company's Bylaws or remove
directors pursuant to a stockholder's written consent. Any such holder or
group of holders would have to call a stockholders' meeting and wait until the
notice periods determined
52
<PAGE>
by the Board of Directors pursuant to the Company's Bylaws prior to taking any
such action. The Company's Certificate of Incorporation provides for the
elimination of actions by written consent of stockholders upon the closing of
this Offering.
CERTAIN PROVISIONS OF DELAWARE LAW
Upon completion of the reincorporation, the Company will be subject to
Section 203 of the Delaware General Corporation Law ("Section 203"). In
general, Section 203 prohibits a publicly held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder," unless (i) prior to such
date, the Board of Directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned by (a) persons
who are directors and also officers and (b) employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer, or (iii) on or subsequent to such date the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders by the affirmative vote of at least 66 2/3%
of the outstanding voting stock which is not owned by the interested
stockholder. Section 203 defines business combination to include: (i) any
merger or consolidation involving the corporation and the interested
stockholder; (ii) any sale, transfer, pledge or other disposition involving
the interested stockholder of 10% or more of the assets of the corporation;
(iii) subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation to the
interest stockholder; (iv) any transaction involving the corporation that has
the effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person who, together with affiliates and
associates, beneficially owns (or within three years did beneficially own) 15%
or more of a corporation's voting stock. The statute could prohibit or delay
mergers or other takeover or change in control attempts with respect to the
Company and, accordingly, may discourage attempts to acquire the Company.
REGISTRATION RIGHTS
The holders of approximately 3,435,736 shares of Common Stock (issuable upon
conversion of Preferred Stock or exercise of a warrant) and their permitted
transferees (the "Holders") are entitled to certain rights with respect to the
registration of such shares ("Registrable Securities") under the Securities
Act. Under the terms of an agreement between the Company and the Holders, the
holders of at least 40% of the Registrable Securities may require, on two
occasions after six months from the effective date of this Offering, that the
Company use its best efforts to register the Registrable Securities for public
resale. In addition, if the Company proposes to register any of its securities
under the Securities Act, either for its own account or for the account of
other security holders exercising registration rights, the Holders are
entitled to notice of such registration and are entitled to include shares of
such Common Stock therein. The holders of Registrable Securities may also
require the Company, no more once in any 12 month period, to register all or a
portion of their Registrable Securities on Form S-3 under the Securities Act
when use of such form becomes available to the Company. All such registration
53
<PAGE>
rights are subject to certain conditions and limitations, including the right
of the underwriters of an offering to limit the number of shares to be included
in such registration. In addition, the Company need not effect a registration
within three months following a previous registration or six months following
this Offering or more than the earlier of five years after the closing of this
Offering or such time as all Holders may sell under Rule 144 in a three month
period all shares of Common Stock to which such registration rights apply and
the Holder owns less than 2% of the Company's outstanding stock.
TRANSFER AGENT
The transfer agent for the Common Stock is the First National Bank of Boston.
Its address is 150 Royall Street, Canton, Massachusetts 02021, and its
telephone number is (617) 575-3120.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock of the
Company. Sales of a substantial number of shares of Common Stock in the public
market following this Offering could adversely affect the prevailing market
prices from time to time. Furthermore, since only a limited number of shares
will be available for sale shortly after this Offering because of certain
contractual and legal restrictions on resale (as described below), sales of
substantial amounts of Common Stock of the Company in the public market after
the restrictions lapse could adversely affect the prevailing market price and
the ability of the Company to raise equity capital in the future.
Upon completion of this Offering, the Company will have outstanding an
aggregate of 11,979,953 shares of Common Stock (based upon shares outstanding
at September 30, 1997), assuming no exercise of the Underwriters' over-
allotment option. Of these shares, all of the shares sold in this Offering
will be freely transferable without restriction or registration under the
Securities Act, except for any shares purchased by an existing "affiliate" of
the Company, as that term is defined in Rule 144 (an "Affiliate"), which
shares will be subject to the resale limitations of Rule 144. The remaining
9,079,953 shares of Common Stock held by existing stockholders are "restricted
shares" as that term is defined in Rule 144 (the "Restricted Shares").
Restricted Shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144, Rule 144(k) or
Rule 701, which rules are summarized below. As a result of the contractual
restrictions described below and the provisions of Rule 144, Rule 144(k) and
Rule 701, the Restricted Shares will be available for sale in the public
market as follows: (i) no shares will be available for immediate sale on the
date of this Prospectus; (ii) approximately 9,029,953 shares will become
eligible for sale 180 days after the date of this Prospectus (assuming no
release from the lock-up agreements) upon expiration of lock-up agreements;
and (iii) approximately 50,000 shares will become eligible for sale one year
after the date of this Prospectus.
All officers, directors, optionholders and substantially all stockholders of
the Company have agreed not to sell, or otherwise transfer any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock for a period of 180 days after the date of this Prospectus
(without, in most cases, the prior written consent of Deutsche Morgan Grenfell
Inc.). Deutsche Morgan Grenfell Inc. may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements. Deutsche Morgan Grenfell Inc. currently has no plans to
release any portion of the securities subject to such lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an Affiliate) would be entitled
to sell within any three month period a number of shares that does not exceed
the greater of: (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately 119,799 shares immediately after
this Offering); or (ii) the average weekly trading volume of the Common Stock
on the Nasdaq National Market during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions and notice requirements and to
the availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an Affiliate at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years (including the holding period of
any prior owner except an Affiliate), is entitled to sell such shares without
complying with the manner of sale, public information, volume
55
<PAGE>
limitation or notice provisions of Rule 144; therefore, unless otherwise
restricted, "144(k) shares" may be sold immediately upon the completion of this
Offering. In general, under Rule 701 of the Securities Act as currently in
effect, any employee, consultant or advisor of the Company who purchases shares
from the Company in connection with a compensatory stock or option plan or
other written agreement is eligible to resell such shares 90 days after the
effective date of this Offering in reliance on Rule 144, but without compliance
with certain restrictions, including the holding period, contained in Rule 144.
Upon completion of this Offering, the holders of 3,435,736 shares of Common
Stock issuable upon conversion of Preferred Stock or exercise of a warrant, or
their transferees, will be entitled to certain rights with respect to the
registration of such shares under the Securities Act. See "Description of
Capital Stock--Registration Rights." Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act (except for shares purchased by
Affiliates) immediately upon the effectiveness of such registration.
The Company intends to file a registration statement on Form S-8 under the
Securities Act covering shares of Common Stock reserved for issuance under the
Company's stock plans and subject to outstanding options under the 1993 Plan.
See "Management--Stock Plans." Such registration statement is expected to be
filed and become effective as soon as practicable after the effective date of
this Offering. Shares of Common Stock issued upon exercise of options under the
Form S-8 will be available for sale in the public market, subject to Rule 144
volume limitations applicable to Affiliates and subject to the contractual
restrictions described above. At September 30, 1997, options to purchase
1,406,908 shares of Common Stock were outstanding, of which options to purchase
approximately 292,173 shares were then vested and exercisable. Beginning 180
days after the effective date of this Offering, approximately 295,468 shares
issuable upon the exercise of vested stock options will become eligible for
sale in the public market, if such options are exercised.
56
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Deutsche Morgan Grenfell Inc.,
Hambrecht & Quist LLC and Wessels, Arnold & Henderson, L.L.C. are acting as
Representatives (the "Representatives"), have severally agreed, subject to the
terms and subject to the conditions in the Underwriting Agreement (the form of
which will be filed as an exhibit to the Company's Registration Statement of
which this Prospectus is a part), to purchase from the Company the respective
numbers of shares of Common Stock indicated opposite their respective names.
The Underwriters are committed to purchase all of the shares, if they purchase
any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Deutsche Morgan Grenfell Inc.......................................
Hambrecht & Quist LLC..............................................
Wessels, Arnold & Henderson, L.L.C.................................
---------
Total.......................................................... 2,900,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to the approval of certain legal matters by
counsel and to various other conditions.
The Representatives have advised the Company that the Underwriters initially
propose to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers (who
may include the Underwriters) a concession not in excess of $ a share under
the initial public offering price. The selected dealers may reallow a
concession not in excess of $ a share to other dealers and other selling
terms may be changed by the Representatives. The Common Stock is offered
subject to receipt and acceptance by the Underwriters, and to certain other
conditions, including the right to reject orders in whole or in part. The
Underwriters do not intend to sell any of the shares of Common Stock offered
hereby to accounts for which they exercise discretionary authority.
Pursuant to the Underwriting Agreement, the Company and the Selling
Stockholders have granted to the Underwriters an option to purchase up to
65,000 and 370,000 additional shares of Common Stock, respectively, to cover
over-allotments, if any, at the initial public offering price, less the
underwriting discount set forth on the cover page of this Prospectus. Such
option is exercisable for 30 days from the date of this Prospectus. To the
extent such option is exercised, each Underwriter will be committed, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
of Common Stock offered hereby. The Selling Stockholders will be obligated,
pursuant to the option, to sell such shares to the Underwriters.
See "Shares Eligible for Future Sale" for a description of certain
arrangements by which all officers, directors, optionholders and substantially
all stockholders of the Company have agreed not to sell or otherwise dispose of
Common Stock or convertible securities of the Company for up to 180 days after
the date of the final Prospectus without the prior consent of Deutsche Morgan
Grenfell Inc. The Company has agreed in the Underwriting Agreement that it will
not, directly or indirectly, without the prior written consent of Deutsche
Morgan Grenfell Inc.,
57
<PAGE>
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of any shares of Common Stock or any securities
convertible into or exchangeable for Common Stock, for a period of 180 days
after the date of the final Prospectus without the consent of Deutsche Morgan
Grenfell Inc., except under certain circumstances.
The Underwriting Agreement provides that the Company, and the Selling
Stockholders in the event the over-allotment option is exercised, will
indemnify the several Underwriters against certain liabilities, including
civil liabilities under the Securities Act, or will contribute to payments the
Underwriters may be required to make in respect thereof.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiation
between the Company and the Representatives. The principal factors to be
considered in determining the initial public offering price include the
information set forth in this Prospectus and otherwise available to the
Representatives; the history and the prospects for the industry in which the
Company competes; the ability of the Company's management; the prospects for
future earnings of the Company; the present state of the Company's development
and its current financial condition; the general condition of the securities
markets at the time of this Offering; and the recent market prices of, and the
demand for, publicly traded common stock of generally comparable companies.
Each of the Representatives has informed the Company that it currently intends
to make a market in the shares subsequent to the effectiveness of this
Offering, but there can be no assurance that the Representatives will take any
action to make a market in any securities of the Company.
At the request of the Company, the Underwriters have reserved for sale at
the initial public offering price to persons designated by the Company a
number of shares of Common Stock not to exceed five percent of the total
number of shares of Common Stock in this Offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase these shares.
Certain persons participating in this Offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase for the purpose of pegging,
fixing or maintaining the price of the Common Stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with this Offering. A penalty bid means an arrangement that
permits the Underwriters to reclaim a selling concession from a syndicate
member in connection with this Offering when shares of Common Stock sold by
the syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq Stock Market, in the over-the-
counter market or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California 94304. Certain matters will be passed upon for the
Underwriters by Fenwick & West LLP, Palo Alto, California 94306.
58
<PAGE>
EXPERTS
The financial statements of the Company as of September 30, 1996 and 1997
and for each of the three years in the period ended September 30, 1997
included in this Prospectus and the related financial statement schedule
included elsewhere in the registration statement have been included herein in
reliance on the reports of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1, including amendments
thereto, under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedule filed therewith. Certain
items are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is hereby made to such Registration Statement
and to the exhibits and schedule filed therewith. Statements contained in this
Prospectus regarding the contents of any contract or other document referred
to are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and
schedule filed herewith, may be inspected without charge at the principal
office of the Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part thereof may be obtained from such offices
upon the payment of the fees prescribed by the Commission. Such materials may
also be obtained from the Commission's World Wide Web site at
http://www.sec.gov.
59
<PAGE>
ARTISAN COMPONENTS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheets, September 30, 1996 and 1997................................ F-3
Statements of Operations, years ended September 30, 1995, 1996 and 1997.... F-4
Statements of Stockholders' Equity, for the years ended September 30, 1995,
1996 and 1997............................................................. F-5
Statements of Cash Flows, years ended September 30, 1995, 1996 and 1997.... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Artisan Components, Inc.
We have audited the accompanying balance sheets of Artisan Components, Inc.
as of September 30, 1996 and 1997, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Artisan Components, Inc.
as of September 30, 1996 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended September 30, 1997,
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Jose, California
November 24, 1997
- -------------------------------------------------------------------------------
To the Board of Directors and Stockholders
Artisan Components, Inc.
The financial statements included herein have been adjusted to give effect
to the reincorporation of the Company in Delaware as described more fully in
Note 14 to the financial statements. The above report is in the form that will
be signed by Coopers & Lybrand L.L.P. upon the effectiveness of such
reincorporation assuming that, from November 24, 1997 to the effective date of
such reincorporation, no other events shall have occurred that would affect
the accompanying financial statements or notes thereto.
COOPERS & LYBRAND L.L.P.
San Jose, California
November 24, 1997
F-2
<PAGE>
ARTISAN COMPONENTS, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30, SEPTEMBER 30,
-------------- 1997
1996 1997 (NOTE 14)
------ ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 709 $ 1,069
Contract receivables (net of allowance of zero
in 1996 and $275 in 1997)...................... 832 2,834
Marketable securities........................... 1,249 2,499
Prepaid expenses and other current assets....... 343 564
------ -------
Total current assets.......................... 3,133 6,966
Marketable securities............................. 1,000 986
Property and equipment, net....................... 973 3,969
Deferred tax asset................................ 28 6
Other assets...................................... 38 84
------ -------
Total assets.................................. $5,172 $12,011
====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........... $ 375 $ 631
Accrued warranty................................ -- 165
Deferred tax liability.......................... 163 384
Deferred revenue................................ 327 1,434
------ -------
Total current liabilities..................... 865 2,614
Deferred rent..................................... 15 49
------ -------
Total liabilities............................. 880 2,663
------ -------
Commitments (Note 8).
Stockholders' Equity:
Convertible Preferred Stock, $0.001 par value:
Authorized: 2,264 shares in 1996 and 5,000
shares in 1997;
Issued and outstanding: 2,264 shares in 1996 and
3,386 shares in 1997 and none pro forma........ 3,478 7,564 --
(Liquidation value: $9,995)
Common Stock, $0.001 par value:
Authorized: 50,000 shares;
Issued and outstanding: 5,114 shares in 1996 and
5,644 shares in 1997 and 9,080 shares pro
forma.......................................... 5 6 9
Warrant (none pro forma)......................... -- 125 --
Additional paid in capital....................... 528 647 7,802
Retained earnings................................ 281 1,006 1,537
------ ------- -----
Total stockholders' equity.................... 4,292 9,348 9,348
------ ------- =====
Total liabilities and stockholders' equity.... $5,172 $12,011
====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ARTISAN COMPONENTS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue........................................... $ 2,718 $ 4,147 $ 8,912
Cost and expenses:
Cost of revenue................................. 984 1,280 2,855
Product development............................. 1,044 1,080 1,914
Sales and marketing............................. 272 603 2,019
General and administrative...................... 415 611 1,340
-------- -------- --------
Total cost and expenses....................... 2,715 3,574 8,128
-------- -------- --------
Operating income.................................. 3 573 784
Other income...................................... -- 98 297
Interest expense.................................. -- 2 --
-------- -------- --------
Income before provision for income taxes.......... 3 669 1,081
Provision for income taxes........................ 36 137 356
-------- -------- --------
Net income (loss)................................. $ (33) $ 532 $ 725
======== ======== ========
Net income per share (historical)................. $ 0.08
========
Shares used in per share calculation.............. 9,536
========
Pro forma net income data (unaudited) (Note 13):
Income before provision for income taxes........ $ 3 $ 669
Pro forma income tax benefit (expense).......... 18 (260)
-------- --------
Pro forma net income.......................... $ 21 $ 409
======== ========
Pro forma net income per share................ $ 0.00 $ 0.05
======== ========
Shares used in pro forma per share
calculation.................................. 5,997 8,049
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ARTISAN COMPONENTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- ------------- PAID IN RETAINED
SHARES AMOUNT SHARES AMOUNT WARRANT CAPITAL EARNINGS TOTAL
------- -------- ------ ------ ------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994. -- -- 5,009 $ 1 -- -- $ 585 $ 586
Options exercised........... -- -- 20 -- -- -- -- --
Distributions to
stockholders............... -- -- -- -- -- -- (143) (143)
Net loss.................... -- -- -- -- -- -- (33) (33)
------- -------- ----- --- ---- ---- ------ ------
Balance at September 30, 1995. -- -- 5,029 1 -- -- 409 410
Options exercised........... -- -- 85 -- -- 1 -- 1
Issuance of Series A
Preferred Stock, net of
issuance costs of $22...... 2,264 $3,478 -- -- -- -- -- 3,478
Distributions to
stockholders............... -- -- -- -- -- -- (129) (129)
Undistributed earnings of S
Corporation reflected as
additional paid in capital
of the Company............. -- -- -- 4 -- 527 (531) --
Net income.................. -- -- -- -- -- -- 532 532
------- -------- ----- --- ---- ---- ------ ------
Balance at September 30, 1996. 2,264 3,478 5,114 5 -- 528 281 4,292
Options exercised........... -- -- 510 1 -- 16 -- 17
Issuance of Series B
Preferred Stock, net of
issuance costs of $19...... 1,122 4,086 -- -- -- -- -- 4,086
Issuance of Common Stock to
employees as a stock bonus. -- -- 20 -- -- 103 -- 103
Issuance of warrant......... -- -- -- -- $125 -- -- 125
Net income.................. -- -- -- -- -- -- 725 725
------- -------- ----- --- ---- ---- ------ ------
Balance at September 30, 1997. 3,386 $ 7,564 5,644 $ 6 $125 $647 $1,006 $9,348
======= ======== ===== === ==== ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ARTISAN COMPONENTS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $ (33) $ 532 $ 725
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................. 167 250 777
Loss on sale of fixed assets.................. 2 -- --
Provision for doubtful accounts............... -- -- 275
Issuance of Common Stock to employees as a
stock bonus.................................. -- -- 103
Changes in assets and liabilities:
Contract receivables........................ (1,308) 86 (2,277)
Deferred revenue............................ 1,007 (250) 1,107
Prepaid expenses and other assets........... 99 (297) (267)
Deferred rent............................... -- 15 34
Deferred taxes.............................. -- 135 243
Accounts payable and accrued expenses....... 21 95 37
------- -------- --------
Net cash provided by (used in) operating
activities............................... (45) 566 757
------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment........... (90) (777) (3,389)
Proceeds from sale of property and equipment.... 4 12 --
Purchase of marketable securities............... -- (4,255) (5,692)
Proceeds from sales of marketable securities.... -- 2,007 4,456
------- -------- --------
Net cash used in investing activities..... (86) (3,013) (4,625)
------- -------- --------
Cash flows from financing activities:
Borrowings from line of credit.................. 200 445 --
Repayments on line of credit.................... -- (645) --
Net proceeds from issuance of Series A Preferred
Stock.......................................... -- 3,478 --
Net proceeds from issuance of Series B Preferred
Stock and warrant.............................. -- -- 4,211
Proceeds from issuance of Common Stock.......... -- 1 17
Distributions to shareholders................... (143) (129) --
------- -------- --------
Net cash provided by financing activities. 57 3,150 4,228
------- -------- --------
Net increase (decrease) in cash and cash
equivalents...................................... (74) 703 360
Cash and cash equivalents, beginning of period.... 80 6 709
------- -------- --------
Cash and cash equivalents, end of period.......... $ 6 $ 709 $ 1,069
======= ======== ========
CASH PAID FOR:
Income taxes.................................... $ 1 $ 2 $ 2
======= ======== ========
Interest paid................................... -- 2 --
======= ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Fixed asset acquisitions in exchange for
accounts payable............................... -- $ 208 $ 384
======= ======== ========
Issuance of Common Stock to employees as a stock
bonus.......................................... -- -- $ 103
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF THE COMPANY:
Artisan Components, Inc. (formerly VLSI Libraries Incorporated) (the
"Company") was incorporated in April 1991 to develop high performance, low
power and high density embedded memories and other intellectual property
("IP") components for the design and manufacture of complex integrated
circuits ("ICs"). The Company licenses its products to semiconductor
manufacturers and fabless semiconductor companies for the design of IC used in
complex, high volume applications, such as portable computing devices,
cellular phones, consumer multimedia products, automotive electronics,
personal computers and workstations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reported period. Actual results could differ from those estimates.
REVENUE AND COST OF REVENUE
Revenue consists of license fees for the Company's IP component products.
Revenue from license fees is recognized based on the percentage of completion
method for the majority of the Company's contracts. Under this method,
provisions for estimated losses on uncompleted contracts are recognized in the
period in which the likelihood of such losses is determined. Under certain
contracts where the costs cannot be estimated, the completed contract method
is utilized.
Cost of revenue is primarily comprised of salaries and benefits of employees
assigned to the contracts and is allocated based on the amount of time devoted
to each contract by the employees and includes an accrual for warranty costs.
PRODUCT DEVELOPMENT
Product development expenses are charged to operations as incurred.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of the incremental common shares
issuable upon conversion of convertible preferred stock (using the "if
converted" method) and exercise of stock options and warrants (using the
treasury stock method) for all periods.
The Company has computed common and common equivalent shares in determining
the number of shares used in calculating earnings per share for all periods
presented pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin (SAB) No. 83. SAB 83 requires the Company to include all common
shares and all common equivalent shares issued
F-7
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
during the 12 month period preceding the filing date of an initial public
offering in its calculation of the number of shares used to determine net
income (loss) per share as if the shares had been outstanding for all periods
presented.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less at date of acquisition to be cash
equivalents. The Company maintains its cash and cash equivalents in accounts
with one major financial institution.
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale securities and
are carried at fair value, based on quoted market prices, with the unrealized
gains or losses, net of tax, reported in stockholders' equity. The amortized
cost of debt securities is adjusted for amortization of premiums and accretion
of discounts to maturity, both of which are included in interest income.
Realized gains and losses are recorded on the specific identification method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Property and equipment are depreciated on a straight line basis over their
respective estimated useful lives of three to five years. Leasehold
improvements are amortized on a straight line basis over the shorter of their
respective estimated useful lives or the terms of their respective leases.
Upon disposal, assets and related accumulated depreciation are removed from
the accounts and the related gain or loss is included in results from
operations.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary
to reduce deferred tax assets to the amounts expected to be realized.
RECENT PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS
128"). SFAS 128 will change the computation, presentation and disclosure
requirements for earnings per share. SFAS 128 requires presentation of "basic"
and "diluted" earnings per share, as defined, on the face of the income
statement for all entities with complex capital structures. SFAS 128 is
effective for financial statements issued for periods ending after December
15, 1997 and requires restatement of all prior period earnings per share
amounts.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
("SFAS 130"). This statement establishes standards for reporting and display
of comprehensive income and its components (revenue, expenses and gains and
losses) in a full set of financial statements and becomes effective for fiscal
years beginning after December 31, 1997.
F-8
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
In June 1997, the FASB issued SFAS 131, "Disclosure About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 changes current
practice under SFAS 14 by establishing a new framework on which to base
segment reporting (referred to as the "management" approach) and also requires
interim reporting of segment information. It is effective for the Company's
fiscal year 1999.
The Company is currently studying the impact of these pronouncements.
3. BUSINESS RISKS AND CREDIT CONCENTRATION:
The Company operates in an intensely competitive industry which has been
characterized by rapid technological change, short product life cycles,
cyclical market patterns and heightened foreign and domestic competition.
Significant technological changes in the industry could affect operating
results adversely.
The Company markets and sells its technology to a narrow base of customers
and generally does not require collateral. At September 30, 1997, four
customers accounted for 36%, 20%, 15% and 14%, respectively, of contract
receivables. At September 30, 1996, five customers accounted for 24%, 24%,
15%, 12% and 12%, respectively, of contract receivables.
As of September 30, 1997, the Company's cash and cash equivalents were
deposited with one major financial institution in the form of demand deposits
and money market accounts.
Financial instruments that potentially subject the Company to concentrations
of credit risk comprise principally cash and cash equivalents, marketable
securities and contract receivables. The Company invests its excess cash
primarily in U.S. government agency and treasury notes that mature within two
years.
4. CONTRACT RECEIVABLES:
Contract receivables were comprised of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1996 1997
-------------
<S> <C> <C>
Accounts receivable......................................... $ 269 $ 1,092
Unbilled contract receivables............................... 563 2,017
----- -------
832 3,109
Allowance for doubtful accounts............................. -- (275)
----- -------
$ 832 $ 2,834
===== =======
</TABLE>
F-9
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. PROPERTY AND EQUIPMENT:
Property and equipment were comprised of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1996 1997
------ ------
<S> <C> <C>
Computer equipment and software............................ $1,339 $3,969
Office furniture........................................... 197 288
Leasehold improvements..................................... 44 1,096
------ ------
1,580 5,353
Accumulated depreciation and amortization.................. (607) (1,384)
------ ------
$ 973 $3,969
====== ======
</TABLE>
Depreciation and amortization expense was $167,000, $250,000 and $777,000
for fiscal 1995, 1996 and 1997, respectively.
6. MARKETABLE SECURITIES:
Marketable securities, classified as available-for-sale securities, included
the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1996 1997
------ ------
<S> <C> <C>
Short term investments:
U. S. Government Securities............................... $1,249 $2,499
====== ======
Long term investments:
U. S. Government Securities............................... $1,000 $ 986
====== ======
</TABLE>
All short term investments have maturities of less than one year from
September 30. Long term investments at September 30, 1997 mature on December
15, 1998.
The cost of marketable securities approximates fair value of the securities
and there are no unrealized holding gains or losses.
7. LINE OF CREDIT:
The Company's bank line of credit provides for borrowings of up to $300,000,
bears interest at the Bank's prime rate plus 1.75% (8.25% and 8.50% at
September 30, 1996 and 1997, respectively), and expires on February 28, 1998.
There were no borrowings under this line as of September 30, 1996 or 1997. Any
outstanding amounts under the line of credit would be collateralized by
substantially all of the Company's assets.
8. COMMITMENTS:
The Company rents its new office facility under a noncancelable operating
lease that expires in 2004. Under the terms of the lease, the Company is
responsible for its share of taxes, insurance and common area maintenance
costs.
F-10
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. COMMITMENTS, CONTINUED:
At September 30, 1997, future minimum annual lease payments under this lease
were as follows (in thousands):
<TABLE>
<S> <C>
1998................................................................ $ 431
1999................................................................ 451
2000................................................................ 470
2001................................................................ 490
2002................................................................ 509
and thereafter...................................................... 1,078
------
$3,429
======
</TABLE>
The Company continues to lease its previous office facility in San Jose
under a noncancelable lease that expires in 2001. In October 1997, the Company
entered into a sublease arrangement with respect to the old office facility.
This arrangement expires in 2001 with the subtenant assuming the lease
obligation of the Company.
Future minimum annual lease payments and future minimum annual rental income
in respect of this property are as follows (in thousands):
<TABLE>
<CAPTION>
LEASE RENTAL
PAYMENT INCOME
------- ------
<S> <C> <C>
1998........................................................ $ 314 $ 314
1999........................................................ 330 330
2000........................................................ 347 347
2001........................................................ 148 148
------ ------
$1,139 $1,139
====== ======
</TABLE>
Rent expense was $201,258, $323,650 and $441,591 for fiscal 1995, 1996 and
1997, respectively.
9. STOCKHOLDERS' EQUITY
Stock Splits
During January 1997, the Board of Directors declared a two-for-one Common
Stock and convertible Series A and Series B Preferred Stock split. In November
1997, the Board of Directors declared a one-for-two reverse Common Stock and
convertible Series A and Series B Preferred Stock split. All share data
including stock option plan information is restated to reflect the stock
splits.
At September 30, 1996 and 1997, convertible Preferred Stock consisted of the
following (in thousands):
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF SHARES ISSUED
AUTHORIZED AND OUTSTANDING PROCEEDS, NET
----------------------- --------------------- -------------------
SERIES 1996 1997 1996 1997 1996 1997
------ -------- -------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
A 2,264 2,264 2,264 2,264 $3,478 $3,478
B -- 1,172 -- 1,122 -- 4,086
-------- -------- ------- ------- ------ ------
2,264 3,436 2,264 3,386 $3,478 $7,564
======== ======== ======= ======= ====== ======
</TABLE>
F-11
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY, CONTINUED:
The rights, preferences and privileges of the Preferred Stockholders are as
follows:
Dividends
The holders of Series A and Series B Preferred Stock are entitled to
dividends in preference to Common Stockholders of $0.15461 and $0.377 per
annum, respectively. Any dividends would be noncumulative and no right to such
dividends would accrue to holders of Preferred Stock unless declared by the
Board of Directors. As of September 30, 1997, no dividends have been declared.
Conversion, Participation and Registration
The Series A and Series B Preferred Stock is convertible, at the option of
the holders, at any time, into Common Stock at conversion values of $1.5461
and $3.77, respectively, subject to certain antidilution adjustments.
Conversion is automatic upon the closing of a firm commitment underwritten
public offering having an aggregate offering price of at least $10,000,000.
The Preferred Stockholders have certain registration rights and the right to
participate in future issuances of the Company's stock. Additionally, the
Preferred Stockholders have the right of first refusal and the right to
participate, should the major Common Stockholder sell shares, which rights
also terminate upon the closing of a firm commitment underwritten public
offering. The Company has reserved 3,385,736 shares of Common Stock in the
event of conversion.
Voting
Each share of Series A and Series B Preferred Stock has voting rights equal
to the number of Common Stock into which it converts. In addition, the holders
of Series A Preferred Stock have the right to elect two members of the Board
of Directors and the major Common Stockholder has the right to elect two
members of the Board of Directors. The remaining director is elected by
holders of both classes of stock.
Liquidation
The holders of Series A and Series B Preferred Stock are entitled to a
preference in liquidation to Common Stockholders of $1.5461 and $3.77 per
share, respectively, plus declared but unpaid dividends. After the above
amounts have been paid on the Preferred Stock, the remaining assets are
distributed to the holders of the Common Stock. If liquidation occurs prior to
March 20, 1999, the above preferences will also include an amount equal to a
25% rate of return on the original purchase price, compounded annually, from
the date of issuance.
Warrant
In connection with the issuance of the Series B Preferred Stock the Company
issued a warrant to purchase up to 50,000 shares of Series B Preferred Stock
with a purchase price of $3.77. The Company has reserved 50,000 shares of
Common Stock for issuance upon exercise of the warrant.
F-12
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY, CONTINUED:
Stock Option Plan
The Company has reserved 2,291,396 shares of its Common Stock under its 1993
Stock Option Plan, as amended (the "1993 Plan") for issuance upon the exercise
of nonstatutory and incentive stock options to employees and consultants. The
1993 Plan expires in 2003. Options to purchase the Company's Common Stock may
be granted at a price not less than 85% of fair market value in the case of
nonstatutory stock options, and at fair market value in the case of incentive
stock options. Fair market value is determined by the Board of Directors.
Options become exercisable as determined by the Board of Directors but
generally at a rate of 25% after the first year and 6.25% each quarter
thereafter. Options expire as determined by the Board of Directors but not
more than ten years after the date of grant.
Stock Option Plan
Activity under the Plan was as follows (in thousands except per share data):
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS OUTSTANDING AVERAGE
SHARES ---------------------------- EXERCISE
AVAILABLE NUMBER PRICE PER PRICE
FOR GRANT OF SHARES SHARE TOTAL PER SHARE
--------- --------- ----------- ------ ---------
<S> <C> <C> <C> <C> <C>
Balance at September 30,
1994........................ 750 611 $0.01 $ 6 $0.01
Granted.................... (212) 212 $0.01 2 $0.01
Exercised.................. -- (20) $0.01 -- $0.01
Canceled................... 226 (226) $0.01 (2) $0.01
---- ----- ------
Balance at September 30,
1995........................ 764 577 $0.01 6
Additional shares reserved
for issuance.............. 422 -- -- --
Granted.................... (598) 598 $0.01-$0.15 47 $0.0784
Exercised.................. -- (85) $0.01 (1) $0.01
Canceled................... 4 (4) $0.01 -- $0.01
---- ----- ------
Balance at September 30,
1996........................ 592 1,086 $0.01-$0.15 52
Additional share reserved
for issuance.............. 400 -- -- --
Granted.................... (831) 831 $0.15-$5.00 2,165 $2.6052
Exercised.................. -- (510) $0.01-$0.05 (17) $0.034
---- ----- ------
Balance at September 30,
1997........................ 161 1,407 $0.01-$5.00 $2,200
==== ===== ======
</TABLE>
At September 30, 1995, 1996 and 1997, options to purchase 225,917, 303,235
and 291,011 shares of Common Stock, respectively, were exercisable.
Stock Compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost has been
recognized for the 1993 Plan. The effect on fiscal 1996 and 1997 net income,
had compensation cost for the 1993 Plan been determined based on the fair
value at the grant date for awards consistent with the provisions of SFAS No.
123, would not result in a significant difference from the reported net income
for 1996 and 1997. However, such difference may not be representative of
future compensation cost because options vest over several years and
additional grants are made each year.
F-13
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY, CONTINUED:
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following weighted assumptions:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Risk-free interest rate.................................... 5.65% 6.25%
Expected average life...................................... 5 years 5 years
Expected dividends......................................... -- --
Expected volatility........................................ 0% 0%
</TABLE>
The expected average life is based upon the assumption that the stock
options, on average, are exercised one year after they are fully vested. The
weighted average remaining contract life was 9.3 and 8.9 years, as of
September 30, 1996 and 1997, respectively.
The options outstanding and currently exercisable by exercise price at
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------------- ----------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.01-$1.00 932,333 8.45 0.107 289,386 $0.089
$2.00-$3.50 52,450 9.51 2.442 1,625 $2.000
$4.50-$5.00 422,125 9.77 4.672 -- --
</TABLE>
10. INCOME TAXES:
Prior to March 1996, the Company was organized as a subchapter S Corporation
and profits and losses for these periods flowed through to the shareholders.
Deferred tax assets and liabilities associated with temporary differences at
the termination of S corporation status were recorded with a corresponding
charge to provision for income taxes. Taxes reflected in the 1995 financial
statements represent foreign income and franchise taxes imposed on S
Corporations by California.
The provision for income taxes was comprised (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Federal:
Current................................................... $ -- $ -- $ --
Deferred.................................................. -- 114 181
---- ---- ----
-- 114 181
State:
Current................................................... 1 3 --
Deferred.................................................. -- 20 49
---- ---- ----
1 23 49
Foreign:
Current................................................... 35 -- 126
---- ---- ----
Total................................................... $ 36 $137 $356
==== ==== ====
</TABLE>
F-14
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES, CONTINUED:
The Company's effective tax rate on pretax income differed from the U.S.
federal statutory regular tax rate as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ----- ----
<S> <C> <C> <C>
Provision at U.S. federal statutory rate............. 34.0% 34.0% 34.0%
State tax net of federal benefit..................... 32.3 3.4 4.2
Non-taxable S Corporation earnings................... (34.0) (16.0) --
Research and development tax credit.................. -- (0.9) (5.3)
Foreign taxes........................................ 1,167.7 -- --
------- ----- ----
1,200.0% 20.5% 32.9%
======= ===== ====
</TABLE>
Temporary differences and carryforwards which gave rise to significant
portions of deferred tax assets and liabilities as of September 30, was as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
DEFERRED TAX ASSETS:
Current:
Net operating loss carryforwards.......................... $ 9 $ --
Research and development credits.......................... 14 85
Other credits............................................. -- 8
State taxes............................................... 1 --
----- -----
24 93
Non current:
Depreciation and amortization............................. 28 6
----- -----
52 99
DEFERRED TAX LIABILITIES:
Current:
Accrual to cash conversion................................ (187) (477)
----- -----
Net deferred tax liability.................................. $(135) $(378)
===== =====
</TABLE>
11. SEGMENT REPORTING:
The Company operates in one industry segment.
The distribution of revenues by geographic area was as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
REVENUES FROM UNAFFILIATED CUSTOMERS:
North America........................................ $1,222 $2,180 $2,923
Europe............................................... 737 944 2,873
Asia................................................. 759 1,023 3,116
------ ------ ------
$2,718 $4,147 $8,912
====== ====== ======
</TABLE>
F-15
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. SEGMENT REPORTING, CONTINUED:
Revenue from individual customers in excess of 10% of revenue was as follows
(in thousands, except percent data):
<TABLE>
<CAPTION>
1995 1996 1997
-------------- -------------- --------------
PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
A............................. 20% $552 20% $ 836 27% $2,362
B............................. 17% 466 -- -- 13% 1,145
C............................. 17% 456 10% 395 -- --
D............................. 11% 292 -- -- -- --
E............................. 10% 274 -- -- -- --
F............................. -- -- 15% 627 16% 1,388
G............................. -- -- 37% 1,533 -- --
H............................. -- -- -- -- 24% 2,167
</TABLE>
12. BENEFIT PLAN:
The Company sponsors a 401(k) profit sharing plan (the "401(k) Plan") for
substantially all employees. The 401(k) Plan provides for profit sharing
contributions to be made at the discretion of the Company's Board of
Directors. The Company did not elect to make a profit sharing contribution for
fiscal 1995, 1996 or 1997.
The 401(k) Plan also provides for elective employee salary reduction
contributions and Company matching of employees' contributions. Employees may
contribute up to 15% of elective compensation. The Company's matching
contribution is at the discretion of the Company's Board of Directors. The
Company's matching contributions were $36,838, $39,756 and $74,017 for fiscal
1995, 1996 and 1997, respectively.
13. UNAUDITED PRO FORMA DATA:
The statement of operations includes pro forma tax expense to reflect tax
expense as if the Company had been a C Corporation in fiscal 1995 and 1996.
The components of the pro forma tax benefit (expense) consisted of (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
---------------
1995 1996
------ -------
<S> <C> <C>
Federal:
Deferred................................................ $ 18 $ (222)
State:
Current................................................. 1 (1)
Deferred................................................ (1) (37)
Foreign:
Current................................................. 32 --
Deferred................................................ (32) --
------ -------
Tax benefit (expense)................................. $ 18 $ (260)
====== =======
</TABLE>
Upon the closing of an initial public offering of the Company's Common Stock
that meets the criteria set out in Note 9, all the convertible Preferred Stock
and warrant outstanding will convert into an aggregate of 3,435,736 shares of
Common Stock. At September 30, 1997, the unaudited pro forma stockholders'
equity is adjusted for the conversion of the convertible Preferred Stock and
warrant outstanding at September 30, 1997 and is disclosed on the face of the
balance sheets.
F-16
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
14. SUBSEQUENT EVENTS:
In November 1997, the Board of Directors and the stockholders approved the
reincorporation of the Company in Delaware. Under the new Certificate of
Incorporation in Delaware, the Company is authorized to issue 50,000,000
shares of Common Stock at $0.001 par value and 5,000,000 shares of Preferred
Stock at $0.001 par value.
In November 1997, the Board of Directors and the stockholders authorized
management of the Company to file a Registration Statement with the Securities
and Exchange Commission relating to a public offering of the Company's Common
Stock.
In November 1997, the Board of Directors and the stockholders also approved
the adoption of a 1997 Employee Stock Purchase Plan and the adoption of a 1997
Director Option Plan (see description below). The Board of Directors also
authorized, and the stockholders approved, the reservation of an additional
two million shares for issuance under the 1993 Plan. Additionally, the Board
of Directors and the stockholders approved certain amendments to the Company's
Certificate of Incorporation and Bylaws.
The 1997 Employee Stock Purchase Plan authorizes the granting of stock
purchase rights to eligible employees during two-year offering periods with
exercise dates approximately every six months. The Board of Directors reserved
600,000 shares of common stock for issuance under the plan. Shares are
purchased through employees' payroll deductions at purchase prices equal to
85% of the lesser of the fair market value of the Company's common stock at
either the first day of each offering period or the date of purchase.
A total of 200,000 shares of Common Stock have been reserved for issuance
under the 1997 Director Option Plan.
F-17
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS
OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
The Company ............................................................. 4
Risk Factors ............................................................ 5
Use of Proceeds ......................................................... 15
Dividend Policy ......................................................... 15
Capitalization .......................................................... 16
Dilution ................................................................ 17
Selected Financial Data ................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................... 19
Business ................................................................ 27
Management............................................................... 38
Certain Transactions .................................................... 47
Principal Stockholders .................................................. 49
Description of Capital Stock ............................................ 51
Shares Eligible for Future Sale ......................................... 55
Underwriting ............................................................ 57
Legal Matters ........................................................... 58
Experts ................................................................. 59
Additional Information .................................................. 59
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL , 1998 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
[ARTISAN LOGO APPEARS HERE]
2,900,000 SHARES
COMMON STOCK
DEUTSCHE MORGAN GRENFELL
HAMBRECHT & QUIST
WESSELS, ARNOLD & HENDERSON
PROSPECTUS
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discount, payable by the Registrant in connection with the sale of the Common
Stock being registered. All the amounts shown are estimates, except for the
registration fee, the NASD fee and the Nasdaq National Market filing fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- --------
<S> <C>
Registration Fee...................................................... $ 9,096
NASD Filing Fee....................................................... 3,502
Nasdaq National Market Listing Fee.................................... 50,000
Blue Sky Fees and Expenses............................................ 10,000
Printing and Engraving Expenses....................................... 150,000
Legal Fees and Expenses............................................... 300,000
Accounting Fees and Expenses.......................................... 225,000
Transfer Agent and Registrar Fees..................................... 20,000
Miscellaneous expenses................................................ 82,402
--------
Total............................................................... $850,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 204(a) of the California General Corporation Law,
the Registrant's Amended and Restated Articles of Incorporation eliminate a
director's personal liability for monetary damages to the Registrant and its
shareholders arising from a breach or alleged breach of the director's
fiduciary duty, except for liability arising under Sections 310 and 316 of the
California General Corporation Law or liability for (i) acts or omissions that
involve intentional misconduct or knowing and culpable violation of law, (ii)
acts or omissions that a director believes to be contrary to the best
interests of the Registrant or its shareholders or that involve the absence of
good faith on the part of the director, (iii) any transaction from which a
director derived an improper personal benefit, (iv) acts or omissions that
show a reckless disregard for the director's duty to the Registrant or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a
risk of serious injury to the Registrant or its shareholders, (v) acts or
omissions that constitute an unexcused pattern of inattention that amounts to
an abdication of the director's duty to the Registrant or its shareholders,
(vi) interested transactions between the corporation and a director in which a
director has a material financial interest, and (vii) liability for improper
distributions, loans or guarantees. This provision does not eliminate the
directors' duty of care, and in appropriate circumstances equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available under California law.
Sections 204(a) and 317 of the California General Corporation Law authorize
a corporation to indemnify its directors, officers, employees and other agents
in terms sufficiently broad to permit indemnification (including reimbursement
for expenses) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Amended and Restated Articles of Incorporation and Bylaws contain provisions
covering indemnification to the maximum extent permitted by the California
General Corporation Law of corporate directors, officers and other agents
against certain liabilities and expenses incurred as a result of proceedings
involving such persons in their capacities as directors, officers employees or
agents, including proceedings under the Securities Act or the
II-1
<PAGE>
Securities Exchange Act of 1934, as amended. Prior to the effective date of
this Offering, the Registrant will enter into indemnification agreements with
its directors and executive officers.
In connection with its reincorporation in Delaware, the Registrant will be
subject to Section 145 of the Delaware General Corporation Law ("Section
145"). Section 145 permits indemnification of officers and directors of the
Company under certain conditions and subject to certain limitations. Section
145 also provides that a corporation has the power to maintain insurance on
behalf of its officers and directors against any liability asserted against
such person and incurred by him or her in such capacity, or arising out of his
or her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of Section
145. Upon shareholder approval of such reincorporation, Article VI, Section
6.1, of the Registrant's Bylaws will provide for mandatory indemnification of
its directors and officers and permissible indemnification of employees and
other agents to the maximum extent not prohibited by the Delaware General
Corporation Law. The rights to indemnity thereunder continue as to a person
who has ceased to be a director, officer, employee or agent and inure to the
benefit of the heirs, executors and administrators of the person. In addition,
expenses incurred by a director or executive officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding by reason
of the fact that he or she is or was a director or officer of the Registrant
(or was serving at the Registrant's request as a director or officer of
another corporation) shall be paid by the Registrant in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by
the Registrant as authorized by the relevant section of the Delaware General
Corporation Law.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
the Registrant's Certificate of Incorporation provides that, pursuant to
Delaware law, its directors shall not be personally liable for monetary
damages for breach of the directors' fiduciary duty as directors to the
Registrant and its stockholders. This provision in the Certificate of
Incorporation does not eliminate the directors' fiduciary duty, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Registrant for acts or omission not in good
faith or involving international misconduct, for knowing violations of law,
for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of Stock repurchases or redemptions that are
unlawful under Section 174 of the Delaware General Corporation Law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental
laws. The Registrant has entered into indemnification agreements with each of
its directors and executive officers. Generally, the indemnification
agreements attempt to provide the maximum protection permitted by Delaware law
as it may be amended from time to time. Moreover, the indemnification
agreements provide for certain additional indemnification. Under such
additional indemnification provisions, however, an individual will not receive
indemnification for judgments, settlements or expenses if he or she is found
liable to the Registrant (except to the extent the court determines he or she
is fairly and reasonably entitled to indemnity for expenses), for settlements
not approved by the Registrant or for settlements and expenses if the
settlement is not approved by the court. The indemnification agreements
provide for the Registrant to advance to the individual any and all reasonable
expenses (including legal fees and expenses) incurred in investigating or
defending any such action, suit or proceeding. In order to receive an advance
of expenses, the individual must submit to the Registrant copies of invoices
presented to him or her for such expenses. Also, the individual must repay
such advances upon a final judicial decision that he or she is not entitled to
indemnification.
II-2
<PAGE>
The Registrant intends to enter into additional indemnification agreements
with each of its directors and executive officers to effectuate these
indemnity provisions and to purchase directors' and officers' liability
insurance.
In addition to the foregoing, the Underwriting Agreement contains certain
provisions by which the Underwriters have agreed to indemnify the Registrant,
each person, if any, who controls the Registrant within the meaning of Section
15 of the Securities Act, each director of the Registrant, each officer of the
Registrant who signs the Registration Statement, with respect to information
furnished in writing by or on behalf of the Underwriters for use in the
Registration Statement.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought, nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since September 30, 1994, the Registrant has issued and sold (without
payment of any selling commission to any person) the following unregistered
securities (as adjusted to reflect the two-for-one stock split effected in
January 1997 and the one-for-two reverse stock split effected in November
1997):
1. From September 30, 1994 to September 30, 1997, the Registrant issued and
sold 723,604 shares of Common Stock to employees and consultants at prices
ranging from $0.01 to $0.15 per share, upon exercise of stock options,
pursuant to the Registrant's 1993 Stock Option Plan.
2. On September 30, 1997, the Registrant issued 20,613 shares of Common Stock
to employees as a stock bonus.
3. On March 21, 1996, the Registrant issued and sold 2,263,805 shares of
Series A Preferred Stock to a total of four investors for an aggregate
purchase price of $3,500,059.64.
4. On December 17, 1996, the Registrant issued and sold 1,121,931 shares of
Series B Preferred Stock to a total of five investors for an aggregate
purchase price of $4,229,679.87 and issued to one investor for no
additional consideration a warrant to purchase 50,000 shares of Series B
Preferred Stock at an exercise price of $3.77 per share plus an additional
variable amount of Preferred Stock.
The issuances of securities set forth in paragraphs 1 and 2 above were
deemed to be exempt from the registration requirements of the Securities Act
in reliance on Rule 701 promulgated under Section 3(b) of the Securities Act
as transactions by an issuer pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The sales
of securities set forth in paragraphs 3 and 4 above were deemed to be exempt
from the registration requirements of the Securities Act in reliance on
Section 4(2) thereof, or Regulation D promulgated thereunder, as transactions
by an issuer not involving a public offering. The granting of Stock options
described in paragraph 1 above and the Stock bonus described in paragraph 2
above did not require registration under the Securities Act, or an exemption
therefrom, insofar as such grants did not involve a "sale" of securities as
such term is used in Section 2(3) of the Securities Act.
The recipients of the securities in each of the transactions set forth in
paragraphs 1 through 4 above represented their intention to acquire such
securities for investment only and not with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates and instruments used in such transactions. All
recipients
II-3
<PAGE>
received adequate information about the Registrant at the time of the
acquisition of such securities or had access, through employment or other
relationships with the Registrant, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Form of Agreement and Plan of Merger between Artisan Components, Inc.,
a California corporation, and Artisan Components, Inc., a Delaware
corporation
3.1 Certificate of Incorporation of the Registrant.
3.2 Amended and Restated Certificate of Incorporation of the Registrant
(to be filed immediately after the closing of this offering).
3.3 Bylaws of the Registrant.
3.4.1 California Amended and Restated Articles of Incorporation.
3.4.2 California Bylaws of Registrant.
4.1* Specimen Common Stock certificate of the Registrant.
4.2 First Amended and Restated Registration Rights Agreement dated
December 17, 1996 by and among the Registrant and the Shareholders
named therein.
4.3 Warrant to purchase shares of Series B Preferred Stock dated December
17, 1996 issued by the Registrant to Synopsys, Inc.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement for directors and executive
officers.
10.2 1993 Stock Option Plan and form of agreement thereunder.
10.3 1997 Employee Stock Purchase Plan.
10.4 1997 Director Stock Option Plan.
10.5 Lease Agreement dated December 13, 1995 between Registrant and
Spieker Properties, L.P. for 2077 Gateway Place, San Jose, California
office.
10.5.1 Sublease dated October 10, 1997 between the Registrant and Unison
Software, Inc.
10.5.2 First Addendum to Sublease dated October 14, 1997 between the
Registrant and Unison Software, Inc.
10.5.3 Fixed Asset Purchase Agreement dated October 10, 1997 between the
Registrant and Unison Software, Inc.
10.6 Series A Preferred Stock Purchase Agreement dated March 21, 1996 by
and among the Registrant and the Purchasers named therein.
10.7+ Purchase and License Agreement dated April 9, 1996 between the
Registrant and OKI Electric Industry Co., Ltd. and amendments
thereto.
10.8 Business Loan Agreement dated May 8, 1996 between the Registrant and
Union Bank of California, N.A. and attachments thereto.
10.9 Offer Letter dated August 29, 1996 between the Registrant and Jeffrey
A. Lewis and letter amendment dated September 5, 1995 thereto.
10.10+ Collaboration Agreement dated December 4, 1996 between the Registrant
and SGS-THOMSON MICROELECTRONICS S.r.l.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.11 Series B Preferred Stock Purchase Agreement dated December 17, 1996
by and among the Registrant and the Purchasers named therein.
10.12+ OEM Agreement dated December 17, 1996 between the Registrant and
Synopsys, Inc.
10.13+ License Agreement dated June 16, 1997 between the Registrant and
Fujitsu Microelectronics, Inc.
10.14 Lease Agreement dated June 16, 1997 between Registrant, Richard
Bowling and Katherine Bowling for 1195 Bordeaux Drive, Sunnyvale,
California office.
10.15 Severance Agreement dated June 20, 1997 between the Registrant and
Robert D. Selvi.
10.16 Offer Letter dated July 31, 1997 between the Registrant and Larry J.
Fagg.
11.1 Statement regarding calculation of earnings per share.
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(See Exhibit 5.1)
24.1 Power of Attorney (see page II-7)
27.1 Financial Data Schedule.
</TABLE>
- --------
* Documents to be filed by amendment.
+ Certain information in these exhibits has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential
treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.46.
B. FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because they are inapplicable or the
requested information is shown in the financial statements of the Registrant
or notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-5
<PAGE>
The Registrant hereby undertakes that:
(1) for purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective;
(2) For the purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sunnyvale, State of
California, on the 26th day of November, 1997.
Artisan Components, Inc.
/s/ Mark R. Templeton
By___________________________________
MARK R. TEMPLETON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Mark R. Templeton and Robert D. Selvi
and each of them acting individually, as his true and lawful attorneys-in-fact
and agents, with full power of each to act alone, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments or any abbreviated registration
statement and any amendments thereto filed pursuant to Rule 462(b) increasing
the number of securities for which registration is sought), and file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, with full power of each to act alone, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, or his or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Mark R. Templeton President, Chief Executive November 26, 1997
____________________________________ Officer and Director
Mark R. Templeton (Principal Executive
Officer)
/s/ Robert D. Selvi Vice President, Finance, November 26, 1997
____________________________________ and Chief Financial
Robert D. Selvi Officer (Principal
Financial and Accounting
Officer)
/s/ Lucio L. Lanza Chairman of the Board of November 26, 1997
____________________________________ Directors
Lucio L. Lanza
/s/ Scott T. Becker Director November 26, 1997
____________________________________
Scott T. Becker
Director November , 1997
____________________________________
Dr. Eli Harari
</TABLE>
II-7
<PAGE>
ARTISAN COMPONENTS, INC.
Schedule II--Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
ADDITIONS
--------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COST AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended September 30,
1995:
Allowance for doubtful
accounts............. -- -- -- -- --
Year ended September 30,
1996:
Allowance for doubtful
accounts............. -- -- -- -- --
Year ended September 30,
1997:
Allowance for doubtful
accounts............. -- $275,000 -- -- $275,000
</TABLE>
S-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
In connection with our audits of the financial statements of Artisan
Components, Inc. as of September 30, 1996 and 1997, and for each of the three
years in the period ended September 30, 1997, which financial statements are
included in the Registration Statement, we have also audited the financial
statement schedule listed in Item 16.b. herein.
In our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
San Jose, California
November 24, 1997
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Form of Agreement and Plan of Merger between Artisan Components, Inc.,
a California corporation, and Artisan Components, Inc., a Delaware
corporation
3.1 Certificate of Incorporation of the Registrant.
3.2 Amended and Restated Certificate of Incorporation of the Registrant
(to be filed immediately after the closing of this offering).
3.3 Bylaws of the Registrant.
3.4.1 California Amended and Restated Articles of Incorporation.
3.4.2 California Bylaws of Registrant.
4.1* Specimen Common Stock certificate of the Registrant.
4.2 First Amended and Restated Registration Rights Agreement dated
December 17, 1996 by and among the Registrant and the Shareholders
named therein.
4.3 Warrant to purchase shares of Series B Preferred Stock dated December
17, 1996 issued by the Registrant to Synopsys, Inc.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement for directors and executive
officers.
10.2 1993 Stock Option Plan and form of agreement thereunder.
10.3 1997 Employee Stock Purchase Plan.
10.4 1997 Director Stock Option Plan.
10.5 Lease Agreement dated December 13, 1995 between Registrant and
Spieker Properties, L.P. for 2077 Gateway Place, San Jose, California
office.
10.5.1 Sublease dated October 10, 1997 between the Registrant and Unison
Software, Inc.
10.5.2 First Addendum to Sublease dated October 14, 1997 between the
Registrant and Unison Software, Inc.
10.5.3 Fixed Asset Purchase Agreement dated October 10, 1997 between the
Registrant and Unison Software, Inc.
10.6 Series A Preferred Stock Purchase Agreement dated March 21, 1996 by
and among the Registrant and the Purchasers named therein.
10.7+ Purchase and License Agreement dated April 9, 1996 between the
Registrant and OKI Electric Industry Co., Ltd. and amendments
thereto.
10.8 Business Loan Agreement dated May 8, 1996 between the Registrant and
Union Bank of California, N.A. and attachments thereto.
10.9 Offer Letter dated August 29, 1996 between the Registrant and Jeffrey
A. Lewis and letter amendment dated September 5, 1995 thereto.
10.10+ Collaboration Agreement dated December 4, 1996 between the Registrant
and SGS-THOMSON MICROELECTRONICS S.r.l.
10.11 Series B Preferred Stock Purchase Agreement dated December 17, 1996
by and among the Registrant and the Purchasers named therein.
10.12+ OEM Agreement dated December 17, 1996 between the Registrant and
Synopsys, Inc.
10.13+ License Agreement dated June 16, 1997 between the Registrant and
Fujitsu Microelectronics, Inc.
10.14 Lease Agreement dated June 16, 1997 between Registrant, Richard
Bowling and Katherine Bowling for 1195 Bordeaux Drive, Sunnyvale,
California office.
10.15 Severance Agreement dated June 20, 1997 between the Registrant and
Robert D. Selvi.
10.16 Offer Letter dated July 31, 1997 between the Registrant and Larry J.
Fagg.
11.1 Statement regarding calculation of earnings per share.
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(See Exhibit 5.1)
24.1 Power of Attorney (see page II-7)
27.1 Financial Data Schedule.
</TABLE>
- --------
* Documents to be filed by amendment.
+ Certain information in these exhibits has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential
treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.46.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
OF ARTISAN COMPONENTS, INC.
A DELAWARE CORPORATION
AND
A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER dated as of November __, 1997, (the
"Agreement") is between Artisan Components, Inc., a Delaware corporation
("Artisan-Delaware") and Artisan Components, Inc., a California corporation
("Artisan-California"). Artisan-Delaware and Artisan-California are sometimes
referred to herein as the "Constituent Corporations."
R E C I T A L S
---------------
A. Artisan-Delaware is a corporation duly organized and existing under
the laws of the State of Delaware and has an authorized capital of 53,435,736
shares, 50,000,000 of which are designated "Common Stock", $.001 par value and
3,435,736 of which are designated "Preferred Stock", $.001 par value. Of such
authorized shares of Preferred Stock, 2,263,802 shares are designated "Series A
Preferred Stock," and 1,171,934 shares are designated "Series B Preferred
Stock." As of the date of this Agreement of Merger, 100 shares of Common Stock
were issued and outstanding, all of which were held by Artisan-California. No
shares of Preferred Stock were outstanding.
B. Artisan-California is a corporation duly organized and existing under
the laws of the State of California and has an authorized capital of 53,435,736
shares, 50,000,000 of which are designated "Common Stock", no par value and
3,435,736 of which are designated "Preferred Stock", no par value. Of such
authorized shares of Preferred Stock, 2,263,802 shares are designated "Series A
Preferred Stock," and 1,171,934 shares are designated "Series B Preferred
Stock." As of the date of this Agreement of Merger, ________ shares of Common
Stock, 2,263,802 shares of Series A Preferred Stock, and 1,121,934 shares of
Series B Preferred Stock were issued and outstanding.
C. The Board of Directors of Artisan-California has determined that, for
the purpose of effecting the reincorporation of Artisan-California in the State
of Delaware, it is advisable and in the best interests of Artisan-California
that Artisan-California merge with and into Artisan-Delaware upon the terms and
conditions herein provided.
D. The respective Boards of Directors of Artisan-Delaware and Artisan-
California have approved this Agreement and have directed that this Agreement be
submitted to a vote of their respective stockholders and executed by the
undersigned officers.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, Artisan-Delaware and Artisan-California hereby agree, subject to
the terms and conditions hereinafter set forth, as follows:
I. MERGER
<PAGE>
1.1 Merger. In accordance with the provisions of this Agreement, the
------
Delaware General Corporation Law and the California General Corporation Law,
Artisan-California shall be merged with and into Artisan-Delaware (the
"Merger"), the separate existence of Artisan-California shall cease and Artisan-
Delaware shall be, and is herein sometimes referred as, the "Surviving
Corporation", and the name of the Surviving Corporation shall be Artisan
Components, Inc.
1.2 Filing and Effectiveness. The Merger shall be completed when the
------------------------
following actions shall have been completed:
(a) This Agreement and Merger was adopted and approved by the
stockholders of each Constituent Corporation in accordance with the requirements
of the Delaware General Corporation Law and the California General Corporation
Law on November __, 1997 and November __, 1997, respectively;
(b) All of the conditions precedent to the consummation of the Merger
specified in this Agreement shall have been satisfied or duly waived by the
party entitled to satisfaction thereof;
(c) An executed Agreement and Plan of Merger meeting the requirements
of the Delaware General Corporation Law shall have been filed with the Secretary
of State of the State of Delaware;
(d) An executed Certificate of Merger or an executed, acknowledged and
certified counterpart of this Agreement meeting the requirements of the
California Corporations Code shall have been filed with the Secretary of State
of the State of California; and
Pursuant to Section 251 of the Delaware General Corporation Law and Section
1168 of the California Corporations Code, the date and time when the Merger
shall become effective, shall be the date upon which subsections (a), (b) and
(c) of this Section 1.2 are satisfied and as to Artisan-California on the day
subsection (d) is satisfied, is herein called the "Effective Date of the
Merger."
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
--------------------
separate existence of Artisan-California shall cease and Artisan-Delaware, as
the Surviving Corporation, (i) shall continue to possess all of its assets,
rights, powers and property as constituted immediately prior to the Effective
Date of the Merger, (ii) shall be subject to all actions previously taken by its
and Artisan-California's Board of Directors, (iii) shall succeed, without other
transfer, to all of the assets, rights, powers and property of Artisan-
California in the manner more fully set forth in Section 259 of the Delaware
General Corporation Law, (iv) shall continue to be subject to all of the debts,
liabilities and obligations of Artisan-Delaware as constituted immediately prior
to the Effective Date of the Merger, and (v) shall succeed, without other
transfer, to all of the debts, liabilities and obligations of Artisan-California
in the same manner as if Artisan-Delaware had itself incurred them, all as more
fully provided under the applicable provisions of the Delaware General
Corporation Law and the California Corporations Code.
-2-
<PAGE>
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation of
----------------------------
Artisan-Delaware as in effect immediately prior to the Effective Date of the
Merger shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.2 Bylaws. The Bylaws of Artisan-Delaware as in effect immediately prior
------
to the Effective Date of the Merger shall continue in full force and effect as
the Bylaws of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of Artisan-
----------------------
California immediately prior to the Effective Date of the Merger shall be the
directors and officers of the Surviving Corporation until their successors shall
have been duly elected and qualified or until as otherwise provided by law, the
Certificate of Incorporation of the Surviving Corporation or the Bylaws of the
Surviving Corporation.
III. MANNER OF CONVERSION OF STOCK
3.1 Artisan-California Common Shares. Upon the Effective Date of the
--------------------------------
Merger, each share of Artisan-California Common Stock, issued and outstanding
immediately prior thereto shall by virtue of the Merger and without any action
by the Constituent Corporations, the holder of such shares or any other person,
be converted into and exchanged for one fully paid and nonassessable share of
Common Stock, $.001 par value, of the Surviving Corporation. No fractional
share interests of Surviving Corporation Common Stock shall be issued. In lieu
thereof, any fractional share interests to which a holder would otherwise be
entitled shall be aggregated.
3.2 Artisan-California Preferred Shares.
-----------------------------------
(a) Upon the Effective Date of the Merger, each share of Series A
Preferred and Series B Preferred Stock of Artisan-California, no par value,
issued and outstanding immediately prior to the Merger, which shares are
convertible into such number of shares of Artisan-California Common Stock as set
forth in the Artisan-California Restated Articles of Incorporation, as amended,
shall by virtue of the Merger and without any action by the Constituent
Corporations, the holder of such shares or any other person, be converted into
or exchanged for one fully paid and nonassessable share of Series A Preferred
and Series B Preferred Stock of the Surviving Corporation, $.001 par value,
respectively, having such rights, preferences and privileges as set forth in the
Certificate of Incorporation of the Surviving Corporation, which share of
Preferred Stock shall be convertible into the same number of shares of the
Surviving Corporation's Common Stock, $.001 par value, as such share of Artisan-
California Preferred Stock was so convertible into immediately prior to the
Effective Date of the Merger, subject to adjustment pursuant to the terms of the
Certificate of Incorporation of the Surviving Corporation.
-3-
<PAGE>
3.3 Artisan-California Options, Warrants, Stock Purchase Rights and
---------------------------------------------------------------
Convertible Securities.
- ----------------------
(a) Upon the Effective Date of the Merger, the Surviving Corporation
shall assume the obligations of Artisan-California under, and continue, the
option plans (including without limitation the 1993 Stock Option Plan, 1997
Employee Stock Purchase Plan and 1997 Director Option Plan) and all other
employee benefit plans of Artisan-California. Each outstanding and unexercised
option, warrant, other right to purchase, or security convertible into, Artisan-
California Common Stock or Artisan-California Preferred Stock (a "Right") shall
become, subject to the provisions in paragraph (c) hereof, an option, warrant,
right to purchase or a security convertible into the Surviving Corporation's
Common Stock or Preferred Stock, respectively, on the basis of one share of the
Surviving Corporation's Common Stock or Preferred Stock, as the case may be, for
each one share of Artisan-California Common Stock or Preferred Stock, as the
case may be, issuable pursuant to any such Right, on the same terms and
conditions and at an exercise price equal to the exercise price applicable to
any such Artisan-California Right at the Effective Date of the Merger. This
paragraph 3.3(a) shall not apply to Artisan-California Common Stock or Preferred
Stock. Such Common Stock and Preferred Stock are subject to paragraph 3.1 and
3.2, respectively, hereof.
(b) A number of shares of the Surviving Corporation's Common Stock and
Preferred Stock shall be reserved for issuance upon the exercise of options,
warrants, stock purchase rights and convertible securities equal to the number
of shares of Artisan-California Common Stock and Artisan-California Preferred
Stock so reserved immediately prior to the Effective Date of the Merger.
(c) The assumed Rights shall not entitle any holder thereof to a
fractional share upon exercise or conversion (unless the holder was entitled to
a fractional interest immediately prior to the Merger). In lieu thereof, any
fractional share interests to which a holder of an assumed Right (other than an
option issued pursuant to Artisan-Delaware's 1993 Stock Option Plan, 1997
Employee Stock Purchase Plan and 1997 Director Option Plan) would otherwise be
entitled upon exercise or conversion shall be aggregated (but only with other
similar Rights which have the same per share terms). To the extent that after
such aggregation, the holder would still be entitled to a fractional share with
respect thereto upon exercise or conversion, the holder shall be entitled upon
the exercise or conversion of all such assumed Rights pursuant to their terms
(as modified herein), to one full share of Common Stock or Preferred Stock in
lieu of such fractional share. With respect to each class of such similar
Rights, no holder will be entitled to more than one full share in lieu of a
fractional share upon exercise or conversion.
Notwithstanding the foregoing, with respect to options issued under the
Artisan-California 1993 Stock Option Plan, 1997 Employee Stock Purchase Plan and
1997 Director Option Plan that are assumed in the Merger, the number of shares
of Common Stock to which the holder would be otherwise entitled upon exercise of
each such assumed option following the Merger shall be rounded down to the
nearest whole number and the exercise price shall be rounded up to the nearest
whole cent. In addition, no "additional benefits" (within the meaning of
Section 424(a)(2) of the Internal Revenue Code of 1986, as amended) shall be
accorded to the optionees pursuant to the assumption of their options.
-4-
<PAGE>
3.4 Artisan-Delaware Common Stock. Upon the Effective Date of the Merger,
-----------------------------
each share of Common Stock, $.001 par value, of Artisan-Delaware issued and
outstanding immediately prior thereto shall, by virtue of the Merger and without
any action by Artisan-Delaware, the holder of such shares or any other person,
be canceled and returned to the status of authorized but unissued shares.
3.5 Exchange of Certificates. After the Effective Date of the Merger,
------------------------
each holder of an outstanding certificate representing shares of Artisan-
California Common Stock or Preferred Stock may be asked to surrender the same
for cancellation to an exchange agent, whose name will be delivered to holders
prior to any requested exchange (the "Exchange Agent"), and each such holder
shall be entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of the Surviving Corporation's Common Stock or
Preferred Stock, as the case may be, into which the surrendered shares were
converted as herein provided. Until so surrendered, each outstanding
certificate theretofore representing shares of Artisan-California Common Stock
or Preferred Stock shall be deemed for all purposes to represent the number of
shares of the Surviving Corporation's Common Stock or Preferred Stock,
respectively, into which such shares of Artisan-California Common Stock or
Preferred Stock, as the case may be, were converted in the Merger.
The registered owner on the books and records of the Surviving Corporation
or the Exchange Agent of any such outstanding certificate shall, until such
certificate shall have been surrendered for transfer or conversion or otherwise
accounted for to the Surviving Corporation or the Exchange Agent, have and be
entitled to exercise any voting and other rights with respect to and to receive
dividends and other distributions upon the shares of Common Stock or Preferred
Stock of the Surviving Corporation represented by such outstanding certificate
as provided above.
Each certificate representing Common Stock or Preferred Stock of the
Surviving Corporation so issued in the Merger shall bear the same legends, if
any, with respect to the restrictions on transferability as the certificates
of Artisan-California so converted and given in exchange therefore, unless
otherwise determined by the Board of Directors of the Surviving Corporation in
compliance with appli cable laws.
If any certificate for shares of the Surviving Corporation's stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of issuance thereof
that the certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer, that such transfer otherwise be proper and comply with
applicable securities laws and that the person requesting such transfer pay to
the Exchange Agent any transfer or other taxes payable by reason of issuance of
such new certificate in a name other than that of the registered holder of the
certificate surrendered or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not payable.
-5-
<PAGE>
IV. GENERAL
4.1 Covenants of Artisan-Delaware. Artisan-Delaware covenants and agrees
-----------------------------
that it will, on or before the Effective Date of the Merger:
(a) Qualify to do business as a foreign corporation in the State of
California and in connection therewith irrevocably appoint an agent for service
of process as required under the provisions of Section 2105 of the California
General Corporation Law.
(b) File any and all documents with the California Franchise Tax Board
necessary for the assumption by Artisan-Delaware of all of the franchise tax
liabilities of Artisan-California.
(c) Take such other actions as may be required by the California
General Corporation Law.
4.2 Further Assurances. From time to time, as and when required by
------------------
Artisan-Delaware or by its successors or assigns, there shall be executed and
delivered on behalf of Artisan-California such deeds and other instruments, and
there shall be taken or caused to be taken by it such further and other actions
as shall be appropriate or necessary in order to vest or perfect in or conform
of record or otherwise by Artisan-Delaware the title to and possession of all
the property, interests, assets, rights, privileges, immunities, powers,
franchises and authority of Artisan-California and otherwise to carry out the
purposes of this Agreement, and the officers and directors of Artisan-Delaware
are fully authorized in the name and on behalf of Artisan-California or
otherwise to take any and all such action and to execute and deliver any and all
such deeds and other instruments.
4.3 Abandonment. At any time before the Effective Date of the Merger,
-----------
this Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either Artisan-California or of Artisan-
Delaware, or of both, notwithstanding the approval of this Agreement by the
shareholders of Artisan-California or by the sole stockholder of Artisan-
Delaware, or by both.
4.4 Amendment. The Boards of Directors of the Constituent Corporations
---------
may amend this Agreement at any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the Secretary of State of the State of
Delaware, provided that an amendment made subsequent to the adoption of this
Agreement by the stockholders of either Constituent Corporation shall not: (1)
alter or change the amount or kind of shares, securities, cash, property and/or
rights to be received in exchange for or on conversion of all or any of the
shares of any class or series thereof of such Constituent Corporation, (2) alter
or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the Merger, or (3) alter or change any of the
terms and conditions of this Agreement if such alteration or change would
adversely affect the holders of any class or series of capital stock of any
Constituent Corporation.
-6-
<PAGE>
4.5 Registered Office. The registered office of the Surviving Corporation
-----------------
in the State of Delaware is 1209 Orange Street, Wilmington, County of New
Castle, DE 19801 and The Corporation Trust Company is the registered agent of
the Surviving Corporation at such address.
4.6 Agreement. Executed copies of this Agreement will be on file at the
---------
principal place of business of the Surviving Corporation at 1195 Bordeaux Drive,
Sunnyvale, California 94089, and copies thereof will be furnished to any
stockholder of either Constituent Corporation, upon request and without cost.
4.7 Governing Law. This Agreement shall in all respects be construed,
-------------
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the merger provisions of the
California General Corporation Law.
4.8 FIRPTA Notification. (a) On the Effective Date of the Merger,
-------------------
Artisan-California shall deliver to Artisan-Delaware, as agent for the
shareholders of Artisan-California, a properly executed statement (the
"Statement") substantially in the form attached hereto as Exhibit A. Artisan-
Delaware shall retain the Statement for a period of not less than seven years
and shall, upon request, provide a copy thereof to any person that was a
shareholder of Artisan-California immediately prior to the Merger. In
consequence of the approval of the Merger by the shareholders of Artisan-
California, (i) such shareholders shall be considered to have requested that
the Statement be delivered to Artisan-Delaware as their agent and (ii) Artisan-
Delaware shall be considered to have received a copy of the Statement at the
request of the Artisan-California shareholders for purposes of satisfying
Artisan-Delaware's obligations under Treasury Regulation Section 1.1445-2(c)(3).
(b) Artisan-California shall deliver to the Internal Revenue Service a
notice regarding the Statement in accordance with the requirements of Treasury
Regulation Section 1.897-2(h)(2).
-7-
<PAGE>
IN WITNESS WHEREOF, this Agreement having first been approved by the
resolutions of the Board of Directors of Artisan-Delaware and Artisan-California
is hereby executed on behalf of each of such two corporations and attested by
their respective officers thereunto duly authorized.
ARTISAN COMPONENTS, INC.
a Delaware corporation
By:____________________________________
Mark R. Templeton, President
and Chief Executive Officer
ATTEST:
____________________________________
Beth Bartel
Secretary
ARTISAN COMPONENTS, INC.
a California corporation
By:____________________________________
Mark R. Templeton, President
and Chief Executive Officer
ATTEST:
____________________________________
Beth Bartel
Secretary
-8-
<PAGE>
EXHIBIT A
---------
November __, 1997
TO THE SHAREHOLDERS OF ARTISAN COMPONENTS, INC.:
In connection with the reincorporation (the "Reincorporation") in Delaware
of Artisan Components, Inc., a California corporation (the "Company"), pursuant
to the Agreement and Plan of Merger (the "Agreement") dated as of November __,
1997 between the Company and Artisan Components, Inc., a Delaware corporation
and wholly-owned subsidiary of the Company ("Artisan-Delaware"), your shares of
Company stock will be replaced by shares of stock in Artisan-Delaware.
In order to establish that (i) you will not be subject to tax under Section
897 of the Internal Revenue Code of 1986, as amended (the "Code"), in
consequence of the Reincorporation and (ii) Artisan-Delaware will not be
required under Section 1445 of the Code to withhold taxes from the Artisan-
Delaware stock that you will receive in connection therewith, the Company hereby
represents to you that, as of the date of this letter, shares of Company stock
do not constitute a "United States real property interest" within the meaning of
Section 897(c) of the Code and the regulations issued thereunder.
A copy of this letter will be delivered to Artisan-Delaware pursuant to
Section 4.9 of the Agreement.
Under penalties of perjury, the undersigned officer of the Company hereby
declares that, to the best knowledge and belief of the undersigned, the facts
set forth herein are true and correct.
Sincerely,
____________________________________
Mark R. Templeton, President and
Chief Executive Officer
-9-
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
ARTISAN COMPONENTS, INC.
ARTICLE I.
The name of this corporation is Artisan Components, Inc.
ARTICLE II.
The address of the corporation's registered office in the State of Delaware
is 1209 Orange Street, City of Wilmington, County of Newcastle, Delaware 19801.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
ARTICLE IV.
This corporation is authorized to issue two classes of shares to be
designated respectively Common Stock and Preferred Stock. The total number of
shares of Common Stock this corporation shall have authority to issue is
50,000,000, $0.001 par value and the total number of shares of Preferred Stock
this corporation shall have authority to issue is 3,435,736. 2,263,802 shares
of Preferred Stock shall be designated Series A Preferred Stock ("Series A
Preferred") and 1,171,934 shares of Preferred Stock shall be designated Series B
Preferred Stock ("Series B Preferred"; and the Series B Preferred, collectively
with the Series A Preferred, the "Preferred Stock").
ARTICLE V.
The rights, preferences, privileges and restrictions granted to or imposed
upon the Common Stock and Preferred Stock are as follows:
1. Dividends.
---------
<PAGE>
The holders of the Series A Preferred and Series B Preferred shall be
entitled to receive, when and as declared by the Board of Directors, dividends
out of funds legally available therefore, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
Corporation) on the Common Stock of this Corporation, at the rate of $1.5461 and
$3.77 per share, per annum, respectively. Such dividends shall not be
cumulative and no right to such dividends shall accrue to holders of Preferred
Stock unless declared by the Board of Directors. No dividends or other
distributions shall be made with respect to the Common Stock, other than
dividends payable solely in Common Stock, unless at the same time an equivalent
dividend with respect to the Preferred Stock has been paid or set apart.
2. Liquidation Preference.
----------------------
In the event of any liquidation, dissolution, or winding up of the
Corporation ("Liquidation"), either voluntary or involuntary, distributions to
the shareholders of the Corporation shall be made in the following manner:
(a) In the event of a Liquidation before March 20, 1999, the holders
of the Preferred Stock shall be entitled to receive, prior and in preference to
any distribution of any of the assets or surplus funds of the corporation to the
holders of the Common Stock by reason of their ownership of such Preferred, an
amount equal to the greater of (i) $1.5461 per share of Series A Preferred or
$3.77 per share of Series B Preferred, respectively (as adjusted for stock
dividends, stock splits, stock combinations and the like, their respective
"Original Purchase Price"), plus an amount equal to a 25% rate of return
compounded annually on the Original Purchase Price from the date of issuance of
the first share of Series A Preferred or Series B Preferred, respectively,
issued to the date of Liquidation, plus all declared and unpaid dividends
thereon to the date fixed for distribution of assets, or (ii) the amount of any
such distribution as though the holders of the Series A Preferred or Series B
Preferred, respectively, were the holders of that number of shares of Common
Stock of the corporation into which their shares of Series A Preferred or Series
B Preferred, respectively, are convertible as of the record date fixed for
determination of the holders of Common Stock entitled to receive such
distribution (in the aggregate, the "Liquidation Preference Amount"). If upon a
Liquidation, the assets shall be insufficient to pay the holders of the Series A
Preferred and Series B Preferred the full Liquidation Preference Amount, the
holders of the Series A Preferred or Series B Preferred shall share ratably in
any distribution of assets according to the respective amounts which would be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to said shares were paid in full.
(b) In the event of a Liquidation occurring on or after March 20,
1999, the holders of the Preferred Stock shall be entitled to receive, prior and
in preference to any distribution of any of the assets or surplus funds of the
corporation to the holders of the Common Stock by reason of their ownership of
such stock, an amount equal to the greater of (i) $1.5461 per share of each
share of Series A Preferred or $3.77 per share of each share of Series B
Preferred, respectively, then held by them (as adjusted for any stock dividends,
stock splits, recapitalizations, combinations, consolidations, or the like, with
respect to shares of the Preferred Stock), plus an amount equal to any declared
but unpaid
-2-
<PAGE>
dividends on the Preferred Stock, or (ii) the amount of any such distribution as
though the holders of the Series A Preferred or Series B Preferred were the
holders of that number of shares of Common Stock of the corporation into which
their shares of Series A Preferred and Series B Preferred, respectively, are
convertible as of the record date fixed for determination of the holders of
Common Stock entitled to receive such distribution (the "Preference"). If upon a
Liquidation, the assets shall be insufficient to pay the holders of the Series A
Preferred and Series B Preferred the full Preference, the holders of the Series
A Preferred or Series B Preferred shall share ratably in any distribution of
assets according to the respective amounts which would be payable in respect of
the shares held by them upon such distribution if all amounts payable on or with
respect to said shares were paid in full.
(c) After payment or setting apart of payment of the Liquidation
Preference Amount or the Preference, as the case may be, the holders of Common
Stock shall be entitled to receive the remaining assets of the corporation pro
rata based upon the number of shares held by such holders of Common Stock.
(d) For purposes of this Section 2, a merger or consolidation of the
Corporation with or into any other corporation or corporations, or the merger of
any other corporation or corporations into the Corporation, in which
consolidation or merger the shareholders of the Corporation receive
distributions in cash or securities of another corporation or corporations as a
result of such consolidation or merger, a sale of all or substantially all of
the assets of the Corporation, or the undertaking by the Corporation of a
transaction or series of transactions in which more than 50% of the voting power
of the Corporation is disposed of, shall be treated as a liquidation,
dissolution or winding up of the Corporation.
(e) Any securities to be delivered to the holders of Preferred Stock
pursuant to Section 2(a) or 2(b) above shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
(1) If traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the 30-day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever are
applicable) over the 30-day period ending three (3) days prior to the closing;
and
(3) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the Corporation and the
holders of Preferred Stock which would been entitled to receive such securities
or the same type of securities and which Preferred Stock represents at least a
majority of the voting power of all then outstanding shares of such Preferred
Stock.
-3-
<PAGE>
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in subsections
2(e)(i)(1), (2) or (3) to reflect the approximate fair market value thereof, as
mutually determined by the Corporation and the holders of Preferred Stock which
would be entitled to receive such securities or the same type of securities and
which represent at least a majority of the voting power of all then outstanding
shares of such Preferred Stock.
(f) In the event the requirements of Section 2(e) are not complied
with, the Corporation shall forthwith either:
(i) cause such closing to be postponed until such time as the
requirements of this Section 2 have been complied with, or
(ii) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Preferred Stock shall revert to
and be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in Section 4(h) hereof.
(g) As authorized by Section 402.5(c) of the California Corporations
Code, the provisions of Sections 502 and 503 of the California Corporations Code
shall not apply with respect to the repurchase by the corporation of shares of
Common Stock issued to or held by employees or consultants of the Corporation or
its subsidiaries upon termination of their employment or services pursuant to
any agreement providing for the right of said repurchase.
3. Voting Rights.
-------------
Holders of the Preferred Stock shall have full voting rights and
powers equal to the voting rights and powers of the holders of Common Stock, and
shall be entitled to vote, together with the holders of Common Stock, with
respect to any matters upon which holders of Common Stock have the right to
vote. Except as otherwise required by law or by Section 6 hereof, the holder of
each share of Common Stock issued and outstanding shall have one vote and the
holder of each share of Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which such share of Preferred
Stock could be converted at the record date for determination of the
shareholders entitled to vote on such matters, or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited, such votes to be counted together with all other
shares of stock of the Corporation having general voting power and not
separately as a class. Fractional votes by the holders of Preferred Stock shall
not, however, be permitted and any fractional voting rights shall (after
aggregating all shares into which shares of Preferred Stock held by each holder
could be converted) be rounded to the nearest whole number. Holders of Common
Stock and Preferred Stock shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of the Corporation.
-4-
<PAGE>
4. Conversion.
----------
The holders of Preferred Stock shall have conversion rights as follows
(the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for the Preferred Stock. Each share of Series A Preferred and Series B
Preferred shall be convertible into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing the Conversion Price (as
hereinafter defined) per share in effect for the Series A Preferred and Series B
Preferred into the per share Conversion Value (as hereinafter defined) of such
series.
The Conversion Price per share of Series A Preferred shall be $1.5461
and the per share Conversion Value of Series A Preferred shall be $1.5461. The
Conversion Price per share of Series B Preferred shall be $3.77 and the per
share Conversion Value of Series B Preferred shall be $3.77. The Conversion
Price of Series A Preferred and Series B Preferred shall be subject to
adjustment from time to time as provided below. The number of shares of Common
Stock to which a share of Series A Preferred or Series B Preferred is
convertible is hereinafter referred to as the Conversion Rate of such share.
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the then effective
Conversion Rate upon the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Corporation with an aggregate offering price to the public of not
less than $10,000,000. In the event of the automatic conversion of the
Preferred Stock upon a public offering as aforesaid, the person(s) entitled to
receive the Common Stock issuable upon such conversion of Preferred Stock shall
not be deemed to have converted such Preferred Stock until immediately prior to
the closing of such sale of securities.
(c) Mechanics of Conversion. No fractional shares of Common Stock
-----------------------
shall be issued upon conversion of Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the then effective Conversion
Price. Before any holder of Preferred Stock shall be entitled to convert the
same into full shares of Common Stock and to receive certificates therefor, he
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Preferred Stock, and
shall give written notice to the Corporation at such office that he elects to
convert the same; provided, however, that in the event of an automatic
conversion pursuant to Section 4(b), the outstanding shares of Preferred Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its
-5-
<PAGE>
transfer agent, and provided further that the Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
automatic conversion unless the certificates evidencing such shares of Preferred
Stock are either delivered to the Corporation or its transfer agent as provided
above, or the holder notifies the Corporation or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates. The Corporation shall, as
soon as practicable after such delivery, or such agreement and indemnification
in the case of a lost certificate, issue and deliver at such office to such
holder of Preferred Stock, a certificate or certificates for the number of
shares of Common Stock to which he shall be entitled as aforesaid and a check
payable to the holder in the amount of any cash amounts payable as the result of
a conversion into fractional shares of Common Stock. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock to be converted, or in the
case of automatic conversion on the date of closing of the offering, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
(d) Adjustments for Diluting Issues.
-------------------------------
(i) Special Definitions. For purposes of this Section 4(d),
-------------------
the following definitions shall apply:
(1) "Options" shall mean rights, options or warrants to
-------
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(2) "Original Issue Date" with respect to Series A
-------------------
Preferred means the date on which the first shares of such series were first
issued, and with respect to Series B Preferred means the date on which the first
shares of such series were first issued.
(3) "Convertible Securities" shall mean securities (other
--------------------
than the Common Stock) convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean all
---------------------------------
shares of Common Stock and Convertible Securities issued by the Corporation
after the Original Issue Date, other than shares of Common Stock and Convertible
Securities issued or issuable at any time:
(A) upon conversion of the shares of Series A Preferred
or Series B Preferred authorized herein or upon conversion of Convertible
Securities, provided that such Convertible Securities shall be deemed to be
Additional Shares of Common Stock;
(B) shares of Common Stock issued to employees,
officers, directors, consultants, contractors or advisors of the Corporation
pursuant to stock purchase or stock option plans or agreements or other
incentive stock arrangements approved by the Board of Directors;
(C) as a dividend or distribution on the Series A
Preferred or Series B Preferred or any event for which adjustment is made
pursuant to subparagraph (d)(iv) and (d)(vi) hereof;
-6-
<PAGE>
(D) pursuant to any exercise of the Warrant to purchase
additional shares of Preferred Stock dated December 1996 made by the corporation
in favor of Synopsys, Inc.;
(E) in connection with capital asset leases or
borrowings for the acquisition of capital assets pursuant to approval by a
majority of the Board of Directors; or
(F) by way of a transaction described in Sections
4(d)(iv) through 4(d)(vi) below.
(ii) Adjustment of Conversion Price Upon Issuance of Additional
----------------------------------------------------------
Shares of Common Stock. In the event this Corporation shall issue Additional
- ----------------------
Shares of Common Stock after the Original Issue Date without consideration or
for a consideration per share less than the Conversion Price of any series of
Preferred Stock in effect on the date of and immediately prior to such issue,
then in such event, the Conversion Price for such series of Preferred Stock
shall be reduced, concurrently with such issue, to a price determined by
multiplying such Conversion Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such issue
plus the number of shares of Common Stock which the aggregate consideration
received by the Corporation for the total number of Additional Shares of Common
Stock so issued would purchase at such Conversion Price; and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of such Additional Shares of Common Stock so
issued; and provided further that, for the purposes of this Section 4(d)(ii),
all shares of Common Stock issuable upon conversion of outstanding Preferred
Stock or outstanding Options shall be deemed to be outstanding.
(iii) Determination of Consideration. For purposes of this
------------------------------
Section 4(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall:
-----------------
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash,
be computed at the fair value thereof at the time of such issue, as determined
in good faith by the Board; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board.
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<PAGE>
(2) Options and Convertible Securities. In the case of
----------------------------------
issuance of options to purchase or rights to subscribe for Common Stock, or
securities by their terms convertible into or exchangeable for Common Stock, the
following provisions shall apply for all purposes of Section 4(d):
(A) The aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subparagraph 4(d)(iii)(1)), if any,
received by the Corporation upon the issuance of such options or rights plus the
exercise price provided in such options or rights for the Common Stock covered
thereby.
(B) The aggregate maximum number of shares of Common
Stock deliverable upon conversion or in exchange for such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the Corporation
for any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the corporation upon the
conversion or exchange of such securities or the exercise of any related options
or rights (the consideration in each case to be determined in the manner
provided in subparagraph 4(d)(iii)(1)).
(C) In the event of any change in the number of shares
of Common Stock deliverable or in the consideration payable to this corporation
upon exercise of such options or rights or upon conversion of or in exchange for
such convertible or exchangeable securities, including, but not limited to, a
change resulting from the antidilution provisions thereof, the Conversion Price
of the series of Preferred Stock, to the extent in any way affected by or
computed using such options, rights or securities, shall be recomputed to
reflect such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of such securities.
(D) Upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange or the expiration of
any options or rights related to such convertible or exchangeable securities,
the Conversion Price of the series of Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities, shall be
recomputed to reflect the issuance of only the number of shares of Common Stock
(and convertible or exchangeable securities which remain in effect) actually
issued upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
(E) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to subparagraphs
4(d)(iii)(2)(A) and (B) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either subparagraph
4(d)(iii)(2)(C) or (D).
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<PAGE>
(iv) Adjustments for Subdivisions, Combinations or Stock
---------------------------------------------------
Dividends of Common Stock. In the event the outstanding shares of Common Stock
- -------------------------
shall be subdivided (by stock split, or otherwise), into a greater number of
shares of Common Stock, or the Corporation at any time or from time to time
after the Original Issue Date shall declare or pay any dividend on the Common
Stock payable in Common Stock, the Conversion Price then in effect shall,
concurrently with the effectiveness of such subdivision or stock dividend, be
proportionately decreased based on the ratio of (i) the number of shares of
Common Stock outstanding immediately after such subdivision or stock dividend to
(ii) the number of shares of Common Stock outstanding immediately prior to such
subdivision or stock dividend. In the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or otherwise, into
a lesser number of shares of Common Stock, the Conversion Price then in effect
shall, concurrently with the effectiveness of such combination or consolidation,
be proportionately increased on the same basis.
(v) Adjustments for Other Distributions. In the event the
-----------------------------------
Corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive any
distribution payable in (i) securities of the Corporation or other entities
(other than shares of Common Stock and other than as otherwise adjusted in this
Section 4), or (ii) evidences of indebtedness issued by the Corporation or other
persons, or (iii) assets (excluding cash dividends) or options or rights not
referred to in subparagraph 4(d)(iii)(2), then and in each such event provision
shall be made so that the holders of Preferred Stock shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of such distribution which they would have
received had their Preferred Stock been converted into Common Stock on the date
of such event and had they thereafter, during the period from the date of such
event to and including the date of conversion, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 4 with respect to
the rights of the holders of Preferred Stock.
(vi) Adjustments for Recapitalization, Reclassification,
---------------------------------------------------
Exchange and Substitution. If at any time or from time to time the Common
- -------------------------
Stock issuable upon conversion of the Preferred Stock shall be changed into the
same or a different number of shares of any other class or classes of stock,
whether by recapitalization, capital reorganization, reclassification or
otherwise (other than a subdivision, combination of shares or merger or sale of
assets transaction provided for above or in Section 2(d)), the Conversion Rate
then in effect shall, concurrently with the effectiveness of such
recapitalization, reorganization or reclassification, be proportionately
adjusted such that the Preferred Stock shall be convertible into, in lieu of the
number of shares of Common Stock which the holders would otherwise have been
entitled to receive, a number of shares of such other class or classes of stock
equivalent to the number of shares of Common Stock that would have been subject
to receipt by the holders upon conversion of the Preferred Stock immediately
before that change. In addition, to the extent applicable in any reorganization
or recapitalization, provision shall be made so that the holders of the
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Preferred Stock the number of shares of stock or other securities or property of
the Company or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such reorganization or recapitalization.
-9-
<PAGE>
(e) No Impairment. Except as provided in Section 7, the Corporation
-------------
will not, by amendment of its Restated Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price or the Conversion Rate
pursuant to this Section 4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the Conversion Price and the Conversion Rate at the time
in effect, and (iii) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of Preferred Stock.
(g) Reservation of Stock Issuable Upon Conversion. This Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Preferred Stock such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Preferred Stock, this
corporation will take such corporate action as may, in the opinion of counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purposes.
(h) Notices of Record Date. In the event that this Corporation shall
----------------------
propose at any time:
(i) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or
-10-
<PAGE>
(iv) to merge or consolidate with or into any other corporation,
or sell, lease or convey all or substantially all its property or business, or
to liquidate, dissolve or wind up;
then, in connection with each such event, this Corporation shall send to the
holders of Preferred Stock:
(1) at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of Common Stock shall be
entitled thereto and the amount and character of such dividend, distribution or
right) or for determining rights to vote in respect of the matters referred to
in (iii) and (iv) above; and
(2) in the case of the matters referred to in (iii) and
(iv) above, at least 20 days' prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event or the record date for
the determination of such holders if such record date is earlier).
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of the Preferred Stock at
the address for each such holder as shown on the books of this Corporation.
5. Redemption. The shares of Series A Preferred and Series B Preferred
----------
shall not be redeemable.
6. Voting Rights.
-------------
(a) Vote Other Than for Directors. Except as otherwise required by
-----------------------------
law, each share of Common Stock issued and outstanding shall have one vote and
each share of Series A Preferred or Series B Preferred issued and outstanding
shall have the number of votes equal to the number of shares of Common Stock
into which the Series A Preferred or Series B Preferred is convertible as
adjusted from time to time pursuant to Section 4 hereof.
(b) Voting for Directors. The Board of Directors shall consist of
--------------------
five (5) members. For so long as 25% or more of the issued shares of Series A
Preferred have not been converted into Common Stock, the holders of the shares
of Series A Preferred voting as a series shall be entitled to elect two (2)
directors. The holders of Common Stock voting as a separate class shall be
entitled to elect two (2) directors. The remaining director shall be elected by
the holders of the Series A Preferred, Series B Preferred and Common Stock
voting as provided in Section 6(a). In the event that 25% or more of the
outstanding shares of Series A Preferred have been converted into Common Stock,
then directors shall thereafter be elected by the holders of the Series A
Preferred, Series B Preferred and Common Stock voting as provided in Section
6(a). A vacancy on the Board of Directors occurring because of the death,
resignation or removal of a director elected by the holders of Series A
Preferred voting as a separate series shall be filled by the vote or written
consent of the holders of a majority of the Series A Preferred. Any vacancy
occurring because of the death, resignation or removal of a director elected by
the holders of Common Stock voting as a separate class shall be filled by the
vote or written consent of the holders of a majority of the Common Stock. Any
vacancy occurring because of the death, resignation or removal of the director
elected by the holders
-11-
<PAGE>
of Common Stock voting as a seperate class shall be filled by the vote or
written consent of the holders of a majority of the Series A Preferred, Series B
Preferred and Common Stock voting as provided in Section 6(a). A director may be
removed from the Board of Directors with or without cause by the vote or consent
of the holders of the outstanding class or series with voting power entitled to
elect him in accordance with this Section 6(b) and the California Corporations
Code.
(c) Cumulative Voting. The holders of Common Stock, Series A
-----------------
Preferred and Series B Preferred shall be entitled to cumulative voting rights
as to the directors to be elected by each series or class, or the combined
classes (as provided in Section 6(b) above), in accordance with the provisions
of Section 708 of the California Corporations Code.
7. Covenants.
---------
In addition to any other rights provided by law, so long as shares of
Series A Preferred and Series B Preferred shall be outstanding, this Corporation
shall not, without first obtaining the affirmative vote or written consent of
the holders of more than fifty percent (50%) of the outstanding shares of Series
A Preferred and Series B Preferred, voting together as a single class:
(a) amend or repeal any provision of, or add any provision to, this
Corporation's Restated Articles of Incorporation or Bylaws if such action would
adversely alter or change the preferences, rights, privileges or powers of, or
the restrictions provided for the benefit of the Preferred Stock;
(b) authorize or issue shares of any series or class of stock having
any preference or priority as to dividends or assets superior to or on a parity
with any such preference or priority of any series of Preferred Stock, or
authorize shares of stock of any class or any bonds, debentures, notes or other
obligations convertible into or exchangeable for, or having option rights to
purchase, any shares of stock of this corporation having any preference or
priority as to dividends or assets superior to or on a parity with any such
preference or priority of the Preferred Stock;
(c) effect in any transaction or series of transactions a sale or
other conveyance of all or substantially all of the assets of the corporation or
any of its subsidiaries, or any consolidation or merger involving the
corporation or any of its subsidiaries where the corporation or such subsidiary
is not the surviving corporation, or any sale of more than 50% of the
corporation's capital stock; or
(d) increase or decrease the authorized number of shares of Preferred
Stock.
-12-
<PAGE>
ARTICLE VI.
The Corporation reserves the right to amend, alter, change, or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this right.
ARTICLE VII
The Corporation is to have perpetual existence.
ARTICLE VII
1. Limitation of Liability. To the fullest extent permitted by the
-----------------------
General Corporation Law of the State of Delaware as the same exists or as may
hereafter be amended, a director of the Corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
2. Indemnification. The corporation may indemnify to the fullest extent
---------------
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that such person or his or her testator or intestate is or
was a director, officer or employee of the corporation, or any predecessor of
the corporation, or serves or served at any other enterprise as a director,
officer or employee at the request of the corporation or any predecessor to the
corporation.
3. Amendments. Neither any amendment nor repeal of this Article VIII,
----------
nor the adoption of any provision of the corporation's Certificate of
Incorporation inconsistent with this Article VIII, shall eliminate or reduce the
effect of this Article VIII, in respect of any matter occurring, or any action
or proceeding accruing or arising or that, but for this Article VIII, would
accrue or arise, prior to such amendment, repeal, or adoption of an inconsistent
provision.
ARTICLE IX.
In the event any shares of Preferred shall be redeemed or converted
pursuant to the terms hereof, the shares so converted or redeemed shall not
revert to the status of authorized but unissued shares, but instead shall be
canceled and shall not be re-issuable by the corporation.
ARTICLE X.
At the election of directors of the Corporation, each holder stock or of
any class or series of stock shall be entitled to as many votes as shall equal
the number of votes which such stockholder would be entitled to cast for the
election of directors with respect to his or her shares of stock multiplied by
the
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<PAGE>
number of directors to be elected and may cast all such votes for any director
or for any director or for any two or more of them as such stockholder may see
fit.
ARTICLE XI.
1. Number of Directors. The number of directors which constitutes the
-------------------
whole Board of Directors of the corporation shall be designated in the Bylaws of
the corporation.
2. Election of Directors. Elections of directors need not be by written
---------------------
ballot unless the Bylaws of the corporation shall so provide.
ARTICLE XII
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the corporation.
ARTICLE XII
Following the closing of a public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
any of the corporation's securities (as that term is defined under the
Securities Act of 1933, as then in effect), no action shall be taken by the
stockholders of the corporation except at an annual or special meeting of the
stockholders called in accordance with the Bylaws of the corporation and no
action shall be taken by the stockholders by written consent.
ARTICLE XIV
Meetings of stockholders may be held within or without the State of
Delaware, as the By-laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE XV.
The name and mailing address of the incorporator are:
Marianne Stark Bradley
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
* * *
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<PAGE>
The undersigned incorporator hereby acknowledges that the above Certificate
of Incorporation of Artisan Components, Inc. is her act and deed and that the
facts stated therein are true.
_______________________________________
Marianne Stark Bradley
Dated: November __, 1997
<PAGE>
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF
ARTISAN COMPONENTS, INC.
The following Restated Certificate of Incorporation of Artisan Components,
Inc. (i) restates the provisions of the Certificate of Incorporation of Artisan
Components, Inc. filed with the Secretary of State of the State of Delaware on
November __, 1997, and (ii) supersedes the original Certificate of Incorporation
and all prior restatements thereof and amendments thereto in their entirety.
ARTICLE I
The name of the corporation is Artisan Components, Inc. (the
"Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
The Corporation is authorized to issue two classes of shares of stock to be
designated, respectively, Common Stock, $0.001 par value, and Preferred Stock,
$0.001 par value. The total number of shares that the Corporation is authorized
to issue is 55,000,000 shares. The number of shares of Common Stock authorized
is 50,000,000. The number of shares of Preferred authorized is 5,000,000.
The Preferred Stock may be issued from time to time in one or more series
pursuant to a resolution or resolutions providing for such issue duly adopted by
the board of directors (authority to do so being hereby expressly vested in the
board). The board of directors is further authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and to fix the number of shares of any
series of Preferred Stock and the designation of any such series of Preferred
Stock. The board of directors, within the limits and restrictions stated in any
resolution or resolutions of the board of directors originally fixing the number
of shares constituting any series, may increase or decrease (but not below the
number of shares in any
<PAGE>
such series then outstanding) the number of shares of any series subsequent to
the issue of shares of that series.
The authority of the board of directors with respect to each such class or
series shall include, without limitation of the foregoing, the right to
determine and fix:
(a) the distinctive designation of such class or series and the
number of shares to constitute such class or series;
(b) the rate at which dividends on the shares of such class or
series shall be declared and paid, or set aside for payment, whether dividends
at the rate so determined shall be cumulative or accruing, and whether the
shares of such class or series shall be entitled to any participating or other
dividends in addition to dividends at the rate so determined, and if so, on what
terms;
(c) the right or obligation, if any, of the corporation to redeem
shares of the particular class or series of Preferred Stock and, if redeemable,
the price, terms and manner of such redemption;
(d) the special and relative rights and preferences, if any, and
the amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(e) the terms and conditions, if any, upon which shares of such
class or series shall be convertible into, or exchangeable for, shares of
capital stock of any other class or series, including the price or prices or the
rate or rates of conversion or exchange and the terms of adjustment, if any;
(f) the obligation, if any, of the corporation to retire, redeem
or purchase shares of such class or series pursuant to a sinking fund or fund of
a similar nature or otherwise, and the terms and conditions of such obligation;
(g) voting rights, if any, on the issuance of additional shares
of such class or series or any shares of any other class or series of Preferred
Stock;
(h) limitations, if any, on the issuance of additional shares of
such class or series or any shares of any other class or series of Preferred
Stock; and
(i) such other preferences, powers, qualifications, special or
relative rights and privileges thereof as the board of directors of the
corporation, acting in accordance with this Restated Certificate of
Incorporation, may deem advisable and are not inconsistent with law and the
provisions of this Restated Certificate of Incorporation.
-2-
<PAGE>
ARTICLE V
The Corporation reserves the right to amend, alter, change, or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this right.
ARTICLE VI
The Corporation is to have perpetual existence.
ARTICLE VII
1. Limitation of Liability. To the fullest extent permitted by the
-----------------------
General Corporation Law of the State of Delaware as the same exists or as may
hereafter be amended, a director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
2. Indemnification. The Corporation may indemnify to the fullest extent
---------------
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that such person or his or her testator or intestate is or
was a director, officer or employee of the Corporation, or any predecessor of
the Corporation, or serves or served at any other enterprise as a director,
officer or employee at the request of the Corporation or any predecessor to the
Corporation.
3. Amendments. Neither any amendment nor repeal of this Article VII, nor
----------
the adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article VII, shall eliminate or reduce the effect of this
Article VII, in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article VII, would accrue or arise,
prior to such amendment, repeal, or adoption of an inconsistent provision.
ARTICLE VIII
In the event any shares of Preferred Stock shall be redeemed or converted
pursuant to the terms hereof, the shares so converted or redeemed shall not
revert to the status of authorized but unissued shares, but instead shall be
canceled and shall not be re-issuable by the Corporation.
ARTICLE IX
At the election of directors of the Corporation, each holder stock or of
any class or series of stock shall be entitled to as many votes as shall equal
the number of votes which such stockholder would be entitled to cast for the
election of directors with respect to his or her shares of stock multiplied by
the number of directors to be elected and may cast all such votes for any
director or for any director or for any two or more of them as such stockholder
may see fit.
-3-
<PAGE>
ARTICLE X
1. Number of Directors. The number of directors which constitutes the
-------------------
whole Board of Directors of the corporation shall be designated in the Bylaws of
the corporation.
2. Election of Directors. Elections of directors need not be by written
---------------------
ballot unless the Bylaws of the corporation shall so provide.
ARTICLE XI
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the corporation.
ARTICLE XII
No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of the stockholders called in accordance with the
Bylaws and no action shall be taken by the stockholders by written consent. The
affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the then
outstanding voting securities of the corporation, voting together as a single
class, shall be required for the amendment, repeal or modification of the
provisions of Article IX, Article X or Article XII of this Restated Certificate
of Incorporation.
ARTICLE XIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
This Restated Certificate of Incorporation has been duly adopted by the
board of directors of the Corporation in accordance with the provisions of
Sections 242 and 245 of the General Corporation Law of the State of Delaware, as
amended.
IN WITNESS WHEREOF, Artisan Components, Inc. has caused this certificate to
be signed by Mark R. Templeton, its President and Chief Executive Officer, this
_____ day of February, 1998.
__________________________________________
Mark R. Templeton, President and
Chief Executive Officer
-4-
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
ARTISAN COMPONENTS, INC.
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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..................................................... 3
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.................................... 3
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE........................ 4
2.6 QUORUM.............................................................. 4
2.7 ADJOURNED MEETING; NOTICE........................................... 4
2.8 VOTING.............................................................. 5
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT................... 5
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING............. 6
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS......... 6
2.12 PROXIES............................................................. 7
2.13 INSPECTORS OF ELECTION.............................................. 7
ARTICLE III - DIRECTORS......................................................... 8
3.1 POWERS.............................................................. 8
3.2 NUMBER AND TERM OF OFFICE........................................... 8
3.3 CLASSES OF DIRECTORS................................................ 8
3.4 RESIGNATION AND VACANCIES........................................... 9
3.5 REMOVAL.............................................................10
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE............................10
3.7 FIRST MEETINGS......................................................10
3.8 REGULAR MEETINGS....................................................10
3.9 SPECIAL MEETINGS; NOTICE............................................11
3.10 QUORUM..............................................................11
3.11 WAIVER OF NOTICE....................................................11
3.12 ADJOURNMENT.........................................................11
3.13 NOTICE OF ADJOURNMENT...............................................12
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING...................12
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3.15 FEES AND COMPENSATION OF DIRECTORS..................................12
3.16 APPROVAL OF LOANS TO OFFICERS.......................................12
ARTICLE IV - COMMITTEES.........................................................12
4.1 COMMITTEES OF DIRECTORS.............................................12
4.2 MEETINGS AND ACTION OF COMMITTEES...................................13
ARTICLE V - OFFICERS............................................................13
5.1 OFFICERS............................................................13
5.2 ELECTION OF OFFICERS................................................14
5.3 SUBORDINATE OFFICERS................................................14
5.4 REMOVAL AND RESIGNATION OF OFFICERS.................................14
5.5 VACANCIES IN OFFICES................................................14
5.6 CHAIRMAN OF THE BOARD...............................................14
5.7 CHIEF EXECUTIVE OFFICER.............................................15
5.8 VICE PRESIDENTS.....................................................15
5.9 SECRETARY...........................................................15
5.10 CHIEF FINANCIAL OFFICER.............................................16
ARTICLE VI -INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHER AGENTS........................................................16
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS...........................16
6.2 INDEMNIFICATION OF OTHERS...........................................16
6.3 INSURANCE...........................................................17
ARTICLE VII - RECORDS AND REPORTS...............................................17
7.1 MAINTENANCE AND INSPECTION OF RECORDS...............................17
7.2 INSPECTION BY DIRECTORS.............................................18
7.3 ANNUAL STATEMENT TO STOCKHOLDERS....................................18
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS......................18
ARTICLE VIII - GENERAL MATTERS..................................................18
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING...............18
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS...........................19
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED..................19
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(C0NTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
8.4 STOCK CERTIFICATES; PARTLY PAID SHARES..............................19
8.5 SPECIAL DESIGNATION ON CERTIFICATES.................................20
8.6 LOST CERTIFICATES...................................................20
8.7 CONSTRUCTION; DEFINITIONS...........................................20
ARTICLE IX - AMENDMENTS.........................................................20
ARTICLE X - DISSOLUTION.........................................................21
ARTICLE XI - CUSTODIAN..........................................................21
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES.........................21
11.2 DUTIES OF CUSTODIAN.................................................22
</TABLE>
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<PAGE>
BYLAWS
OF
ARTISAN COMPONENTS, INC.
(A DELAWARE CORPORATION)
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the Certificate
of Incorporation of the corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
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 registered office
of the corporation.
2.2 ANNUAL MEETING
(a) The annual meeting of stockholders shall be held each year on a
date and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the 14th day of
February in each year at 10:00 a.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected, and
any other proper business may be transacted.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, 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
-1-
<PAGE>
at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than one hundred twenty
(120) calendar days in advance of the estimated mailing date for the proxy
statement relating to the corporation's next annual meeting as specified in the
corporation's proxy statement released to stockholders in connection with the
previous year's annual meeting of stockholders; provided, however, that in the
event that no annual meeting was held in the previous year or the date of the
annual meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received a reasonable time before the
solicitation is made. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting: (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (iii) the class and number of shares of the
corporation which are beneficially owned by the stockholder, (iv) any material
interest of the stockholder in such business and (v) any other information that
is required to be provided by the stockholder pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his
capacity as a proponent to a stockholder proposal. Notwithstanding the
foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholder's meeting,
stockholders must provide notice as required by the regulations promulgated
under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b). The chairman of the annual meeting
shall, if the facts warrant, determine and declare at the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of this paragraph (b), and, if he should so determine, he shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of Directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 2.2. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a Director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) 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 nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
elections of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the 1934 Act (including without limitation such
-2-
<PAGE>
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a Director if elected); and (ii) as to such
stockholder giving notice, the information required to be provided pursuant to
paragraph (b) of this Section 2.2. At the request of the Board of Directors, any
person nominated by a stockholder for election as a Director shall furnish to
the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrants, determine and declare at the
meeting that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if he should so determine, he shall so declare
at the meeting, and the defective nomination shall be disregarded.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
Board of Directors, or by the chairman of the board, or in the absence of the
chairman of the board by the chief executive officer, or by one or more
shareholders holding shares in the aggregate entitled to cast not less than ten
percent (10%) of the votes at that meeting, but such special meetings may not be
called by any other person or persons.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, chief
executive officer, or the secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
officer receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5, that a meeting will be held at the time requested by the person or
persons who called the meeting, not less than thirty-five (35) nor more than
sixty (60) days after the receipt of the request. If the notice is not given
within twenty (20) days after the receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing contained in this paragraph
of this Section 2.3 shall be construed as limiting, fixing, or affecting the
time when a meeting of stockholders called by action of the board of directors
may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
Except as set forth in Section 2.3, all notices of meetings of stockholders
shall be sent or otherwise given in accordance with Section 2.5 of these bylaws
not less than ten (10) nor more than sixty (60) days before the date of the
meeting. The notice shall specify the place, date, and hour of the meeting and
(i) in the case of a special meeting, the general nature of the business to be
transacted (no business other than that specified in the notice may be
transacted) or (ii) in the case of the annual meeting, those matters which the
board of directors, at the time of giving the notice, intends to present for
action by the stockholders (but any proper matter may be presented at the
meeting for such action). The notice of any meeting at which directors are to be
elected shall include the name of any nominee or nominees who, at the time of
the notice, the board intends to present for election.
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2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that stockholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
If any notice addressed to a stockholder at the address of that stockholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the stockholder at that address, then
all future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the stockholder on written
demand of the stockholder at the principal executive office of the corporation
for a period of one (1) year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of stockholders. The stockholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
Any stockholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy. In the absence
of a quorum, no other business may be transacted at that meeting except as
provided in Section 2.6 of these bylaws.
When any meeting of stockholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, if a new record date for the adjourned meeting is fixed or if the
adjournment is for more than thirty (30) days from the date set for the original
meeting, then notice
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of the adjourned meeting shall be given. Notice of any such adjourned meeting
shall be given to each stockholder of record entitled to vote at the adjourned
meeting in accordance with the provisions of Sections 2.4 and 2.5 of these
bylaws. At any adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting.
2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the Certificate of Incorporation,
each outstanding share, regardless of class, shall be entitled to one vote on
each matter submitted to a vote of the stockholders. Any stockholder entitled to
vote on any matter may vote part of the shares in favor of the proposal and
refrain from voting the remaining shares or, except when the matter is the
election of directors, may vote them against the proposal; but, if the
stockholder fails to specify the number of shares which the stockholder is
voting affirmatively, it will be conclusively presumed that the stockholder's
approving vote is with respect to all shares which the stockholder is entitled
to vote.
If a quorum is present, the affirmative vote of the majority of the shares
represented and voting at a duly held meeting (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the stockholders, unless the vote of a greater number or a vote by classes is
required by law or by the Certificate of Incorporation.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of stockholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though they
had been taken at a meeting duly held after regular call and notice, if a quorum
be present either in person or by proxy, and if, either before or after the
meeting, each person entitled to vote, who was not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of stockholders. All such waivers, consents,
and approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
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2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the Certificate of Incorporation, any action
which may be taken at any annual or special meeting of stockholders may be taken
without a meeting and without prior notice, if a consent in writing, setting
forth the action so taken, is signed by the holders of outstanding shares having
not less than the minimum number of votes that would be necessary to authorize
or take that action at a meeting at which all shares entitled to vote on that
action were present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
Following the closing date of the Company's initial public offering of
shares of is Common Stock pursuant to an effective registration statement filed
with the Securities and Exchange Commission (the "IPO"), no action of
stockholders shall be taken by the stockholders except at an annual or special
meeting of the stockholders called in accordance with the notice requirements of
Section 2.5 above and no action of the stockholders shall be taken by written
consent.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only stockholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date.
If the board of directors does not so fix a record date:
(a) 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 business day next preceding the day on which notice is given, or, if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held; and
(b) the record date for determining stockholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken,
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shall be at the close of business on the day on which the board adopts the
resolution relating to that action.
The record date for any other purpose shall be as provided in Article VIII
of these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation, 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, telegraphic 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(c) of the General Corporation Law of Delaware.
2.13 INSPECTORS OF ELECTION
Before any meeting of stockholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its adjournment. If
no inspector of election is so appointed, then the chairman of the meeting may,
and on the request of any stockholder or a stockholder's proxy shall, appoint an
inspector or inspectors of election to act at the meeting. The number of
inspectors shall be either one (1) or three (3). If inspectors are appointed at
a meeting pursuant to the request of one (1) or more stockholders or proxies,
then the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
then the chairman 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:
(a) 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;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
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(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all stockholders.
ARTICLE III
DIRECTORS
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3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and to
any limitations in the Certificate of Incorporation or these bylaws relating to
action required to be approved by the 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 AND TERM OF OFFICE
The authorized number of directors shall be five (5). The number of
directors may be changed by an amendment to this bylaw, dully adopted by the
board of directors or by the stockholders, or by a duly adopted amendment to the
certificate of incorporation.
3.3 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorom, or by a sole remaining
director. Each director so elected shall hold office until the next annual
meeting of the stockholders and until a successor has been elected and
qualified.
Unless otherwise provided in the Certificate of Incorporation or these
bylaws:
(i) 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.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
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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
(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.
3.4 REMOVAL
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; provided, however, that if and so
long as the stockholders of the corporation are entitled to cumulative voting,
if less than the entire board is to be removed, no director may be removed
without cause if the votes cast against his removal would be sufficient to elect
him if then cumulatively voted at an election of the entire board of directors,
pursuant to Delaware General Corporation Law Section 141(k)(2).
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.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
Delaware that has been designated in the notice of the meeting or, if not stated
in the notice or if there is no notice, at the principal executive office of the
corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
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3.6 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice if
the times of such meetings are fixed by the board of directors.
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 chairman of the board, or in the absence of the
chairman of the board by the chief executive officer or any three 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 seven (7) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or 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
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.10
of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
Certificate of Incorporation and applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
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3.10 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.11 ADJOURNMENT
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time and place.
3.12 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four (24) hours. If
the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.8 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board.
3.14 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.15 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or
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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. Nothing
contained in this section shall be deemed to deny, limit or restrict the powers
of guaranty or warranty of the corporation at common law or under any statute.
ARTICLE IV
COMMITTEES
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4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, but no such committee shall have the power or authority to (i) amend
the Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the board of directors as provided in Section 151(a) of the
General Corporation Law of Delaware, fix any of the preferences or rights of
such shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 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), Section 3.7 (regular meetings), Section 3.8 (special
meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice),
Section 3.11 (adjournment), Section 3.12 (notice of adjournment), and Section
3.13 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of
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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.
ARTICLE V
OFFICERS
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5.1 OFFICERS
The officers of the corporation shall be a chairman of the board, a chief
executive officer, a secretary and a chief financial officer. The corporation
may also have, at the discretion of the board of directors, a president, one or
more vice presidents, one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 5.3 of these bylaws. Any number of offices may be held by
the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws,
shall be chosen by the board, subject to the rights, if any, of an officer under
any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL 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 the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
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5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall serve as
the corporation's general manager, and shall have general supervision, direction
and control of the corporation's business and its officers, and, if present,
preside at meetings of the stockholders and the board of directors and exercise
and perform such other powers and duties as may from time to time be assigned to
him by the board of directors or as may be prescribed by these bylaws. If there
is no chief executive officer, then the chairman of the board shall also be the
chief executive officer of the corporation and shall have the powers and duties
prescribed in Section 5.7 of these bylaws. The chairman of the board shall
report to the board of directors.
5.7 CHIEF EXECUTIVE OFFICER
Subject to such powers, if any, as may be given by the board of directors
to the chairman of the board, if there be such an officer, the chief executive
officer shall, subject to the control of the chairman of the board, or the board
of directors if there is no chairman of the board, have general supervision,
direction, and control of the business and the officers of the corporation. He
or she shall preside at all meetings of the stockholders and the board of
directors, in the absence or nonexistence of a chairman of the board. He or she
shall have the general powers and duties of management usually vested in the
office of president of a corporation, and shall have such other powers and
duties as may be prescribed by the board of directors or these bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or 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.
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The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all 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. He or she 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.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable times
be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He or she 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 of his or
her transactions as chief financial officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS
------------------------------------------------------------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
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<PAGE>
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The corporation may 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 him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office 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 to so act on
behalf of the
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<PAGE>
stockholder. The demand under oath shall be directed to the corporation at its
registered office in Delaware or at its principal place of business.
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.
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 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 may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
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.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
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ARTICLE VII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any other lawful
action (other than action by stockholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
stockholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of 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.
8.4 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a 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. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by,
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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, 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,
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 he or she 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.
8.5 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, how ever, 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.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, 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 board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
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<PAGE>
8.7 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of Delaware 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.
ARTICLE IX
AMENDMENTS
----------
The original or other 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.
ARTICLE X
DISSOLUTION
-----------
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be
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<PAGE>
attached to and filed with the consent. The consent filed with the Secretary of
State shall have attached to it the affidavit of the secretary or some other
officer of the corporation stating that the consent has been signed by or on
behalf of all the stockholders entitled to vote on a dissolution; in addition,
there shall be attached to the consent a certification by the secretary or some
other officer of the corporation setting forth the names and residences of the
directors and officers of the corporation.
ARTICLE XI
CUSTODIAN
---------
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
ARTISAN COMPONENTS, INC.
ADOPTION BY INCORPORATOR
------------------------
The undersigned person appointed in the Certificate of Incorporation to act
as the Incorporator of Artisan Components, Inc. hereby adopts the foregoing
bylaws, comprising twenty-three (23) pages, as the Bylaws of the corporation.
Executed this 24th day of November, 1997.
/s/ Marianne Stark Bradley
--------------------------------------------
Marianne Stark Bradley
Incorporator
Certificate by Secretary of Adoption by Incorporator
----------------------------------------------------
The undersigned hereby certifies that she is the duly elected, qualified,
and acting Secretary of Artisan Components, Inc. and that the foregoing Bylaws,
comprising twenty-three (23) pages, were adopted as the Bylaws of the
corporation on November 24, 1997, by the person appointed in the Certificate of
Incorporation to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and affixed
the corporate seal this 24 day of November 1997.
/s/ Beth Bartel
--------------------------------------------
Beth Bartel
Secretary
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<PAGE>
EXHIBIT 3.4.1
CERTIFICATE OF AMENDMENT OF
RESTATED ARTICLES OF INCORPORATION OF
ARTISAN COMPONENTS, INC.
Mark R. Templeton and Beth Bartel certify that:
1. They are the President and Secretary, respectively, of Artisan
Components, Inc., a California corporation.
2. So much of Article III of the Restated Articles of Incorporation of
this corporation which currently reads as follows:
"This corporation is authorized to issue two classes of shares to be
designated respectively Common Stock and Preferred Stock. The total number
of shares of Common Stock this corporation shall have authority to issue is
25,000,000, and the total number of shares of Preferred Stock this
corporation shall have authority to issue is 6,871,460. 4,527,598 shares of
Preferred Stock shall be designated Series A Preferred Stock ("Series A
Preferred") and 2,343,862 shares of Preferred Stock shall be designated
Series B Preferred Stock ("Series B Preferred"; and the Series B Preferred,
collectively with the Series A Preferred, the "Preferred Stock")."
is hereby amended to read in its entirety as follows:
"This corporation is authorized to issue two classes of shares to be
designated respectively Common Stock and Preferred Stock. The total number
of shares of Common Stock this corporation shall have authority to issue is
50,000,000, and the total number of shares of Preferred Stock this
corporation shall have authority to issue is 3,435,736. 2,263,802 shares of
Preferred Stock shall be designated Series A Preferred Stock ("Series A
Preferred") and 1,171,934 shares of Preferred Stock shall be designated
Series B Preferred Stock ("Series B Preferred"; and the Series B Preferred,
collectively with the Series A Preferred, the "Preferred Stock").
Upon the filing of this Certificate of Amendment, each outstanding
share of Common Stock of this corporation shall be combined into .5 of a
share of Common Stock, each outstanding share of Series A Preferred Stock
shall be combined into .5 of a share of Series A Preferred Stock, and each
outstanding share of Series B Preferred Stock shall be combined into .5 of
a share of Series B Preferred Stock. No fractional shares will be issued
upon such stock split; any fractional shares will be rounded to the nearest
whole share.
The corporation shall from time to time in accordance with the laws of
the State of California increase the authorized amount of its Common Stock
if at any time the number of shares of Common Stock remaining unissued and
available for issuance shall not be sufficient to permit conversion of the
Preferred Stock."
<PAGE>
3. Section 1, Article III of the Restated Articles of Incorporation of
this corporation shall be amended to read in its entirety as follows:
"The holders of the Series A Preferred and Series B Preferred shall be
entitled to receive, when and as declared by the Board of Directors,
dividends out of funds legally available therefore, prior and in preference
to any declaration or payment of any dividend (payable other than in Common
Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of
Common Stock of this Corporation) on the Common Stock of this Corporation,
at the rate of $1.5461 and $3.77 per share, per annum, respectively. Such
dividends shall not be cumulative and no right to such dividends shall
accrue to holders of Preferred Stock unless declared by the Board of
Directors. No dividends or other distributions shall be made with respect
to the Common Stock, other than dividends payable solely in Common Stock,
unless at the same time an equivalent dividend with respect to the
Preferred Stock has been paid or set apart."
4. Section 2, Articles III(a) and (b) of the Restated Articles of
Incorporation of this corporation are hereby amended to read in their entirety
as follows:
"(a) In the event of a Liquidation before March 20, 1999, the holders
of the Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
corporation to the holders of the Common Stock by reason of their ownership
of such Preferred, an amount equal to the greater of (i) $1.5461 per share
of Series A Preferred or $3.77 per share of Series B Preferred,
respectively (as adjusted for stock dividends, stock splits, stock
combinations and the like, their respective "Original Purchase Price"),
plus an amount equal to a 25% rate of return compounded annually on the
Original Purchase Price from the date of issuance of the first share of
Series A Preferred or Series B Preferred, respectively, issued to the date
of Liquidation, plus all declared and unpaid dividends thereon to the date
fixed for distribution of assets, or (ii) the amount of any such
distribution as though the holders of the Series A Preferred or Series B
Preferred, respectively, were the holders of that number of shares of
Common Stock of the corporation into which their shares of Series A
Preferred or Series B Preferred, respectively, are convertible as of the
record date fixed for determination of the holders of Common Stock entitled
to receive such distribution (in the aggregate, the "Liquidation Preference
Amount"). If upon a Liquidation, the assets shall be insufficient to pay
the holders of the Series A Preferred and Series B Preferred the full
Liquidation Preference Amount, the holders of the Series A Preferred or
Series B Preferred shall share ratably in any distribution of assets
according to the respective amounts which would be payable in respect of
the shares held by them upon such distribution if all amounts payable on or
with respect to said shares were paid in full.
(b) In the event of a Liquidation occurring on or after March 20,
1999, the holders of the Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets or surplus
funds of the corporation to the holders of the Common Stock by reason of
their ownership of such stock, an amount equal to the greater of (i)
$1.5461 per share of each share of Series A Preferred or $3.77 per share of
each share of Series B Preferred, respectively, then held by them (as
adjusted for any stock dividends, stock splits,
<PAGE>
recapitalizations, combinations, consolidations, or the like, with respect
to shares of the Preferred Stock), plus an amount equal to any declared but
unpaid dividends on the Preferred Stock, or (ii) the amount of any such
distribution as though the holders of the Series A Preferred or Series B
Preferred were the holders of that number of shares of Common Stock of the
corporation into which their shares of Series A Preferred and Series B
Preferred, respectively, are convertible as of the record date fixed for
determination of the holders of Common Stock entitled to receive such
distribution (the "Preference"). If upon a Liquidation, the assets shall be
insufficient to pay the holders of the Series A Preferred and Series B
Preferred the full Preference, the holders of the Series A Preferred or
Series B Preferred shall share ratably in any distribution of assets
according to the respective amounts which would be payable in respect of
the shares held by them upon such distribution if all amounts payable on or
with respect to said shares were paid in full."
5. So much of Section 4(a), Article III of the Restated Articles of
Incorporation of this corporation which currently reads as follows:
"The Conversion Price per share of Series A Preferred shall be
$0.77305 and the per share Conversion Value of Series A Preferred shall be
$0.77305. The Conversion Price per share of Series B Preferred shall be
$1.885 and the per share Conversion Value of Series B Preferred shall be
$1.885. The Conversion Price of Series A Preferred and Series B Preferred
shall be subject to adjustment from time to time as provided below. The
number of shares of Common Stock to which a share of Series A Preferred or
Series B Preferred is convertible is hereinafter referred to as the
Conversion Rate of such share."
is hereby amended to read in its entirety as follows:
"The Conversion Price per share of Series A Preferred shall be $1.5461
and the per share Conversion Value of Series A Preferred shall be $1.5461.
The Conversion Price per share of Series B Preferred shall be $3.77 and the
per share Conversion Value of Series B Preferred shall be $3.77. The
Conversion Price of Series A Preferred and Series B Preferred shall be
subject to adjustment from time to time as provided below. The number of
shares of Common Stock to which a share of Series A Preferred or Series B
Preferred is convertible is hereinafter referred to as the Conversion Rate
of such share."
6. Section 4(d)(i)(4)(B) of Article III of the Restated Articles of
Incorporation of this corporation is hereby amended to read in its entirety as
follows:
"(B) shares of Common Stock issued to employees, officers, directors,
consultants, contractors or advisors of the Corporation pursuant to stock
purchase or stock option plans or agreements or other incentive stock
arrangements approved by the Board of Directors;"
7. The foregoing Certificate of Amendment of Restated Articles of
Incorporation has been duly approved by the Board of Directors.
8. The foregoing Certificate of Amendment of Restated Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 and 903 of
<PAGE>
the California Corporations Code. The authorized number of shares of Common
Stock is 25,000,000, of which 5,694,933 are issued and outstanding. The
authorized number of shares of Preferred Stock is 6,871,460, 4,527,598 of which
have been designated Series A Preferred and all of which are issued and
outstanding and 2,343,862 of which have been designated Series B Preferred,
2,243,862 of which are issued and outstanding. The number of shares voting in
favor of the amendment equaled or exceeded the vote required. The percentage
vote required was more than 50% of the Common Stock and more than 50% of the
Preferred Stock.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in the foregoing Certificate are true and
correct of our own knowledge.
Date: November 24, 1997
/s/ Mark R. Templeton
____________________________________________
Mark R. Templeton, President
/s/ Beth Bartel
____________________________________________
Beth Bartel, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF
RESTATED ARTICLES OF INCORPORATION OF
VLSI LIBRARIES INCORPORATED
Mark R. Templeton and Beth Bartel certify that:
1. They are the President and Secretary, respectively, of VLSI Libraries
Incorporated, a California corporation.
2. Article I of the Restated Articles of Incorporation of this
corporation is hereby amended to read in its entirety as follows:
"I
The name of the corporation is Artisan Components, Inc."
3. The foregoing Certificate of Amendment of Restated Articles of
Incorporation has been duly approved by the Board of Directors.
4. The foregoing Certificate of Amendment of Restated Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 and 903 of the California Corporations Code. The
authorized number of shares of Common Stock is 25,000,000, of which 11,025,158
are issued and outstanding. The authorized number of shares of Preferred Stock
is 6,871,460, 4,527,598 of which have been designated Series A Preferred and
all of which are issued and outstanding and 2,343,862 of which have been
designated Series B Preferred, 2,243,862 of which are issued and outstanding.
The number of shares voting in favor of the amendment equaled or exceeded the
vote required. The percentage vote required was more than 50% of the Common
Stock and more than 50% of the Preferred Stock.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in the foregoing Certificate are true and
correct of our own knowledge.
Date: March 24, 1997
/s/ Mark R. Templeton
----------------------------------------
Mark R. Templeton, President
/s/ Beth Bartel
----------------------------------------
Beth Bartel, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF
RESTATED ARTICLES OF INCORPORATION OF
VLSI LIBRARIES INCORPORATED
Mark R. Templeton and Beth Bartel certify that:
1. They are the President and Secretary, respectively, of VLSI Libraries
Incorporated, a California corporation.
2. So much of Article III of the Restated Articles of Incorporation of
this corporation which currently reads as follows:
"This corporation is authorized to issue two classes of shares to be
designated respectively Common Stock and Preferred Stock. The total number
of shares of Common Stock this corporation shall have authority to issue is
15,000,000, and the total number of shares of Preferred Stock this
corporation shall have authority to issue is 3,435,730. 2,263,799 shares of
Preferred Stock shall be designated Series A Preferred Stock ("Series A
Preferred") and 1,171,931 shares of Preferred Stock shall be designated
Series B Preferred Stock ("Series B Preferred"; and the Series B Preferred,
collectively with the Series A Preferred, the "Preferred Stock").
The corporation shall from time to time in accordance with the laws of
the State of California increase the authorized amount of its Common Stock
if at any time the number of shares of Common Stock remaining unissued and
available for issuance shall not be sufficient to permit conversion of the
Preferred Stock."
is hereby amended to read in its entirety as follows:
"This corporation is authorized to issue two classes of shares to be
designated respectively Common Stock and Preferred Stock. The total number
of shares of Common Stock this corporation shall have authority to issue is
25,000,000, and the total number of shares of Preferred Stock this
corporation shall have authority to issue is 6,871,460. 4,527,598 shares of
Preferred Stock shall be designated Series A Preferred Stock ("Series A
Preferred") and 2,343,862 shares of Preferred Stock shall be designated
Series B Preferred Stock ("Series B Preferred"; and the Series B Preferred,
collectively with the Series A Preferred, the "Preferred Stock").
Upon the filing of this Certificate of Amendment, each outstanding
share of Common Stock of this corporation shall be split up and converted
into two (2) shares of Common Stock, each outstanding share of Series A
Preferred Stock shall be split up and converted into two (2) shares of
Series A Preferred Stock, and each outstanding share of Series B Preferred
Stock shall be split up and converted into two (2) shares of Series B
Preferred Stock. No fractional shares will be issued upon such stock
split; any fractional shares will be rounded
<PAGE>
to the nearest whole share.
The corporation shall from time to time in accordance with the laws of
the State of California increase the authorized amount of its Common Stock
if at any time the number of shares of Common Stock remaining unissued and
available for issuance shall not be sufficient to permit conversion of the
Preferred Stock."
3. Section 1, Article III of the Restated Articles of Incorporation of
this corporation shall be amended to read in its entirety as follows:
"The holders of the Series A Preferred and Series B Preferred shall be
entitled to receive, when and as declared by the Board of Directors,
dividends out of funds legally available therefore, prior and in preference
to any declaration or payment of any dividend (payable other than in Common
Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of
Common Stock of this Corporation) on the Common Stock of this Corporation,
at the rate of $0.077305 and $0.1885 per share, per annum, respectively.
Such dividends shall not be cumulative and no right to such dividends shall
accrue to holders of Preferred Stock unless declared by the Board of
Directors. No dividends or other distributions shall be made with respect
to the Common Stock, other than dividends payable solely in Common Stock,
unless at the same time an equivalent dividend with respect to the
Preferred Stock has been paid or set apart."
4. So much of Section 2, Article III of the Restated Articles of
Incorporation of this corporation which currently reads as follows:
"(a) In the event of a Liquidation before March 20, 1999, the holders
of the Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
corporation to the holders of the Common Stock by reason of their ownership
of such Preferred, an amount equal to the greater of (i) $1.5461 per share
of Series A Preferred or $3.77 per share of Series B Preferred,
respectively (as adjusted for stock dividends, stock splits, stock
combinations and the like, their respective "Original Purchase Price"),
plus an amount equal to a 25% rate of return compounded annually on the
Original Purchase Price from the date of issuance of the first share of
Series A Preferred or Series B Preferred, respectively, issued to the date
of Liquidation, plus all declared and unpaid dividends thereon to the date
fixed for distribution of assets, or (ii) the amount of any such
distribution as though the holders of the Series A Preferred or Series B
Preferred, respectively, were the holders of that number of shares of
Common Stock of the corporation into which their shares of Series A
Preferred or Series B Preferred, respectively, are convertible as of the
record date fixed for determination of the holders of Common Stock entitled
to receive such distribution (in the aggregate, the "Liquidation Preference
Amount"). If upon a Liquidation, the assets shall be insufficient to pay
the holders of the Series A Preferred and Series B Preferred the full
Liquidation Preference Amount, the holders of the Series A Preferred or
Series B Preferred shall share ratably in any distribution of assets
according to the respective amounts which would be payable in respect of
the shares held by
<PAGE>
them upon such distribution if all amounts payable on or with respect to
said shares were paid in full.
(b) In the event of a Liquidation occurring on or after March 20,
1999, the holders of the Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets or surplus
funds of the corporation to the holders of the Common Stock by reason of
their ownership of such stock, an amount equal to the greater of (i)
$1.5461 per share of each share of Series A Preferred or $3.77 per share of
each share of Series B Preferred, respectively, then held by them (as
adjusted for any stock dividends, stock splits, recapitalizations,
combinations, consolidations, or the like, with respect to shares of the
Preferred Stock), plus an amount equal to any declared but unpaid dividends
on the Preferred Stock, or (ii) the amount of any such distribution as
though the holders of the Series A Preferred or Series B Preferred were the
holders of that number of shares of Common Stock of the corporation into
which their shares of Series A Preferred and Series B Preferred,
respectively, are convertible as of the record date fixed for determination
of the holders of Common Stock entitled to receive such distribution (the
"Preference"). If upon a Liquidation, the assets shall be insufficient to
pay the holders of the Series A Preferred and Series B Preferred the full
Preference, the holders of the Series A Preferred or Series B Preferred
shall share ratably in any distribution of assets according to the
respective amounts which would be payable in respect of the shares held by
them upon such distribution if all amounts payable on or with respect to
said shares were paid in full."
is hereby amended to read in its entirety as follows:
"(a) In the event of a Liquidation before March 20, 1999, the holders
of the Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
corporation to the holders of the Common Stock by reason of their ownership
of such Preferred, an amount equal to the greater of (i) $0.77305 per share
of Series A Preferred or $1.885 per share of Series B Preferred,
respectively (as adjusted for stock dividends, stock splits, stock
combinations and the like, their respective "Original Purchase Price"),
plus an amount equal to a 25% rate of return compounded annually on the
Original Purchase Price from the date of issuance of the first share of
Series A Preferred or Series B Preferred, respectively, issued to the date
of Liquidation, plus all declared and unpaid dividends thereon to the date
fixed for distribution of assets, or (ii) the amount of any such
distribution as though the holders of the Series A Preferred or Series B
Preferred, respectively, were the holders of that number of shares of
Common Stock of the corporation into which their shares of Series A
Preferred or Series B Preferred, respectively, are convertible as of the
record date fixed for determination of the holders of Common Stock entitled
to receive such distribution (in the aggregate, the "Liquidation Preference
Amount"). If upon a Liquidation, the assets shall be insufficient to pay
the holders of the Series A Preferred and Series B Preferred the full
Liquidation Preference Amount, the holders of the Series A Preferred or
Series B Preferred shall share ratably in any distribution of assets
according to the respective amounts which would be payable in respect of
the shares held by them upon such distribution if all amounts payable on or
with respect to said shares were paid in full.
<PAGE>
(b) In the event of a Liquidation occurring on or after March 20,
1999, the holders of the Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets or surplus
funds of the corporation to the holders of the Common Stock by reason of
their ownership of such stock, an amount equal to the greater of (i)
$0.77305 per share of each share of Series A Preferred or $1.885 per share
of each share of Series B Preferred, respectively, then held by them (as
adjusted for any stock dividends, stock splits, recapitalizations,
combinations, consolidations, or the like, with respect to shares of the
Preferred Stock), plus an amount equal to any declared but unpaid dividends
on the Preferred Stock, or (ii) the amount of any such distribution as
though the holders of the Series A Preferred or Series B Preferred were the
holders of that number of shares of Common Stock of the corporation into
which their shares of Series A Preferred and Series B Preferred,
respectively, are convertible as of the record date fixed for determination
of the holders of Common Stock entitled to receive such distribution (the
"Preference"). If upon a Liquidation, the assets shall be insufficient to
pay the holders of the Series A Preferred and Series B Preferred the full
Preference, the holders of the Series A Preferred or Series B Preferred
shall share ratably in any distribution of assets according to the
respective amounts which would be payable in respect of the shares held by
them upon such distribution if all amounts payable on or with respect to
said shares were paid in full."
5. So much of Section 4(a), Article III of the Restated Articles of
Incorporation of this corporation which currently reads as follows:
"The Conversion Price per share of Series A Preferred shall be $1.5461
and the per share Conversion Value of Series A Preferred shall be $1.5461.
The Conversion Price per share of Series B Preferred shall be $3.77 and the
per share Conversion Value of Series B Preferred shall be $3.77. The
Conversion Price of Series A Preferred and Series B Preferred shall be
subject to adjustment from time to time as provided below. The number of
shares of Common Stock to which a share of Series A Preferred or Series B
Preferred is convertible is hereinafter referred to as the Conversion Rate
of such share."
is hereby amended to read in its entirety as follows:
"The Conversion Price per share of Series A Preferred shall be
$0.77305 and the per share Conversion Value of Series A Preferred shall be
$0.77305. The Conversion Price per share of Series B Preferred shall be
$1.885 and the per share Conversion Value of Series B Preferred shall be
$1.885. The Conversion Price of Series A Preferred and Series B Preferred
shall be subject to adjustment from time to time as provided below. The
number of shares of Common Stock to which a share of Series A Preferred or
Series B Preferred is convertible is hereinafter referred to as the
Conversion Rate of such share."
6. Section 4(d)(i)(4)(B) of Article III of the Restated Articles of
Incorporation of this corporation is hereby amended to read in its entirety as
follows:
"(B) up to 4,582,792 shares of Common Stock issued to employees,
officers, directors, consultants, contractors or advisors of the
Corporation pursuant to stock purchase or stock option plans or agreements
or other incentive stock arrangements approved by the
<PAGE>
Board of Directors;"
7. The foregoing Certificate of Amendment of Restated Articles of
Incorporation has been duly approved by the Board of Directors.
8. The foregoing Certificate of Amendment of Restated Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 and 903 of the California Corporations Code. The
authorized number of shares of Common Stock is 15,000,000, of which 5,478,517
are issued and outstanding. The authorized number of shares of Preferred Stock
is 3,435,730, 2,263,799 of which have been designated Series A Preferred and
all of which are issued and outstanding and 1,171,931 of which have been
designated Series B Preferred, 1,121,931 of which are issued and outstanding.
The number of shares voting in favor of the amendment equaled or exceeded the
vote required. The percentage vote required was more than 50% of the Common
Stock and more than 50% of the Preferred Stock.
<PAGE>
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in the foregoing Certificate are true and
correct of our own knowledge.
Date: January 27, 1997
/s/ Mark R. Templeton
----------------------------------------
Mark R. Templeton, President
/s/ Beth Bartel
----------------------------------------
Beth Bartel, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF
RESTATED ARTICLES OF INCORPORATION OF
VLSI LIBRARIES INCORPORATED
Mark R. Templeton and Beth Bartel certify that:
1. They are the President and Secretary, respectively, of VLSI Libraries
Incorporated, a California corporation.
2. Article III of the Restated Articles of Incorporation of this
corporation is amended to read in full as follows:
"III.
This corporation is authorized to issue two classes of shares to be
designated respectively Common Stock and Preferred Stock. The total number of
shares of Common Stock this corporation shall have authority to issue is
15,000,000, and the total number of shares of Preferred Stock this corporation
shall have authority to issue is 3,435,730. 2,263,799 shares of Preferred Stock
shall be designated Series A Preferred Stock ("Series A Preferred") and
1,171,931 shares of Preferred Stock shall be designated Series B Preferred Stock
("Series B Preferred"; and the Series B Preferred, collectively with the Series
A Preferred, the "Preferred Stock").
The corporation shall from time to time in accordance with the laws of the
State of California increase the authorized amount of its Common Stock if at any
time the number of shares of Common Stock remaining unissued and available for
issuance shall not be sufficient to permit conversion of the Preferred Stock.
The relative rights, preferences, privileges and restrictions granted to or
imposed upon the respective classes of the shares of capital stock or the
holders thereof are as follows:
1. Dividends.
----------
The holders of the Series A Preferred and Series B Preferred shall be
entitled to receive, when and as declared by the Board of Directors, dividends
out of funds legally available therefore, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
Corporation) on the Common Stock of this Corporation, at the rate of $0.15461
and $0.377 per share, per annum, respectively. Such dividends shall not be
cumulative and no right to such dividends shall accrue to holders of Preferred
Stock unless declared by the Board of Directors. No dividends or other
distributions shall be made with respect to the Common Stock, other than
dividends payable solely in Common Stock, unless at the same time an equivalent
dividend with respect to the Preferred Stock has been paid or set apart.
<PAGE>
2. Liquidation Preference.
----------------------
In the event of any liquidation, dissolution, or winding up of the
Corporation ("Liquidation"), either voluntary or involuntary, distributions to
the shareholders of the Corporation shall be made in the following manner:
a. In the event of a Liquidation before March 20, 1999, the holders
of the Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds
of the corporation to the holders of the Common Stock by reason of
their ownership of such Preferred, an amount equal to the greater of
(i) $1.5461 per share of Series A Preferred or $3.77 per share of
Series B Preferred, respectively (as adjusted for stock dividends,
stock splits, stock combinations and the like, their respective
"Original Purchase Price"), plus an amount equal to a 25% rate of
return compounded annually on the Original Purchase Price from the
date of issuance of the first share of Series A Preferred or Series B
Preferred, respectively, issued to the date of Liquidation, plus all
declared and unpaid dividends thereon to the date fixed for
distribution of assets, or (ii) the amount of any such distribution as
though the holders of the Series A Preferred or Series B Preferred,
respectively, were the holders of that number of shares of Common
Stock of the corporation into which their shares of Series A Preferred
or Series B Preferred, respectively, are convertible as of the record
date fixed for determination of the holders of Common Stock entitled
to receive such distribution (in the aggregate, the "Liquidation
Preference Amount"). If upon a Liquidation, the assets shall be
insufficient to pay the holders of the Series A Preferred and Series B
Preferred the full Liquidation Preference Amount, the holders of the
Series A Preferred or Series B Preferred shall share ratably in any
distribution of assets according to the respective amounts which would
be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to said shares
were paid in full.
b. In the event of a Liquidation occurring on or after March 20,
1999, the holders of the Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets or
surplus funds of the corporation to the holders of the Common Stock by
reason of their ownership of such stock, an amount equal to the
greater of (i) $1.5461 per share of each share of Series A Preferred
or $3.77 per share of each share of Series B Preferred, respectively,
then held by them (as adjusted for any stock dividends, stock splits,
recapitalizations, combinations, consolidations, or the like, with
respect to shares of the Preferred Stock), plus an amount equal to any
declared but unpaid dividends on the Preferred Stock, or (ii) the
amount of any such distribution as though the holders of the Series A
Preferred or Series B Preferred were the holders of that number of
shares of Common Stock of the corporation into which their shares of
Series A Preferred and Series B Preferred, respectively, are
convertible as of the record date fixed for determination of the
holders of Common Stock entitled to receive such distribution (the
"Preference"). If upon a Liquidation, the assets shall be insufficient
to pay the holders of the Series A Preferred and Series B Preferred
the full Preference, the holders of the Series A Preferred or
<PAGE>
Series B Preferred shall share ratably in any distribution of assets
according to the respective amounts which would be payable in respect
of the shares held by them upon such distribution if all amounts
payable on or with respect to said shares were paid in full.
c. After payment or setting apart of payment of the Liquidation
Preference Amount or the Preference, as the case may be, the holders
of Common Stock shall be entitled to receive the remaining assets of
the corporation pro rata based upon the number of shares held by such
holders of Common Stock.
d. For purposes of this Section 2, a merger or consolidation of the
Corporation with or into any other corporation or corporations, or the
merger of any other corporation or corporations into the Corporation,
in which consolidation or merger the shareholders of the Corporation
receive distributions in cash or securities of another corporation or
corporations as a result of such consolidation or merger, a sale of
all or substantially all of the assets of the Corporation, or the
undertaking by the Corporation of a transaction or series of
transactions in which more than 50% of the voting power of the
Corporation is disposed of, shall be treated as a liquidation,
dissolution or winding up of the Corporation.
e. Any securities to be delivered to the holders of Preferred Stock
pursuant to Section 2(a) or 2(b) above shall be valued as follows:
i. Securities not subject to investment letter or other similar
restrictions on free marketability:
(1) If traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the
securities on such exchange over the 30-day period ending
three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices
(whichever are applicable) over the 30-day period ending
three (3) days prior to the closing; and
(3) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the
Corporation and the holders of Preferred Stock which would
been entitled to receive such securities or the same type of
securities and which Preferred Stock represents at least a
majority of the voting power of all then outstanding shares
of such Preferred Stock.
ii. The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to
make an appropriate discount from the market value determined as
above in subsections 2(e)(i)(1), (2) or (3) to reflect the
approximate fair market value thereof, as mutually determined by
the Corporation and the
<PAGE>
holders of Preferred Stock which would be entitled to receive
such securities or the same type of securities and which
represent at least a majority of the voting power of all then
outstanding shares of such Preferred Stock.
f. In the event the requirements of Section 2(e) are not complied
with, the Corporation shall forthwith either:
(i) cause such closing to be postponed until such time as the
requirements of this Section 2 have been complied with, or
(ii) cancel such transaction, in which event the rights, preferences
and privileges of the holders of the Preferred Stock shall revert
to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice
referred to in Section 4(h) hereof.
g. As authorized by Section 402.5(c) of the California Corporations
Code, the provisions of Sections 502 and 503 of the California
Corporations Code shall not apply with respect to the repurchase by
the corporation of shares of Common Stock issued to or held by
employees or consultants of the Corporation or its subsidiaries upon
termination of their employment or services pursuant to any agreement
providing for the right of said repurchase.
3. Voting Rights.
-------------
Holders of the Preferred Stock shall have full voting rights and
powers equal to the voting rights and powers of the holders of Common Stock, and
shall be entitled to vote, together with the holders of Common Stock, with
respect to any matters upon which holders of Common Stock have the right to
vote. Except as otherwise required by law or by Section 6 hereof, the holder of
each share of Common Stock issued and outstanding shall have one vote and the
holder of each share of Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which such share of Preferred
Stock could be converted at the record date for determination of the
shareholders entitled to vote on such matters, or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited, such votes to be counted together with all other
shares of stock of the Corporation having general voting power and not
separately as a class. Fractional votes by the holders of Preferred Stock shall
not, however, be permitted and any fractional voting rights shall (after
aggregating all shares into which shares of Preferred Stock held by each holder
could be converted) be rounded to the nearest whole number. Holders of Common
Stock and Preferred Stock shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of the Corporation.
4. Conversion.
----------
The holders of Preferred Stock shall have conversion rights as follows
(the "Conversion Rights"):
a. Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the
<PAGE>
option of the holder thereof, at any time after the date of issuance
of such share at the office of the Corporation or any transfer agent
for the Preferred Stock. Each share of Series A Preferred and Series B
Preferred shall be convertible into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the
Conversion Price (as hereinafter defined) per share in effect for the
Series A Preferred and Series B Preferred into the per share
Conversion Value (as hereinafter defined) of such series.
The Conversion Price per share of Series A Preferred shall be $1.5461
and the per share Conversion Value of Series A Preferred shall be $1.5461. The
Conversion Price per share of Series B Preferred shall be $3.77 and the per
share Conversion Value of Series B Preferred shall be $3.77. The Conversion
Price of Series A Preferred and Series B Preferred shall be subject to
adjustment from time to time as provided below. The number of shares of Common
Stock to which a share of Series A Preferred or Series B Preferred is
convertible is hereinafter referred to as the Conversion Rate of such share.
b. Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the then
effective Conversion Rate upon the closing of a firm commitment
underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the
offer and sale of Common Stock for the account of the Corporation with
an aggregate offering price to the public of not less than
$10,000,000. In the event of the automatic conversion of the
Preferred Stock upon a public offering as aforesaid, the person(s)
entitled to receive the Common Stock issuable upon such conversion of
Preferred Stock shall not be deemed to have converted such Preferred
Stock until immediately prior to the closing of such sale of
securities.
c. Mechanics of Conversion. No fractional shares of Common Stock
-----------------------
shall be issued upon conversion of Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the
then effective Conversion Price. Before any holder of Preferred Stock
shall be entitled to convert the same into full shares of Common Stock
and to receive certificates therefor, he shall surrender the
certificate or certificates therefor, duly endorsed, at the office of
the Corporation or of any transfer agent for the Preferred Stock, and
shall give written notice to the Corporation at such office that he
elects to convert the same; provided, however, that in the event of an
automatic conversion pursuant to Section 4(b), the outstanding shares
of Preferred Stock shall be converted automatically without any
further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the
Corporation or its transfer agent, and provided further that the
Corporation shall not be obligated to issue certificates evidencing
the shares of Common Stock issuable upon such automatic conversion
unless the certificates evidencing such shares of Preferred Stock are
either delivered to the Corporation or its transfer agent as provided
above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any
<PAGE>
loss incurred by it in connection with such certificates. The
Corporation shall, as soon as practicable after such delivery, or such
agreement and indemnification in the case of a lost certificate, issue
and deliver at such office to such holder of Preferred Stock, a
certificate or certificates for the number of shares of Common Stock
to which he shall be entitled as aforesaid and a check payable to the
holder in the amount of any cash amounts payable as the result of a
conversion into fractional shares of Common Stock. Such conversion
shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Preferred
Stock to be converted, or in the case of automatic conversion on the
date of closing of the offering, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such
shares of Common Stock on such date.
d. Adjustments for Diluting Issues.
-------------------------------
(i). Special Definitions. For purposes of this Section 4(d), the
-------------------
following definitions shall apply:
(1) `Options' shall mean rights, options or warrants to
-------
subscribe for, purchase or otherwise acquire either Common
Stock or Convertible Securities.
(2) `Original Issue Date' with respect to Series A
-------------------
Preferred means the date on which the first shares of such
series were first issued, and with respect to Series B
Preferred means the date on which the first shares of such
series were first issued.
(3) `Convertible Securities' shall mean securities (other
----------------------
than the Common Stock) convertible into or exchangeable for
Common Stock.
(4) `Additional Shares of Common Stock' shall mean all
---------------------------------
shares of Common Stock and Convertible Securities issued by
the Corporation after the Original Issue Date, other than
shares of Common Stock and Convertible Securities issued or
issuable at any time:
(a) upon conversion of the shares of Series A Preferred or
Series B Preferred authorized herein or upon conversion of
Convertible Securities, provided that such Convertible
Securities shall be deemed to be Additional Shares of Common
Stock;
(b) up to 1,762,396 shares of Common Stock issued to
employees, officers, directors, consultants, contractors or
advisors of the Corporation pursuant to stock purchase or
stock option plans or agreements or other incentive stock
arrangements approved by the Board of Directors;
<PAGE>
(c) as a dividend or distribution on the Series A Preferred
or Series B Preferred or any event for which adjustment is
made pursuant to subparagraph (d)(iv) and (d)(vi) hereof;
(d) pursuant to any exercise of the Warrant to purchase
additional shares of Preferred Stock dated December 1996
made by the corporation in favor of Synopsys, Inc.;
(e) in connection with capital asset leases or borrowings
for the acquisition of capital assets pursuant to approval
by a majority of the Board of Directors; or
(f) by way of a transaction described in Sections 4(d)(iv)
through 4(d)(vi) below.
(ii). Adjustment of Conversion Price Upon Issuance of Additional Shares
-----------------------------------------------------------------
of Common Stock. In the event this Corporation shall issue
---------------
Additional Shares of Common Stock after the Original Issue Date
without consideration or for a consideration per share less than
the Conversion Price of any series of Preferred Stock in effect
on the date of and immediately prior to such issue, then in such
event, the Conversion Price for such series of Preferred Stock
shall be reduced, concurrently with such issue, to a price
determined by multiplying such Conversion Price by a fraction,
the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number
of shares of Common Stock which the aggregate consideration
received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such
Conversion Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to
such issue plus the number of such Additional Shares of Common
Stock so issued; and provided further that, for the purposes of
this Section 4(d)(ii), all shares of Common Stock issuable upon
conversion of outstanding Preferred Stock or outstanding Options
shall be deemed to be outstanding.
(iii). Determination of Consideration. For purposes of this Section
------------------------------
4(d), the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall be computed as
follows:
(1) Cash and Property: Such consideration shall:
-----------------
(a) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or
accrued dividends;
(b) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such
issue, as determined in
<PAGE>
good faith by the Board; and
(c) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other
assets of the Corporation for consideration which covers
both, be the proportion of such consideration so received,
computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board.
(2) Options and Convertible Securities. In the case of
issuance of options to purchase or rights to subscribe for
Common Stock, or securities by their terms convertible
into or exchangeable for Common Stock, the following
provisions shall apply for all purposes of Section 4(d):
(a) The aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or
rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were
issued and for a consideration equal to the consideration
(determined in the manner provided in subparagraph
4(d)(iii)(1)), if any, received by the Corporation upon
the issuance of such options or rights plus the exercise
price provided in such options or rights for the Common
Stock covered thereby.
(b) The aggregate maximum number of shares of Common Stock
deliverable upon conversion or in exchange for such
convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for
such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or
such options or rights were issued and for a consideration
equal to the consideration, if any, received by the
Corporation for any such securities and related options or
rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the additional
consideration, if any, to be received by the corporation
upon the conversion or exchange of such securities or the
exercise of any related options or rights (the
consideration in each case to be determined in the manner
provided in subparagraph 4(d)(iii)(1)).
(c) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable
to this corporation upon exercise of such options or
rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution
provisions thereof, the Conversion Price of the series of
Preferred Stock, to the extent in any way affected by or
computed using such options, rights or securities, shall
be recomputed to reflect
<PAGE>
such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such
consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(d) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or
the expiration of any options or rights related to such
convertible or exchangeable securities, the Conversion
Price of the series of Preferred Stock, to the extent in
any way affected by or computed using such options, rights
or securities, shall be recomputed to reflect the issuance
of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in
effect) actually issued upon the conversion or exchange of
such securities or upon the exercise of the options or
rights related to such securities.
(e) The number of shares of Common Stock deemed issued and
the consideration deemed paid therefor pursuant to
subparagraphs 4(d)(iii)(2)(A) and (B) shall be
appropriately adjusted to reflect any change, termination
or expiration of the type described in either subparagraph
4(d)(iii)(2)(C) or (D).
(iv). Adjustments for Subdivisions, Combinations or Stock Dividends of
----------------------------------------------------------------
Common Stock. In the event the outstanding shares of Common
------------
Stock shall be subdivided (by stock split, or otherwise), into a
greater number of shares of Common Stock, or the Corporation at
any time or from time to time after the Original Issue Date shall
declare or pay any dividend on the Common Stock payable in Common
Stock, the Conversion Price then in effect shall, concurrently
with the effectiveness of such subdivision or stock dividend, be
proportionately decreased based on the ratio of (i) the number of
shares of Common Stock outstanding immediately after such
subdivision or stock dividend to (ii) the number of shares of
Common Stock outstanding immediately prior to such subdivision or
stock dividend. In the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the
Conversion Price then in effect shall, concurrently with the
effectiveness of such combination or consolidation, be
proportionately increased on the same basis.
(v). Adjustments for Other Distributions. In the event the
-----------------------------------
Corporation at any time or from time to time makes, or fixes a
record date for the determination of holders of Common Stock
entitled to receive any distribution payable in (i) securities of
the Corporation or other entities (other than shares of Common
Stock and other than as otherwise adjusted in this Section 4), or
(ii) evidences of indebtedness issued by the Corporation or other
persons, or (iii) assets (excluding cash dividends) or options or
rights not referred to in subparagraph 4(d)(iii)(2), then and in
each such event provision shall be made so that the holders of
Preferred
<PAGE>
Stock shall receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable thereupon, the amount
of such distribution which they would have received had their
Preferred Stock been converted into Common Stock on the date of
such event and had they thereafter, during the period from the
date of such event to and including the date of conversion,
retained such securities receivable by them as aforesaid during
such period, subject to all other adjustments called for during
such period under this Section 4 with respect to the rights of
the holders of Preferred Stock.
(iv). Adjustments for Recapitalization, Reclassification, Exchange and
----------------------------------------------------------------
Substitution. If at any time or from time to time the Common
------------
Stock issuable upon conversion of the Preferred Stock shall be
changed into the same or a different number of shares of any
other class or classes of stock, whether by recapitalization,
capital reorganization, reclassification or otherwise (other than
a subdivision, combination of shares or merger or sale of assets
transaction provided for above or in Section 2(d)), the
Conversion Rate then in effect shall, concurrently with the
effectiveness of such recapitalization, reorganization or
reclassification, be proportionately adjusted such that the
Preferred Stock shall be convertible into, in lieu of the number
of shares of Common Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other class
or classes of stock equivalent to the number of shares of Common
Stock that would have been subject to receipt by the holders upon
conversion of the Preferred Stock immediately before that change.
In addition, to the extent applicable in any reorganization or
recapitalization, provision shall be made so that the holders of
the Preferred Stock shall thereafter be entitled to receive upon
conversion of the Preferred Stock the number of shares of stock
or other securities or property of the Company or otherwise, to
which a holder of Common Stock deliverable upon conversion would
have been entitled on such reorganization or recapitalization.
e. No Impairment. Except as provided in Section 7, the Corporation
-------------
will not, by amendment of its Restated Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but
will at all times in good faith assist in the carrying out of all the
provisions of this Section 4 and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion
Rights of the holders of the Preferred Stock against impairment.
f. Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price or the Conversion
Rate pursuant to this Section 4, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with
the terms hereof and furnish to each holder of Preferred Stock a
certificate setting forth such adjustment or readjustment and
<PAGE>
showing in detail the facts upon which such adjustment or readjustment
is based. The Corporation shall, upon the written request at any time
of any holder of Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price and the Conversion Rate at
the time in effect, and (iii) the number of shares of Common Stock and
the amount, if any, of other property which at the time would be
received upon the conversion of Preferred Stock.
g. Reservation of Stock Issuable Upon Conversion. This Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of the Preferred Stock such
number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the
Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holder of
such Preferred Stock, this corporation will take such corporate action
as may, in the opinion of counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
h. Notices of Record Date. In the event that this Corporation shall
----------------------
propose at any time:
(i). to declare any dividend or distribution upon its Common Stock,
whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or
earned surplus;
(ii). to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class
or series or other rights;
(iii). to effect any reclassification or recapitalization of its Common
Stock outstanding involving a change in the Common Stock; or
(iv). to merge or consolidate with or into any other corporation, or
sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
then, in connection with each such event, this Corporation shall send to the
holders of Preferred Stock:
(a) at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend,
distribution or subscription rights (and specifying the date
on which the holders of Common Stock shall be entitled
thereto and the amount and character of such dividend,
distribution or right) or for determining rights to vote in
respect of the matters referred to in (iii) and (iv) above;
and
<PAGE>
(b) in the case of the matters referred to in (iii) and
(iv) above, at least 20 days' prior written notice of the
date when the same shall take place (and specifying the date
on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property
deliverable upon the occurrence of such event or the record
date for the determination of such holders if such record
date is earlier).
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of the Preferred Stock at
the address for each such holder as shown on the books of this Corporation.
5. Redemption. The shares of Series A Preferred and Series B Preferred
----------
shall not be redeemable.
6. Voting Rights.
-------------
a. Vote Other Than for Directors. Except as otherwise required by
-----------------------------
law, each share of Common Stock issued and outstanding shall have one
vote and each share of Series A Preferred or Series B Preferred issued
and outstanding shall have the number of votes equal to the number of
shares of Common Stock into which the Series A Preferred or Series B
Preferred is convertible as adjusted from time to time pursuant to
Section 4 hereof.
b. Voting for Directors. The Board of Directors shall consist of
--------------------
five (5) members. For so long as 25% or more of the issued shares of
Series A Preferred have not been converted into Common Stock, the
holders of the shares of Series A Preferred voting as a series shall
be entitled to elect two (2) directors. The holders of Common Stock
voting as a separate class shall be entitled to elect two (2)
directors. The remaining director shall be elected by the holders of
the Series A Preferred, Series B Preferred and Common Stock voting as
provided in Section 6(a). In the event that 25% or more of the
outstanding shares of Series A Preferred have been converted into
Common Stock, then directors shall thereafter be elected by the
holders of the Series A Preferred, Series B Preferred and Common Stock
voting as provided in Section 6(a). A vacancy on the Board of
Directors occurring because of the death, resignation or removal of a
director elected by the holders of Series A Preferred voting as a
separate series shall be filled by the vote or written consent of the
holders of a majority of the Series A Preferred. Any vacancy occurring
because of the death, resignation or removal of a director elected by
the holders of Common Stock voting as a separate class shall be filled
by the vote or written consent of the holders of a majority of the
Common Stock. Any vacancy occurring because of the death, resignation
or removal of the director elected by the holders of the Series A
Preferred, Series B Preferred and Common Stock voting together as a
single class shall be filled by the vote or written consent of the
holders of a majority of the Series A Preferred, Series B Preferred
and Common Stock voting as provided in
<PAGE>
Section 6(a). A director may be removed from the Board of Directors
with or without cause by the vote or consent of the holders of the
outstanding class or series with voting power entitled to elect him in
accordance with this Section 6(b) and the California Corporations
Code.
c. Cumulative Voting. The holders of Common Stock, Series A
-----------------
Preferred and Series B Preferred shall be entitled to cumulative
voting rights as to the directors to be elected by each series or
class, or the combined classes (as provided in Section 6(b) above), in
accordance with the provisions of Section 708 of the California
Corporations Code.
7. Covenants.
---------
In addition to any other rights provided by law, so long as shares of
Series A Preferred and Series B Preferred shall be outstanding, this Corporation
shall not, without first obtaining the affirmative vote or written consent of
the holders of more than fifty percent (50%) of the outstanding shares of Series
A Preferred and Series B Preferred, voting together as a single class:
a. amend or repeal any provision of, or add any provision to, this
Corporation's Restated Articles of Incorporation or Bylaws if such
action would adversely alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit
of the Preferred Stock;
b. authorize or issue shares of any series or class of stock having
any preference or priority as to dividends or assets superior to or on
a parity with any such preference or priority of any series of
Preferred Stock, or authorize shares of stock of any class or any
bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having option rights to purchase, any shares of
stock of this corporation having any preference or priority as to
dividends or assets superior to or on a parity with any such
preference or priority of the Preferred Stock;
c. effect in any transaction or series of transactions a sale or
other conveyance of all or substantially all of the assets of the
corporation or any of its subsidiaries, or any consolidation or merger
involving the corporation or any of its subsidiaries where the
corporation or such subsidiary is not the surviving corporation, or
any sale of more than 50% of the corporation's capital stock; or
d. increase or decrease the authorized number of shares of Preferred
Stock."
3. The foregoing Certificate of Amendment of Restated Articles of
Incorporation has been duly approved by the Board of Directors.
4. The foregoing Certificate of Amendment of Restated Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 and 903 of the California Corporations Code. The
authorized number of shares of Common Stock is 15,000,000, of which 5,113,750
are issued and outstanding. The authorized number of shares of
<PAGE>
Preferred Stock is 2,263,799, all of which have been designated Series A
Preferred and all of which are issued and outstanding. The number of shares
voting in favor of the amendment equaled or exceeded the vote required. The
percentage vote required was more than 50% of the Common Stock and more than 50%
of the Preferred Stock.
<PAGE>
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in the foregoing Certificate are true and
correct of our own knowledge.
Date: December 10, 1996
/s/ Mark R. Templeton
----------------------------------------------
Mark R. Templeton, President
/s/ Beth Bartel
--------------------------------------------
Beth Bartel, Secretary
<PAGE>
RESTATED ARTICLES OF INCORPORATION OF
VLSI LIBRARIES INCORPORATED
Mark R. Templeton and John G. Malecki certify that:
1. They are the President and Secretary of VLSI Libraries Incorporated, a
California corporation.
2. The Articles of Incorporation of this corporation are amended and
restated to read in full as follows:
"I.
The name of the corporation is VLSI Libraries Incorporated.
II.
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a professional permitted to be incorporated by the California
Corporations Code.
III.
This corporation is authorized to issue two classes of shares to be
designated respectively Common Stock and Preferred Stock. The total number of
shares of Common Stock this corporation shall have authority to issue is
15,000,000, and the total number of shares of Preferred Stock this corporation
shall have authority to issue is 2,263,799. 2,263,799 shares of Preferred Stock
shall be designated Series A Preferred Stock ("Series A Preferred").
The corporation shall from time to time in accordance with the laws of the
State of California increase the authorized amount of its Common Stock if at any
time the number of shares of Common Stock remaining unissued and available for
issuance shall not be sufficient to permit conversion of the Preferred.
The relative rights, preferences, privileges and restrictions granted to or
imposed upon the respective classes of the shares of capital stock or the
holders thereof are as follows:
1. Dividends.
----------
The holders of the Series A Preferred shall be entitled to receive,
when and as declared by the Board of Directors, dividends out of funds legally
available therefore, prior and in preference to any declaration or payment of
any dividend (payable other than in Common Stock or other securities and rights
convertible into or entitling the holder thereof to receive, directly or
<PAGE>
indirectly, additional shares of Common Stock of this Corporation) on the Common
Stock of this Corporation, at the rate of $0.15461 per share, per annum. Such
dividends shall not be cumulative and no right to such dividends shall accrue to
holders of Preferred Stock unless declared by the Board of Directors. No
dividends or other distributions shall be made with respect to the Common Stock,
other than dividends payable solely in Common Stock, unless at the same time an
equivalent dividend with respect to the Preferred Stock has been paid or set
apart.
2. Liquidation Preference.
----------------------
In the event of any liquidation, dissolution, or winding up of the
Corporation ("Liquidation"), either voluntary or involuntary, distributions to
the shareholders of the Corporation shall be made in the following manner:
(a) In the event of a Liquidation before March 20, 1999, the holders
of the Series A Preferred shall be entitled to receive, prior and in preference
to any distribution of any of the assets or surplus funds of the corporation to
the holders of the Common Stock by reason of their ownership of such Series A
Preferred, an amount equal to the greater of (i) $1.5461 per share of Series A
Preferred (as adjusted for stock dividends, stock splits, stock combinations and
the like, the "Original Purchase Price"), plus an amount equal to a 25% rate of
return compounded annually on the Original Purchase Price from the date of
issuance of the first share of Series A Preferred issued to the date of
liquidation, plus all declared and unpaid dividends thereon to the date fixed
for distribution of assets, or (ii) the amount of any such distribution as
though the holders of the Series A Preferred were the holders of that number of
shares of Common Stock of the corporation into which their shares of Series A
Preferred are convertible as of the record date fixed for determination of the
holders of Common Stock entitled to receive such distribution (in the aggregate,
the "Liquidation Preference Amount"). If upon a Liquidation, the assets shall
be insufficient to pay the holders of the Series A Preferred the full
Liquidation Preference Amount, the holders of the Series A Preferred shall share
ratably in any distribution of assets according to the respective amounts which
would be payable in respect of the shares held by them upon such distribution if
all amounts payable on or with respect to said shares were paid in full.
(b) In the event of a Liquidation occurring on or after March 20,
1999, the holders of the Preferred Stock shall be entitled to receive, prior and
in preference to any distribution of any of the assets or surplus funds of the
corporation to the holders of the Common Stock by reason of their ownership of
such stock, an amount equal to the greater of (i) $1.5461 per share of each
share of Series A Preferred then held by them (as adjusted for any stock
dividends, stock splits, recapitalizations, combinations, consolidations, or the
like, with respect to shares of the Preferred Stock), plus an amount equal to
any declared but unpaid dividends on the Preferred Stock, or (ii) the amount of
any such distribution as though the holders of the Series A Preferred were the
holders of that number of shares of Common Stock of the corporation into which
their shares of Series A Preferred are convertible as of the record date fixed
for determination of the holders of Common Stock entitled to receive such
distribution (the "Preference"). If upon a Liquidation, the assets shall be
insufficient to pay the holders of the Series A Preferred the full Preference,
the holders of the Series A Preferred shall share ratably in any distribution of
assets according to the respective amounts which would be payable in respect of
the shares held by them upon such distribution if all amounts payable on or with
respect to said shares were paid in full.
<PAGE>
(c) After payment or setting apart of payment of the Preference, the
holders of Common Stock shall be entitled to receive the remaining assets of the
corporation pro rata based upon the number of shares held by such holders of
Common Stock.
(d) For purposes of this Section 2, a merger or consolidation of the
Corporation with or into any other corporation or corporations, or the merger of
any other corporation or corporations into the Corporation, in which
consolidation or merger the shareholders of the Corporation receive
distributions in cash or securities of another corporation or corporations as a
result of such consolidation or merger, a sale of all or substantially all of
the assets of the Corporation, or the undertaking by the Corporation of a
transaction or series of transactions in which more than 50% of the voting power
of the Corporation is disposed of, shall be treated as a liquidation,
dissolution or winding up of the Corporation.
(e) Any securities to be delivered to the holders of Preferred Stock
pursuant to Section 2(a) or 2(b) above shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
(1) If traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the 30-day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever are
applicable) over the 30-day period ending three (3) days prior to the closing;
and
(3) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the Corporation and the
holders of Preferred Stock which would been entitled to receive such securities
or the same type of securities and which Preferred Stock represents at least a
majority of the voting power of all then outstanding shares of such Preferred
Stock.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in subsections
2(e)(i)(1), (2) or (3) to reflect the approximate fair market value thereof, as
mutually determined by the Corporation and the holders of Preferred Stock which
would be entitled to receive such securities or the same type of securities and
which represent at least a majority of the voting power of all then outstanding
shares of such Preferred Stock.
(f) In the event the requirements of Section 2(e) are not complied
with, the Corporation shall forthwith either:
(i) cause such closing to be postponed until such time as
the requirements of this Section 2 have been complied with, or
<PAGE>
(ii) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Preferred Stock shall revert to
and be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in Section 4(h) hereof.
(g) As authorized by Section 402.5(c) of the California Corporations
Code, the provisions of Sections 502 and 503 of the California Corporations Code
shall not apply with respect to repurchase by the corporation of shares of
Common Stock issued to or held by employees or consultants of the Corporation or
its subsidiaries upon termination of their employment or services pursuant to
agreement providing for the right of said repurchase.
3. Voting Rights.
-------------
Holders of the Preferred Stock shall have full voting rights and
powers equal to the voting rights and powers of the holders of Common Stock, and
shall be entitled to vote, together with the holders of Common Stock, with
respect to any questions upon which holders of Common Stock have the right to
vote. Except as otherwise required by law or by Section 6 hereof, the holder of
each share of Common Stock issued and outstanding shall have one vote and the
holder of each share of Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which such share of Preferred
Stock could be converted at the record date for determination of the
shareholders entitled to vote on such matters, or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited, such votes to be counted together with all other
shares of stock of the Corporation having general voting power and not
separately as a class. Fractional votes by the holders of Preferred Stock shall
not, however, be permitted and any fractional voting rights shall (after
aggregating all shares into which shares of Preferred Stock held by each holder
could be converted) be rounded to the nearest whole number. Holders of Common
Stock and Preferred Stock shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of the Corporation.
4. Conversion.
----------
The holders of Preferred Stock shall have conversion rights as follows
(the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for the Preferred Stock. Each share of Series A Preferred shall be convertible
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Conversion Price (as hereinafter defined) per share
in effect for the Series A Preferred into the per share Conversion Value (as
hereinafter defined) of such series.
The Conversion Price per share of Series A Preferred shall be $1.5461
and the per share Conversion Value of Series A Preferred shall be $1.5461. The
Conversion Price of Series A Preferred shall be subject to adjustment from time
to time as provided below. The number of shares of Common Stock to which a
share of Series A Preferred is convertible is hereinafter referred to as the
Conversion Rate of such share.
<PAGE>
(b) Automatic Conversion. Each share of Preferred Stock shall
--------------------
automatically be converted into shares of Common Stock at the then effective
Conversion Rate upon the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Corporation with an aggregate offering price to the public of not
less than $10,000,000. In the event of the automatic conversion of the
Preferred Stock upon a public offering as aforesaid, the person(s) entitled to
receive the Common Stock issuable upon such conversion of Preferred Stock shall
not be deemed to have converted such Preferred Stock until immediately prior to
the closing of such sale of securities.
(c) Mechanics of Conversion. No fractional shares of Common Stock
-----------------------
shall be issued upon conversion of Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the then effective Conversion
Price. Before any holder of Preferred Stock shall be entitled to convert the
same into full shares of Common Stock and to receive certificates therefor, he
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Preferred Stock, and
shall give written notice to the Corporation at such office that he elects to
convert the same; provided, however, that in the event of an automatic
conversion pursuant to Section 4(b), the outstanding shares of Preferred Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent, and provided further that
the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such automatic conversion unless the
certificates evidencing such shares of Preferred Stock are either delivered to
the Corporation or its transfer agent as provided above, or the holder notifies
the Corporation or its transfer agent that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates. The Corporation shall, as soon as practicable after such delivery,
or such agreement and indemnification in the case of a lost certificate, issue
and deliver at such office to such holder of Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, or in the case of automatic conversion on the
date of closing of the offering, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date.
(d) Adjustments for Diluting Issues.
-------------------------------
(i) Special Definitions. For purposes of this Section 4(d), the
-------------------
following definitions shall apply:
(1) `Options' shall mean rights, options or warrants to
-------
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(2) `Original Issue Date' with respect to Series A Preferred
-------------------
means the date
<PAGE>
on which the first shares of such series were first issued.
(3) `Convertible Securities' shall mean shares (other than the
----------------------
Common Stock) convertible into or exchangeable for Common Stock.
(4) `Additional Shares of Common Stock' shall mean all shares of
---------------------------------
Common Stock and Convertible Securities issued by the Corporation after the
Original Issue Date, other than shares of Common Stock and Convertible
Securities issued or issuable at any time:
(A) upon conversion of the shares of Series A Preferred
authorized herein or upon conversion of Convertible Securities, provided that
such Convertible Securities shall be deemed to be Additional Shares of Common
Stock;
(B) up to 1,762,396 shares of Common Stock issued to
employees, officers, directors, consultants, contractors or advisors of the
Corporation pursuant to stock purchase or stock option plans or agreements or
other incentive stock arrangements approved by the Board of Directors;
(C) as a dividend or distribution on Series A Preferred or
any event for which adjustment is made pursuant to subparagraph (d)(iv) and
(d)(vi) hereof;
(D) in connection with capital asset leases or borrowings
for the acquisition of capital assets pursuant to approval by a majority of the
Board of Directors; or
(E) by way of a transaction described in Sections 4(d)(iv)
through 4(d)(vi) below.
(ii) Adjustment of Conversion Price Upon Issuance of Additional
----------------------------------------------------------
Shares of Common Stock. In the event this Corporation shall issue Additional
- ----------------------
Shares of Common Stock after the Original Issue Date without
consideration or for a consideration per share less than the Conversion Price of
any series of Preferred Stock in effect on the date of and immediately prior to
such issue, then in such event, the Conversion Price for such series of
Preferred Stock shall be reduced, concurrently with such issue, to a price
determined by multiplying such Conversion Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of shares of Common Stock which the
aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Conversion
Price; and the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; and provided further that, for the
purposes of this Section 4(d)(ii), all shares of Common Stock issuable upon
conversion of outstanding Preferred Stock or outstanding Options shall be deemed
to be outstanding.
(iii) Determination of Consideration. For purposes of this
------------------------------
Section 4(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
<PAGE>
(1) Cash and Property: Such consideration shall:
-----------------
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such issue, as determined in
good faith by the Board; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board.
(2) Options and Convertible Securities. In the case of issuance
----------------------------------
of options to purchase or rights to subscribe for Common Stock, or securities by
their terms convertible into or exchangeable for Common Stock, the following
provisions shall apply for all purposes of Section 4(d):
(A) The aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subparagraph 4(d)(iii)(1)), if any,
received by the Corporation upon the issuance of such options or rights plus the
exercise price provided in such options or rights for the Common Stock covered
thereby.
(B) The aggregate maximum number of shares of Common Stock
deliverable upon conversion or in exchange for such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by the Corporation for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the additional consideration, if
any, to be received by the corporation upon the conversion or exchange of such
securities or the exercise of any related options or rights (the consideration
in each case to be determined in the manner provided in subparagraph
4(d)(iii)(1)).
(C) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to this corporation
upon exercise of such options or rights or upon conversion of or in exchange for
such convertible or exchangeable securities, including, but not limited to, a
change resulting from the antidilution provisions thereof, the Conversion Price
of the series of Preferred Stock, to the extent in any way affected by or
computed using such options, rights or securities, shall be recomputed to
reflect such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of such securities.
<PAGE>
(D) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Conversion Price of the series of Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities, shall be
recomputed to reflect the issuance of only the number of shares of Common Stock
(and convertible or exchangeable securities which remain in effect) actually
issued upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
(E) The number of shares of Common Stock deemed issued and
the consideration deemed paid therefor pursuant to subparagraphs 4(d)(iii)(2)(A)
and (B) shall be appropriately adjusted to reflect any change, termination or
expiration of the type described in either subparagraph 4(d)(iii)(2)(C) or (D).
(iv) Adjustments for Subdivisions, Combinations or Stock
---------------------------------------------------
Dividends of Common Stock. In the event the outstanding shares of Common Stock
- -------------------------
shall be subdivided (by stock split, or otherwise), into a greater number of
shares of Common Stock, or the Corporation at any time or from time to time
after the Original Issue Date shall declare or pay any dividend on the Common
Stock payable in Common Stock, the Conversion Price then in effect shall,
concurrently with the effectiveness of such subdivision or stock dividend, be
proportionately decreased based on the ratio of (i) the number of shares of
Common Stock outstanding immediately after such subdivision or stock dividend to
(ii) the number of shares of Common Stock outstanding immediately prior to such
subdivision or stock dividend. In the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or otherwise, into
a lesser number of shares of Common Stock, the Conversion Price then in effect
shall, concurrently with the effectiveness of such combination or consolidation,
be proportionately increased on the same basis.
(v) Adjustments for Other Distributions. In the event the
-----------------------------------
Corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive any
distribution payable in (i) securities of the Corporation or other entities
(other than shares of Common Stock and other than as otherwise adjusted in this
Section 4 or as otherwise provided in Section 1(b)), or (ii) evidences of
indebtedness issued by the Corporation or other persons, or (iii) assets
(excluding cash dividends) or options or rights not referred to in subparagraph
4(d)(iii)(2), then and in each such event provision shall be made so that the
holders of Preferred Stock shall receive upon conversion thereof, in addition to
the number of shares of Common Stock receivable thereupon, the amount of such
distribution which they would have received had their Preferred Stock been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the date of
conversion, retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 4 with respect to the rights of the holders of Preferred Stock.
(vi) Adjustments for Recapitalization, Reclassification,
---------------------------------------------------
Exchange and Substitution. If at any time or from time to time the Common Stock
- -------------------------
issuable upon conversion of the Preferred Stock shall be changed into the same
or a different number of shares of any other class or classes of stock, whether
by recapitalization, capital reorganization, reclassification or otherwise
(other than a subdivision, combination of shares or merger or sale of assets
transaction provided for
<PAGE>
above or in Section 2(d)), the Conversion Rate then in effect shall,
concurrently with the effectiveness of such recapitalization, reorganization or
reclassification, be proportionately adjusted such that the Preferred Stock
shall be convertible into, in lieu of the number of shares of Common Stock which
the holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of the Preferred Stock immediately before that change. In addition,
to the extent applicable in any reorganization or recapitalization, provision
shall be made so that the holders of the Preferred Stock shall thereafter be
entitled to receive upon conversion of the Preferred Stock the number of shares
of stock or other securities or property of the Company or otherwise, to which a
holder of Common Stock deliverable upon conversion would have been entitled on
such reorganization or recapitalization.
(e) No Impairment. Except as provided in Section 7, the Corporation
-------------
will not, by amendment of its Restated Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price or the Conversion Rate
pursuant to this Section 4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the Conversion Price and the Conversion Rate at the time
in effect, and (iii) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of Preferred Stock.
(g) Reservation of Stock Issuable Upon Conversion. This Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Preferred Stock such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Preferred Stock, this
corporation will take such corporate action as may, in the opinion of counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purposes.
(h) Notices of Record Date. In the event that this Corporation shall
----------------------
propose at any time:
<PAGE>
(i) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other corporation,
or sell, lease or convey all or substantially all its property or business, or
to liquidate, dissolve or wind up;
then, in connection with each such event, this Corporation shall send to the
holders of Preferred Stock:
(1) at least 20 days' prior written notice of the date on which
a record shall be taken for such dividend, distribution or subscription rights
(and specifying the date on which the holders of Common Stock shall be entitled
thereto and the amount and character of such dividend, distribution or right) or
for determining rights to vote in respect of the matters referred to in (iii)
and (iv) above; and
(2) in the case of the matters referred to in (iii) and (iv)
above, at least 20 days' prior written notice of the date when the same shall
take place (and specifying the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon the occurrence of such event or the record date for the
determination of such holders if such record date is earlier).
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of the Preferred Stock at
the address for each such holder as shown on the books of this Corporation.
5. Redemption. The shares of Series A Preferred shall not be redeemable.
----------
6. Voting Rights.
-------------
(a) Vote Other Than for Directors. Except as otherwise required by
-----------------------------
law, each share of Common issued and outstanding shall have one vote and each
share of Series A Preferred issued and outstanding shall have the number of
votes equal to the number of Common shares into which the Series A Preferred is
convertible as adjusted from time of time pursuant to Section 4 hereof.
(b) Voting for Directors. The Board of Directors shall consist of
--------------------
five (5) members. For so long as 25% or more of the issued shares of Series A
Preferred have not been converted into Common, the holders of the shares of
Series A Preferred voting as a series shall be entitled to elect two (2)
directors. The holders of Common voting as a separate class shall be entitled
<PAGE>
to elect two (2) directors. The remaining director shall be elected by the
holders of the Series A Preferred and Common voting as provided in Section 6(a).
In the event that 25% or more of the outstanding shares of Series A Preferred
have been converted into Common, then directors shall thereafter be elected by
the holders of the Series A Preferred and Common voting as provided in Section
6(a). A vacancy on the Board of Directors occurring because of the death,
resignation or removal of a director elected by the holders of Series A
Preferred voting as a separate series shall be filled by the vote or written
consent of the holders of a majority of the Series A Preferred. Any vacancy
occurring because of the death, resignation or removal of a director elected by
the holders of Common voting as a separate class shall be filled by the vote or
written consent of the holders of a majority of the Common. Any vacancy
occurring because of the death, resignation or removal of a director elected by
the holders of the Series A Preferred and Common voting together as a single
class shall be filled by the vote or written consent of the holders of a
majority of the Series A Preferred and Common voting as provided in Section
6(a). A director may be removed from the Board of Directors with or without
cause by the vote or consent of the holders of the outstanding class or series
with voting power entitled to elect him in accordance with this Section 6(b) and
the California Corporations Code.
(c) Cumulative Voting. The holders of Common and Series A Preferred
-----------------
shall be entitled to cumulative voting rights as to the directors to be elected
by each series or class, or the combined classes (as provided in Section 6(b)
above), in accordance with the provisions of Section 708 of the California
Corporations Code.
7. Covenants.
---------
In addition to any other rights provided by law, so long as shares of
Series A Preferred shall be outstanding, this Corporation shall not, without
first obtaining the affirmative vote or written consent of the holders of more
than fifty percent (50%) of the outstanding shares of Preferred Stock, voting
together as a single class:
(a) amend or repeal any provision of, or add any provision to, this
Corporation's Restated Articles of Incorporation or Bylaws if such action would
adversely alter or change the preferences, rights, privileges or powers of, or
the restrictions provided for the benefit of the Preferred Stock;
(b) authorize or issue shares of any series or class of stock having
any preference or priority as to dividends or assets superior to or on a parity
with any such preference or priority of any series of Preferred Stock, or
authorize shares of stock of any class or any bonds, debentures, notes or other
obligations convertible into or exchangeable for, or having option rights to
purchase, any shares of stock of this corporation having any preference or
priority as to dividends or assets superior to or on a parity with any such
preference or priority of the Preferred Stock;
(c) effect in any transaction or series of transactions a sale or
other conveyance of all or substantially all of the assets of the corporation or
any of its subsidiaries, or any consolidation or merger involving the
corporation or any of its subsidiaries where the corporation or such subsidiary
is not the surviving corporation, or any sale of more than 50% of the
corporation's capital stock; or
<PAGE>
(d) increase or decrease the authorized number of shares of Preferred
Stock.
IV.
1. Limitation of Directors' Liability. The liability of the directors of
----------------------------------
this corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
2. Indemnification of Corporate Agents. This corporation is authorized
-----------------------------------
to provide indemnification of agents (as defined in Section 317 of the
California Corporations Code) through bylaw provisions, agreements with agents,
vote of shareholders or disinterested directors or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to the applicable limits set forth in Section
204 of the California Corporations Code with respect to actions for breach of
duty to this corporation and its shareholders.
3. Repeal or Modification. Any repeal or modification of the foregoing
----------------------
provisions of this Article IV shall not adversely affect any right of
indemnification or limitation of liability of an agent of this corporation
relating to acts or omissions occurring prior to such repeal or modification."
3. The foregoing Amended and Restated Articles of Incorporation has been
duly approved by the Board of Directors.
4. The foregoing Amended and Restated Articles of Incorporation has been
duly approved by the required vote of shareholders in accordance with Section
902 and 903 of the Corporations Code. The authorized number of Common Stock is
10,000,000, of which 5,029,000 are issued and outstanding. The number of shares
voting in favor of the amendment equaled or exceeded the vote required. The
percentage vote required was more than 50% of the Common Stock.
<PAGE>
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in the foregoing Certificate are true and
correct of our own knowledge.
Date: March 14, 1996
/s/ Mark R. Templeton
-----------------------------------------------
Mark R. Templeton, President
/s/ John G. Malecki
----------------------------------------------
John G. Malecki, Secretary
<PAGE>
EXHIBIT 3.4.2
BYLAWS
OF
VLSI LIBRARIES INCORPORATED
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL EXECUTIVE OFFICE
The location of the principal executive office of the corporation shall be
fixed by the board of directors. It may be located at any place within or
outside the state of California. The secretary of this corporation shall keep
the original or a copy of these bylaws, as amended to date, at the principal
executive office of the corporation if this office is located in California. If
this office is located outside California, the bylaws shall be kept at the
principal business office of the corporation within California. The officers of
this corporation shall cause the corporation to file an annual statement with
the Secretary of State of California as required by Section 1502 of the
California Corporations Code specifying the street address of the corporation's
principal executive office.
SECTION 2. OTHER OFFICES
The corporation may also have offices at such other places as the board of
directors may from time to time designate, or as the business of the corporation
may require.
ARTICLE II
SHAREHOLDER'S MEETINGS
SECTION 1. PLACE OF MEETINGS
All meetings of the shareholders shall be held at the principal executive
office of the corporation or at such other place as may be determined by the
board of directors.
SECTION 2. ANNUAL MEETINGS
The annual meeting of the shareholders shall be held each year on August 2,
at which time the shareholders shall elect a board of directors and transact any
other proper business. If this date falls on a legal holiday, then the meeting
shall be held on the following business day at the same hour.
SECTION 3. SPECIAL MEETINGS
Special meetings of the shareholders may be called by the board of
directors, the chairperson of the board of directors, the president, or by one
or more of the shareholders holding at least 10 percent of the voting power of
the corporation.
<PAGE>
SECTION 4. NOTICES OF MEETINGS
Notices of meetings, annual or special, shall be given in writing to
shareholders entitled to vote at the meeting by the secretary or an assistant
secretary or, if there be no such officer, or in the case of his or her neglect
or refusal, by any director or shareholder.
Such notices shall be given either personally or by first-class mail or
other means of written communication, addressed to the shareholder at the
address of such shareholder appearing on the stock transfer books of the
corporation or given by the shareholder to the corporation for the purpose of
notice. Notice shall be given not less than ten (10) nor more than sixty (60)
days before the date of the meeting.
Such notice shall state the place, date, and hour of the meeting and (1) in
the case of a special meeting, the general nature of the business to be
transacted, and that no other business may be transacted, or (2) in the case of
an annual meeting, those matters which the board at the time of the mailing of
the notice, intends to present for action by the shareholders. but. subject to
the provisions of Section 6 of this Article, any proper matter may be presented
at the annual meeting for such action. The notice of any meeting at which
directors are to be elected shall include the names of the nominees which, at
the time of the notice, the board of directors intends to present for election.
Notice of any adjourned meeting need not be given unless a meeting is adjourned
for forty-five (45) days or more from the date set for the original meeting.
SECTION 5. WAIVER OF NOTICE
The transactions of any meeting of shareholders, however called and
noticed, and wherever held, are as valid as though had at a meeting duly held
after regular call and notice, if a quorum is present, whether in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not present in person or by proxy, signs a written waiver of notice or
a consent to the holding of the meeting or an approval of the minutes thereof.
All such waivers or consents shall be filed with the corporate records or made
part of the minutes of the meeting. Neither the business to be transacted at
the meeting, nor the purpose of any annual or special meeting of the
shareholders need be specified in any written waiver of notice, except as
provided in Section 6 of this Article.
SECTION 6. SPECIAL NOTICE AND WAIVER OF NOTICE REQUIREMENTS
Except as provided below. any shareholder approval at a meeting, with
respect to the following proposals, shall be valid only if the general nature of
the proposal so approved was stated in the notice of meeting, or in any written
waiver of notice:
a. Approval of a contract or other transaction between the corporation and
one or more of its directors or between the corporation and any corporation,
firm, or association in which one or more of the directors has a material
financial interest, pursuant to Section 310 of the California Corporations Code;
b. Amendment of the Articles of Incorporation after any shares have been
issued pursuant to Section 902 of-the California Corporations Code;
c. Approval of the principal terms of reorganization pursuant to Section
1202 of the California Corporations Code:
d. Election to voluntarily wind up and dissolve the corporation pursuant to
Section 1900 of the California Corporations code:
e. Approval of a plan of distribution of shares as part of the winding up
of the corporation pursuant to Section 2007 of the California Corporations Code:
Approval of the above proposals at a meeting shall be valid with or without
such notice, if it is by unanimous approval of those entitled to vote at the
meeting.
<PAGE>
SECTION 7. ACTION WITHOUT MEETING
Any action that may be taken at any annual or special meeting or
shareholders may be taken without a meeting and without prior notice if a
consent, in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.
Unless the consents of all shareholders entitled to vote have been
solicited in writing, notice of any shareholder's approval, with respect to any
one of the following proposals, without a meeting, by less than unanimous
written consent shall be given at least ten (10) days before the consummation of
the action authorized by such approval:
a. Approval of a contract or other transaction between the corporation
and one or more of its directors or another corporation, firm or association in
which one or more of its directors has a material financial interest, pursuant
to Section 310 of the California Corporations Code:
b. To indemnify an agent of the corporation pursuant to Section 317 of
the California Corporations Code:
c. To approve the principal terms of a reorganization, pursuant to
Section 1201 of the California Corporations Code: or
d. Approval of a plan of distribution as part of the winding up of the
corporation pursuant to Section 2007 of the California Corporations Code.
Prompt notice shall be given of the taking of any other corporate action
approved by shareholders without a meeting by less than a unanimous written
consent to those shareholders entitled to vote who have not consented in
writing.
Notwithstanding any of the foregoing provisions of this section, and except
as provided in Article III, Section 4 of these bylaws, directors may not be
elected by written consent except by the unanimous written consent of all shares
entitled to vote for the election of directors.
A written consent may be revoked by a writing received by the corporation
prior to the time that written consents of the number of shares required to
authorize the proposed action have been filed with the secretary of the
corporation, but may not be revoked thereafter. Such revocation is effective
upon its receipt by the secretary of the corporation.
SECTION 8. QUORUM AND SHAREHOLDER ACTION
A majority of the shares entitled to vote, represented in person or by
proxy shall constitute a quorum at a meeting of shareholders. If a quorum is
present, the affirmative vote of the majority of shareholders represented at the
meeting and entitled to vote on any matter shall be the act of the shareholders,
unless the vote of a greater number is required by law and except as provided in
the following paragraphs of this section.
The shareholders present at a duly called or held meeting at which a quorum
is present may continue to transact business until adjournment notwithstanding
the withdrawal of enough shareholders to leave less than a quorum, if any action
is approved by at least a majority of the shares required to constitute a
quorum.
In absence of a quorum, any meeting of shareholders may be adjourned from
time to time by the vote of a majority of the shares represented either in
person or by proxy, but no other business may be transacted except as provided
in the foregoing provisions of this section.
<PAGE>
SECTION 9. VOTING
Only shareholders of record on the record date fixed for voting purposes by
the board of directors pursuant to Article VIII, Section 3 of these bylaws, or,
if there be no such date fixed, on the record dates given below, shall be
entitled to vote at a meeting.
If no record date is fixed:
a. The record date for determining shareholders entitled to notice of, or
to vote, at a meeting of shareholders, shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held.
b. The record date for determining the shareholders entitled to give
consent to corporate actions in writing without a meeting, when no prior action
by the board is necessary, shall be the day on which the first written consent
is given.
c. The record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the board adopts the
resolution relating thereto, or the 60th day prior to the date of such other
action, whichever is later.
Every shareholder entitled to vote shall be entitled to one vote for each
share held, except as otherwise provided by law, by the Articles of
Incorporation or by other provisions of these bylaws. Except with respect to
elections of directors, any shareholder entitled to vote may vote part of his or
her shares in favor of a proposal and refrain from voting the remaining shares
or vote them against the proposal. If a shareholder fails to specify the number
of shares he or she is affirmatively voting, it will be conclusively presumed
that the shareholder's approving vote is with respect to all shares the
shareholder is entitled to vote.
At each election of directors, shareholders shall not be entitled to
cumulate votes unless the candidates' names have been placed in nomination
before the commencement of the voting and a shareholder has given notice at the
meeting, and before the voting has begun, of his or her intention to cumulate
votes. If any shareholder has given such notice, then all shareholders entitled
to vote may cumulate their votes by giving one candidate a number of votes equal
to the number of directors to be elected multiplied by the number of his or her
shares or by distributing such votes on the same principle among any number of
candidates as he or she thinks fit. The candidates receiving the highest number
of votes, up to the number of directors to be elected, shall be elected. Votes
cast against a candidate or which are withheld shall have no effect. Upon the
demand of any shareholder made before the voting begins, the election of
directors shall be by ballot rather by voice vote.
SECTION 10. PROXIES
Every person entitled to vote shares may authorize another person or
persons to act by proxy with respect to such shares by filing a written proxy
with the secretary for the corporation, executed by such person or his or her
duly authorized agent.
A proxy shall not be valid after the expiration of eleven (11) months from
the date thereof unless otherwise provided in the proxy. Every proxy shall
continue in full force and effect until revoked by the person executing it prior
to the vote pursuant thereto, except as otherwise provided in Section 705 of the
California Corporations (Code.
<PAGE>
ARTICLE III
DIRECTORS
SECTION 1. POWERS
Subject to any limitations in the Articles of Incorporation and to the
provisions of the California Corporations Code, 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.
SECTION 1. NUMBER
The authorized number of directors shall be 5.
After issuance of shares, this bylaw may only be amended by approval of a
majority of the outstanding shares entitled to vote: provided, moreover, that a
bylaw reducing the fixed number of directors to a number less than five (5)
cannot be adopted unless in accordance with the additional requirements of
Article IX of these Bylaws.
SECTION 3. ELECTION AND TENURE OF OFFICE
The directors shall be elected at the annual meeting of the shareholders
and hold office until the next annual meeting and until their successors have
been elected and qualified.
SECTION 4. VACANCIES
A vacancy on the board of directors shall exist in the case of death,
resignation, or removal of any director or in case the authorized number of
directors is increased, or in case the shareholders fail to elect the full
authorized number of directors at any annual or special meeting of the
shareholders at which any director is elected. The board of directors may
declare vacant the office of a director who has been declared of unsound mind by
an order of court or who has been convicted of a felony.
Except for the vacancy created by the removal of a director, vacancies on
the board of directors may be filled by approval of the board or, if the number
of directors then in the office is less than a quorum, by (1) the unanimous
written consent of directors then in office, (2) the affirmative vote of a
majority of the directors then in office at a meeting held pursuant to notice or
waivers of notice complying with this Article of these Bylaws, or (3) a sole
remaining director. Vacancies occurring on the board by reason of the removal
of directors may be filled only by approval of the shareholders. Each director
so elected shall hold office until the next annual meeting of the shareholders
and until his or her successor has been elected and qualified.
- The shareholders may elect a director at any time to fill a vacancy not
filled by the directors. Any such election by written consent other than to
fill a vacancy created by the removal of a director requires the consent of a
majority of the outstanding shares entitled to vote.
Any director may resign effective upon giving written notice to the
chairperson of the board of directors, the president, the secretary or to the
board of directors unless the notice specifies a later time for the
effectiveness of the resignation. If the resignation is effective at a later
time, a successor may be elected to take office when the resignation becomes
effective. Any reduction of the authorized number of directors does not remove
any director prior to the expiration of such director's term in office.
<PAGE>
SECTION 5. REMOVAL
Any or all of the directors may be removed without cause if such removal is
approved by a majority of the outstanding shares entitled to vote, subject to
the provisions of Section 303 of the California Corporations Code. Except as
provided in Sections 302, 202 and 304 of the California Corporations Code, a
director may not be removed prior to the expiration of such director's term of
office.
The Superior Court of the proper county may, on the suit of shareholders
holding at least 10 percent of the number of outstanding shares of any class,
remove from office any director in case of fraudulent or dishonest acts of gross
abuse of authority or discretion with reference to the corporation and may bar
from re-election any director so removed for a period prescribed by the court.
The corporation shall be made a party to such action.
SECTION 6. PLACE OF MEETINGS
Meetings of the board of directors shall be held at any place, within or
without the State of California, which has been designated in the notice of the
meeting or, if not stated in the notice or if there is no notice, at the
principal executive office of the corporation or as may be designated from time
to time by resolution of the board of directors. Meetings of the board may be
held through use of conference telephone or similar communications equipment, as
long as all directors participating in the meeting can hear one another.
SECTION 7. ANNUAL, REGULAR AND SPECIAL DIRECTOR'S MEETINGS
Superceded 12/09/96
SECTION 8. QUORUM AND BOARD ACTION
A quorum for all meetings of the board of directors shall consist of four-
fifths of the authorized number of directors until changed by amendment to this
article of these bylaws.
Every act or decision done or made by a majority of the directors present
at a meeting duly held at which a quorum is present is the act of the board,
subject to the provisions of Section 310 (relating to the approval of contracts
and transactions in which a director has a material financial interest); the
provisions of Section 311 (designation of committees), and Section 317(e)
(indemnification of directors) of the California Corporations Code. A meeting
at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for such meeting.
<PAGE>
SECTION 9. WAIVER OF NOTICE
The transactions of any meeting of the board, however called and noticed or
wherever held, are as valid as though undertaken at a meeting duly held after
regular call and notice if a quorum is present and if, either before or after
the meeting, each of the directors not present signs a written waiver of notice,
a consent to holding the meeting, or an approval of the minutes thereof. All
such waivers, consents, and approvals shall be filed with the corporate records
or made a part of the minutes of the meeting. Waivers of notice or consents
need not specify the purpose of the meeting.
SECTION 10. ACTION WITHOUT MEETING
Any action required or permitted to be taken by the board may be taken
without a meeting, if all members of the board shall individually or
collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the board. Such
action by written consent shall have the same force and effect as a unanimous
vote of the directors.
SECTION 11. COMPENSATION
No salary shall be paid directors, as such, for their services but, by
resolution. the board of directors may allow a reasonable fixed sum and expenses
to be paid for attendance at regular or special meetings. Nothing contained
herein shall prevent a director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attendance at meetings.
<PAGE>
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS
The officers of the corporation shall be a president, a vice president, a
secretary, and a treasurer who shall be the chief financial officer of the
corporation. The corporation also may have such other officers with such titles
and duties as shall be determined by the board of directors. Any number of
offices may be held by the same person.
SECTION 2. ELECTION
All officers of the corporation shall be chosen by, and serve at the
pleasure of, the board of directors.
SECTION 3. REMOVAL AND RESIGNATION
An officer may be removed at any time, either with or without cause, by the
board. An officer may resign at any time upon written notice to corporation
given to the board, the president, or the secretary of the corporation. Any
such resignation shall take effect at the date of receipt of such notice or at
any other time specified therein. The removal or resignation of any officer
shall be without prejudice to the rights, if any, of the officer or the
corporation under any contract of employment to which the officer is a party.
SECTION 4. PRESIDENT
The president shall be the chief executive officer and general manager of
the corporation and shall, subject to the direction and control of the board of
directors, have general supervision, direction, and control of the business and
affairs of the corporation. He or she shall preside at all meetings of the
shareholders and directors and be an ex-officio member of all the standing
committees, including the executive committee, if any, and shall have the
general powers and duties of management usually vested in the office of the
president of a corporation and shall have such other powers and duties as may
from time to time be prescribed by the board of directors or these bylaws.
SECTION 5. VICE PRESIDENT
In the absence or disability of the president, the vice presidents, in
order of their rank as fixed by the board of directors (or if not ranked, the
vice president designated by the board) 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. Each vice president shall have such
other powers and perform such other duties as may from time to time be
prescribed by the board of directors or these bylaws.
SECTION 6. SECRETARY
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation, a book of minutes of all meetings of directors and
shareholders. The minutes shall state the time and place of holding of all
meetings; whether regular or special, and if special, how called or authorized;
the notice thereof given or the waivers of notice received, the names of those
present at directors' meetings; the number of shares present or represented at
shareholders' meetings; and an account of 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,
a share register, showing the names of the shareholders and their
<PAGE>
addresses, the number and classes of shares held by each, the number and date of
certificates issued for shares, and the number and date of cancellation of every
certificate surrendered for cancellation.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation, the original or a copy of the bylaws of the
corporation, as amended or otherwise altered to date, certified by him or her.
The secretary shall give, or cause to be given, notice of all meetings of
shareholders and directors required to be given by law or by the provisions of
these bylaws.
The secretary shall have charge of the seal of the corporation and have
such other powers and perform such other duties as may from time to time be
prescribed by the board or these bylaws.
In the absence or disability of the secretary, the assistant secretaries if
any, in order of their rank as fixed by the board of directors (or if not
ranked, the assistant secretary designated by the board of directors), shall
have all the powers of, and be subject to all the restrictions upon, the
secretary. The assistant secretaries, if any, shall have such other powers and
perform such other duties as may from time to time be prescribed by the board of
directors of these bylaws.
SECTION 7. TREASURER
The treasurer shall be the chief financial officer of the corporation and
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.
The treasurer shall deposit monies 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. He or she shall disburse the funds of the corporation in
payment of the just demands against the corporation as authorized 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 treasurer and of the financial
condition of the corporation; and shall have such other powers and perform such
other duties as may from time to time be prescribed by the board of directors or
the bylaws.
In the absence or disability of the treasurer, the assistant treasurers, if
any, in order of their rank as fixed by the board of directors (or if not
ranked, the assistant treasurer designated by the board of directors), shall
perform all the duties of the treasurer and. when so acting, shall have all the
powers of and be subject to all the restrictions upon the treasurer. The
assistant treasurers, if any, shall have such other powers and perform such
other duties as may from time to time be prescribed by the board of directors or
these bylaws.
SECTION 8. COMPENSATION
- - The officers of this corporation shall receive such compensation for their
services as may be fixed by resolution of the board of directors.
<PAGE>
ARTICLE V
EXECUTIVE COMMITTEES
SECTION 1
The board may, by resolution adopted by a majority of the authorized number
of directors, designate one or more committees, each consisting of two or more
directors, to serve at the pleasure of the board. Any such committee. to the
extent provided in the resolution of the board, shall have all the authority of
the board, except with respect to:
a. The approval of any action for which the approval of the shareholders
or approval of the outstanding shares is also required.
b. The filling of vacancies on the board or in any committee.
c. The fixing of compensation of the directors for serving on the board
or on any committee.
d. The amendment or repeal of bylaws or the adoption of new bylaws.
e. The amendment repeal of any resolution of the board which by its
express terms is not so amendable or repealable.
f. A distribution to the shareholders of the corporation, except at a
rate or in a periodic amount or within a price range determined by the board.
g. The appointment of other committees of the board of the members
thereof.
ARTICLE VI
CORPORATE RECORDS AND REPORTS
SECTION 1. INSPECTION BY SHAREHOLDERS
The share register shall be open to inspection and copying by any
shareholder or holder of a voting trust certificate at any time during usual
business hours upon written demand on the corporation, for a purpose reasonably
related to such holder's interest as a shareholder or holder of a voting trust
certificate. Such inspection and copying under this section may be made in
person or by agent or attorney.
- The accounting books and records of the corporation and the minutes of
proceedings of the shareholders and the board and committees of the board shall
be open to inspection upon the written demand of the corporation by any
shareholder or holder of a voting trust certificate at any reasonable time
during usual business hours, for any proper purpose reasonably related to such
holder's interests as a shareholder or as the holder of such voting trust
certificate. Such inspection by a shareholder or holder of voting trust
certificate may be made in person or by agent or attorney, and the right of
inspection includes the right to copy and make extracts.
Shareholders shall also have the right to inspect the original or copy of
these bylaws, as amended to date and kept at the corporation's principal
executive office, at all reasonable times during business hours.
<PAGE>
SECTION 2. INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records, and documents of every kind and to inspect
the physical properties of the corporation, domestic or foreign. Such
inspection by a director may be made in person or by agent or attorney. The
right of inspection includes the right to copy and make extracts.
SECTION 3. RIGHT TO INSPECT WRITTEN RECORDS
If any record subject to inspection pursuant to this chapter is not
maintained in written form, a request for inspection is not complied with unless
and until the corporation at its expense makes such record available in written
form.
SECTION 4. WAIVER OF ANNUAL REPORT
The annual report to shareholders, described in Section 1501 of the
California Corporations Code is hereby expressly waived, as long as this
corporation has less than 100 holders of record of its shares. This waiver
shall be subject to any provision of law, including Section 1501(c) of the
California Corporations Code, allowing shareholders to request the corporation
to furnish financial statements.
SECTION 5. CONTRACTS, ETC.
The board of directors, except as otherwise provided in the bylaws, may
authorize any officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name and on behalf of the corporation. Such
authority may be general or confined to specific instances. Unless so
authorized by the board of directors, no officer, agent, or employee shall have
any power or authority to bind the corporation by any contract, or to pledge its
credit, or to render it liable for any purpose or to any amount.
<PAGE>
ARTICLE VII
INDEMNIFICATION AND INSURANCE OF CORPORATE AGENTS
SECTION 1. INDEMNIFICATION
Superceded 3/8/96
ARTICLE VIII
SHARES
SECTION 1. CERTIFICATES
The corporation shall issue certificates for its shares when fully paid.
Certificates of stock shall be issued in numerical order, and shall state the
name of the record holder of the shares represented thereby, the number,
designation, if any, and the class or series of shares represented thereby, and
contain any statement or summary required by any applicable provision of the
California Corporations Code.
Every certificate for shares shall be signed in the name of the corporation
by 1) the chairperson or vice chairperson of the board or the president or a
vice president and 2) by the treasurer or the secretary or an assistant
secretary.
SECTION 2. TRANSFER OF SHARES
Upon surrender to the secretary or transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment, or authority to transfer, it shall be the duty of the
secretary of the corporation to issue a new certificate to the person entitled
thereto, to cancel the old certificate, and to record the transaction upon the
share register of the corporation.
SECTION 3. RECORD DATE
The board of directors may fix a time in the future as a record date for
the determination of the shareholders entitled to notice of and to vote at any
meeting of shareholders or entitled to receive payment of any dividend or
distribution, or any allotment of rights, or to exercise rights in respect to
any other lawful action. The record date so fixed shall not be more than sixty
(60) days nor less than ten (10) days prior to the date of the meeting nor more
than sixty (60) days prior to any other action. When a record date is so fixed,
only shareholders of record on that date are entitled to notice of and to vote
at the meeting or to receive the dividend, distribution, or allotment of rights,
or to exercise the rights as the case may be. notwithstanding any transfer of
any shares on the books of the corporation after the record date.
Section 4 added 3/8/96
<PAGE>
ARTICLE IX
AMENDMENT OF BYLAWS
SECTION 1. BY SHAREHOLDERS
Bylaws may be adopted, amended or repealed by the affirmative vote or by
the written consent of holders of a majority of the outstanding shares of the
corporation entitled to vote. However, a bylaw amendment which reduces the
fixed number of directors to a number less than five (5) shall not be effective
if the votes cast against the amendment or the shares not consenting to its
adoption are equal to more than 16 2/3 percent of the outstanding shares
entitled to vote.
SECTION 2. BY DIRECTORS
Subject to the right of shareholders to adopt, amend or repeal bylaws, the
directors may adopt, amend or repeal any bylaw, except that a bylaw amendment
changing the authorized number of directors may be adopted by the board of
directors only if prior to the issuance of shares.
CERTIFICATE
This is to certify that the foregoing is a true and correct copy of the
Bylaws of the corporation named in the title thereto and that such Bylaws were
duly adopted by the board of directors of the corporation on the date set forth
below.
Dated: August 2, 1991 /s/ John Gerard Malecki
John Gerard Malecki, Secretary
<PAGE>
Exhibit B
Article VII
INDEMNIFICATION OF DIRECTORS. OFFICERS, EMPLOYEES.
--------------------------------------------------
AND OTHER AGENTS
----------------
7.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum event and in the manner permitted by
the Code, indemnify each of its directors and officers against expenses (as
defined in Section 317(a) of the Code), judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding (as
defined in Section 317(a) of the Code), arising by reason of the fact that such
person is or was an agent of the corporation. For purposes of this Section
7.1, a "director" or "officer" of the corporation includes any person (i) who
is or was a director or officer of the corporation, (ii) who is or was serving
at the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, or (iii) who
was a director or officer of a corporation which was a predecessor corporation
of the corporation or of another enterprise at the request of such predecessor
corporation.
7.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Article VII, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (i) who is or
was an, employee or agent of the corporation, (ii) who is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
7.3 PAYMENT OF EXPENSES IN ADVANCE
------------------------------
Expenses incurred in defending any civil or criminal action or proceeding
for which indemnification is required pursuant to Section 7.1 or for which
indemnification is permitted pursuant to Section 7.2 following authorization
thereof by the Board of Directors shall be paid by the corporation in advance of
the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of the indemnified party to repay such amount if it
shall ultimately be determined that the indemnified party is not entitled to be
indemnified as authorized in this Article VII.
<PAGE>
7.4 INDEMNITY NOT EXCLUSIVE
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
7.5 INSURANCE INDEMNIFICATION
-------------------------
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation against any liability asserted against or incurred by such person in
such capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article VII.
7.6 CONFLICTS
---------
No indemnification or advance shall be made under this Article VI, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:
(1) That it would be inconsistent with a provision of the Articles of
Incorporation, these bylaws, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the alleged cause of the action asserted in
the proceeding in which the expenses were incurred or other amounts were paid,
which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
<PAGE>
Exhibit C
Article VII
Section 4 Restrictions on Transfer of Shares. Before there can be a valid sale
----------------------------------
or transfer for consideration of any of the shares of Common Stock (other than
shares of Common Stock issued upon conversion of any Preferred Stock) of the
corporation by any holder thereof, he shall first offer those shares to the
corporation and then to the other holders of Common Stock in the following
manner:
(a) The offering shareholder shall deliver a notice in writing by
mail or otherwise to the secretary of the corporation stating the price, terms,
and conditions of such proposed sale or transfer, the number of shares to be
sold or transferred, and his intention so to sell or transfer the shares. Within
ten (10) days thereafter, the corporation shall have the prior right to purchase
all (but not less than all unless this requirement is waived by the seller) of
the shares offered at the price and upon the terms and conditions stated in such
notice. Should the corporation fail to purchase all of said shares but shall
determine that the other shareholders should have the opportunity to purchase
said shares, then, at the expiration of said ten (10) day period or prior
thereto upon the determination of the corporation to purchase none of such
shares so offered, the secretary of the corporation shall, within two (2) days
thereafter, mail or deliver to each of the other shareholders a notice
setting forth the particulars concerning the shares not purchased by the
corporation described in the notice received from the offering shareholder. The
other shareholders shall have the right to purchase all (but not less than all
unless this requirement is waived by the seller) of the shares specified in the
secretary's notice. Each shareholder shall deliver to the secretary by mail or
otherwise a written offer or offers to purchase all or any specified number of
shares upon the terms described in the secretary's notice within eighteen (18)
days after the secretary's notice was mailed or delivered to the other
shareholders. If the total number of shares specified in such offers received
within such period by the secretary exceeds the number of shares referred to in
the secretary's notice, then each offering shareholder shall be entitled to
purchase such portion of the shares referred to in the secretary's notice as the
number of shares of Common Stock (and shares of Common Stock issuable upon
conversion of Preferred Stock) which he holds bears to the total number of
shares of Common Stock (and shares of Common Stock issuable upon conversion of
Preferred Stock) held by all shareholders desiring to purchase the shares
referred to in the secretary's notice.
(b) If all of the shares referred to in the secretary's notice are not
disposed of under such apportionment, then each shareholder desiring to purchase
shares in a number in excess of his proportionate share, as provided above,
shall be entitled to purchase such proportion of those shares which remain thus
indisposed of as the total number of shares of Common Stock (and shares of
Common Stock issuable upon conversion of Preferred Stock) which he holds bears
to the total number of shares of Common Stock (and shares of Common Stock
issuable upon conversion of Preferred Stock) held by all of the shareholders
desiring to purchase shares in excess of those to which they are entitled under
such apportionment Such apportionment shall be made successively until all of
the shares offered have been allocated to purchasing shareholders.
<PAGE>
(c) If none or only a part of the shares in the offering
shareholder's notice to the secretary is purchased by the corporation or by
other shareholders within a thirty (30) day period from the date of delivery of
the notice by the offering shareholder the offering shareholder may sell or
transfer to any person or persons all shares of stock referred to in his notice
to the secretary that were not purchased by the corporation or by the other
shareholders, but only within a period of one hundred twenty (120) days from the
date of his first notice; provided, however, that he shall not sell or transfer
such shares at a lower price or on terms more favorable to the purchaser or
transferee than those specified in his notice to the secretary. After said 120-
day period, the foregoing procedure for first offering shares to the corporation
and shareholders shall again apply.
(d) Within the limitations herein provided, the corporation may
purchase the shares of this corporation from any offering shareholder; provided,
however, that at no time shall the corporation be permitted to purchase all of
its outstanding voting shares. Any sale or transfer or purported sale or
transfer of the shares of the corporation shall be null and void unless the
terms, conditions, and provisions of this Section 4 are strictly observed and
followed.
(e) The corporation shall place an appropriate legend on all
certificates for its shares referring to the provisions of this Section 4
restricting the transfer of shares.
(f) Notwithstanding the foregoing, the implementation of this Section
4 shall occur only after compliance with or waiver of the Right of First Refusal
set forth in Section 3 of the Right of First Refusal and Co-Sale Agreement dated
March 20, 1996.
(g) The provisions of this Section 4 shall terminate and be of not
further force or effect upon the effective date of the corporation's first
registration of shares of its capital stock with the Securities and Exchange
Commission.
<PAGE>
Exhibit K
Article III
Section 7 ANNUAL, REGULAR AND SPECIAL DIRECTOR'S MEETINGS
An annual meeting of the board of directors shall be held without
notice immediately after and at the same place as the annual meeting of the
shareholders.
Other regular meetings of the board of directors shall be held at such
times and places as may be fixed from time to time by board of directors. Call
and notice of these regular meetings shall not required.
Special meetings of the board of directors may be called by the
chairperson of the board, the president, the vice president, secretary, or any
two directors. Special meetings of the board of directors shall be held upon
four (4) days' notice by mail, or forty-eight (48) hours' notice delivered
personally or by telephone or telegraph. A notice or waiver of notice need not
specify the purpose of any special meeting of the board of directors.
Notwithstanding the foregoing, however, in the event that the officers
of the corporation have received an indication of interest from an unaffiliated
third party with respect to a material transaction with the corporation,
including but not limited to (i) a merger or acquisition of the corporation in
which the corporation would not be the surviving entity, (ii) an offer to invest
in the corporation or (iii) an agreement not to consider other proposals from
other parties during the pendency of discussions with the third party requesting
such a "no shop" agreement, the officers will consider whether the proposal from
the third party is credible enough to warrant the calling of a special board
meeting to consider such indication of interest. In no event will the officers
enter into any such agreements without calling such a special meeting and
obtaining board approval therefor. If such a meeting of the board of directors
is called, notice of such meeting, together with a written agenda describing the
matter(s) to be considered, must be circulated at least five (5) calendar days
prior to the date of such meeting to all members of the board of directors and
to any holders of board observation rights. The special notice provisions of
this paragraph shall terminate and be of no further force or effect upon the
earlier of (i) the effective date of the corporation's first registration of
shares of its capital stock with the Securities and Exchange Commission or (ii)
the closing of an acquisition or merger of the corporation in which the
corporation is not the surviving entity.
If any meeting is adjourned for more than 24 hours, notice of the
adjournment to another time or place shall be given before the time of the
resumed meeting to all directors who were not present at the time of adjournment
of the original meeting.
<PAGE>
EXHIBIT 4.2
VLSI LIBRARIES INCORPORATED
________________________________________________________________________________
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
December 17, 1996
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1 - Restrictions on Transferability; Registration Rights.... 1
1.1 Certain Definitions.................................... 1
1.2 Restrictions........................................... 3
1.3 Restrictive Legend..................................... 3
1.4 Notice of Proposed Transfers........................... 3
1.5 Requested Registration................................. 4
1.6 Company Registration................................... 6
1.7 Registration on Form S-3............................... 7
1.8 Limitations on Subsequent Registration Rights.......... 8
1.9 Expenses of Registration............................... 8
1.10 Registration Procedures................................ 8
1.11 Indemnification........................................ 8
1.12 Information by Holder..................................10
1.13 Rule 144 Reporting.....................................10
1.14 Transfer of Registration Rights........................10
1.15 Standoff Agreement.....................................11
1.16 Termination of Rights..................................11
SECTION 2 - Right of Participation..................................11
2.1 Purchasers' Right of Participation.....................11
2.2 Termination of Participation Right.....................13
SECTION 3 - Miscellaneous...........................................14
3.1 Assignment.............................................14
3.2 Third Parties..........................................14
3.3 Governing Law..........................................14
3.4 Counterparts...........................................14
3.5 Notices................................................14
3.6 Severability...........................................14
3.7 Amendment and Waiver...................................14
3.8 Effect of Amendment or Waiver..........................15
3.9 Rights of Holders......................................15
3.10 Delays or Omissions....................................15
3.11 Restatement of Prior Agreement.........................15
</TABLE>
-i-
<PAGE>
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the "Agreement")
is entered into as of the 17th day of December, 1996 by and among VLSI Libraries
Incorporated, a California corporation (the "Company"), and the investors listed
on Exhibit A hereto (the "Purchasers").
RECITALS
WHEREAS, the Company and the Purchasers are entering into a Series B
Preferred Stock and Warrant Purchase Agreement of even date herewith (the
"Purchase Agreement"), pursuant to which the Company shall sell, and the
Purchasers shall acquire, shares of the Company's Series B Preferred Stock (the
"Preferred Shares").
WHEREAS, in order to induce the Company to enter into the Purchase
Agreement and to induce the Purchasers to invest funds in the Company, the
parties desire that the Purchasers be granted registration rights and rights of
participation with respect to the Preferred Shares.
WHEREAS, the Company and certain of the Purchasers are parties to a
Registration Rights Agreement dated March 20, 1996 (the "Former Agreement").
WHEREAS, the parties to the Former Agreement desire to amend and restate
the agreement to read as set forth below and to include additional Purchasers as
set forth on Exhibit A hereto.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
SECTION 1
Restrictions on Transferability;
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Registration Rights
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1.1 Certain Definitions. As used in this Agreement, the following terms
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shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
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other federal agency at the time administering the Securities Act.
"Conversion Shares" means the Common Stock issued or issuable upon
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conversion of the Preferred Shares as defined herein.
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"Holder" shall mean any Purchaser holding Registrable Securities and
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any person holding Registrable Securities to whom the rights under this
Agreement have been transferred in accordance with Section 1.14 hereof.
"Initiating Holders" shall mean Holders in the aggregate of not less
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than forty percent (40%) of the Registrable Securities.
"Preferred Shares" shall mean the Series A Preferred Stock, the Series
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B Preferred Stock, and any shares of Preferred Stock of the Company issuable
upon exercise of the Warrant issued to Synopsys, Inc. ("Synopsys").
The terms "register," "registered" and "registration" refer to a
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registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
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Company in complying with Sections 1.5, 1.6 and 1.7 of this Agreement,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, blue sky fees and expenses, and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).
"Registrable Securities" means (i) the Preferred Shares, (ii) the
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Conversion Shares, and (iii) any Common Stock of the Company issued or issuable
in respect of the Preferred Shares or Conversion Shares or other securities
issued or issuable with respect to the Preferred Shares or Conversion Shares
upon any stock split, stock dividend, recapitalization, or similar event, or any
Common Stock otherwise issued or issuable with respect to the Conversion Shares
or Preferred Shares; provided, however, that shares of Common Stock or other
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securities shall only be treated as Registrable Securities if and so long as
they have not been (A) sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) sold in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act under Section 4(l) thereof so that all transfer restrictions
and restrictive legends with respect thereto are removed upon the consummation
of such sale.
"Restricted Securities" shall mean the securities of the Company
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required to bear the legend set forth in Section 1.3 of this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
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any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be
in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
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commissions and stock transfer taxes applicable to the securities registered by
the Holders and all fees and disbursements of counsel for the Holders (except as
provided by Section 1.9).
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1.2 Restrictions. The Preferred Shares and the Conversion Shares
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shall not be sold, assigned, transferred or pledged except upon the conditions
specified in this Agreement, which conditions are intended to ensure compliance
with the provisions of the Securities Act. The Purchasers will cause any
proposed purchaser, assignee, transferee or pledgee of the Preferred Shares or
the Conversion Shares to agree to take and hold such securities subject to the
provisions and upon the conditions specified in this Agreement.
1.3 Restrictive Legend. Each certificate representing (i) the
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Preferred Shares, (ii) the Conversion Shares, and (iii) any other securities
issued in respect of the securities referenced in clauses (i) and (ii) upon any
stock split, stock dividend, recapitalization, merger, consolidation or similar
event, shall (unless otherwise permitted by the provisions of Section 1.4 below)
be stamped or otherwise imprinted with legends in the following form (in
addition to any legend required under applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH
MAY BE COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO IT STATING THAT
SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SAID ACT."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY."
Each Purchaser and Holder consents to the Company making a notation on its
records and giving instructions to any transfer agent of the Restricted
Securities in order to implement the restrictions on transfer established in
this Section 1.
1.4 Notice of Proposed Transfers. The holder of each certificate
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representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of this Section 1. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities, unless there is in
effect a registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied at such holder's expense by either (i) an unqualified written
opinion of legal counsel who shall, and whose legal opinion shall be, reasonably
satisfactory to the Company, addressed to the Company, to the effect that the
proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be
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taken with respect thereto, whereupon the holder of such Restricted Securities
shall be entitled to transfer such Restricted Securities in accordance with the
terms of the notice delivered by the holder to the Company. The Company will not
require such a legal opinion or "no action" letter (a) in any transaction in
compliance with Rule 144, (b) in any transaction in which a Purchaser which is a
corporation distributes Restricted Securities after six (6) months after the
purchase thereof solely to its majority-owned subsidiaries or affiliates for no
consideration, or (c) in any transaction in which a Purchaser which is a
partnership distributes Restricted Securities after six (6) months after the
purchase thereof solely to partners thereof for no consideration, provided that
each transferee agrees in writing to be subject to the terms of this Section
1.4. Each certificate evidencing the Restricted Securities transferred as above
provided shall bear, except if such transfer is made pursuant to Rule 144, the
appropriate restrictive legend set forth in Section 1.3 above, except that such
certificate shall not bear such restrictive legend if, in the opinion of counsel
for such holder and the Company, such legend is not required in order to
establish compliance with any provisions of the Securities Act.
1.5 Requested Registration.
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(a) Request for Registration. In case the Company shall receive from
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Initiating Holders a written request that the Company effect any qualification,
compliance or registration (which, in connection with the Company's initial
public offering, must reasonably anticipate an aggregate price to the public
net of underwriting discounts and commissions, exceeding $10,000,000), the
Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect such
registration, qualification or compliance (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within twenty (20) days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated to take
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any action to effect any such registration, qualification or compliance pursuant
to this Section 1.5:
(1) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(2) Prior to the earlier of (i) six (6) months following the
Company's initial public offering or (ii) January 1, 2001.
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(3) During the period ending on the date three (3) months
immediately following the effective date of, any registration statement
pertaining to securities of the Company (other than a registration of securities
in a Rule 145 transaction or with respect to an employee benefit plan);
(4) After the Company has effected two (2) such
registrations pursuant to this subparagraph 1.5(a), such registrations have been
declared or ordered effective and the securities offered pursuant to such
registrations have been sold; or
(5) If the Company shall furnish to such Holders a
certificate, signed by the President of the Company, stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 1. 5 shall be deferred for a single period
not to exceed one hundred-twenty (120) days from the date of receipt of written
request from the Initiating Holders.
Subject to the foregoing clauses (1) through (5), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
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Section 1.5 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 1.5(a)(i). The right of any Holder to registration pursuant to Section
1.5 shall be conditioned upon such Holder's participation in the underwriting
arrangements required by this Section 1.5 and the inclusion of such Holder's
Registrable Securities in the underwriting, to the extent requested, to the
extent provided in this Agreement.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by a
majority in interest of the Initiating Holders (which managing underwriter shall
be reasonably acceptable to the Company). Notwithstanding any other provision
of this Section 1.5, if the managing underwriter advises the Initiating Holders
in writing that marketing factors require a limitation of the number of shares
to be underwritten, then the Company shall so advise all Holders of Registrable
Securities and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
Holders thereof in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by such Holders at the time of filing the
registration statement. No Registrable Securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
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withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to one hundred eighty (180) days
after the effective date of such registration.
1.6 Company Registration.
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(a) Notice of Registration. If at any time or from time to time, the
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Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders other than (i) a
registration relating solely to employee benefit plans, or
(ii) a registration relating solely to a Commission Rule 145 transaction, the
Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved in
such registration, all the Registrable Securities specified in a written request
or requests made within twenty (20) days after receipt of such written notice
from the Company by any Holder, but only to the extent that such inclusion will
not diminish the number of securities included by the Company or by holders of
the Company's securities who have demanded such registration.
(b) Underwriting. If the registration of which the Company gives
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notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.6(a)(i). In such event, the right of any Holder to
registration pursuant to Section 1.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company (or by the
holders who have demanded such registration). Notwithstanding any other
provision of this Section 1.6, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Registrable Securities to
be included in such registration to a minimum of 30% of the total shares to be
included in such underwriting or exclude them entirely in the case of the
Company's initial public offering. The Company shall so advise all Holders and
the other holders distributing their securities through such underwriting
pursuant to piggyback registration rights similar to this Section 1.6, and the
number of shares of Registrable Securities and other securities that may be
included in the registration and underwriting shall be first allocated among all
Purchasers in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such Purchasers at the time of filing the
registration statement, and after satisfaction of the requirements of the
Purchasers, the remaining shares that may be included in the registration and
underwriting shall be allocated among the officers, directors and other
shareholders of the Company in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such officers and directors
of the Company at the time of filing of the registration statement. To
facilitate the allocation of shares in accordance with the above provisions, the
Company or the underwriters may round the number of shares allocated to any
Holder or other holder to the nearest 100 shares. If any Holder or other holder
disapproves of the terms
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of any such underwriting, he or she may elect to withdraw therefrom by written
notice to the Company and the managing underwriter. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration, and
shall not be transferred in a public distribution prior to one hundred eighty
(180) days after the effective date of the registration statement relating
thereto (the "Lock-Up Period"); provided, however, that if such registration is
not the Company's initial public offering such Lock-Up Period shall be one
hundred twenty (120) days unless the managing underwriter determines that
marketing factors require a longer period in which case the Lock-Up period shall
be specified by the managing underwriter but shall not exceed one hundred eighty
(180) days.
(c) Right to Terminate Registration. The Company shall have the right
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to terminate or withdraw any registration initiated by it under this Section 1.6
prior to the effectiveness of such registration, whether or not any Holder has
elected to include securities in such registration.
1.7 Registration on Form S-3.
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(a) If the Initiating Holder requests that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities, the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would exceed $500,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form; provided,
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however, that the Company shall not be required to effect more than one
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registration pursuant to this Section 1.7 in any twelve (12) month period. The
Company will (i) promptly give written notice of the proposed registration to
all other Holders, and (ii) as soon as practicable, use its best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by the Company
within twenty (20) days after receipt of such written notice from the Company.
The substantive provisions of Section 1.5(b) shall be applicable to each
registration initiated under this Section 1.7.
(b) Notwithstanding the foregoing, the Company shall not be obligated
to take any action pursuant to this Section 1.7: (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act, (ii) during the period
ending on a date three (3) months following the effective date of, a
registration statement (other than with respect to a registration statement
relating to a Rule 145 transaction, an offering solely to employees or any other
registration which is not appropriate for the registration of Registrable
Securities), or (iii) if the Company shall furnish to such Holder a certificate
signed by the President of the Company stating that, in the good faith judgment
of the Board of Directors, it would be seriously detrimental to the Company or
its shareholders for registration
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statements to be filed in the near future, then the Company's obligation to use
its best efforts to file a registration statement shall be deferred for a single
period not to exceed one hundred twenty (120) days from the receipt of the
request to file such registration by such Holder or Holders.
1.8 Limitations on Subsequent Registration Rights. From and after the
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date of this Agreement, the Company shall not enter into any agreement granting
any holder or prospective holder of any securities of the Company registration
rights with respect to such securities unless such holder derives its rights as
an additional Holder hereunder, or such shares or securities are entitled to be
included in registrations only to the extent that the inclusion of such
securities will not diminish the amount of Registrable Securities that are
included.
1.9 Expenses of Registration. All Registration Expenses incurred in
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connection with any registration pursuant to Sections 1.5, 1.6 or 1.7 and the
reasonable cost of one special legal counsel to represent all of the Holders
together in any such registration shall be borne by the Company, provided that
the Company shall not be required to pay the Registration Expenses of any
registration proceeding begun pursuant to Section 1.5, the request of which has
been subsequently withdrawn by the Initiating Holders. In such case, the
Holders of Registrable Securities to have been registered shall bear all such
Registration Expenses pro rata on the basis of the number of shares to have been
registered unless the Holders of a majority of the Registrable Securities agree
to forfeit their right to one demand registration pursuant to Section 1.5.
Notwithstanding the foregoing, however, if at the time of the withdrawal, the
Holders have learned of a material adverse change in the condition, business or
prospects of the Company from that known to the Holders at the time of their
request, of which the Company had knowledge at the time of the request, then the
Holders shall not be required to pay any of said Registration Expenses or to
forfeit the right to one demand registration.
1.10 Registration Procedures. In the case of each registration,
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qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (180) days or until the distribution described in the registration
statement has been completed; and
(b) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities.
1.11 Indemnification.
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(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act,
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with respect to which registration, qualification or compliance has been
effected pursuant to this Section 1, and each underwriter, if any, and each
person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Company of any rule or
regulation promulgated under the Securities Act applicable to the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such Holder, each of its officers and directors, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder, controlling person or underwriter and stated to be
specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein; provided, however, that the liability
of a Holder for indemnification under this Section 1.11(b) shall not exceed the
gross proceeds from the offering received by such Holder.
(c) Each party entitled to indemnification under this Section 1.11
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may
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be sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section I unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
1.12 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.
1.13 Rule 144 Reporting. With a view to making available the benefits of
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certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act");
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
(c) So long as a Purchaser owns any Restricted Securities, furnish to
the Purchaser forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company as a Purchaser may reasonably request in availing
itself of any rule or regulation of the Commission allowing a Purchaser to sell
any such securities without registration.
1.14 Transfer of Registration Rights. The rights to cause the Company to
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register securities granted Purchasers under Sections 1.5, 1.6 and 1.7 may be
assigned to a transferee or assignee
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reasonably acceptable to the Company in connection with any transfer or
assignment of Registrable Securities by a Purchaser (together with any
affiliate); provided, that (a) such transfer may otherwise be effected in
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accordance with applicable securities laws, (b) notice of such assignment is
given to the Company, and (c) such transferee or assignee (i) is a wholly-owned
subsidiary or constituent partner (including limited partners) of such
Purchaser, or (ii) acquires from such Purchaser 20% or more of the shares of
Registrable Securities (as appropriately adjusted for stock splits and the like)
originally purchased by the Purchaser from the Company.
1.15 Standoff Agreement. Each Holder agrees in connection with the initial
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registration of the Company's securities that, upon request of the Company or
the underwriters managing any underwritten initial public offering of the
Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such period
of time (not to exceed one hundred eighty (180) days from the effective date of
such registration) as may be requested by the Company or such managing
underwriters; provided, however, that the officers and directors of the Company
who own stock of the Company also agree to such restrictions.
1.16 Termination of Rights. No Holder shall be entitled to exercise any
---------------------
right provided for in this Section 1:
(a) after five (5) years following the consummation of the sale of
securities pursuant to a registration statement filed by the Company under the
Act in connection with the initial firm commitment underwritten offering of its
securities to the general public, or
(b) on or after the closing of a public offering of the Common Stock
of the Company, initiated by the Company, when all shares of the Holder's
Registrable Securities may be sold under Rule 144 during any 90-day period;
provided, however, that the provisions of this subsection (b) shall not apply
where the Holder owns more than two percent (2%) of the Company's outstanding
stock until such time as such Holder owns less than two percent (2%) of the
outstanding stock.
SECTION 2
Right of Participation
----------------------
2.1 Purchasers' Right of Participation.
----------------------------------
(a) Right of Participation.
----------------------
(i) Subject to the terms and conditions contained in this
Section 2. 1, the Company hereby grants to each Purchaser the right of
participation to purchase its Pro Rata Portion of any New Securities (as defined
in subsection 2.1 (b)) which the Company may, from time to time, propose to sell
and issue. A Holder's "Pro Rata Portion" for purposes of this Section 2.1 is the
ratio that (x) the sum of the number of shares of the Company's Common Stock
then held by such Purchaser and
-11-
<PAGE>
the number of shares of the Company's Common Stock issuable upon conversion of
the Preferred Stock then held by such Holder, bears to (y) the sum of the total
number of shares of the Company's Common Stock then outstanding, the number of
shares of the Company's Common Stock issuable upon the exercise of any
outstanding rights, options or warrants, and the number of shares of the
Company's Common Stock issuable upon conversion of the then outstanding
Preferred Stock.
(ii) Notwithstanding the foregoing, Synopsys' Pro Rata Portion
for purposes of this Section 2.1 is the ratio that (x) the sum of the number of
shares of the Company's Common Stock then held by Synopsys and the number of
shares of the Company's Common Stock issuable upon conversion of the Preferred
Stock then held by Synopsys and the number of shares of the Company's Common
Stock which would be issuable upon conversion of Preferred Stock then
purchasable by Synopsys assuming that Synopsys has exercised its Warrant to the
full extent then exercisable, bears to (y) the sum of the total number of shares
of the Company's Common Stock then outstanding and the number of shares of the
Company's Common Stock issuable upon conversion of the then outstanding
Preferred Stock.
(b) Definition of New Securities. Except as set forth below, "New
----------------------------
Securities" shall mean any shares of capital stock of the Company, including
Common Stock and Preferred Stock, whether authorized or not, and rights, options
or warrants to purchase said shares of Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible into said
shares of Common Stock or Preferred Stock. Notwithstanding the foregoing, "New
Securities" does not include (i) the Preferred Shares or the Conversion Shares,
(ii) securities offered to the public generally pursuant to a registration
statement under the Securities Act; provided, however, that this exclusion will
not apply to Synopsys solely with respect to the first sale by the Company of
its Common Stock to the public pursuant to a registration statement under the
Securities Act, (iii) securities issued pursuant to the acquisition of another
corporation by the Company by merger, purchase of substantially all of the
assets or shares or other reorganization whereby the Company or its shareholders
own not less than a majority of the voting power of the surviving or successor
corporation, (iv) up to 1,762,396 shares of the Company's Common Stock or
related options or warrants convertible into or exercisable for such Common
Stock issued to employees, officers and directors of, and consultants to, the
Company, pursuant to any arrangement approved by the Board of Directors of the
Company, (v) shares of the Company's Common Stock or related options convertible
into or exercisable for such Common Stock issued to banks, commercial lenders,
lessors and other financial institutions in connection with the borrowing of
money or the leasing of equipment by the Company, (vi) stock issued pursuant to
any rights or agreements, including, without limitation, convertible securities,
options and warrants, provided that the Company shall have complied with the
rights of participation established by this Section 2.1 with respect to the
initial sale or grant by the Company of such rights or agreements, (vii) stock
issued in connection with any stock split, stock dividend or recapitalization by
the Company, or (viii) any securities issued to Synopsys pursuant to any
exercise of the Warrant.
(c) Notice of Right. In the event the Company proposes to undertake
---------------
an issuance of New Securities, it shall give each Purchaser written notice of
its intention, describing the type of New Securities and the price and terms
upon which the Company proposes to issue the same. Each Purchaser shall have
twenty (20) days from the date of receipt of any such notice to agree to
purchase shares of
-12-
<PAGE>
such New Securities (up to the amount referred to in subsection 2.1 (a)), for
the price and upon the terms specified in the notice, by giving written notice
to the Company and stating therein the quantity of New Securities to be
purchased. In the event Synopsys exercises its right to purchase New Securities
in connection with the first offering made to the public generally pursuant to a
registration statement under the Securities Act, the price paid by Synopsys for
such New Securities shall be the public offering price less any underwriting
discounts and commissions.
(d) Exercise of Right. If any Purchaser exercises its right of
-----------------
participation under this Agreement, the closing of the purchase of the New
Securities with respect to which such right has been exercised shall take place
within ninety (90) calendar days after the Purchaser gives notice of such
exercise, which period of time shall be extended in order to comply with
applicable laws and regulations. Upon exercise of such right of participation,
the Company and the Purchaser shall be legally obligated to consummate the
purchase contemplated thereby and shall use their best efforts to secure any
approvals required in connection therewith.
(e) Lapse and Reinstatement of Right. In the event a Purchaser fails
--------------------------------
to exercise the right of participation provided in this Section 2.1 within said
twenty (20) day period, the Company shall have ninety (90) days thereafter to
sell or enter into an agreement (pursuant to which the sale of New Securities
covered thereby shall be closed, if at all, within sixty (60) days from the date
of said agreement) to sell the New Securities not elected to be purchased by
such Purchaser at the price and upon terms no more favorable to the purchasers
of such securities than specified in the Company's notice. In the event the
Company has not sold the New Securities or entered into an agreement to sell the
New Securities within said ninety (90) day period (or sold and issued New
Securities in accordance with the foregoing within sixty (60) days from the date
of said agreement), the Company shall not thereafter issue or sell any New
Securities without first offering such securities to the Purchasers in the
manner provided above.
(f) Assignment. The right of the Purchasers to purchase any part of
----------
the New Securities may be assigned in whole or in part to any partner,
subsidiary, affiliate or shareholder of a Purchaser, or other persons or
organizations who acquire the lesser of (i) 20% or more shares of Restricted
Securities (as adjusted for stock splits and the like) or (ii) all of the
Restricted Securities then owned by such Purchaser.
2.2 Termination of Participation Right. The rights of participation
----------------------------------
granted under Section 2.1 of this Agreement shall terminate on and be of no
further force or effect upon the earlier of (i) the consummation of the
Company's sale of its Common Stock in an underwritten public offering pursuant
to an effective registration statement filed under the Securities Act
immediately subsequent to which the Company shall be obligated to file annual
and quarterly reports with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act or (ii) the registration by the Company of a class of its equity
securities under Section 12(b) or 12(g) of the Exchange Act.
-13-
<PAGE>
SECTION 3
Miscellaneous
-------------
3.1 Assignment. Except as otherwise provided in this Agreement, the terms
----------
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties to this Agreement.
3.2 Third Parties. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any party, other than the parties to this Agreement, and
their respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
3.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California in the United States of America
without giving effect to the conflicts of laws principles thereof.
3.4 Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
3.5 Notices. Any notice required or permitted by this Agreement shall be
-------
in writing and shall be sent by prepaid registered or certified mail return
receipt requested, or otherwise delivered by hand or by messenger addressed to
the other party at the address shown below or at such other address for which
such party gives notice under this Agreement. Such notice shall be deemed to
have been given when delivered if delivered personally, or, if sent by mail, at
the earlier of its receipt or three (3) days after deposit in the mail.
3.6 Severability. If one or more provisions of this Agreement are held to
------------
be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.
3.7 Amendment and Waiver. Any provision of this Agreement may be amended
--------------------
or waived with the written consent of the Company and the Holders of at least a
majority of the outstanding shares of the Registrable Securities, so long as the
effect is to treat all Holders equally. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder of Registrable
Securities and the Company. In addition, the Company may waive performance of
any obligation owing to it, as to some or all of the Holders of Registrable
Securities, or agree to accept alternatives to such performance, without
obtaining the consent of any Holder of Registrable Securities. In the event
that an underwriting agreement is entered into between the Company and any
Holder, and such underwriting agreement contains terms differing from this
Agreement, as to any such Holder the terms of such underwriting agreement shall
govern.
-14-
<PAGE>
3.8 Effect of Amendment or Waiver. The Purchasers and their successors
-----------------------------
and assigns acknowledge that by the operation of Section 3.7 of this Agreement
the holders of a majority of the outstanding Registrable Securities, acting in
conjunction with the Company, will have the right and power to diminish or
eliminate any or all rights or increase any or all obligations pursuant to this
Agreement.
3.9 Rights of Holders. Each holder of Registrable Securities shall have
-----------------
the absolute right to exercise or refrain from exercising any right or rights
that such holder may have by reason of this Agreement, including, without
limitation the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.
3.10 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
3.11 Restatement of Prior Agreement. The Company and certain of the
------------------------------
Purchasers are parties to a Registration Rights Agreement dated March 20, 1996
(the "Prior Agreement"). Through their execution of this Agreement, the Company
and all of the Purchasers agree to terminate the Prior Agreement and restate the
terms thereof through this Agreement, with the result that this Agreement shall
constitute the sole agreement among the parties hereto with respect to the
registration of Registrable Securities.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY: PURCHASERS:
VLSI LIBRARIES INCORPORATED U.S. VENTURE PARTNERS IV, L.P.
a California corporation By Presidio Management Group IV, L.P.
Its General Partner
By: /s/ Mark R. Templeton By /s/ Michael P. Maher
________________________ __________________________
Mark R. Templeton
President SECOND VENTURES II, L.P.
By Presidio Management Group IV, L.P.
Its General Partner
By /s/ Michael P. Maher
__________________________
USVP ENTREPRENEUR PARTNERS II, L.P.
A Delaware Limited Partnership
By Presidio Management Group IV, L.P.
Its General Partner
By /s/ Michael P. Maher
__________________________
2180 ASSOCIATES FUND
By Michael P. Maher, Attorney-In-Fact
By /s/ Michael P. Maher
__________________________
SYNOPSYS, INC.
By /s/ Steven K. Shevik
__________________________
-16-
<PAGE>
EXHIBIT A
U.S. Venture Partners IV, L.P.
Second Ventures II, L.P.
USVP Entrepreneur Partners II, L.P.
2180 Associates Fund
Synopsys, Inc.
<PAGE>
EXHIBIT 4.2
VLSI LIBRARIES INCORPORATED
FIRST AMENDMENT TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
DATED DECEMBER 17, 1996
This Agreement is made as of the 11th day of March, 1997, by and among VLSI
Libraries Incorporated, a California corporation (the "Company") and the
purchasers set forth on the attached Exhibit A ("Schedule of Purchasers") (the
"Purchasers").
WHEREAS, the Company wishes to increase the number of shares of Common
Stock reserved for issuance under the 1993 Stock Option Plan which requires
certain conforming changes to the Amended and Restated Registration Rights
Agreement (the "Rights Agreement");
IT IS HEREBY AGREED THAT certain sections of the Rights Agreement as set
forth below, are hereby amended:
1. Section 2.1(b) of the Rights Agreement shall be amended in its entirety to
read as follows, with the changes thereto underlined:
"(b) Definition of New Securities. Except as set forth below, "New
----------------------------
Securities" shall mean any shares of capital stock of the Company, including
Common Stock and Preferred Stock, whether authorized or not, and rights, options
or warrants to purchase said shares of Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible into said
shares of Common Stock or Preferred Stock. Notwithstanding the foregoing, "New
Securities" does not include (i) the Preferred Shares or the Conversion Shares,
(ii) securities offered to the public generally pursuant to a registration
statement under the Securities Act; provided, however, that this exclusion will
not apply to Synopsys solely with respect to the first sale by the Company of
its Common Stock to the public pursuant to a registration statement under the
Securities Act, (iii) securities issued pursuant to the acquisition of another
corporation by the Company by merger, purchase of substantially all of the
assets or shares or other reorganization whereby the Company or its shareholders
own not less than a majority of the voting power of the surviving or successor
corporation, (iv) up to 4,324,792 shares of the Company's Common Stock or
----------------
related options or warrants convertible into or exercisable for such Common
Stock issued to employees, officers and directors of, and consultants to, the
Company, pursuant to any arrangement approved by the Board of Directors of the
Company, (v) shares of the Company's Common Stock or related options convertible
into or exercisable for such Common Stock issued to banks, commercial lenders,
lessors and other financial institutions in connection with the borrowing of
money or the leasing of equipment by the Company, (vi) stock issued pursuant to
any rights or agreements, including, without limitation, convertible securities,
options and warrants, provided that the Company shall have complied with the
rights of participation established by this Section 2.1 with respect to the
initial sale or grant by the Company of such rights or agreements, (vii) stock
issued in connection with any stock split, stock dividend or recapitalization by
the Company, or (viii) any securities issued to Synopsys pursuant to any
exercise of the Warrant."
2. Except as amended as set forth above, the Rights Agreement shall continue
in full force and effect.
-1-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
The Company: VLSI LIBRARIES INCORPORATED
a California corporation
By: /s/ Mark R. Templeton
____________________________________
Mark R. Templeton
President
The Purchasers:
U.S. VENTURE PARTNERS IV, L.P.
By Presidio Management Group IV, L.P.
Its General Partner
By /s/ Michael P. Maher
____________________________________
SECOND VENTURES II, L.P.
By Presidio Management Group IV, L.P.
Its General Partner
By /s/ Michael P. Maher
____________________________________
USVP ENTREPRENEUR PARTNERS II, L.P.
A Delaware Limited Partnership
By Presidio Management Group IV, L.P.
Its General Partner
By /s/ Michael P. Maher
____________________________________
2180 ASSOCIATES FUND
By /s/ Michael P. Maher
____________________________________
SYNOPSYS, INC.
By /s/ Steven K. Shevick
____________________________________
-2-
<PAGE>
EXHIBIT A
U.S. Venture Partners IV, L.P.
Second Ventures II, L.P.
USVP Entrepreneur Partners II, L.P.
2180 Associates Fund
Synopsys, Inc.
<PAGE>
EXHIBIT 4.3
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AS AMENDED, AND MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION
IS NOT REQUIRED.
THE WARRANT REPRESENTED BY THIS CERTIFICATE IS ISSUED PURSUANT TO AND IS
SUBJECT TO A SERIES B PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT DATED
DECEMBER 17, 1996, TOGETHER WITH ALL EXHIBITS THERETO ( THE "PURCHASE
AGREEMENT") BETWEEN THE COMPANY AND SYNOPSYS, INC., WHICH FIXES THE RIGHTS
AND OBLIGATIONS OF THE COMPANY AND THE HOLDER OF THIS WARRANT. A COPY OF
THE PURCHASE AGREEMENT IS ON FILE AT THE COMPANY'S PRINCIPAL OFFICE AND
WILL BE FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE
CORPORATION.
VLSI LIBRARIES INCORPORATED
PREFERRED STOCK WARRANT
Warrant to Purchase 50,000 Shares of Series B Preferred Stock and
an Additional Variable Amount of Shares of Preferred Stock
This Warrant hereby certifies that for value received, Synopsys, Inc.
("Synopsys" or the "Holder") is entitled to purchase from VLSI Libraries
Incorporated (the "Company"):
(1) Up to 50,000 shares of the Company's Series B Preferred Stock at the
exercise price of $3.77 per share, subject to Section 2.1 below; and
(2) Subsequent to the issuance of the 50,000 shares of Series B Preferred
Stock and subject to Section 2.1 below, Additional Shares of Preferred Stock of
the Company at the price per share determined for such series of Preferred Stock
at the time of issuance.
The number of shares purchasable upon any exercise of the rights set forth
in (1) and (2) above shall be limited to such number of shares of Preferred
Stock that, when combined with (x) the number of shares of Series B Preferred
Stock originally purchased by Synopsys under the Purchase Agreement, and (y) any
additional shares of Preferred Stock of the Company purchased by Synopsys after
the date hereof in connection with this Warrant or otherwise, will increase
Synopsys' aggregate percentage ownership to 9.9% (the "Gross-Up Percentage") of
the Company's issued and outstanding capital stock at the time of such exercise.
Notwithstanding the foregoing, in the event Synopsys fails to exercise this
Warrant for the full number of Warrant Shares which could be issued upon receipt
of a Notice of Exercisability as described in Section 2.2 below, Synopsys shall
forfeit the right to purchase such Warrant Shares and Synopsys' Gross-Up
Percentage for purposes of future exercises of this Warrant shall
<PAGE>
be decreased to the percentage ownership by Synopsys of the Company's issued and
outstanding capital stock following the event which gave rise to the Notice of
Exercisability.
This Warrant has been issued pursuant to the Purchase Agreement and is
subject to the terms and conditions, and entitled to the benefits, thereof,
including provisions providing certain information and other rights. A copy of
the Purchase Agreement is available for inspection at the principal office of
the Company and will be furnished without charge to the Holder upon written
request to the Company. Capitalized terms used but not defined herein shall have
the meaning given to them in the Purchase Agreement.
Section 1
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"Additional Shares of Preferred Stock" shall mean a series of Preferred
------------------------------------
Stock issued upon exercise of this Warrant subsequent to the issuance of 50,000
shares of Series B Preferred Stock, which new series shall be essentially
identical to the Series B Preferred Stock with only such changes as shall be
necessary to reflect a different per share price of such series of Preferred
Stock. Notwithstanding the foregoing, however, in the event of an exercise of
this Warrant in conjunction with the Company's first underwritten public
offering pursuant to an effective registration statement filed under the
Securities Act (the "IPO"), such Additional Shares of Preferred Stock shall
instead be issued as shares of Common Stock of the Company.
"Closing Date" shall mean December 17, 1996, or such other date as agreed
------------
upon by the parties.
"Executive Officer" shall mean, with respect to the Company, its President
-----------------
or Chief Financial Officer.
"Exercise Form" shall mean the exercise form attached as Schedule 1
-------------
hereto.
"Exercise Price" shall mean (i) on the purchase of the 50,000 shares of
--------------
Series B Preferred Stock, $3.77 per share, (ii) on the issuance of Additional
Shares of Preferred Stock, the price per share determined for such series of
Preferred Stock at the time of issuance, provided that all other purchasers of
such series pay the same consideration, and (iii) on an issuance of Additional
Shares of Preferred Stock in conjunction with an IPO, the public offering price
per share less any underwriting discounts and commissions. With respect to the
issuance of Additional Shares of Preferred Stock in the event of: (i) a
Financing (as defined in Section 2.1 below), the Exercise Price will be the per
share price prevailing in the Financing; (ii) an Annual Gross-Up (as defined in
Section 2.1 below), the Exercise Price will be the fair market value of the
Additional Shares of Preferred Stock as determined in good faith by the Board of
Directors without reference to a control premium; (iii) an Offensive
Acquisition (as defined in Section 2.1 below), the Exercise Price will be the
fair market value of the Additional Shares of Preferred Stock as determined in
good faith by the Board of Directors with reference to the value
-2-
<PAGE>
received by the Company in the Offensive Acquisition in return for the shares of
the Company's capital stock issued therefor; or (iv) a Defensive Merger (as
defined immediately below), the Exercise Price will be the fair market value of
the Additional Shares of Preferred as determined in good faith by the Board of
Directors with reference to the value received by the Company in the Defensive
Merger in exchange for the shares of the Company's capital stock.
"Expiration Date" shall mean the earlier of (i) the closing of the
---------------
Company's sale of its Common Stock in an IPO or (ii) the closing of a merger or
consolidation of the Company with or into any other corporation or other entity
or person, or any other corporate reorganization in which the Company shall not
be the surviving or continuing entity of such merger, consolidation or
reorganization (a "Defensive Merger"); provided, however, that this Warrant may
be exercised in conjunction with an IPO or a Defensive Merger as provided in
Section 2.1 below.
"Holder" shall mean Synopsys, Inc.
------
"Person" shall mean an individual or a corporation, association,
------
partnership, joint venture, organization, business, trust, or any other entity
or organization, including a government or any subdivision or agency thereof.
"Warrant Shares" shall mean the 50,000 shares of Series B Preferred Stock
--------------
issued or issuable upon exercise of this Warrant in accordance with Section 2.1,
and any Additional Shares of Preferred Stock issued pursuant to this Warrant.
Section 2
EXERCISE OF WARRANT
Section 2.1 Exercisability of Warrant.
-------------------------
(a) As of the date of issuance of this Warrant, (i) Synopsys
is the holder of 9.9% of the Company's issued and outstanding capital stock, and
(ii) the Company has reserved for future issuance 1,677,646 shares of Common
Stock upon exercise of options issued or to be issued pursuant to the Company's
1993 Stock Option Plan (the "Plan"). This Warrant shall be exercisable upon the
occurrence of any of the events listed in Section 2.1(b) below to enable
Synopsys to purchase additional shares of capital stock of the Company to
maintain its Gross-Up Percentage, solely where the dilution is caused by the
issuance of up to 1,677,646 shares of Common Stock upon the exercise of stock
options issued under the Plan.
(b) This Warrant shall become exercisable upon any of the
following events:
(i) a Financing - involving the issuance of capital
stock by the Company for the primary purpose of raising financing, as opposed to
debt financing transactions, capital equipment lease transactions, technology
license agreements or strategic partner transactions;
-3-
<PAGE>
(ii) an Offensive Acquisition - involving the
issuances of capital stock by the Company in connection with a merger or
consolidation with or an acquisition of another corporation, entity or person,
where the Company is the surviving or continuing entity of such merger,
consolidation or acquisition;
(iii) an Annual Gross-Up - which shall occur at the end
of each fiscal year of the Company in which there has not been a Financing or an
Offensive Acquisition;
(iv) an IPO; and
(v) a Defensive Merger.
(c) Upon the occurrence of any of the events described in
subsection (b) above, the Company shall deliver a Notice of Exercisability to
Synopsys: (i) in the case of a Financing or Offensive Acquisition, not less than
10 days prior to the closing thereof, (ii) in the case of an Annual Gross-Up,
within 30 days after completion by the Company of its annual audit for that
fiscal year, (iii) in the case of an IPO, not less than 10 days prior to the
filing of the registration statement with the Securities and Exchange
Commission, and (iv) in the case of a Defensive Merger, not less than 10 days
prior to the execution of a definitive acquisition agreement.
Section 2.2 Exercise of Warrant.
-------------------
(a) Upon receipt of a Notice of Exercisability from the
Company, the Holder may exercise this Warrant, in whole or in part, by
delivering to the Company a properly completed Exercise Form in the form of
Schedule 1 hereto and promptly, upon determination of the per share price
therefor, a check in the aggregate amount equal to the product obtained by
multiplying (i) the Exercise Price then in effect by (ii) the number of Warrant
Shares being purchased. An exercise in conjunction with an IPO or Defensive
Merger shall be made contingent upon the closing of such transaction.
(b) Holder shall have ten (10) business days from the
receipt of a Notice of Exercisability to elect to exercise this Warrant. The
closing date of such purchase of securities will be: (i) in the case of a
Financing, Offensive Acquisition, IPO or Defensive Merger, the same date as the
closing of any such transaction, and (ii) in the event of an Annual Gross-Up,
the closing shall occur as soon as possible, but not later than five (5)
business days after receipt of consent of the shareholders of the Company to
amend the Company's Restated Articles of Incorporation to authorize the
Additional Shares of Preferred Stock to be issued to Synopsys upon exercise of
this Warrant.
(c) The Company shall not be required to issue fractional
Warrant Shares upon the exercise of the Warrant.
(d) The Company shall pay all taxes (other than any
applicable income or similar taxes payable by a holder of a Warrant)
attributable to the initial issuance of Warrant Shares upon the exercise of the
Warrant; provided, however, that the Company shall not be required to pay any
-------- -------
tax
-4-
<PAGE>
which may be payable in respect of any transfer involved in the issuance of any
Warrant or any certificate for Warrant Shares in a name other than that of the
Holder of the Warrant.
Section 2.3 Authorization of Additional Shares of Preferred Stock. At
-----------------------------------------------------
such time as Holder is entitled to purchase Additional Shares of Preferred Stock
pursuant to this Warrant, and in the event such Additional Shares of Preferred
Stock are not being purchased pursuant to a Financing, the Company shall
promptly prepare an amendment to its Restated Articles of Incorporation (the
"Articles") to establish a new series of Preferred Stock which shall constitute
the Additional Shares of Preferred Stock which the Holder is entitled to acquire
at that time, and the Company shall promptly solicit the approval of the
shareholders of the Company to the establishment of such additional series of
Preferred Stock and to the filing of such amendment to the Articles and shall
take such other actions as may be reasonably necessary to establish a new series
of Preferred Stock in accordance with the requirements of the California
Corporations Code and the Company's Articles and Bylaws. In the event the
Company is unable to obtain the consent of the Company's shareholders to the
establishment of such additional series of Preferred Stock, the Company agrees
that Synopsys shall have the right to buy a number of shares of Common Stock
equivalent to the number of shares of such new series of Preferred Stock that
Synopsys would otherwise be entitled to acquire hereunder.
Section 3
ADJUSTMENT OF EXERCISE PRICE AND
NUMBER OF WARRANT SHARES
Section 3.1 The number of shares of Series B Preferred Stock purchasable
upon exercise of the Warrant shall be subject to adjustment from time to time in
accordance with this Section 3.
Section 3.2 Subdivisions or Combinations
----------------------------
If, at any time after the Closing Date, (a) the number of
shares of Common Stock or Preferred Stock outstanding is increased by a dividend
or other distribution payable in shares of Common Stock or Preferred Stock or by
a subdivision or split-up of shares of Common Stock or Preferred Stock, or (b)
the number of shares of Common Stock or Preferred Stock outstanding is decreased
by a combination or reverse stock split of shares of Common Stock or Preferred
Stock, then, in each case, effective as of the effective date of such event
retroactive to the record date, if any, of such event, (i) the Exercise Price of
the Series B Preferred Stock shall be adjusted to a price determined by
multiplying (A) the Exercise Price in effect immediately prior to such event by
(B) a fraction, the numerator of which shall be the number of shares of Common
Stock and Preferred Stock outstanding immediately prior to such event and the
denominator of which shall be the number of shares of Common Stock or Preferred
Stock outstanding after giving effect to such event, and (ii) the number of
shares of Series B Preferred Stock subject to purchase upon the exercise of the
Warrant shall be adjusted effective at such time, to a number equal to the
product of (A) the number of shares of Series B Preferred Stock subject to
purchase upon the exercise of the Warrant immediately prior to such event by (B)
a fraction, the numerator of which shall be the number of shares of Common Stock
and Preferred Stock outstanding
-5-
<PAGE>
after giving effect to such event and the denominator of which shall be the
number of shares of Common Stock and Preferred Stock outstanding immediately
prior to such event.
Section 3.3 Capital Reorganization or Capital Reclassifications.
---------------------------------------------------
If, at any time after the Closing Date, there shall be any
capital reorganization or any reclassification of the capital stock of the
Company (other than a change in par value or from par value to no par value or
from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), then in each case the Company
shall cause effective provision to be made so that the Warrant shall, effective
as of the effective date of such event retroactive to the record date, if any,
of such event, be exercisable for the kind and number of shares of stock, other
securities, cash or other property, to which a holder of the number of shares of
Series B Preferred Stock deliverable upon exercise of such Warrant would have
been entitled upon such reorganization or reclassification and any such
provision shall include adjustments in respect of such stock, securities or
other property that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Agreement with respect to such Warrant.
Section 3.4 Notice of Adjustment
--------------------
Whenever the Exercise Price and the number of shares of
Series B Preferred Stock shall be adjusted as provided in this Section, the
Company shall provide to the Holder a statement, signed by an Executive Officer,
describing in detail the facts requiring such adjustment and setting forth a
calculation of the Exercise Price and the number of shares of Series B Preferred
Stock applicable to the Warrant after giving effect to such adjustment. All
calculations under this Section 3 shall be made to the nearest whole share.
Section 4
MISCELLANEOUS
Section 4.1 Notices.
-------
All notices, requests and other communications to any party
hereunder shall be in writing (including telecopier or similar writing) and
shall be given to such party at its address or telecopier number set forth on
the signature page hereof, or such other address or telecopier number as such
party may hereinafter specify for the purpose to the party giving such notice.
Each such notice, request or other communication shall be effective (i) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
in this Section and the appropriate electronic confirmation is received or, (ii)
if given by mail, seventy-two (72) hours after such communication is deposited
in the mails with first class postage prepaid, addressed as aforesaid, or (iii)
if given by any other means, when delivered at the addressed specified below:
-6-
<PAGE>
If to the Company:
VLSI Libraries Incorporated
2077 Gateway Place
Suite 300
San Jose, CA 95110
Attention: Mark Templeton
Telephone: (408) 453-1000
Telecopy: (408) 453-1262
With a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attention: Robert P. Latta, Esq.
Telephone: (415) 493-9300
Telecopy: (415) 493-6811
If to Synopsys:
Synopsys, Inc.
700 East Middlefield Road
Mountain View, CA 94043
Attention: Steven K. Shevick
Telephone: (415) 528-4880
Telecopy: (415) 694-4087
With a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: Warren T. Lazarow, Esq.
Telephone: (415) 424-0160
Telecopy: (415) 496-2885
Section 4.2 No Voting Rights; Limitations of Liability
------------------------------------------
This Warrant shall not entitle the Holder thereof to any
voting rights or, except as otherwise provided herein, other rights of a
shareholder of the Company, as such. No provision hereof, in the absence of
affirmative action by the Holder to purchase Warrant Shares, and no enumeration
herein of the rights or privileges of the Holder shall give rise to any
liability of such Holder
-7-
<PAGE>
for the Exercise Price of Warrant Shares acquirable by exercise hereof or as a
shareholder of the Company.
Section 4.3 Amendments and Waivers.
----------------------
Any provision of this Agreement may be amended or waived,
but only pursuant to a written agreement signed by the Company and the Holder.
Section 4.4 Severability
------------
Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such provision and such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
affecting the validity or unenforceability of such provision in any other
jurisdiction.
Section 4.5 Counterparts
------------
This Agreement may be executed by the parties hereto in
several counterparts, each of which shall be deemed to be an original and all of
which shall constitute together one and the same agreement.
Section 4.6 Governing Law; Entire Agreement
-------------------------------
This Warrant shall be deemed to be a contract made under and
governed by the internal laws of the State of California. This Warrant and the
Purchase Agreement constitute the entire understanding among the parties hereto
with respect to the subject matter hereof and supersede any prior agreements,
written or oral, with respect thereto.
Section 4.7 Indemnification.
---------------
The Company shall indemnify, defend and hold the Holder
harmless against all liability, loss or damage, together with all reasonable
costs and expenses related thereto (including legal and accounting fees and
expenses), arising from, relating to, or connected with the untruth, inaccuracy
or breach of any representations, warranties or covenants contained herein.
Section 4.8 Transfer or Disposition of Warrant.
----------------------------------
This Warrant may not be transferred, assigned or otherwise
disposed of by the Holder without the written consent of the Company.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their authorized officers, all as of December
16, 1996.
VLSI LIBRARIES INCORPORATED
By /s/ Mark Templeton
______________________________________
Mark Templeton
President
SYNOPSYS, INC.
By /s/ Steven K. Shevick
______________________________________
Title: Assistant General Counsel
__________________________________
-9-
<PAGE>
SCHEDULE 1
NOTICE OF EXERCISE
------------------
VLSI Libraries Incorporated
2077 Gateway Place
Suite 300
San Jose, CA 95110
Attn: President
1. The undersigned has checked one of the following two choices:
[_] The undersigned hereby elects to purchase __________ shares of
Series B Preferred Stock of VLSI Libraries Incorporated pursuant to the terms of
the attached Warrant, and tenders herewith payment of the purchase price in
full, together with all applicable transfer taxes, if any.
[_] The undersigned hereby elects to purchase __________ Additional
Shares of Preferred Stock pursuant to the terms of the attached Warrant. Please
promptly notify the undersigned of the fair market value price per share
determined by the Board of Directors so that the purchase price may be tendered,
together with all applicable transfer taxes, if any.
2. Please issue a stock certificate or certificates representing said
shares in the name of the undersigned or in such other names as is specified
below:
___________________________________
(Name)
___________________________________
___________________________________
(Address)
SYNOPSYS, INC.
By: ___________________________________________
Title: ________________________________________
______________________________
-10-
<PAGE>
Exhibit 5.1
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Telephone (650) 493-9300 Facsimile (650) 493-6811
November 26, 1997
Artisan Components, Inc.
1195 Bordeaux Drive
Sunnyvale, California 94089
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 to be filed by you
with the Securities and Exchange Commission on November 26, 1997 (the
"Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of 3,335,000 shares of Common Stock of
Artisan Components, Inc. (the "Shares"). As your counsel in connection with
this transaction, we have examined the proceedings proposed to be taken in
connection with said sale and issuance of the Shares.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
various states, where required, the Shares when issued and sold in the manner
referred to in the Registration Statement will be legally and validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
RPL
<PAGE>
EXHIBIT 10.1
ARTISAN COMPONENTS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of February
__, 1998 by and between Artisan Components, Inc., a Delaware corporation (the
"Company"), and __ ("Indemnitee").
WHEREAS, effective as of the date hereof, Artisan Components, Inc. a
California corporation, is reincorporating into Delaware;
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and the
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, the significant increases in the cost of such
insurance and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in connection with the Company's reincorporation, the Company and
Indemnitee desire to continue to have in place the additional protection
provided by an indemnification agreement, with such changes as are required to
conform the existing agreement to Delaware law and to provide indemnification
and advancement of expenses to the Indemnitee to the maximum extent permitted by
Delaware law;
WHEREAS, in view of the considerations set forth above, the Company desires
that Indemnitee shall be indemnified and advanced expenses by the Company as set
forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below.
1. Certain Definitions.
-------------------
a. "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
<PAGE>
owned directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more than 50% of the total
voting power represented by the Company's then outstanding Voting Securities,
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least two
thirds (2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
(iii) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation other than a merger or consolidation which
would result in the Voting Securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into Voting Securities of the surviving entity) at least 80% of
the total voting power represented by the Voting Securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or (iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of (in one transaction or a series of related transactions) all
or substantially all of the Company's assets.
b. "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
in good faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
c. References to the "Company" shall include, in addition to Artisan
Components, Inc., any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which Artisan Components,
Inc. (or any of its wholly owned subsidiaries) is a party which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is
or was a director, officer, employee, agent or fiduciary of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
d. "Covered Event" shall mean any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee, agent or fiduciary
of the Company, or any subsidiary of the Company, or is or was serving at the
request of the Company as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action or inaction on the part of Indemnitee while serving in
such capacity.
e. "Expenses" shall mean any and all expenses (including attorneys'
fees and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness
-2-
<PAGE>
in or participating in (including on appeal), or preparing to defend, to be a
witness in or to participate in, any action, suit, proceeding, alternative
dispute resolution mechanism, hearing, inquiry or investigation), judgments,
fines, penalties and amounts paid in settlement (if such settlement is approved
in advance by the Company, which approval shall not be unreasonably withheld) of
any Claim and any federal, state, local or foreign taxes imposed on the
Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement.
f. "Expense Advance" shall mean a payment to Indemnitee pursuant to
Section 3 of Expenses in advance of the settlement of or final judgement in any
action, suit, proceeding or alternative dispute resolution mechanism, hearing,
inquiry or investigation which constitutes a Claim.
g. "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other Indemnitees under similar
indemnity agreements).
h. References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
i. "Reviewing Party" shall mean, subject to the provisions of
Section 2(d), any person or body appointed by the Board of Directors in
accordance with applicable law to review the Company's obligations hereunder and
under applicable law, which may include a member or members of the Company's
Board of Directors, Independent Legal Counsel or any other person or body not a
party to the particular Claim for which Indemnitee is seeking indemnification.
j. "Section" refers to a section of this Agreement unless otherwise
indicated.
k. "Voting Securities" shall mean any securities of the Company that
vote generally in the election of directors.
2. Indemnification.
---------------
a. Indemnification of Expenses. Subject to the provisions of
---------------------------
Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to the
fullest extent permitted by law if Indemnitee was or is or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, any Claim (whether by reason of or arising in
part out of a
-3-
<PAGE>
Covered Event), including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses.
b. Review of Indemnification Obligations. Notwithstanding the
-------------------------------------
foregoing, in the event any Reviewing Party shall have determined (in a written
opinion, in any case in which Independent Legal Counsel is the Reviewing Party)
that Indemnitee is not entitled to be indemnified hereunder under applicable
law, (i) the Company shall have no further obligation under Section 2(a) to make
any payments to Indemnitee not made prior to such determination by such
Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid to Indemnitee to which Indemnitee is not entitled hereunder
under applicable law; provided, however, that if Indemnitee has commenced or
-------- -------
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee is entitled to be indemnified hereunder
under applicable law, any determination made by any Reviewing Party that
Indemnitee is not entitled to be indemnified hereunder under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expenses theretofore paid in indemnifying Indemnitee until a
final judicial determination is made with respect thereto (as to which all
rights of appeal therefrom have been exhausted or lapsed). Indemnitee's
obligation to reimburse the Company for any Expenses shall be unsecured and no
interest shall be charged thereon.
c. Indemnitee Rights on Unfavorable Determination; Binding Effect.
--------------------------------------------------------------
If any Reviewing Party determines that Indemnitee substantively is not entitled
to be indemnified hereunder in whole or in part under applicable law, Indemnitee
shall have the right to commence litigation seeking an initial determination by
the court or challenging any such determination by such Reviewing Party or any
aspect thereof, including the legal or factual bases therefor, and, subject to
the provisions of Section 15, the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by any Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
d. Selection of Reviewing Party; Change in Control. If there has
-----------------------------------------------
not been a Change in Control, any Reviewing Party shall be selected by the Board
of Directors, and if there has been such a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's Board
of Directors who were directors immediately prior to such Change in Control),
any Reviewing Party with respect to all matters thereafter arising concerning
the rights of Indemnitee to indemnification of Expenses under this Agreement or
any other agreement or under the Company's Certificate of Incorporation or
Bylaws as now or hereafter in effect, or under any other applicable law, if
desired by Indemnitee, shall be Independent Legal Counsel selected by Indemnitee
and approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
entitled to be indemnified hereunder under applicable law and the Company agrees
to abide by such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto. Notwithstanding any other provision of this Agreement, the
Company shall
-4-
<PAGE>
not be required to pay Expenses of more than one Independent Legal Counsel in
connection with all matters concerning a single Indemnitee, and such Independent
Legal Counsel shall be the Independent Legal Counsel for any or all other
Indemnitees unless (i) the employment of separate counsel by one or more
Indemnitees has been previously authorized by the Company in writing, or (ii) an
Indemnitee shall have provided to the Company a written statement that such
Indemnitee has reasonably concluded that there may be a conflict of interest
between such Indemnitee and the other Indemnitees with respect to the matters
arising under this Agreement.
e. Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. Expense Advances.
----------------
a. Obligation to Make Expense Advances. Upon receipt of a written
-----------------------------------
undertaking by or on behalf of the Indemnitee to repay such amounts if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
therefore by the Company hereunder under applicable law, the Company shall make
Expense Advances to Indemnitee.
b. Form of Undertaking. Any obligation to repay any Expense
-------------------
Advances hereunder pursuant to a written undertaking by the Indemnitee shall be
unsecured and no interest shall be charged thereon.
c. Determination of Reasonable Expense Advances. The parties agree
--------------------------------------------
that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
4. Procedures for Indemnification and Expense Advances.
---------------------------------------------------
a. Timing of Payments. All payments of Expenses (including without
------------------
limitation Expense Advances) by the Company to the Indemnitee pursuant to this
Agreement shall be made to the fullest extent permitted by law as soon as
practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than thirty (30) business days after such written
demand by Indemnitee is presented to the Company, except in the case of Expense
Advances, which shall be made no later than ten (10) business days after such
written demand by Indemnitee is presented to the Company.
b. Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this Agreement, give the Company notice
in writing as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
-5-
<PAGE>
Company shall be directed to the Chief Executive Officer of the Company at the
address shown on the signature page of this Agreement (or such other address as
the Company shall designate in writing to Indemnitee). In addition, Indemnitee
shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee's power.
c. No Presumptions; Burden of Proof. For purposes of this
--------------------------------
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
----
contendere, or its equivalent, shall not create a presumption that Indemnitee
- ----------
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by this
Agreement or applicable law. In addition, neither the failure of any Reviewing
Party to have made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by any Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under this Agreement under applicable law, shall be a
defense to Indemnitee's claim or create a presumption that Indemnitee has not
met any particular standard of conduct or did not have any particular belief.
In connection with any determination by any Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder under applicable
law, the burden of proof shall be on the Company to establish that Indemnitee is
not so entitled.
d. Notice to Insurers. If, at the time of the receipt by the
------------------
Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
e. Selection of Counsel. In the event the Company shall be
--------------------
obligated hereunder to provide indemnification for or make any Expense Advances
with respect to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim with counsel approved by Indemnitee
(which approval shall not be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election to do so. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees or expenses of separate counsel subsequently retained by
or on behalf of Indemnitee with respect to the same Claim; provided that, (i)
Indemnitee shall have the right to employ Indemnitee's separate counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of separate
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not continue to retain such counsel to defend such
Claim, then the fees and expenses of Indemnitee's separate counsel shall be
Expenses for which Indemnitee may receive indemnification or Expense Advances
hereunder.
-6-
<PAGE>
5. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
a. Scope. The Company hereby agrees to indemnify the Indemnitee to
-----
the fullest extent permitted by law, notwithstanding that such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary,
it is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 10(a) hereof.
b. Nonexclusivity. The indemnification and the payment of Expense
--------------
Advances provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Company's Certificate of Incorporation, its
Bylaws, any other agreement, any vote of stockholders or disinterested
directors, the General Corporation Law of the State of Delaware, or otherwise.
The indemnification and the payment of Expense Advances provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
6. No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
9. Liability Insurance. To the extent the Company maintains liability
-------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers,
-7-
<PAGE>
if Indemnitee is not a director of the Company but is an officer; or of the
Company's key employees, agents or fiduciaries, if Indemnitee is not an officer
or director but is a key employee, agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this Agreement,
----------
the Company shall not be obligated pursuant to the terms of this Agreement:
a. Excluded Action or Omissions. To indemnify or make Expense
----------------------------
Advances to Indemnitee with respect to Claims arising out of acts, omissions or
transactions for which Indemnitee is prohibited from receiving indemnification
under applicable law.
b. Claims Initiated by Indemnitee. To indemnify or make Expense
------------------------------
Advances to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i)
with respect to actions or proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other agreement or insurance
policy or under the Company's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to Claims for Covered Events, (ii) in specific
cases if the Board of Directors has approved the initiation or bringing of such
Claim, or (iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, Expense Advances, or insurance recovery, as
the case may be.
c. Lack of Good Faith. To indemnify Indemnitee for any Expenses
------------------
incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that each of the material
defenses asserted by Indemnitee in such action was made in bad faith or was
frivolous.
d. Claims Under Section 16(b). To indemnify Indemnitee for Expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This
-8-
<PAGE>
Agreement shall continue in effect regardless of whether Indemnitee continues to
serve as a director, officer, employee, agent or fiduciary (as applicable) of
the Company or of any other enterprise at the Company's request.
13. Expenses Incurred in Action Relating to Enforcement or Interpretation.
---------------------------------------------------------------------
In the event that any action is instituted by Indemnitee under this Agreement or
under any liability insurance policies maintained by the Company to enforce or
interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee with respect to such action
(including without limitation attorneys' fees), regardless of whether Indemnitee
is ultimately successful in such action, unless as a part of such action a court
having jurisdiction over such action makes a final judicial determination (as to
which all rights of appeal therefrom have been exhausted or lapsed) that each of
the material assertions made by Indemnitee as a basis for such action was not
made in good faith or was frivolous; provided, however, that until such final
judicial determination is made, Indemnitee shall be entitled under Section 3 to
receive payment of Expense Advances hereunder with respect to such action. In
the event of an action instituted by or in the name of the Company under this
Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee
shall be entitled to be indemnified for all Expenses incurred by Indemnitee in
defense of such action (including without limitation costs and expenses incurred
with respect to Indemnitee's counterclaims and cross-claims made in such
action), unless as a part of such action a court having jurisdiction over such
action makes a final judicial determination (as to which all rights of appeal
therefrom have been exhausted or lapsed) that each of the material defenses
asserted by Indemnitee in such action was made in bad faith or was frivolous;
provided, however, that until such final judicial determination is made,
Indemnitee shall be entitled under Section 3 to receive payment of Expense
Advances hereunder with respect to such action.
14. Period of Limitations. No legal action shall be brought and no cause
---------------------
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two year period; provided, however, that if any shorter
-------- -------
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
15. Notice. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
16. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
-9-
<PAGE>
17. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including without limitation each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
18. Choice of Law. This Agreement, and all rights, remedies, liabilities,
-------------
powers and duties of the parties to this Agreement, shall be governed by and
construed in accordance with the laws of the State of Delaware as applied to
contracts between Delaware residents entered into and to be performed entirely
in the State of Delaware without regard to principles of conflicts of laws.
19. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
20. Amendment and Termination. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
21. Integration and Entire Agreement. This Agreement sets forth the
--------------------------------
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
22. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
[Remainder of Page Intentionally Left Blank]
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
ARTISAN COMPONENTS, INC.
By: ____________________________
Name: __________________________
Title: _________________________
Address: 1195 Bordeaux Drive
Sunnyvale, California 94089
AGREED TO AND ACCEPTED
INDEMNITEE:
__________________________________
(signature)
__________________________________
Name
__________________________________
Address
__________________________________
-11-
<PAGE>
EXHIBIT 10.2
ARTISAN COMPONENTS, INC.
1993 STOCK OPTION PLAN
(AS AMENDED NOVEMBER, 1997)
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a Committee appointed by the Board in accordance
---------
with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
------------
(g) "Company" means Artisan Components, Inc., a Delaware corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by the
----------
Company or a Parent or Subsidiary to render services and who is compensated for
such services. The term "Consultant" shall also include directors who are not
Employees.
(i) "Continuous Status as an Employee or Consultant" means any person,
----------------------------------------------
including an advisor, who is engaged by the Company or any Parent or Subsidiary
to render services and is compensated for such services, and any director of the
Company whether compensated for such services or not provided that if and in the
event the Company registers any class of any equity security pursuant to the
Exchange Act, the term Consultant shall thereafter not include directors who are
not compensated for their services or are paid only a director's fee by the
Company.
<PAGE>
(j) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Fair Market Value" means, as of any date, the value of Common Stock
-----------------
determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported, as quoted
on such exchange or system for the last market trading day prior to the time of
determination) as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
or;
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code.
(n) "Nonstatutory Stock Option" means an Option not intended to qualify
-------------------------
as an Incentive Stock Option.
(o) "Officer" means a person who is an officer of the Company within the
-------
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "Option" means a stock option granted pursuant to the Plan.
------
(q) "Option Exchange Program" means a program whereby outstanding
-----------------------
options are surrendered in exchange for options with a lower exercise price.
(r) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(s) "Optionee" means an Employee or Consultant who receives an Option.
--------
-2-
<PAGE>
(t) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(u) "Plan" means this 1993 Stock Option Plan.
----
(v) "Share" means a share of the Common Stock, as adjusted in accordance
-----
with Section 11 of the Plan.
(w) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 4,291,396 Shares (after giving effect to the one-for-two stock
split approved by the shareholders of the Company on November 24, 1997;
hereinafter, "post-split"). The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall,
unless the Plan has terminated, become available for future grant or sale under
the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be administered
------------------------------
by different Committees with respect to different groups of Employees and
Consultants.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
----------
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan
--------------------
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.
-3-
<PAGE>
(b) Powers of the Administrator. Subject to the provisions of the Plan,
---------------------------
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(l) of the Plan;
(ii) to select the Consultants and Employees to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are granted
hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option of the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(f) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(viii) to institute an Option Exchange Program;
(ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(x) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(xi) to modify or amend each Option (subject to Section 13 of the
Plan), including the discretionary authority to extend the post-termination
exercisability period of Options longer than is otherwise provided for in the
Plan;
(xii) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option that number of Shares
-4-
<PAGE>
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year (under
all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's employment or consulting
relationship with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such employment or
consulting relationship at any time, with or without cause.
(d) Upon the Company or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act, or upon the Plan being assumed by a corporation having a class of
common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 250,000 Shares (post-split).
(ii) In connection with his or her initial employment, an Employee
may be granted Options to purchase up to an additional 750,000 Shares (post-
split) which shall not count against the limit set forth in subsection (i)
above.
-5-
<PAGE>
(iii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 11.
(iv) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 11), the canceled Option will be counted against the limits
set forth in subsections (i) and (ii) above. For this purpose, if the exercise
price of an Option is reduced, the transaction will be treated as a cancellation
of the Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
------------
of its adoption by the Board of Directors or its approval by the shareholders of
the Company as described in Section 18 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 13 of the
Plan.
7. Term of Option. The term of each Option shall be the term stated in the
--------------
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be such price as is determined by
the Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described in
paragraph (A) immediately above, the per Share exercise price shall be no less
than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
-6-
<PAGE>
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) Form of Consideration. The consideration to be paid for the Shares
---------------------
to be issued upon exercise of an Option, including the method of payment, shall
be determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant) and may consist entirely of
(1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case
of Shares acquired upon exercise of an Option either have been owned by the
Optionee for more than six months on the date of surrender or were not acquired,
directly or indirectly, from the Company, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, (6) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement, (7) any
combination of the foregoing methods of payment, or (8) such other consideration
and method of payment for the issuance of Shares to the extent permitted by
Applicable Laws. In making its determination as to the type of consideration to
accept, the Administrator shall consider if acceptance of such consideration may
be reasonably expected to benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
-----------------------------------------------
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
-7-
<PAGE>
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the event
----------------------------------------------------
of termination of an Optionee's Continuous Status as an Employee or Consultant
with the Company (but not in the event of a change of status from Employee to
Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the ninety-first (91st)
day following such change of status) or from Consultant to Employee), such
Optionee may, but only within such period of time as is determined by the
Administrator, of at least thirty (30) days, with such determination in the case
of an Incentive Stock Option not exceeding three (3) months after the date of
such termination (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise his or her Option to
the extent that Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the
Option at the date of such termination, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate and the Shares covered by such Option shall revert to the
Plan.
(c) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
9(b) above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his total and permanent disability (as
defined in Section 22(e)(3) of the Code), Optionee may, but only within six (6)
months from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
as of six (6) months after the date of such termination. To the extent that
Optionee was not entitled to exercise the Option as of six (6) months after the
date of such termination, the Shares covered by the unexercisable portion of the
Option shall revert to the Plan, or if Optionee does not exercise such Option to
the extent so entitled within the time specified herein, the Option shall
terminate and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of termination of an Optionee's
-----------------
Continuous Status as an Employee or Consultant as a result of the death of an
Optionee (i) during the term of the Option and while an Employee of the Company
having been in Continuous Status as an Employee since the date of grant of the
Option, or (ii) within three (3) months after the termination of Optionee's
Continuous Status as an Employee for any reason other than for cause or a
voluntary termination initiated by the Optionee, the Option may be exercised, at
any time within six (6) months following the date of death (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
the Optionee would have been entitled to exercise the Option as of six (6)
months after the date of death. To the extent that Optionee was not entitled to
exercise the Option as of six (6) months after the date of death, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan, or
if Optionee does not exercise such Option to the extent
-8-
<PAGE>
so entitled within the time specified herein, the Option shall terminate and
the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Non-Transferability of Options. Unless determined otherwise by the
------------------------------
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
11. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset
------------------------------------------------------------------------
Sale.
----
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option will terminate immediately prior to
the consummation of such proposed action, unless otherwise provided by the
Board. The Board may, in the exercise of its sole discretion in such instances,
declare that any Option shall terminate as of a date fixed by the Board and give
each Optionee the right to exercise his Option as to all or any part of the
Optioned Stock, including shares as to which the Option would not otherwise be
exercisable.
(c) Merger. In the event of a merger of the Company with or into another
-------
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. In the event that the successor corporation does not
agree to assume the Option or to substitute an equivalent option, the
Administrator shall, in lieu of
-9-
<PAGE>
such assumption or substitution, provide for the Optionee to have the right to
exercise the Option as to all or a portion of the Optioned Stock, including
Shares as to which it would not otherwise be exercisable. If the Administrator
makes an Option fully exercisable in lieu of assumption or substitution in the
event of a merger, the Administrator shall notify the Optionee that the Option
shall be fully exercisable for a period of fifteen (15) days from the date of
such notice, and the Option will terminate upon the expiration of such period.
For the purposes of this paragraph, the Option shall be considered assumed if,
following the merger, the option confers the right to purchase, for each Share
of Optioned Stock subject to the Option immediately prior to the merger, the
consideration (whether stock, cash, or other securities or property) received in
the merger by holders of Common Stock for each Share held on the effective date
of the transaction (and if holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger
was not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option, for each Share
of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger.
12. Date of Grant. The date of grant of an Option shall, for all purposes,
-------------
be the date on which the Administrator makes the determination granting such
Option, or such other date as is determined by the Administrator. Notice of the
determination shall be given to each Employee or Consultant to whom an Option is
so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or discontinue the Plan, but no amendment, alteration, suspension or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
-10-
<PAGE>
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
16. Agreements. Options shall be evidenced by written agreements in such
----------
form as the Board shall approve from time to time.
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
-11-
<PAGE>
EXHIBIT 10.2
ARTISAN COMPONENTS, INC.
INCENTIVE STOCK OPTION AGREEMENT
Artisan Components, Inc., a California corporation (the "Company"), has
granted to __ (the "Optionee"), an option to purchase a total of __ shares of
Common Stock (the "Shares"), at the price determined as provided herein, and in
all respects subject to the terms, definitions and provisions of the 1993 Stock
Option Plan (the "Plan") adopted by the Company which is incorporated herein by
reference. The terms defined in the Plan shall have the same defined meanings
herein.
1. Nature of the Option. This Option is intended to qualify as an
--------------------
Incentive Stock Option as defined in Section 422A of the Code.
2. Exercise Price. The exercise price is $.01 for each share of Common
--------------
Stock, which price is the fair market value per share of the Company's Common
Stock as of the date of grant as determined in good faith by the Board of
Directors of the Company.
3. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the provisions of Section 8 of the Plan as follows:
(i) Right to Exercise.
-----------------
(a) Subject to Sections 3(i)(b) and (c) below, the Shares subject
to this Option shall become exercisable to the extent of 6.25% of the Shares
subject to the option for each quarter of Optionee's Continuous Status as an
Employee which has expired after __ (the "Vesting Commencement Date"); provided,
however, that this Option shall not be exercisable prior to one (1) year after
the Vesting Commencement Date.
(b) This Option may not be exercised for a fraction of a share.
(c) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 7, 8 and 9 below, subject to the limitation contained in Section
3(i)(d).
(d) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in Section 14.
(ii) Method of Exercise. This Option shall be exercisable by written
------------------
notice in the form attached hereto as Exhibit 1, which shall state the election
to exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent
<PAGE>
with respect to such shares of Common Stock as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed by
the Optionee and shall be delivered in person to or received through certified
mail by the Secretary of the Company within the applicable time period set forth
herein. The written notice shall be accompanied by payment of the exercise
price.
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange upon which the Shares may then be listed.
Assuming such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
4. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, concurrently with the exercise of all or any portion of this
Option, deliver to the Company his Investment Representation Statement in the
form attached hereto as Exhibit 2.
5. Method of Payment. Payment of the exercise price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Optionee:
(i) cash;
(ii) check; or
(iii) surrender of other Shares of Common Stock of the Company which
(A) either have been owned by the Optionee for more than six (6) months on the
date of surrender or were not acquired, directly or indirectly, from the Company
and (B) have a fair market value on the date of surrender equal to the exercise
price of the Shares as to which the Option is being exercised.
6. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
2
<PAGE>
7. Termination of Status as an Employee. If Optionee ceases to serve as
------------------------------------
an Employee, he may, but only within three (3) months after the date he ceases
to be an Employee of the Company, exercise this Option to the extent that he was
entitled to exercise it at the date of such termination; provided, however, that
if such exercise of the Option would result in liability for the Employee or
Consultant under Section 16(b) of the Exchange Act, then such three (3) month
period shall be extended until the tenth (10th) day following the last date upon
which the Employee or Consultant has any liability under Section 16(b). To the
extent that he was not entitled to exercise this Option at the date of such
termination, or if he does not exercise this Option within the time specified
herein, the Option shall terminate.
8. Disability of Optionee. Notwithstanding the provisions of Section 7
----------------------
above, if Optionee is unable to continue his employment with the Company as a
result of his total and permanent disability (as defined in Section 22(e)(3) of
the Internal Revenue Code), he may, but only within six (6) months from the date
of termination of employment, exercise his Option to the extent he was entitled
to exercise it as of six (6) months after the date of such termination. To the
extent that he was not entitled to exercise the Option as of six (6) months
after the date of termination, or if he does not exercise such Option (which he
was entitled to exercise) within the time specified herein, the Option shall
terminate.
9. Death of Optionee. In the event of the death of Optionee:
-----------------
(i) during the term of this Option and while an Employee of the
Company and having been in Continuous Status as an Employee since the date of
grant of the Option, the Option may be exercised, at any time within six (6)
months following the date of death, by Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that he would have been entitled to exercise it as of six (6) months
after the date of death; or
(ii) within three (3) months after the termination of Optionee's
Continuous Status as an Employee for any reason other than for cause or a
voluntary termination initiated by the Optionee, the Option may be exercised, at
any time within six (6) months following the date of death, by Optionee's estate
or by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent that he would have been entitled to exercise
it as of six (6) months after the date of termination.
10. Right of First Refusal. Before any Shares held by Optionee or any
----------------------
transferee, in the event that Optionee has received the prior written consent of
the Company to transfer any Shares (either being sometimes referred to herein as
the "Holder"), may be sold or other wise transferred (excluding transfers by
bona fide gift or by opera-
3
<PAGE>
tion of law), the Company or its assignee(s) shall have a right of first refusal
to purchase the Shares on the terms and conditions set forth in this Section
(the "Right of First Refusal").
(i) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer all of the
Shares proposed to be transferred to all Proposed Transferees at the Offered
Price to the Company or its assignee(s).
(ii) Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all (unless the Holder consents), of the Shares proposed to be transferred in
the aggregate to the Proposed Transferees, at the purchase price determined in
accordance with subsection (iii) below.
(iii) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
an appraiser mutually agreeable to both the Company and the Holder, with the
cost thereof split between the Company and the Holder.
(iv) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 90 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(v) Holder's Right to Transfer. If all of the Shares proposed in
--------------------------
the Notice to be transferred to all of the Proposed Transferees are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Shares to such Proposed
Transferees at the Offered Price or at a higher price, provided that (i) such
sale or other transfer is consummated within 120 days after the date of the
Notice and (ii) any such sale or other transfer is effected in accordance with
any applicable securities laws and the Proposed Transferees agree in writing
that the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferees. If all of the Shares described in the Notice
are not transferred to the Proposed
4
<PAGE>
Transferees within such period, a new Notice shall be given to the Company, and
the Company and/or its assignees shall again be offered the Right of First
Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
11. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(i) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER,
SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY
THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN AN AGREEMENT WITH THE
COMPANY, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF
THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE
BINDING ON TRANSFEREES OF THESE SHARES.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON TRANSFER FOR A PERIOD OF 180 DAYS FOLLOWING THE EFFECTIVE DATE OF
REGISTRATION UNDER THE SECURITIES ACT FOR 1933, AS AMENDED, AS SET
FORTH IN AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF
THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE
OF THE ISSUER. SUCH RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE
SHARES.
(ii) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(iii) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
-5-
<PAGE>
12. Market Standoff Agreement. Optionee hereby agrees that if so
-------------------------
requested by the Company or any representative of the underwriters in connection
with any registration of the offering of any securities of the Company under the
Act, Optionee shall not sell or otherwise transfer any Shares or other
securities of the Company during the 180-day period following the effective date
of a registration statement of the Company filed under the Act; provided,
however, that such restriction shall only apply to the first two registration
statements of the Company to become effective under the Act which include
securities to be sold on behalf of the Company to the public in an underwritten
public offering under the Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
13. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
14. Term of Option. This Option may not be exercised more than ten years
--------------
from the date of grant of this Option, and may be exercised during such term
only in accordance with the Plan and the terms of this Option.
15. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of some of the federal and California tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO
CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(i) Exercise of Option. There will be no regular federal income tax
------------------
liability or California income tax liability upon the exercise of the Option,
although the excess, if any, of the fair market value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(ii) Disposition of Shares. If Shares transferred pursuant to the
---------------------
Option are held for at least one year after exercise and are disposed of at
least two years after the Date of Grant, any gain realized on disposition of the
Shares will also be treated as long-term capital gain for federal and California
income tax purposes. If Shares purchased under an ISO are disposed of within
such one-year period or within two years after the Date of Grant, any gain
realized on such disposition will be treated as compensation income (taxable at
ordinary income rates) to the extent of the excess, if any, of the
-6-
<PAGE>
fair market value of the Shares on the date of exercise over the Exercise
Price.
(iii) Notice of Disqualifying Disposition of ISO Shares. If Optionee
-------------------------------------------------
sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on
or before the later of (1) the date two years after the Date of Grant, or (2)
the date on year after transfer of such Shares to the Optionee upon exercise of
the ISO, the Optionee shall immediately notify the Company in writing of such
disposition. Optionee agrees that Optionee may be subject to income tax
withholding by the Company on the compensation income recognized by the Optionee
from the early disposition by payment in cash or out of the current earnings
paid to the Optionee.
DATE OF GRANT: _____________, 199_
ARTISAN COMPONENTS, INC.
a California corporation
By:____________________________
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THIS OPTION IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH HIS RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
-7-
<PAGE>
Optionee acknowledges receipt of a copy of the Plan and certain information
related thereto and represents that he is familiar with the terms and provisions
thereof, and hereby accepts this Option subject to all of the terms and
provisions thereof. Optionee has reviewed the Plan and this Option in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option and fully understands all provisions of the Option.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board upon any questions arising under the Plan.
Dated:___________________
________________________________
Optionee
-8-
<PAGE>
CONSENT
-------
The undersigned spouse of Optionee agrees that the spouse's interest in the
Shares subject to this Agreement shall be irrevocably bound by this Agreement
and further understands and agrees that any community property interest, if any,
shall be similarly bound by this Agreement.
______________________________
Spouse of Optionee
<PAGE>
EXHIBIT 1
---------
To: Artisan Components, Inc.
2077 Gateway Place
Suite 300
San Jose, CA 95110
Attn: President
Subject: Notice of Intention to Exercise Stock Option
--------------------------------------------
In respect to the stock option granted to _____________ on __________,
199_ to purchase an aggregate of _________ shares of Artisan Components,
Inc., Common Stock, this is official notice that the undersigned intends to
exercise such option to purchase shares as follows:
Number of Shares: ______________________________
Date of Purchase: ______________________________
Mode of Payment: ______________________________
In connection with such exercise, the undersigned hereby reaffirms that the
representations and agreements set forth in Exhibit 2 to the Agreement
evidencing such option are now and will be at and as of the time of such
exercise true and in full force and effect with respect to the shares purchased.
The shares should be issued as follows:
Name: _________________________________
Address: _________________________________
_________________________________
_________________________________
Signed: ________________________________
Date: ________________________________
<PAGE>
EXHIBIT 2
---------
INVESTMENT REPRESENTATION STATEMENT
PURCHASER :
SELLER : ARTISAN COMPONENTS, INC.
COMPANY : ARTISAN COMPONENTS, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, I, the
Purchaser, represent to the Seller and to the Company the following:
(a) I am aware of the Company's business affairs and financial
condition, and have acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. I am
purchasing these Securities for my own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933 ("Securities Act").
(b) I understand that the Securities have not been registered under
the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of my
investment intent as expressed herein. In this connection, I understand that,
in the view of the Securities and Exchange Commission ("SEC"), the statutory
basis for such exemption may be unavailable if my representation was predicated
solely upon a present intention to hold these Securities for the minimum capital
gains period specified under tax statutes, for a deferred sale, for or until an
increase or decrease in the market price of the Securities, or for a period of
one year or any other fixed period in the future.
(c) I further understand that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or
unless an exemption from registration is otherwise available. Moreover, I
understand that the Company is under no obligation to register the
Securities. In addition, I understand that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of
the Securities unless they are registered or such registration is not
required in the opinion of counsel for the Company.
<PAGE>
(d) I am familiar with the provisions of Rule 701 and Rule 144, each
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof in a non-public offering subject to the satisfaction of certain
conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of issuance of the Securities, such issuance will be exempt from
registration under the Securities Act. In the event the Company later becomes
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, ninety (90) days thereafter the securities exempt under
Rule 701 may be resold, subject to the satisfaction of certain of the conditions
specified by Rule 144, including, among other things: (1) the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company and the amount of securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), if applicable. Notwithstanding this paragraph (d), I acknowledge
and agree to the restrictions set forth in paragraph (c) hereof.
In the event that the Company does not qualify under Rule 701 at the
time of issuance of the Securities, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
among other things: (1) the availability of certain public information about the
Company, (2) the resale occurring not less than two years after the party has
purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and, in the case of an affiliate, or of a non-affiliate
who has held the securities less than three years, (3) the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934) and the amount of securities being sold during any three
month period not exceeding the specified limitations stated therein, if
applicable.
(e) I further understand that in the event all of the applicable
requirements of Rule 144 or Rule 701 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144 and
Rule 701 are not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk.
-2-
<PAGE>
(f) I understand that the certificate evidencing the Securities will
be imprinted with a legend which prohibits the transfer of the Securities
without the consent of the Commissioner of Corporations of California. I have
read the applicable Commissioner's Rules with respect to such restriction, a
copy of which is attached.
Signature of Purchaser:
__________________________________
Date:________________, 19__
-3-
<PAGE>
EXHIBIT 10.3
ARTISAN COMPONENTS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1997 Employee Stock Purchase
Plan of Artisan Components, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Committee" shall mean the committee designated by the Board in
---------
accordance with Section 14 of the Plan. If at any time as Committee shall be in
office, then the functions of the Committee specified in the Plan shall be
exercised by the Board and any references herein to the Committee shall be
construed as references to the Board.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(d) "Common Stock" shall mean the Common Stock of the Company.
------------
(e) "Company" shall mean Artisan Components, Inc. and any Designated
-------
Subsidiary of the Company.
(f) "Compensation" shall mean all W-2 compensation of the participant.
------------
(g) "Designated Subsidiary" shall mean any Subsidiary which has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(h) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(i) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
<PAGE>
(j) "Exercise Date" shall mean the last trading day of each Purchase
-------------
Period.
(k) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Committee deems reliable,
or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Committee deems reliable, or;
(3) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Committee, or;
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final Prospectus included within the Registration
Statement on Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(l) "Offering Periods" shall mean the periods of approximately twenty-
----------------
four (24) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after February 1 and August
1 of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before January 31,
2000. The duration and timing of Offering Periods may be changed pursuant to
Section 4 of this Plan.
(m) "Plan" shall mean this Employee Stock Purchase Plan.
----
(n) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(o) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
-2-
<PAGE>
(p) "Reserves" shall mean the number of shares of Common Stock covered
--------
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(q) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(r) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee (as defined in Section 2(h)) who shall be employed by
the Company immediately preceding a given Enrollment Date shall be eligible to
participate in the Plan. Notwithstanding the foregoing, however, any Employee
shall be eligible to participate in the Plan who was employed by the Company as
of the effective date of a registration statement filed with the Securities and
Exchange Commission for the initial offering of shares of Common Stock of the
Company to the public.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after February 1 and August 1 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
January 31, 2000. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
-3-
<PAGE>
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Committee may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary
-4-
<PAGE>
for the Company to meet applicable withholding obligations, including any
withholding required to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by the
Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than a
number of shares determined by dividing $12,500 by the Fair Market Value of a
share of the Company's Common Stock (subject to any adjustment pursuant to
Section 19) on the Enrollment Date, and provided further that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12 hereof.
Exercise of the option shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof. The option shall
expire on the last day of the Offering Period.
8. Exercise of Option. Unless a Participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a Participant's account which are not sufficient to purchase a
full share will be retained in the Participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a Participant's option to
purchase shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
-5-
<PAGE>
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to Section19, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be six hundred thousand (600,000) shares (after giving effect to the one-
for-two reverse stock split approved by the shareholders on November 24, 1997),
together with an annual increase to the number of shares reserved thereunder on
each anniversary date of the adoption of the Plan equal to the lesser of (i)
200,000 shares (post-split), (ii) one percent of the outstanding shares of the
Company on such date or (iii) a lesser amount determined by the Board. If, on a
given Exercise Date, the number of shares with respect to which options are to
be exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration.
--------------
(a) Administrative Body. The Plan shall be administered by the Board
-------------------
or a committee of members of the Board appointed by the Board. The Board or its
Committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination
-6-
<PAGE>
made by the Board or its Committee shall, to the full extent permitted by law,
be final and binding upon all parties.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
----------------------
Subsection (a) of this Section 14, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for
administrators of plans of this type, the Plan shall be only administered by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall
-7-
<PAGE>
set forth the amounts of payroll deductions, the Purchase Price, the number of
shares purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
--------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
-8-
<PAGE>
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 19
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
-9-
<PAGE>
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-10-
<PAGE>
EXHIBIT A
---------
ARTISAN COMPONENTS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________________________ hereby elects to
participate in the Artisan Components, Inc. 1997 Employee Stock Purchase
Plan (the "Employee Stock Purchase Plan") and subscribes to purchase shares
of the Company's Common Stock in accordance with this Subscription
Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my ability
to exercise the option under this Subscription Agreement is subject to
shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
___________________________________________________________________________
___________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
-
hereby agree to notify the Company in writing within 30 days after
---------------------------------------------------------------------------
<PAGE>
the date of any disposition of my shares and I will make adequate provision
---------------------------------------------------------------------------
for Federal, state or other tax withholding obligations, if any, which
---------------------------------------------------------------------------
arise upon the disposition of the Common Stock. The Company may, but will
-----------------------------------------------
not be obligated to, withhold from my compensation the amount necessary to
meet any applicable withholding obligation including any withholding
necessary to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year and
1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to
the extent of an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market
value of the shares on the first day of the Offering Period. The remainder
of the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)______________________________________________
(First) (Middle) (Last)
_____________________________ _____________________________________________
Relationship
_____________________________________________
(Address)
2
<PAGE>
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ________________________________________
Signature of Employee
_______________________________________
Spouse's Signature (If beneficiary other than
spouse)
-3-
<PAGE>
EXHIBIT B
---------
ARTISAN COMPONENTS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Artisan
Components, Inc. 1997 Employee Stock Purchase Plan which began on ____________,
19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:__________________________
<PAGE>
EXHIBIT 10.4
ARTISAN COMPONENTS, INC.
1997 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1997 Director Option Plan
--------------------
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the common stock of the Company.
------------
(d) "Company" means Artisan Components, Inc., a Delaware corporation.
-------
(e) "Director" means a member of the Board.
--------
(f) "Employee" means any person, including officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(h) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the date of determination, as reported in The
Wall Street Journal or such other source as the Board deems reliable; or
<PAGE>
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(i) "Inside Director" means a Director who is an Employee.
---------------
(j) "Option" means a stock option granted pursuant to the Plan.
------
(k) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(l) "Optionee" means a Director who holds an Option.
--------
(m) "Outside Director" means a Director who is not an Employee.
----------------
(n) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1997 Director Option Plan.
----
(p) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 200,000 Shares (after giving effect to the one-for-two reverse
stock split approved by the shareholders of the Company on November 24, 1997) of
Common Stock (the "Pool"). The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
---------------------------------------------------
(a) Procedure for Grants. All grants of Options to Outside Directors
--------------------
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
-2-
<PAGE>
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director as of the effective date of this Plan,
as determined in accordance with Section 6 hereof, shall be automatically
granted an Option to purchase 25,000 (post-split) Shares (the "First Option") at
the initial public offering price of the Company's Common Stock. Each person who
becomes an Outside Director after the effective date of the initial public
offering shall be automatically granted an Option to purchase 25,000 Shares
(post-split) (such Option shall each be known as a "First Option") on the date
on which such person first becomes an Outside Director, whether through election
by the shareholders of the Company or appointment by the Board to fill a
vacancy; provided, however, that an Inside Director who ceases to be an Inside
Director but who remains a Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted an
Option to purchase 5,000 Shares (post-split) (a "Subsequent Option") on the
date of the next meeting of the Board of Directors following the annual meeting
of shareholders of each year (beginning with the meeting for fiscal year 1998)
provided he or she is then an Outside Director and if as of such date, he or she
shall have served on the Board for at least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10) years.
(B) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the First Option. In the event
that the date of grant of the First Option is not a trading day, the exercise
price per Share shall be the Fair Market Value on the next trading day
immediately following the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option shall
become exercisable as to 25% of the shares subject to the Option on the first
anniversary of its date of grant and 1/48th of the Shares each month thereafter
so that the First Option shall be fully exercisable four (4) years after its
date of grant, provided that the Optionee continues to serve as a Director on
such dates.
(vi) The terms of a Subsequent Option granted hereunder
shall be as follows:
-3-
<PAGE>
(A) the term of the Subsequent Option shall be ten (10)
years.
(B) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Subsequent Option. In the
event that the date of grant of the Subsequent Option is not a trading day, the
exercise price per Share shall be the Fair Market Value on the next trading day
immediately following the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option
shall become exercisable as to 1/48th of the Shares subject to the Subsequent
Option on each monthly anniversary of its date of grant, provided that the
Optionee continues to serve as a Director on such dates.
(vii) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the Board or the shareholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. Term of Plan. The Plan shall become effective upon the effective date
------------
of the Company's initial public offering of its Common Stock that is registered
with the Securities and Exchange Commission. It shall continue in effect for a
term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares to
---------------------
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
-4-
<PAGE>
8. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
----------------------------------------------
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
----------------------
Director terminates as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but
only within twelve (12) months following the date of such termination, and only
to the extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option
on the date of termination, or if he or she does not exercise such Option (to
the extent otherwise so entitled) within the time specified herein, the Option
shall terminate.
-5-
<PAGE>
(d) Death of Optionee. In the event of an Optionee's death, the
-----------------
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option, and the number of
Shares issuable pursuant to the automatic grant provisions of Section 4 hereof
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the
Option or equivalent option shall continue to be exercisable as provided in
Section 4 hereof for so long as the Optionee serves as a Director or a director
of the Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable.
-6-
<PAGE>
Thereafter, the Option or option shall remain exercisable in accordance with
Sections 8(b) through (d) above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
11. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state
-7-
<PAGE>
securities laws, and the requirements of any stock exchange upon which the
Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
16. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law and any stock exchange rules.
-8-
<PAGE>
EXHIBIT 10.5
GATEWAY OFFICE PARK
San Jose, California
[IMAGE OMITTED]
LEASE
<PAGE>
BASIC LEASE INFORMATION
OFFICE LEASE
Lease Date December 13, 1995
Landlord SPIEKER PROPERTIES, L.P., a California Limited
Partnership
Address of Landlord: 2077 Gateway Place, Suite 100, San Jose, CA
95110
Tenant VLSI LIBRARIES INCORPORATED, a California Corporation
Address of Tenant: 3135 Kifer Road. Santa Clara, CA 95051
<TABLE>
<CAPTION>
Contact Mark Templeton Telephone: 408-986-9300
President
<S> <C> <C>
PARAGRAPH 1 Premises: Approximately 16,797 square feet of rentable area (which includes a portion of the
building's common area) located on the third floor of the building known as 2077 Gateway Place. The
demised premises are approximately as shown in red on the attached floor plan (Exhibit B - Suite 300).
PARAGRAPH 2 Permitted Use: General and Administrative Use
PARAGRAPH 2 Occupancy Density 67 people.
PARAGRAPH 3 Scheduled Arm Commencement Date: March 1, 1996
PARAGRAPH 3 Scheduled Length of Term: Five (5) years
PARAGRAPH 3 Scheduled Term Expiration Date: February 28, 2001
PARAGRAPH 4 Rent: See Addendum 1 attached hereto
PARAGRAPH 15 Security Deposit: $38,297.00
PARAGRAPH 29 Tenant's Proportionate Share: 22.25%
</TABLE>
The foregoing Basic Lease Information is incorporated into and
made a part of this Lease. Each reference in this Lease to any
of the Basic Lease Information shall mean the respective
information above set forth and shall be construed to incorporate
all of the terms provided under the Particular Lease paragraph
pertaining to such information. In the event of any conflict
between the Basic Lease Information and the Lease. the latter
shall control.
LANDLORD: TENANT:
SPIEKER PROPERTIES, L.P. VLSI LIBRARIES INCORPORATED, a
a California Limited Partnership California Corporation
By Spieker Properties, Inc., By /s/ Mark Templeton
a Maryland, Corporation Mark Templeton
Its General Manager Its President
By:/s/ John A. Foster
<PAGE>
John A. Foster
Senior Vice President
- 1 -
<PAGE>
LEASE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Basic Lease Information 1
1. Premises 3
2. Occupancy 3
3. Term And Possession 3
4. Rent 3
5. Restrictions On Use 3
6. Compliance With Laws 3
7. Alterations 3
8. Repairs 3
9. Liens 4
10. Assignment And Subletting 4
11. Insurance And Indemnification 4
12. Waiver Of Subrogation 5
13. Service And Utilities 5
14. Estoppel Certificate 5
15. Security Deposit 6
16. Substitution 6
17. Holding Over 6
18. Subordination 6
19. Rules And Regulations 6
20. Re-Entry By Landlord 6
21. Default By Tenant 6
22. Damage By Fire, Etc. 7
23. Eminent Domain 8
24. Sale By Landlord And Tenant's Remedies 8
25. Right Of Landlord To Perform 8
26. Surrender Of Premises 8
27. Waiver 8
28. Notices 8
29. Rental Adjustments 9
30. Taxes Payable By Tenant 10
31. Successors And Assigns 10
32. Attorneys' Fees 10
33. Light And Air 10
34. Public Transportation Information 10
35. Miscellaneous 10
36. Lease Effective Date 10
Signatures 10
</TABLE>
EXHIBIT "A" Rules and Regulations
EXHIBIT "B" Outline of Premises
EXHIBIT "C" Improvement Agreement
EXHIBIT "D" Form of Tenant Certificate
EXHIBIT "E" Property Description
<PAGE>
LEASE
THIS LEASE is made as of this 13th day of December 1995, between
SPIEKER PROPERTIES, L.P., a California Limited (hereinafter
called "Landlord")
Partnership
and VLSI LIBRARIES INCORPORATED, a California Corporation
(hereinafter called "Tenant").
PREMISES 1. Landlord leases to Tenant and Tenant leases from
Landlord those premises (hereinafter called "Premises)
outlined in red on Exhibit B attached hereto and made a part
hereof, specified in the Basic Lease Information attached
hereto (the "Building").
OCCUPANCY 2. Tenant shall use the Premises for the Permitted Use and
for no other use or purpose without the prior written
consent of Landlord, which shall not be unreasonably
withheld or delayed. No increase in occupant density of the
Leased Premises shall be made which shall add to the burden
of such use of the Building as determined by Landlord
without the prior written consent of Landlord.
POSSESSION 3. (a) The parties project that the term shall commence on the
Scheduled Term Commencement Date and, except as otherwise
provided herein or in any exhibit or addendum hereto, shall
continue in full force until the Term Expiration Date. If
the Premises are not delivered by Landlord by the Scheduled
Term Commencement Date for any reason, Landlord shall not be
liable to Tenant for any loss or damage resulting from such
delay. The Term Commencement Date shall be the first day of
the calendar month next following the earlier of (i) the day
when the Premises are substantially complete, or (ii) the
date on which Tenant takes possession of, or commences the
operation of its business in some or all of the Premises. If
substantial completion occurs prior to the Scheduled Term
Commencement Dates, Tenant shall take occupancy. Landlord
shall provide Tenant as much notice as circumstances allow
of the date when Landlord expects to achieve substantial
completion based upon the progress of work. Should the Term
Commencement Date be a date other than the Scheduled Term
Commencement Date, either Landlord or Tenant, at the request
of the other shall execute a declaration specifying the Term
Commencement Date and the rent commencement date which shall
be binding upon the parties as to the matters therein
stated. Tenant's obligation to pay Rent and its other
obligations for payment under this Lease shall commence upon
the earlier of (i) the day when the Premises are
substantially complete, or (ii) the date on which Tenant
takes possession of or commences the operation of its
business in some or all of the Premises.
Tenant agrees to accept the premises in "as is" condition
except for the improvements per Exhibit C.
RENT 4. Tenant shall pay to Landlord throughout the Term Rent
as specified in the Basic Lease Information, payable in
monthly installments in advance on the first day of each
calendar month
See Addendum 1. during every year of the Term in lawful money of the United
States, without deduction or offset whatsoever, to Landlord
at the address specified in the Basic Lease Information or
to such other firm or to such other place as Landlord may
from time to time designate in writing by notice given as
herein provided. Rent for the first month of the Term shall
be paid by Tenant upon execution
<PAGE>
of this Lease. If the obligation for payment of Rent
commences on other than the first day of a month as provided
in paragraph 3(a), then Rent provided for such partial month
shall be prorated and the prorated installment shall be paid
on the first day of the calendar month next succeeding the
Term Commencement Date. If the Term terminates on other than
the last day of a calendar month, then the Rent provided for
such partial month shall be prorated and the prorated
installment shall be paid on the first day of the calendar
month next preceding the date of termination.
RESTRICTIONS 5. Tenant shall not do or permit anything to be done in or
ON USE about the Premises which will in any way obstruct or
interfere with the rights of other tenants or occupants of
the Building or injure or annoy them, nor use or allow the
Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause or maintain or
permit any nuisance in, on or about the Premises. Tenant
shall not commit or suffer the commission of any waste in,
on or about the Premises.
COMPLIANCE 6. Tenant shall not use the Premises or permit anything
WITH LAWS to be done in or about the Premises which will in any way
conflict with any law, statute, ordinance or governmental
rule or regulation now in force or which may hereafter be
See Addendum 2. enacted or promulgated. Tenant shall not do or permit
anything to be done on or about the Premises or bring or
keep anything therein which will in any way increase the
rate of any insurance upon the Building or any of its
contents or cause a cancellation of said insurance or
otherwise affect said insurance in any manner, and Tenant
shall at its sole cost and expense promptly comply with all
laws, statutes, ordinances and governmental rules,
regulations or requirements now in force or which may
hereafter be in force and with the requirements of any board
of fire underwriters or other similar body now or hereafter
constituted relating to or affecting the condition, use or
occupancy of the Premises, excluding structural changes not
related to or affected by alterations or improvements made
by or for Tenant or Tenant's acts. The judgment of any court
of competent jurisdiction or the admission of Tenant in any
actions against Tenant, whether Landlord be a party thereto
or not, that Tenant has so violated any such law, statute,
ordinance, rule, regulation or requirement, shall be
conclusive of such violation as between Landlord and Tenant.
ALTERATIONS 7. Tenant shall not make or suffer to be made any
alterations, additions, or improvements in, on or to the
Premises or any part thereof without the prior written
consent of Landlord, which shall not be unreasonably
withheld or delayed; and any such alterations, additions or
improvements in, on or to said Premises, except for Tenant's
movable furniture and equipment, shall immediately become
Landlord's property and, at the end of the Term, shall
remain on the Premises without compensation to Tenant. In
the event Landlord consents to the making of any such
alterations, addition or improvement by Tenant, the same
shall be made by Tenant, at Tenant's sole cost and expense,
in accordance with plans and specifications approved by
Landlord, and any contractor or person selected by Tenant to
make the same must first be approved in writing by Landlord.
Notwithstanding the foregoing, at Landlord's option, all or
any portion of the alterations, addition or improvement work
shall be performed by Landlord for Tenant's account and
Tenant shall pay
<PAGE>
Landlord's estimate of the cost thereof (including a
reasonable charge for Landlord's overhead and profit) prior
to commencement of the work. Overhead and profit allowances
shall total fifteen percent (15%). Upon the expiration or
sooner termination of the Term, Tenant shall upon demand by
Landlord, at Tenant's sole cost and expense, with all due
diligence remove all those alterations, additions or
improvements made by or for the account of Tenant,
designated by Landlord to be removed, and Tenant shall with
all due diligence, at its sole cost and expense, repair and
restore the Premises to their original condition, normal
wear and tear excepted. At Landlord's election and
notwithstanding the foregoing, however, Tenant shall pay to
Landlord the cost of removing any such alterations,
additions or improvements and restoring the Premises to
their original condition, normal wear and tear excepted,
such cost to include a reasonable charge for Landlord's
overhead and profit as provided above, and such amount may
be deducted from the Security Deposit or any other sums or
amounts held by Landlord under this Lease.
REPAIRS 8. By taking possession of the Premises, Tenant accepts
the Premises as being in the condition in which Landlord is
obligated to deliver them and otherwise in good order,
condition and repair. At all times during the
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<PAGE>
Term Tenant shall, at Tenant's sole cost and expense, keep
the Premises and every part thereof in good order, condition
and repair, excepting damage thereto by fire, earthquake,
act of God or the elements. Tenant waives all rights it may
have under Section 1942 of the Civil Code of the State of
California and any similar law, statute or ordinance now or
hereafter in effect (to the full extent that such waiver may
lawfully be given) authorizing or purporting to authorize
Tenant to make repairs to or for the account of Landlord.
Tenant shall upon the expiration or sooner termination of
the Term hereof, unless Landlord demands otherwise pursuant
to paragraph 7 hereof, surrender to Landlord the Premises
and all repairs, changes, alterations, additions and
improvements thereto in the same condition as when received
or when first installed, damage by fire, earthquake, act of
God or the elements excepted. Landlord has no obligation to
alter, remodel, improve, repair, decorate or paint the
Premises or any part thereof, except as specified in the
Office Lease Improvement Agreement and no representations
respecting the condition of the Premises or the Building
have been made by Landlord to Tenant, except as specifically
set forth herein or in the Office Lease improvement
Agreement.
LIENS 9. Tenant shall keep the Premises free from liens arising
out of or related to work performed, materials or supplies
furnished or obligations incurred by Tenant or in connection
with work made, suffered or done by Tenant in Premises or
Building. In the event that Tenant shall not, within ten
(10) days following the imposition of any such lien, cause
the same to be released of record by payment or posing of a
proper bond, Landlord shall have, in addition to all
remedies provided herein and by law, the right, but no
obligation to cause the same to be released by such means as
it shall deem proper, including payment of the claim giving
rise to such lien Landlord shall have the right at all times
to post and keep posted on the Premises any notices
permitted or required by law, or which Landlord shall deem
proper, for the protection of Landlord, the Premises, the
Building and any other party having an interest therein,
from mechanics and materialmen's liens, and Tenant shall
give Landlord not less than ten (10) business days prior
written notice of the commencement of any work in the
Building or Premises which could lawfully give rise to a
claim for mechanics or materialmen's lien.
ASSIGNMENT 10. Tenant shall not sell, assign, encumber or otherwise
AND transfer this Lease or any interest therein (by operation of
SUBLETTING law or otherwise), sublet the Premises or any part thereof
or suffer any other person to occupy or use the Premises or
any portion thereof, nor shall Tenant permit any lien to be
placed on Tenant's interest under this Lease by operation of
law except in accordance with the provisions of this
paragraph 10. For purposes hereof, sales, transfers or
assignments of (i) a controlling interest in the stock of
Tenant, if Tenant is a corporation, or of (ii) the general
partnership interests sufficient to control management
decisions if Tenant is a partnership or of (iii) the
majority or controlling underlying beneficial interest, if
Tenant is any other form of business entity, shall
constitute an assignment subject to the terms of this
paragraph 10.
(a) In the event that Tenant should desire to sublet the
Premises or any part thereof, Tenant shall provide Landlord
with written notice of such desire at least ninety (90) days
in advance of the
<PAGE>
date on which Tenant desires to make such sublease. Landlord
shall then have a period of thirty (30) days following
receipt of such notice within which to notify Tenant in
writing that Landlord elects either (i) to terminate this
Lease as to the space so affected as of the date so
specified by Tenant, in which event, Tenant shall be
relieved of all further obligations hereunder as to such
space from and after that date, or (ii) to permit Tenant to
sublet such space, subject however, to the prior written
approval of the proposed sublessee by Landlord which said
consent shall not be unreasonably withheld. If Landlord
should fail to notify Tenant in writing of its election
within said thirty (30) day period, Landlord shall be deemed
to have waived option (i) above, but written approval of the
proposed sublessee shall still be required. Refusal by
Landlord to approve a proposed sublessee shall not
constitute a termination of this Lease. In exercising its
right of consent to a sublessee it shall be reasonable for
Landlord to withhold consent to any sublessee who (aa) does
not agree to assume the obligations of the Lease with
respect to the space to be so sublet, (bb) does not agree to
utilize the space to sublet for the Permitted Use, (cc) is
of unsound financial condition as determined by Landlord or
(dd) will, in Landlord's opinion, increase the occupant
density in the Leased Premises. If Tenant proposes to
sublease less than all of the Premises, election by Landlord
of termination of this Lease with respect to space to be so
sublet shall leave this Lease in full force and effect with
respect to the remainder of the space, the Rent and Tenant's
Proportionate Share of Operating Expenses and taxes shall be
adjusted on a pro rata basis to reflect the reduction in Net
Rentable Area of the Premises as retained by Tenant. This
Lease as so amended shall continue thereafter in full force
and effect and references herein to the Premises shall mean
that portion thereof as to which the Lease has not been
terminated.
(b) Tenant shall not enter into any other transaction
subject to this paragraph 10 without Landlord's prior
written consent which said consent shall not be unreasonably
withheld. It shall be reasonable for Landlord to withhold
consent to any proposed transaction described in this
paragraph 10 on any of the grounds specified in paragraph 10
(a) with respect to sublessees or any other reasonable
grounds.
(c) Any rent or other consideration realized by Tenant
under any such sublease or assignment to which Landlord has
consented hereunder, in excess of the Rent payable
hereunder, after amortization of the reasonable cost of the
improvements over the remainder of the Term for which Tenant
has paid and reasonable subletting and assignment costs,
shall be divided and paid ninety percent (90%) to Landlord
and ten percent (10%) to Tenant.
(d) Any subletting hereunder by Tenant shall not result in
Tenant being released or discharged from any liability under
this lease. Any purported assignment, subletting or other
transaction to which paragraph 10 applies, which occurs
contrary to the provisions hereof, shall be void.
Landlord's consent to any assignment, subletting or other
transaction to which this paragraph 10 applies shall not
release Tenant from any of Tenant's obligations hereunder or
constitute a consent with respect to any subsequent
transaction to which this paragraph applies.
INSURANCE AND 11. (a) Landlord shall not be liable to Tenant and Tenant
hereby
<PAGE>
INDEMNIFICATION waives all claims against Landlord for any injury or damage
to any person or properly in or about the Premises by or
from any cause whatsoever, (other than Landlord's gross
negligence or willful misconduct) and, without limiting the
generality of the foregoing, whether caused by water leakage
or any character from the roof, walls, basement or other
portion of the Premises or the Building, or caused by gas,
fire, oil or electricity in, on or about the Premises or the
Building.
(b) Tenant shall hold Landlord harmless from and defend
Landlord against any and all claims or liability for any
injury or damage to any person or property whatsoever: (i)
occurring in, on or about the Premises or any part thereof,
or (ii) occurring in, on or about any facilities (including,
without prejudice to the generality of the term
"facilities", elevators, stairways, lobbies, health clubs,
passageways or hallways), the use of which Tenant may have
in conjunction with other tenants of the Building, when such
injury or damage shall be caused in part or whole by the
act, neglect, fault of or omission of any duty with respect
to the same by Tenant, its agents, servants, employees or
invitees. Tenant shall further indemnify and save Landlord
harmless against and from any and all claims by or on
behalf of any person, firm or corporation arising from the
conduct or management of any work or thing whatsoever done
by Tenant in or about or from transactions of Tenant
concerning the Premises, and will further indemnify and save
Landlord harmless against and from any and all claims
arising from any breach or default on the part of Tenant in
the performance of any covenant or agreement on the part of
Tenant to be performed pursuant to the terms of this Lease
or arising from any act or negligence of Tenant, or any of
its agents, contractors, servants, employees or licensees,
and from and against all costs, counsel fees, expenses and
liabilities incurred in connection with any such claim or
action or proceeding brought thereon. In case any action or
proceeding is brought against Landlord by reason of any
claims or liability within the limits of the foregoing
indemnity, Tenant shall defend such action or proceeding at
Tenant's sole expense by counsel reasonably satisfactory to
Landlord.
(c) Landlord shall hold Tenant harmless from and defend
Tenant against any and all claims or liability for any
injury or damage to any person or property occurring in or
about any facilities (including, without prejudice to the
generality of the term "facilities", elevators, stairways,
passageways or hallways), the use of which Tenant may have
in conjunction with other tenants of the building, when such
injury or damage shall be caused in whole or in part by the
act, neglect, fault of or omission of any duty with respect
to the same by Landlord, its
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<PAGE>
agents, servants, employees or invitees. Landlord shall
further indemnify and safe Tenant harmless against and from
any and all claims by or on behalf of any person, firm or
corporation arising from the conduct or management of any
work or thing whatsoever done by Landlord in or about, or
from transactions of Landlord concerning the Premises where
such work is not being done for the account of Tenant, and
Landlord will further indemnify and safe Tenant harmless
against and from any and all claims arising from any breach
or default on the part of Landlord in the performance of any
covenant or agreement on the part of Landlord to be
performed pursuant to the terms of this Lease or arising
from any act or negligence of Landlord, or any of its
agents, contractors, servants, employees or licensees, and
from and against all costs, counsel fees, expenses and
liability incurred in connection with any such claim or
action or proceeding brought thereon. In case any action or
proceeding is brought against Tenant by reason of any claims
or liability within the limits of the foregoing indemnity,
Landlord shall defend such action or proceeding at
Landlord's sole expense by counsel reasonable satisfactory
to Tenant.
(d) The provisions of paragraph 11(b) and 11(c) shall
survive the expiration or termination of this Lease with
respect to any claims or liability occurring prior to such
expiration or termination.
(e) Tenant shall purchase at its own expense and keep in
force during the Term of this Lease a policy or policies of
workers' compensation and comprehensive liability insurance,
including personal injury and property damage, in the amount
of Five Hundred Thousand Dollars ($500,000.00) for property
damage and Two Million Dollars ($2,000,000.00) per
occurrence for personal injuries or deaths of persons
occurring in or about the Premises. The foregoing limits
shall be increased in proportion to increases during the
Term in the United States Department of Labor, Bureau of
Labor Statistics, Cost of Living Index. All Urban Consumers
(1967 = 100) for the region in which the Leased Premises are
located. Said policies shall; (i) name Landlord and any
party holding any interest to which this Lease may be
subordinated under paragraph 18 hereof, as additional
insureds, and insure Landlord's contingent liability under
this Lease; (ii) be issued by an insurance company
acceptable to Landlord and licensed to do business in the
State of California; and (iii) provide that said insurance
shall not be cancelled unless then (10) days prior written
notice shall have been given to Landlord. Said policy or
policies or certificates thereof shall be delivered to
Landlord by Tenant upon commencement of the term of this
Lease and upon each renewable of said insurance.
WAIVER OF 12. To the extent permitted by law and without affecting
SUBROGATION the coverage provided by insurance required to be maintained
hereunder, Landlord and Tenant each waive any right to
recover against the other (i) damages for injury to or death
of persons, (ii) damages to property, (iii) damage to the
Premises or any part thereof, (iv) damage to the Building or
any part thereof, or (v) claims arising by reason of the
foregoing, but only to the extent that any of the foregoing
damages and/or claims referred to above are covered (and
only to the extent of such coverage) by insurance actually
carried by either Landlord or Tenant. This provision is
intended to waive fully, and for the benefit of each party,
any rights and/or claims which might give rise to a right of
<PAGE>
subrogation on any insurance carrier. The coverage obtained
by each party pursuant to this Lease shall include, but
without limitation, a waiver of subrogation by the carrier
which conforms to the provisions of this paragraph.
SERVICES AND 13. (a) Landlord shall maintain the public and common
UTILITIES areas of the Building, including lobbies, stairs, elevators,
corridors and restrooms, and windows in the Building, the
mechanical, plumbing and electrical equipment serving the
Building, and the structure itself, in reasonably good order
and condition except for damage occasioned by the act of
Tenant, which damage shall be repaired by Landlord at
Tenant's expense.
(b) Provided Tenant shall not be in default hereunder, and
subject to the provisions elsewhere herein contained and to
the rules and regulations of the Building, Landlord shall
furnish to the Premises during ordinary business hours of
generally recognized business days, to be determined by
Landlord (but exclusive, in any event, of Saturdays, Sundays
and legal holidays), water and electricity suitable for the
Permitted Uses of the Premises, heat and air conditioning
required in Landlord's judgment for the comfortable use and
occupation of the Premises for the Permitted Uses,
janitorial services during the time and in the manner that
such services are, in Landlord's judgment, customarily
furnished in comparable office buildings in the immediate
market area, and elevator service which shall mean service
either by nonattended automatic elevators or elevators with
attendants, or both, at the option of Landlord. Landlord
shall have no obligation to provide additional or after-
hours heating or air conditioning, but if Landlord elects to
provide such services at Tenant's request, Tenant shall pay
to Landlord a reasonable charge for such services as
determined by Landlord. Tenant agrees to keep and cause to
be kept closed all window covering when necessary because of
the sun's position, and Tenant also agrees at all times to
cooperate fully with Landlord and to abide by all the
regulations and requirements which Landlord may prescribe
for the proper functioning and protection of heating,
ventilating and air conditioning systems. Wherever heat-
generating machines, excess lighting or equipment are used
in the Premises which affect the temperature otherwise
maintained by the air conditioning system, Landlord reserves
the right to install supplementary air conditioning units in
the Premises, and the cost thereof, including the cost of
installation and the cost of operation and maintenance
thereof, shall be paid by Tenant to Landlord upon demand by
Landlord.
(c) Tenant shall not without the written consent of
Landlord use any apparatus or device in the Premises,
including without limitation, electronic data processing
machines, punch card machines and machines using excess
lighting or using current in excess of that which is
determined by Landlord as reasonable and normal for the
Permitted Use or which will in any way increase the amount
of electricity or water usually furnished or supplied for
the Permitted Uses of the Premises; nor connect with
electric current, except through existing electrical outlets
in the Premises or what pipes, any apparatus or device for
the purposes of using electrical current or water. If
Tenant shall require water or electric current or any other
resource in excess of that usually furnished or supplied for
the Permitted Uses of the Premises, Tenant shall first
procure the consent of Landlord which
<PAGE>
Landlord may refuse, to the use thereof, and Landlord may
cause a special meter to be installed in the Premises so as
to measure the amount of water, electric current or other
resource consumed for any such other use. Tenant shall pay
directly to Landlord as an addition to and separate from
payment of Basic Operating Cost the cost of all such energy,
utility service and meters (and of installation maintenance
and repair thereof). Landlord may add to the metered charge
a recovery of additional expense incurred in keeping account
of the water, electric current or other resource so
consumed. Landlord shall not be liable for any damages
directly or indirectly resulting from, nor shall the Rent
herein reserved be abated by reason of (i) the installation,
use or interruption of use of any equipment in connection
with the furnishing of any of the foregoing utilities and
services, (ii) failure to furnish or delay in furnishing any
such utilities or services when such failure or delay is
caused by acts of God or the elements, labor disturbances of
any character, any other accidents or other conditions
beyond the reasonable control of Landlord, or by the making
of repairs or improvements to the Premises or to the
Building, or (iii) the limitation, curtailment, rationing or
restriction on use of water, electricity, gas or any other
form of energy or any other service or utility whatsoever
serving the Premises or the Building. Landlord shall be
entitled to cooperate voluntarily and in a reasonable manner
with the efforts of national, state or local governmental
agencies or utility supplies in reducing energy or other
resources consumption. The obligation to make services
available hereunder shall be subject to the limitations of
any such voluntary, reasonable program.
(d) Any sums payable under this paragraph 13 shall
constitute Additional Rent hereunder.
ESTOPPEL 14. Within ten (10) days following any written request
CERTIFICATE which Landlord may make from time to time, Tenant shall
execute and deliver to Landlord a certificate substantially
in the form attached hereto as Exhibit D and made a part
hereof, indicating thereon any exceptions thereto which may
exist at that time. Failure by Tenant to execute and deliver
such certificate shall constitute an acceptance of the
Premises and acknowledgment by Tenant that the statements
included in Exhibit D are true and correct without
exception. Landlord and Tenant intend that any statement
delivered pursuant to this paragraph may be relied upon by
any mortgagee, beneficiary, purchaser or prospective
purchaser of the Building or any interest therein, Landlord
shall have the right to substitute for the attached Exhibit
D a certificate in form required by Landlord's mortgagee or
provider financing.
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<PAGE>
SECURITY 15. Concurrently with execution hereof. Tenant has paid to
DEPOSIT Landlord the Security Deposit in the amount stated on the
Basic Lease Information Sheet as security for the full and
faithful performance of Tenant's obligations under this
Lease Upon expiration of the Term or earlier termination
hereof, the Security Deposit shall be returned to Tenant.
reduced by such amounts as maybe required by Landlord to
remedy defaults on the part of Tenant in the payment of
Rent. to repair damages to the Premises caused by Tenant and
to clean the Premises. Landlord shall hold the Security
Deposit for the foregoing Purposes in accordance with the
provisions of all applicable law.
SUBSTITUTION 16. At any time after execution of this Lease, Landlord may
substitute for the Premises other Premises in the Building
(the "New Premises") upon not less than ninety (90) days
Prior written notice, in which event the new Premises shall
be deemed to be the Premises for all purposes hereunder:
Provided, however, that:
(a) The Net Rentable Area in the Premises is less than five
thousand (5,000) square feet;
(b) The New Premises shall be similar in area and in
appropriateness for Tenant's purposes;
(c) Any such substitution is effected for the purpose of
accommodating a tenant who will occupy all or a substantial
Portion of the Net Rentable Area of the floor on which the
Premises are located; and
(d) If Tenant is occupying the Premises at the time of such
substitution, Landlord shall pay the expense of moving
Tenant, its property and equipment to the New Premises and
shall, at its sole cost, improve the New Premises with
improvements substantially similar to those Landlord has
committed to provide or has provided in the Premises.
HOLDING OVER 17. If Tenant shall retain possession of the Premises or
any part thereof without Landlord's consent following the
expiration of the Term or sooner termination of this Lease
for any reason, then Tenant shall pay to Landlord for each
day of such retention 150% the amount of the daily rental
for the last period prior to the date of such expiration or
termination. Tenant shall also indemnity and hold Landlord
harmless from any loss or liability resulting from delay by
Tenant in surrendering the Premises, including, without
limitation, any claims made by any succeeding tenant founded
on such delay. Alternatively, if Landlord gives notice to
Tenant of Landlord's election thereof, such holding over
shall constitute renewal of this Lease for a Period from
month to month or for one year. whichever shall be specified
in such notice. Acceptance of Rent by Landlord following
expiration or termination shall not constitute a renewal of
this Lease. and nothing contained in this paragraph shall
waive Landlord's right of reentry or any other right. Unless
Landlord exercises the option hereby given to it. Tenant
shall be only a Tenant at sufferance, whether or not
Landlord accepts any Rent from Tenant while Tenant is
holding over without Landlord's written consent.
SUBORDINATION 18. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a
subordination. this Lease shall be subject and subordinate
at all times to: (a) all ground leases or underlying leases
which may now exist or hereafter be executed affecting the
Building or the land upon which the Building is situated or
both, and (b) the lien of any mortgage or deed of trust
which may now exist or hereafter be executed in any amount
for which said Building, land, ground leases or underlying
leases, or Landlord's interest or estate in any of said
items, is specified as security. Notwithstanding the
<PAGE>
foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or
underlying leases or any such liens to this Lease. In the
event that any ground lease or underlying lease terminates
for any reason, or any mortgage or deed of trust is
foreclosed or a conveyance in lieu of foreclosure is made
for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the
successor in interest to Landlord at the option of such
successor in interest. Tenant shall execute and deliver,
upon demand by Landlord and in the form requested by
Landlord, any additional documents evidencing the priority
or subordination of this Lease with respect to any such
ground leases or underlying leases or the lien of any such
mortgage or deed of trust. Tenant hereby irrevocably
appoints Landlord as attorney-in-fact of Tenant to execute,
deliver and record any such documents in the name and on
behalf of Tenant. At the request of Landlord. Tenant shall
provide to Landlord its current financial statement or other
information disclosing financial worth which Landlord shall
use solely for purposes of this Lease and in connection with
the ownership. management and disposition of the property
subject hereto.
RULES AND 19. Tenant shall faithfully observe and comply with the
REGULATION rules and regulations printed on or annexed to this Lease
and all reasonable modifications thereof and additions
thereto from time to time put into effect by Landlord.
Landlord shall not be responsible to Tenant for the non-
compliance by any other tenant or occupant of the Building
with any of the rules and regulations.
RE-ENTRY 20. Landlord reserves and shall at all limes have
BY LANDLORD the right to reenter the Premises to inspect the same to
supply janitor service and any other service to be provided
by Landlord to Tenant hereunder, to show the Premises to
prospective purchasers, mortgagees or tenants. to post
notices of nonresponsibility and to alter improve or repair
the Premises and any portion of the Building, without
abatement of Rent. and may for that purpose erect, use and
maintain scaffolding, pipes, conduits and other necessary
structures in and through the Premises where reasonably
required by the character of the work to be performed;
provided that entrance to the Premises shall not be blocked
thereby, and further provided that the business of Tenant
shall not be interfered with unreasonably. Tenant waives any
claim for damages for any injury or inconveniences to or
interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises, and any other loss
occasioned thereby. Landlord shall at all times have and
retain a key with which to unlock all of the doors in, upon
and about the Premises, excluding Tenant's vaults and safes
or special security areas (designated in advance), and
Landlord shall have the right to use any and all means which
Landlord may deem necessary or proper to open said doors in
an emergency, in order to obtain entry to any portion of the
Premises, and any entry to the Premises or portions thereof
obtained by Landlord by any of said means, or otherwise,
shall not be construed to be a forcible or unlawful entry
into, or a detainer of, the Premises, or an eviction, actual
or constructive, of Tenant from the Premises or any portions
thereof. Landlord shall also have the right at any time,
without the same constituting an actual or constructive
eviction and without incurring any liability to Tenant
therefore, to change the arrangement and/or location of
entrances or passageways, doors and doorways, and corridors,
elevators, stairs, toilets or other
<PAGE>
public parts of the Building and to change the name, number
or designation by which the Building is commonly known.
DEFAULT 21. (a) EVENTS OF DEFAULT: The occurrence of any of the
BY TENANT following shall constitute an event to default on the
part of Tenant:
(1) ABANDONMENT. Vacation or abandonment of the Premises
for a continuous period in excess of five (5) business
days. Tenant waives any right to notice Tenant may
have under Section 1951.3 of the Civil Code of the
State of California. the terms of this subsection (a)
being deemed such notice to Tenant as required by said
Section 1951.3;
(2) NONPAYMENT OF RENT. Failure to pay any installment of
Rent due and payable hereunder (or failure to pay any
other amount required to be paid hereunder, all such
obligations to be construed as the equivalent of
obligations for payment of Rent) upon the date when
said payment is due, such failure continuing without
cure by payment of the delinquent Rent and late charge
for a period of five (5) business days after written
notice and demand; provided, however, that except as
expressly otherwise Provided herein, Landlord shall
not be required to provide such notice more than twice
during the Term, the third such non-payment
constituting default for all purposes hereof without
requirement of notice. For purposes of subparagraph
21(e), such failure shall constitute a default without
requirement of notice. The due dates for payment of
installments of rent provided for herein shall be
absolute and the existence of a cure period or notice
period shall not be deemed to extend said date for
purposes of determining Tenant's compliance with its
obligations hereunder.
(3) OTHER OBLIGATIONS. Failure to perform any obligations.
agreement or covenant under this Lease other than those
matters specified in subparagraphs (1) and (2) of this
subparagraph (a), such failure continuing for fifteen
(15) business days after written notice of such failure
(or such longer period as Landlord determines to be
necessary to remedy such default, provided that Tenant
shall continuously and diligently pursue such remedy at
all times until such default is cured);
(4) GENERAL ASSIGNMENT. A general assignment by Tenant for
the Benefit of creditors:
- 6 -
<PAGE>
(5) BANKRUPTCY. The filing of any voluntary petition in
bankruptcy by Tenant or the filing of an involuntary
petition by Tenant's creditors, which involuntary
petition remains undischarged for a period of thirty
(30) days. In the event that under applicable law the
trustee in bankruptcy or Tenant has the right to affirm
this Lease and continue to perform the obligations of
Tenant hereunder, such trustee or Tenant shall, in such
time periods as may be permitted by the bankruptcy
court having jurisdiction, cure all defaults of Tenant
hereunder outstanding as of the date of the affirmance
of this Lease and provide to Landlord such adequate
assurances as may be necessary to ensure Landlord of
the continued performance of Tenant's obligations under
this Lease.
(6) RECEIVERSHIP. The employment of a receiver to take
possession of substantially all of Tenant's assets or
the Premises, if such receivership remains undissolved
for a period of ten (10) business days after creation
thereof.
(7) ATTACHMENT. The attachment, execution or other
judicial seizure of all or substantially all of
Tenant's assets or the Premises, if such attachment or
other seizure remains undismissed or undischarged for a
period of ten (10) business days after the levy
thereof.
(8) INSOLVENCY. The admission by Tenant in writing of its
inability to pay its debts as they become due, the
filing by Tenant of a petition seeking any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any
present or future statute, law or regulation, the
filing by Tenant of an answer admitting or failing
timely to contest a material allegation of a petition
filed against Tenant in any such proceeding or, if
within thirty (30) days after the commencement of any
proceeding against Tenant seeking any reorganization or
arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or
future statute, law or regulation, such proceeding
shall not have been dismissed.
(b) REMEDIES UPON DEFAULT.
(1) RENT. All failures to pay any monetary obligation to
be paid by Tenant under this Lease shall be construed
as obligations for payment of Rent.
(2) TERMINATION. In the event of the occurrence of any
event of default, Landlord shall have the right, with
or without notice or demand, immediately to terminate
this Lease, and at any time thereafter recover
possession of the Premises or any part thereof and
expel and remove therefrom Tenant and any other person
occupying the same, by any lawful means, and again
repossess and enjoy the Premises without prejudice to
any of the remedies that Landlord may have under this
Lease, or at law or equity by reason of Tenant's
default or of such termination.
(3) CONTINUATION AFTER DEFAULT. Even though Tenant has
breached this Lease and/or abandoned the Premises this
Lease shall
<PAGE>
continued in effect for so long as Landlord does not
terminate Tenant's right to possession under paragraph
21 (b)(2) hereof, and Landlord may enforce all its
rights and remedies under this Lease, including (but
without limitation) the right to recover Rent as it
becomes due and Landlord, without terminating this
Lease, may exercise all of the rights and remedies of a
landlord under Section 1951.4 of the Civil Code of the
State of California or any successor code section. Acts
of maintenance preservation or efforts to lease the
Premises or the appointment of receiver upon
application of Landlord to protect Landlord's interests
under this Lease shall not constitute an election to
terminate Tenant's right to possession.
(c) DAMAGES UPON TERMINATION. Should Landlord terminate
this Lease pursuant to the provisions of paragraph 21(b)(2)
hereof, Landlord shall have all the rights and remedies of a
landlord provided by Section 1951.2 of the Civil Code of the
State of California, or successor code section. Upon such
termination, in addition to any other rights and remedies to
which Landlord may be entitled under applicable law,
Landlord shall be entitled to recover from Tenant; (i) the
worth at the time of award of the unpaid Rent and other
amounts which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which
the unpaid Rent which would have been earned after
termination under the time of award exceeds the amount of
such Rent loss that the Tenant proves could have been
reasonable avoided; (iii) the worth at the time of award of
the amount by which the unpaid Rent for the Balance of the
Term after the time of award exceeds the amount of such Rent
loss that the Tenant proves could be reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to
perform its obligations under this Lease or which, in the
ordinary course of things, would be likely to result
therefrom. The "worth at the time of award" of the amounts
referred to in (i) and (ii) shall be computed with interest
at the lesser of eighteen percent (18%) per annum or the
maximum rate allowed by law. The "worth at the time of
award" of the amount referred to in (iii) shall be computed
by reference to competent appraisal evidence or the formula
prescribed by and using the lowest discount rate permitted
under applicable law.
(d) COMPUTATION OF RENT FOR PURPOSES OF DEFAULT.
For purposes of computing unpaid Rent which would have
accrued and become payable under this Lease pursuant to the
provisions of paragraph 21(c) unpaid Rent shall consist of
the sum of:
(1) the total Basic Rent for the balance of the Term then
remaining (with the amount of Basic Rent to be determined by
reference to fair rental value being the subject of proof by
competent evidence), plus
(2) a computation of the excess of Gross Rent (the term
"Gross Rent" meaning the sum of (i) rental adjustments
payable pursuant to paragraph 29 and (ii) Basic Rent) over
Basic Rent for the balance of the Term then remaining
("Excess Gross Rental"), the assumed excess Gross Rental for
the calendar year of the default and each future calendar
year in the Term to be equal to the Excess Gross Rental for
the calendar year prior to the year in which default occurs
compounded at a per annum rate equal to the mean average
rate of inflation for the preceding five (5) calendar
<PAGE>
years as determined by the United States Department of
Labor, Bureau of Labor Statistics Consumer Price Index (All
Urban Consumers) for the Metropolitan Area or Region which
San Francisco, California is a part.
(e) LATE CHARGE. In addition to its other remedies,
Landlord shall have the right without notice or demand to
add to the amount of any payment required to be made by
Tenant hereunder, and which is not paid on or before the
date the same is due, an amount equal to five percent (5%)
of the delinquency for each month or portion thereof that
the delinquency remains outstanding to compensate Landlord
for the loss of the use of the amount not paid and the
administrative costs caused by the delinquency, the parties
agreeing that the amount not paid and the administrative
costs caused by the delinquency, the parties agreeing that
Landlord's damage by virtue of such delinquencies would be
difficult to compute and the amount stated herein represents
a reasonable estimate thereof.
(f) REMEDIES CUMULATIVE. All rights, privileges and
elections or remedies of the parties are cumulative not
alternative to the extent permitted by law and except as
otherwise provided herein.
DAMAGE BY 22. If the Premises or the Building are damaged by fire or
FIRE, ETC. other casualty, Landlord shall forthwith repair the same,
provided such repairs can be made within one hundred eighty
(180) days from the date of such damage under the laws and
regulations of the federal, state and local governmental
authorities having jurisdiction thereof. In such event, this
Lease shall remain in full force and effect except that
Tenant shall be entitled to a proportionate reduction of
Rent while such repairs to be made hereunder by Landlord are
being made. Said proportionate reduction shall be based upon
the extent to which the making of such repairs to be made
hereunder by Landlord shall interfere with the business
carried on by Tenant in the Premises. Within twenty (20)
days from the date of such damage, Landlord shall notify
Tenant whether or not such repairs can be made within one
hundred eighty (180) days from the date of such damage and
Landlord's determination thereof shall be binding on Tenant.
If such repairs cannot be made within one hundred eighty
(180) days from the date of such damage, Landlord shall have
the option within thirty (30) days of the date of such
damage either to: (a) notify Tenant of Landlord's intention
to repair such damage and diligently prosecute such repairs,
in which event this Lease shall continue in full force and
effect and the Rent shall be reduced as provided herein; or
(b) notify Tenant of Landlord's election to terminate this
Lease as of a date specified in such notice, which date
shall be not less than thirty (30) nor more than sixty (60)
days after notice is given. In the event such notice to
terminate is given by Landlord, this Lease shall terminate
on the date specified in
<PAGE>
such notice. In either event, the Rent shall be reduced by
a proportionate amount based upon the extent to which said
damage interfered with the business carried on by Tenant in
the Premises, and the Tenant shall pay such reduced Rent up
to the date of termination. Landlord agrees to refund to
Tenant any Rent previously paid for any period of time
subsequent to such date of termination. The repairs to be
made hereunder by Landlord shall not include, and Landlord
shall not be required to repair, any damage by fire or other
cause to the property of Tenant or any repairs or
replacements of any paneling, decorations, railings, floor
coverings or any alterations, additions, fixtures or
improvements installed on the premises by or at the expense
of Tenant. The provisions of Section 1942, subdivision 2,
and Section 1933, subdivision 4, of the Civil Code of
California are superseded by the foregoing.
EMINENT 23. If any part of the Premises shall be taken or
DOMAIN appropriated under the power of eminent domain or conveyed
in lieu thereof, which materially effects Tenant's occupancy
of the Premises, either party shall have the right to
terminate this Lease at its option. If any part of the
Building shall be taken or appropriated under power of
eminent domain or conveyed in lieu thereof, Landlord may
terminate this Lease at its option. In either of such
events, Landlord shall receive subject to the rights of
Landlord's first mortgagee (and Tenant shall assign to
Landlord upon demand from Landlord) any income, rent, award
or any interest therein which may be paid in connection with
the exercise of such power of eminent domain, and Tenant
shall have no claim against Landlord for any part of the
sums paid by virtue of such proceedings, whether or not
attributable to the value of the unexpired Term. If a part
of the Premises shall be so taken or appropriated or
conveyed and neither party hereto shall elect to terminate
this Lease and the Premises have been damaged as a
consequence of such partial taking or appropriation or
conveyance. Landlord shall restore and Premises continuing
under this Lease at Landlord's cost and expense, provided,
however, that Landlord shall not be required to repair or
restore any injury or damage to the property of Tenant or to
make any repairs or restoration of any alterations,
additions, fixtures or improvements installed on the
Premises by or at the expense of Tenant. Thereafter, the
Rent for the remainder of the Term shall be proportionately
reduced, such reduction to be based upon the extent to which
the partial taking or appropriation or conveyance shall
interfere with the business carried on by Tenant in the
Premises. Notwithstanding anything to the contrary contained
in this paragraph, if the temporary use or occupancy of any
part of the Premises shall be taken or appropriated under
power of eminent domain during the Term, this Lease shall be
and remain unaffected by such taking or appropriation and
Tenant shall continue to pay in full all Rent payable
hereunder by Tenant during the Term, in the event of any
such temporary appropriation or taking. Tenant shall be
entitled to receive that portion of any award which
represents compensation for the use of or occupancy of the
Premises during the Term, and Landlord shall be entitled to
receive that portion of any award which represents the cost
of restoration of the Premises and the use and occupancy of
the Premises.
SALE BY 24. In the event of a sale or conveyance by Landlord of the
LANDLORD Building, the same shall operate to release Landlord from
AND TENANT'S any future liability upon any of the convenants or
conditions, express
<PAGE>
REMEDIES or implied, herein contained in favor of Tenant, and in such
event Tenant agrees to look solely to the responsibility of
the successor in interest of Landlord in and to this Lease.
This Lease shall not be affected by any such sale and Tenant
agrees to attorn to the purchaser or assignee. Tenant shall
look solely to Landlord's interest in the Building for
recovery of any judgment from Landlord. Landlord, or if
Landlord is a partnership, its partners whether general or
limited, or if Landlord is a corporation, its directors,
officers or shareholders, shall never be personally liable
for any such judgment.
RIGHT OF 25. All convenants and agreements to be performed by
LANDLORD Tenant under any of the terms of this Lease shall be
TO PERFORM performed by Tenant at Tenant's sole cost and expense and
without any abatement of Rent. If Tenant shall fail to pay
any sum of money, other than Rent, required to be paid by it
hereunder or shall fail to perform any other act on its part
to be performed hereunder, and such failure shall continue
for ten (10) days after notice thereof by Landlord, Landlord
may, but shall not be obligated to do so, and without
waiving or releasing Tenant from any obligations of the
Tenant, make any such payment or perform any such act on the
Tenant's part to be made or performed. All sums so paid by
Landlord and all necessary incidental costs together with
interest thereon at the rate of eighteen percent (18%) per
annum or the maximum rate permitted by law, whichever is
less per annum from the date of such payment by the Landlord
shall be payable as Additional Rent to Landlord on demand,
and Tenant covenants to pay such sums, and Landlord shall
have, in addition to any other right or remedy of Landlord,
the same right and remedies in the event of the nonpayment
thereof by Tenant as in the case of default by Tenant in the
payment of the Rent.
SURRENDER 26. (a) Tenant shall at least ninety (90) days before the
OF PREMISES last day of the Term, give to Landlord a written notice
intention to surrender the Premises on that date, but
nothing contained herein shall be construed as an extension
of the Term or as consent of Landlord to any holding over by
Tenant.
(b) At the end of the term or any renewal thereof or other
sooner termination of this Lease, Tenant shall peaceably
deliver up to Landlord possession of the Premises, together
with all improvements, fixtures or additions thereto by
whomsoever made, in the same condition as received, or first
installed, damage by fire, earthquake, act of God, normal
wear and tear or the elements alone excepted. Tenant may,
upon the termination of this Lease, remove all movable
furniture and equipment belonging to Tenant, at Tenant's
sole cost, title to which shall be in Tenant until such
termination, repairing any damage caused by such removal.
Property not so removed shall be deemed abandoned by the
Tenant, and title to the same shall thereupon pass to
Landlord.
(c) The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not work a
merger and shall, at the option of Landlord, terminate all
or any existing subleases or subtenancies or may, at the
option of Landlord, operate as an assignment to it of any or
all such subleases or subtenancies.
WAIVER 27. If either Landlord or Tenant waives the performance of
any term, convenant or condition contained in this Lease,
such waiver shall not be deemed to be a waiver of any
subsequent breach of the
<PAGE>
same or any other term covenant or condition contained
herein. The acceptance of Rent by Landlord shall not
constitute a waiver of any preceding breach by Tenant of any
term, covenant or condition of this Lease, regardless of
Landlord's knowledge of such preceding breach at the time
Landlord accepted such rent. Failure by Landlord to enforce
any of the terms, covenants or conditions of this Lease for
any length of time shall not be deemed to waive or to
decrease the right of Landlord to insist thereafter upon
strict performance by Tenant. Waiver by Landlord of any
term, covenant or condition contained in this lease may only
be made by a written document signed by Landlord.
NOTICES 28. All notices and demands which may or are required to be
given by either party to the other hereunder shall be in
writing. All notices and demands by Landlord to Tenant
shall be sent by United States certified or registered mail,
postage prepaid, addressed to Tenant at the Premises, or to
such other place as Tenant may from time to time designate
in the notice to Landlord. All notices and demands by
Tenant to Landlord shall be sent by United States certified
or registered mail, postage prepaid, addressed to Landlord
at the address specified in the Basic Lease Information, or
to such other firm or to such other place as Landlord may
from time to time designate in a notice to Tenant.
RENTAL 29. In addition to Basic Rent provided to be paid
ADJUSTMENT hereunder, Tenant shall pay as Rent Tenant's Proportionate
Share of Basic Operating Cost in the manner set forth below.
(a) DEFINITION: For purposes hereof, the terms used in
this paragraph 29 shall have the following meanings:
(1) "Basic Operating Cost" shall mean all expenses and
costs of every kind and nature which Landlord shall pay to
become obligated to pay because of or in connection with the
ownership and operation of the Building and supporting
facilities of the Building, and such additional facilities
now and in subsequent years as may be determined by Landlord
to be necessary to the Building, including, but not limited
to the following:
(i) Wages, salaries and related expenses and benefits of
all on-site and off-site employees engaged directly in the
operation, management, maintenance, engineering and security
of the Building, and the costs of an office in the Building,
provided, however, that Basic Operating Cost shall not
include leasing commissions paid to any real estate broker,
salesperson or agent.
(ii) Supplies, materials and rental of equipment used in
the operation, management and maintenance of the Building.
- 8 -
<PAGE>
(iii) Utilities. including water and power, heating,
lighting, air conditioning and ventilating of the Building.
(iv) All maintenance, janitorial and service agreements
for the Building and the equipment therein. including,
without limitation, alarm services. window cleaning and
elevator maintenance.
(v) A management cost recovery determined by Landlord
equal to three percent (3%) of Gross Rent derived from the
Building.
(vi) Legal expenses and the cost of audits by certified
public accountants; Provided, however, that legal expenses
chargeable as Basic Operating Cost shall not include the
cost of negotiating leases, collecting rents, evicting
tenants nor shall it include costs incurred in legal
proceedings with or against any tenant or to enforce the
provisions of any lease.
(vii) All insurance premiums and costs, including but not
limited to, the premiums and cost of fire, casualty and
liability coverage and rental abatement and earthquake
insurance (if Landlord elects to provide such coverage)
applicable to the Building and Landlord's personal properly
used in connection therewith.
(viii) Repairs, replacements and general maintenance
(excluding repairs and general maintenance Paid by proceeds
of insurance or by Tenant or other third parties, and
alterations attributable solely to tenants of the Building
other than Tenant).
(ix) All maintenance costs relating to public and service
areas of the Building. including (but without limitation,
sidewalks, landscaping, service areas, mechanical rooms and
Building exteriors.
(x) All taxes, service payments in lieu of taxes, annual
or periodic license or use fees, fees, real estate taxes,
impositions or charges imposed upon or levied in connection
with use of the Building to raise funds for public transit,
housing or other environmental, sociological or fiscal
effects of the Building or land use, assessments whether
general or special, ordinary and extraordinary, unforeseen
as well as foreseen, of any kind which are assessed, levied,
charged, confirmed or imposed by any public authority upon
the Building, the land upon which it is located, Building
operations or Rent payable under this Lease (or any portion
or component thereof), excepting only inheritance or estate
taxes imposed upon or assessed against the interest of any
person in the Building or any part thereof or interest
therein, and taxes computed upon the basis of the net income
of the owners of the Building or any part thereof or
interest therein.
(xi) Amortization (together with reasonable financing
charges) of capital improvement made to the Building
subsequent to the Term Commencement Date which will improve
the operating efficiency of the Building or which may be
required to comply with laws. ordinances, rules or
regulations promulgated. adopted or enforces after
completion of the initial construction of the Building and
improvements of the Premises pursuant to the Office Lease
Improvement Agreement.
Notwithstanding anything to the contrary herein
contained, Basic Operating Cost shall not include (aa) the
initial
<PAGE>
construction cost of the Building; (bb) depreciation on the
initial construction of the Building: (cc) the cost of
providing Tenant Improvements to tenant or any other tenant:
(dd) debt service (including, but without limitation,
interest, principal and any impound payments) required to be
made on any mortgage or deed of trust recorded with respect
to the Building and/or the real properly on which the
Building is located other than debt service and financing
Charges imposed pursuant to Paragraph 29(a)(l)(xi) above;
and (ee) the cost of special services, goods or materials
provided to any tenant. In the event that the Building is
not fully occupied during any fiscal year of the Term as
determined by Landlord, an adjustment Shall be made in
computing the Basic Operating Cost for such year so that
Basic Operating Cost Shall be computed as though the
Building had been one hundred Percent (100%) occupied;
provided, however, that in no event shall Landlord be
entitled to collect in excess of one hundred percent (100%)
of the total Basic Operating Cost from all of the tenants in
the Building including Tenant. All costs and expenses shall
be determined in accordance with generally accepted
accounting principles which shall be consistently applied
(with accruals appropriate to Landlord's business). Basic
Operating Cost shall not include specific costs incurred for
the account of, separately billed to and Paid by specific
tenants.
(2) "Estimated Basic Operating Cost" for any particular year
shall mean Landlord's estimate of the Basic Operating Cost
for such fiscal year made prior to commencement of such
fiscal year as hereinafter provided. Landlord shall have
the right from time to time to revise its fiscal year and
interim accounting periods so long as the periods as so
revised are reconciled with prior periods in accordance with
generally accepted accounting principles applied in a
consistent manner.
(3) "Basic Operating Cost Adjustment" shall mean the
difference between Basic Operating Cost and Estimated Basic
Operating Cost for any fiscal year determined as hereinafter
provided.
(b) PAYMENT OF ESTIMATED BASIC OPERATING COST.
During Dec. of each fiscal year during the Term, or as
soon thereafter as practicable, Landlord shall give Tenant
written notice of the Estimated Basic Operating Cost for the
ensuing fiscal year. The Estimated Basic Operating Cost for
the fiscal year in which the Scheduled Term Commencement
Date falls is set forth in the Basic Lease Information
Sheet. Tenant shall pay Tenant's Proportionate Share of the
Estimated Basic Operating Costs with installments of Basic
Rent required to be paid pursuant to paragraph 3 above for
the fiscal year to which the estimate applies in monthly
installments on the first day of each calendar month during
such year, in advance. Such payment shall be construed to be
Rent for all purposes hereof. If at any time during the
course of a fiscal year, Landlord determines that Basic
Operating Cost will apparently vary from the then Estimated
Basic Operating Cost by more than five percent (5%),
Landlord may, by written notice to Tenant, revise the
Estimated Basic Operating Cost for the balance of such
fiscal year and Tenant shall pay Tenant's Proportionate
Share of the Estimated Basic Operating Cost as so revised
for the balance of the then current fiscal year on the first
day of each calendar month thereafter,
<PAGE>
such revised installment amounts to be Rent for all purposes
hereof.
(c) COMPUTATION OF BASIC OPERATING COST ADJUSTMENT.
Within one hundred twenty (120) days after the end of
each fiscal year as determined by Landlord or as soon
thereafter as practicable, Landlord shall deliver to Tenant
a statement of Basic Operating Cost for the fiscal year just
ended, accompanied by a computation of Basic Operating Cost
Adjustment. If such statement shows that Tenant's Payment
based upon Estimated Basic Operating Cost is less than
Tenant's Proportionate Share of Basic Operating Cost, then
Tenant shall pay the difference within twenty (20) days
after receipt of such statement. such payment to constitute
additional rent hereunder. If such statement shows that
Tenant's payments of Estimated Basic Operating Cost exceed
Tenant's Proportionate Share of Basic Operating Costs, then
(provided that Tenant is not in default under this Lease),
Tenant shall receive a credit for the amount of such payment
against Tenant's obligation for payment of Tenant's
Proportionate Share of Estimated Basic Operating Cost next
becoming due hereunder. If this Lease has been terminated or
the Term hereof has expired prior to the date of such
statement, then the Basic Operating Cost Adjustment shall be
paid by the appropriate party within twenty (20) days after
the date of delivery of the statement.
(d) NET LEASE. This shall be a net lease and Base Rent
shall be paid to Landlord absolutely net of all costs and
expenses. The provisions for payment of Basic Operating Cost
by means of periodic payments of Tenant's Proportionate
Share of Estimated Basic Operating Cost and the Basic
Operating Cost Adjustment are intended to Pass on to Tenant
and reimburse Landlord for all cost and expenses of the
nature described in paragraph 29(a)(1) above incurred in
connection with ownership and operation of the Building and
such additional facilities now and in subsequent years as
may be determined by Landlord to be necessary to the
Building.
(e) TENANT AUDIT. Tenant shall have the right at Tenant's
expense and upon not less than forty-eight (48)hours prior
written notice to Landlord, to review at reasonable times
Landlord's books and records for any fiscal year a portion
of which falls within the Term for purposes of verifying
Landlord's calculation of Basic Operating Cost and Basic
Operating Cost Adjustment. In the event that Tenant shall
dispute the amount set
- 9 -
<PAGE>
forth in any statement provided by Landlord under paragraph
29(c) above. Tenant shall have the right not later than
twenty (20) days following the receipt of such statement,
and upon condition that Tenant shall first deposit with
Landlord the full amount in dispute, to cause Landlord's
books and records with respect to such fiscal year to be
audited by certified public accountants selected by Tenant
subject to Landlord's reasonable right of approval. The
Basic Operating Cost Adjustment shall be appropriately
adjusted on the basis of such audit. If such audit discloses
a liability for a refund or credit by Landlord to Tenant in
excess of ten percent (10%) of Tenants Proportionate Share
of the Basic Operating Cost Adjustment previously reported.
the cost of such audit shall be borne by Landlord. Otherwise
the cost of such audit shall be paid by Tenant. If Tenant
shall not request an audit in accordance with the provisions
of this paragraph 29(e) within twenty (20) days of receipt
of Landlord's statement provided pursuant to paragraph
29(d). such statement shall be final and binding for all
purposes hereof.
TAXES 30. (a) Tenant shall pay before delinquency any and all taxes
PAYABLE levied or assessed and which become payable by Landlord (or
BY TENANT Tenant) during the Term of this Lease, whether or not now
customary or within the contemplation of the parties hereto,
which are based upon, measured by or otherwise calculated
with respect to: (a) the value of Tenant's equipment,
furniture, fixtures or other personal property located in
the Premises; (b) the value of any leasehold improvements,
alterations, or additions made in or to the Premises,
regardless of whether title to such improvements.
alterations or additions shall be in Tenant of Landlord: or
(c) this transaction or any document to which Tenant is a
party creating or transferring an interest or an estate in
the Premises.
(b) In the event that it shall not be lawful for Tenant so
to reimburse Landlord, the Rent shall be revised to net
Landlord the same net rent after imposition of any such tax
upon Landlord as would have been payable to Landlord prior
to the imposition of any such tax. All taxes payable by
Tenant under this Paragraph 30 shall be additional rental.
SUCCESSORS
AND ASSIGNS 31. Subject to the provisions of paragraph 10 hereof, the
terms, covenants and conditions contained herein shall be
binding upon and inure to the benefit of the heirs,
successors, executors, administrators and assigns of the
parties hereto.
ATTORNEYS'
FEES 32. In the event that any action or proceeding is brought
to enforce any term, covenant or condition of this Lease on
the part of Landlord or Tenant, the prevailing party in such
litigation shall be entitled to reasonable attorneys' fees
to be fixed by the court in such action or proceeding.
LIGHT
AND AIR 33. No diminution of light, air or view by any structure
which may hereafter be erected (whether or not by Landlord
shall entitle Tenant to any reduction of Rent, result in any
liability of Landlord to Tenant, or in any other way affect
this Lease or Tenant's obligations hereunder.
PUBLIC
TRANS-
PORTATION 34. Tenant shall establish and maintain during the Term
INFORMATION hereof a program to encourage maximum use of public
transaporation by personnel or Tenant employed on the
Premises, including without limitation the
<PAGE>
distribution to such employees of written materials
explaining the convenience and availability of public
transportation facilities adjacent or proximate to the
Building, staggering working hours of employees, and
encouraging use of such facilities, all at Tenant's sole
reasonable cost and expense.
MISCELLANE-
OUS 35. (a) The term "Premises" shall be deemed to include (except
where such meaning would be clearly repugnant to the
context) the offices space demised and improvements now or
at any time hereinafter comprising or built in the space
hereby demised.
(b) The paragraph headings herein are for convenience of
reference and shall in no way define, increase, limit or
describe the scope or intent of any provision of this Lease.
(c) The term "Landlord" in these presents shall include the
Landlord, its successors and assigns. In any case where this
Lease is signed by more than one person the obligations
hereunder shall be joint and several.
(d) The term "Tenant" or any pronoun used in place thereof
shall indicate and include the masculine or feminine, the
singular or plural number, individuals, firms or
corporations, and their and each of their respective
successors, executors, administrators and permitted assigns,
according to the context hereof.
(e) Time is of the essence of this Lease and all of its
provisions.
(f) This Lease Shall in all respects be governed by the
laws of the State of California.
(g) This Lease, together with its exhibits, contains all
the agreements of the parties hereto and supersedes any
previous negotiations.
(h) There have been no representations made by the Landlord
or understandings made between the parties other than those
set forth in this Lease and its exhibits.
(i) This Lease may not be modified except by a written
instrument by the parties hereto.
(j) If for any reason whatsoever any of the provisions
hereof shall be unenforceable or ineffective all of the
other provisions Shall be and remain in full force and
effect.
(k) See Addenda 1 & 2 and Additional Paragraphs 37-41
attached hereto and made a part hereof
LEASE 36. Submission of this instrument for examination or
EFFECTIVE signature by Tenant does not constitute a reservation or
DATE option for lease, and it is not effective as a lease or
otherwise until execution and delivery by both Land-lord and
Tenant.
IN WITNESS WHEREOF, the parties hereto have executed
this Lease the day and year first above written.
"LANDLORD"
Spieker Properties, L.P.
a California Limited Partnership
<PAGE>
By: Spieker Properties, Inc., a Maryland
Corporation
Its: General Partner
Date 12/18/95 By /s/ John A. Foster
John A. Foster
Its Senior Vice President
"TENANT"
VLSI LIBRARIES INCORPORATED, a California
Corporation
Date 12-15-95 By /s/ Mark Templeton
Mark Templeton
Its President
- 10 -
<PAGE>
ADDENDA ATTACHED TO AND MADE A PART OF THAT LEASE AGREEMENT BETWEEN SPIEKER
PROPERTIES, L.P., A CALIFORNIA LIMITED PARTNERSHIP, AS LANDLORD, AND VLSI
LIBRARIES INCORPORATED, A CALIFORNIA CORPORATION, AS TENANT, DATED DECEMBER 13,
1995 FOR PREMISES LOCATED AT 2077 GATEWAY PLACE, SAN JOSE, CALIFORNIA.
ADDENDUM 1 - PARAGRAPH 4 - RENT. Rent for the premises shall be as follows
- -------------------------------
Year 1: $24,020.00 per month plus operating expenses per Paragraph 29 of
this Lease Agreement. Operating expenses through December 1996
are estimated to be $8,734.00 per month. Direct operating
expenses are estimated a year in advance and collected on a
monthly basis. Any increases or decreases necessary will be made
at the end of the operating year.
Year 2: $25,363.00 per month plus operating expenses per Paragraph 29 of
this Lease Agreement.
Year 3: $26,707.00 per month plus operating expenses per Paragraph 29 of
this Lease Agreement.
Year 4: $28,051.00 per month plus operating expenses per Paragraph 29 of
this Lease Agreement.
Year 5: $29,563.00 per month plus operating expenses per Paragraph 29 of
this Lease Agreement.
ADDENDUM 2 - PARAGRAPH 6 - COMPLIANCE WITH LAWS. Tenant shall have the sole
- -----------------------------------------------
responsibility for complying, at Tenant's cost, with provisions of the Americans
with Disabilities Act of 1990 (ADA), as it may later be amended, with respect to
the Premises and to the common areas of the Project, where such compliance has
been brought about: (I) by any alterations to the Premises or to the common
areas by the Tenant or on behalf of the Tenant at Tenant's written request (by
Landlord or otherwise) performed after the Term Commencement Date, (ii) by any
changes to Tenant's use of the Premises; or (iii) by any architectural barriers
caused by Tenant's installation of any equipment, furniture, or other personal
property on the Premises (items (I), (ii), (iii) collectively, "Tenant's ADA
Responsibilities"). Tenant shall indemnify, defend and hold Landlord, its
agents and employees harmless from and against any and all claims, damages and
liabilities arising directly or indirectly from Tenant's failure to satisfy any
of Tenant's ADA Responsibilities. Landlord shall indemnify, defend and hold
Tenant, its agents and employees harmless from and against any and all claims,
damages or liabilities arising directly or indirectly from Landlord's failure to
comply with any obligations of a Landlord under the ADA, other than such claims,
damages or liabilities arising from Tenant's failure to satisfy any of Tenant's
ADA Responsibilities.
<PAGE>
ADDITIONAL PARAGRAPHS ATTACHED TO AND MADE A PART OF THAT LEASE AGREEMENT
BETWEEN SPIEKER PROPERTIES, L.P., A CALIFORNIA LIMITED PARTNERSHIP AS LANDLORD,
AND VLSI LIBRARIES INCORPORATED, A CALIFORNIA CORPORATION, AS TENANT, DATED
DECEMBER 13, 1995 FOR PREMISES LOCATED AT 2077 GATEWAY PLACE, SAN JOSE,
CALIFORNIA.
PARAGRAPH 37 - OPTION TO RE-LEASE PREMISES. Provided Tenant is not, and has not
- ------------------------------------------
been, in default of its obligations under this Lease, Tenant shall have one (1)
option to release the Premises in "as-is" condition for a term of five (5) years
at the then current market rent for comparable space in Gateway Office Park. In
no event will the monthly rental be less than the rental for the last month of
the previous term.
Tenant shall give Landlord written notice of its intent to exercise its option
at least one-hundred-eight (180) days prior to the expiration of the current
lease term. Within fifteen (15) days after Tenant exercises its option to
release, Landlord will provide Tenant with the fair market rental for comparable
buildings in the San Jose Airport market, as well as terms and conditions for
the extended term. Tenant shall have forty-five (45) days from notification by
Landlord of current rent and terms and conditions. If Tenant does not accept
Landlord's rental figure and terms and conditions within the forty-five (45) day
period, this option shall be null and void and Landlord shall have no further
obligation to Tenant and Landlord may enter into a lease for the Premises with a
third party.
Notwithstanding anything to the contrary herein contained, Tenant's right to
extend the term by exercise of the foregoing option shall be conditioned upon
the following: (i) at the time of the exercise of the option, and at the time of
the commencement of the extended term, Tenant shall be in possession of and
occupying the Premises for the conduct of its business therein and the same
shall not be occupied by any assignee, subtenant or licensee, the option to
extend being applicable hereunder only with respect to so much of the Premises
as is actually occupied by Tenant; and (ii) the notice of exercise shall
constitute a representation by Tenant to Landlord effective as of the date of
the lease term, that Tenant does not intend to seek to assign the Lease in whole
or in part, or sublet all or any portion of the Premises, the election to extend
the term being for purposes of utilizing the Premises for Tenant's purposes in
the conduct of Tenant's business therein.
PARAGRAPH 38 - TENANT PARKING. Tenant shall have the nonexclusive use of on-
- -----------------------------
site parking at a ratio of not more than 4 cars per 1,000 square feet of
rentable area. Landlord shall also provide parking spaces in close proximity to
the building for visitors and handicapped persons.
PARAGRAPH 39 - EXTERIOR SIGNAGE. Landlord agrees, at Landlord's expense, to
- -------------------------------
provide Tenant with building standard exterior monument signage at Building
2077, to be shared with others. Exact location/placement of said monument shall
be determined by Landlord. The cost of appropriate lettering for the monument,
to be approved by Landlord, shall be paid for by Tenant.
PARAGRAPH 40 - LANDLORD INDEMNITY REGARDING HAZARDOUS SUBSTANCES. Landlord
- ----------------------------------------------------------------
shall indemnify, defend and hold harmless Tenant, its officers, employees,
shareholders, parent, subsidiary and affiliate organizations and agents to the
extent of Landlord's interest in the Project, against any and all claims, suits,
loss, costs (including costs of investigation, clean up, monitoring, restoration
and reasonable attorney fees), damage or liability, whether foreseeable or
unforeseeable, by reason of property damage, personal injury or death directly
arising from or related to: the presence of Hazardous Substances (as defined
below) in, on or about the Premises immediately prior to Tenant's first
occupancy unless caused by Tenant, its employees, invitees, subtenants, agents,
assigns, licensees or servants, or; the subsequent release, disposal, use or
storage of Hazardous
<PAGE>
Substances in, on or about the Premises by Landlord, its employees, invitees,
agents, assigns, licensees or servants.
For the purposes of this Indemnity, Hazardous Substances are defined,
collectively, as oil, flammable explosives, asbestos, radioactive materials,
hazardous wastes, toxic or contaminated substances or similar materials,
including, without limitation, any substances which are "hazardous substances,"
"hazardous wastes," "hazardous materials" or toxic substances" under applicable
environmental laws, ordinances or regulation.
The provisions of this Landlord Indemnity regarding Hazardous Substances shall
survive the termination of this Lease.
PARAGRAPH 41 - TENANT INDEMNITY REGARDING HAZARDOUS SUBSTANCES. Tenant shall
- --------------------------------------------------------------
indemnify, defend and hold harmless Landlord, its employees, partners,
subtenants, agents, assigns, licensees, servants, subsidiaries and affiliate
organizations against any and all claims, suits, loss, costs (including costs of
investigation, clean up, monitoring, restoration and reasonable attorney fees),
damage or liability, whether foreseeable or unforeseeable, by reason of property
damage (including diminution in the value of the property of Landlord), personal
injury or death directly arising from or related to Hazardous Substance (as
defined below) released, manufactured, discharged, disposed, used or stored by
Tenant, its employees, invitees, subtenants, agents, assignees, licensees or
servants.
For the purpose of this Indemnity, Hazardous Substances are defined,
collectively, as oil, flammable explosives, asbestos, radioactive materials,
hazardous wastes, toxic or contaminated substances or similar materials,
including, without limitation, any substances which are "hazardous substances,"
"hazardous wastes," "hazardous materials" or "toxic substances" under applicable
environmental laws, ordinances or regulation.
The provisions of this Tenant Indemnity regarding Hazardous Substances shall
survive the termination of the Lease.
<PAGE>
Rules and Regulations
EXHIBIT A.
1. Sidewalks, halls, passages, exits, entrances, elevators,
escalators and stairways shall not be obstructed by Tenants
or used by them for any purpose other than for ingress to
and egress from their respective premises. The halls,
passages, exits, entrances, elevators and stairways are not
for the use of the general public and Landlord shall in all
cases retain the right to control and prevent access thereto
by all persons whose presence, in the judgment of Landlord,
shall be prejudicial to the safety, character, reputation
and interests of the Building and its Tenants, provided that
nothing herein contained shall be construed to prevent such
access to persons with whom any Tenant normally deals in the
ordinary course of such Tenant's business unless such
persons are engaged in illegal activities. No Tenant, and
no employees or invitees of any Tenant, shall go upon the
roof of the Building, except as authorized by Landlord.
2. No sign, placard, picture, name, advertisement or notice,
visible from the exterior of leased premises shall be
inscribed, painted, affixed, installed or otherwise
displayed by any Tenant either on its premises or any part
of the Building without the prior written consent of
Landlord, and Landlord shall have the right to remove any
such sign, placard, picture, name, advertisement, or notice
without notice to and at the expense of the Tenant.
If Landlord shall have given such consent to any Tenant at
any time, whether before or after the execution of the
lease, such consent shall in no way operate as a waiver or
release of any of the provisions hereof or of such lease,
and shall be deemed to relate only to the particular sign,
placard, picture, name, advertisement or notice so consented
to by Landlord and shall not be construed as dispensing with
the necessity of obtaining the specific written consent of
Landlord with respect to any other such sign, placard,
picture, name, advertisement or notice.
All approved signs or lettering on doors and walls shall be
printed, painted, affixed or inscribed at the expense of the
Tenant by a person approved by Landlord.
3. The bulletin board or directory of the Building will be
provided exclusively for the display of the name and
location of Tenants only the Landlord reserves the right to
exclude any other names therefrom.
4. No curtains, draperies, blinds, shutters, shades, screens or
other coverings, awnings, hangings or decorations shall be
attached to, hung or placed in, or used in connection with,
any window or door or any premises without the prior written
consent of Landlord. In any event with the prior written
consent of Landlord, all such items shall be installed
inboard of Landlord's standard window covering and shall in
no way be visible from the exterior of the Building. No
articles shall be placed or kept on the window sills so as
to be visible from the exterior of the Building. No
articles shall be placed against glass partitions or doors
which might appear unsightly from outside Tenant's Premises.
5. Landlord reserves the right to exclude from the Building
between the hours of 6 pm and 8 am and at all hours on
Saturdays, Sundays
<PAGE>
and holidays all persons who are not Tenants or their
accompanied guests in the Building. Each Tenant shall be
responsible for all persons for whom it allows to enter the
building and shall be liable to Landlord for all acts of
such persons.
Landlord shall in no case be liable for damages for error
with regard to the admission to or exclusion from the
Building of any person.
During the continuance of any invasion, mob, riot, public
excitement or other circumstance rendering such action
advisable in Landlord's opinion, Landlord's reserves the
right to prevent access to the Building by closing the
doors, or otherwise, for the safety of Tenants and
protection of the Building and Property in the Building.
6. No Tenant shall employ any person or persons other than the
janitor of Landlord for the purpose of cleaning premises
unless otherwise agreed to by Landlord in writing. Except
with the written consent of Landlord no person or persons
other than those approved by Landlord shall be permitted to
enter the Building for the purpose of cleaning the same. No
Tenant shall cause any unnecessary labor by reason of such
Tenant's carelessness or indifference in the preservation of
good order and cleanliness of the premises. Landlord shall
in no way be responsible to any Tenant for any loss of
property on the premises, however occurring, or for any
damage done to the effects of any Tenant by the janitor or
any other employee or any other person.
7. No Tenant shall obtain for use upon its premises ice,
drinking water, food, beverage, towel or other similar
services except through facilities provided by Landlord (and
maintained by tenant) and under regulations fixed by
Landlord, or accept barbering or boot blacking services on
premises except from persons authorized by Landlord.
8. Each Tenant shall see that all doors of its premises are
closed and securely locked and must observe strict care and
caution that all water, faucets or water apparatus are
entirely shut off before the Tenant or its employees leave
such premises, and that all utilities shall likewise be
carefully shut off, so as to prevent waste or damage, and
for any default or carelessness the Tenant shall make good
all injuries sustained by other Tenants or occupants of the
Building or Landlord. On multiple-tenancy floors, all
Tenants shall keep the door or doors to the Building
corridors closed at all times except for ingress or egress.
9. As more specifically provided in the Tenant's Lease of the
Premises, Tenant shall not waste electricity, water or air-
conditioning and agrees to cooperate fully with Landlord to
assure the most effective operation of the Building's
heating and air-conditioning, and shall refrain from
attempting to adjust any controls other than room
thermostats installed for Tenant's use.
10. No Tenant shall alter any lock or access device or install a
new additional lock or access device or any bolt on any door
of its
<PAGE>
premises without the prior written consent of Landlord. If
Landlord shall give its consent the Tenant shall in each
case furnish Landlord with a key for any such lock.
11. No Tenant shall make or have made additional copies of any
keys or access devices provided by Landlord. Each Tenant,
upon the termination of the Tenancy, shall deliver to
Landlord all the keys or access devices for the Building,
offices, rooms and toilet rooms which shall have been
furnished the Tenant or which the Tenant shall have had
made. In the event of the loss of any keys or access
devices so furnished by Landlord, Tenant shall pay Landlord
therefor.
12. The toilet rooms, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which
they were constructed and no foreign substance of any kind
whatsoever shall be thrown therein, and the expense of any
breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the Tenant who, or whose
employees or invitees, shall have caused it.
13. No Tenant shall use or keep in its premises or the Building
any kerosene, gasoline or inflammable or combustible fluid
or material other than limited quantities necessary for the
operation or maintenance of office or office equipment. No
Tenant shall use any method of heating or air-conditioning
other than that supplied by Landlord.
14. No Tenant shall use, keep or permit to be used or kept in
its premises any foul or noxious gas or substances or permit
or suffer such premises to be occupied or used in a manner
offensive or objectionable to Landlord or other occupants of
the Building by reason of noise, odors and/or vibrations or
interfere in any way with other Tenants or those having
business therein, nor shall any animals or birds be brought
or kept in or about any premises of the Building.
15. No cooking shall be done or permitted by any Tenant on its
premises (except that use by the Tenant of Underwriters'
Laboratory approved equipment for the preparation of coffee,
tea, hot chocolate and similar beverages for Tenants and
their employees shall be permitted, provided that such
equipment and use is in accordance with all applicable
federal, state and city laws, codes, ordinances, rules and
regulations), nor shall premises be used for lodging.
EXHIBIT "A" Page 1
<PAGE>
16. Except with the prior written consent of Landlord, no Tenant
shall sell, or permit the sale, at retail, of newspapers.
magazines. periodicals. theatre tickets or any other goods
or merchandise in or on any premises, nor shall Tenant carry
on, or permit or allow any employee or other Person to carry
on, the Business of stenography, typewriting or any similar
business in or from any premises for the service or
accommodation of occupants of any other portion of the
Building. nor shall the Premises of any Tenant be used for
the storage of merchandise or for manufacturing of any kind,
or the business of a public barber shop, beauty parlor. nor
shall the premises of any Tenant be used for any improper,
immoral or objectionable purpose, or any business or
activity other than that specifically provided for in such
Tenant's lease.
17. If Tenant requires telegraphic, telephonic, burglar alarm or
similar services, it shall first obtain, and comply with,
Landlord's instructions in their installation.
18. Landlord will direct electricians as to where and how
telephone, telegraph and electrical wires are to be
introduced or installed. No boring or cutting for wires
will be allowed without the prior written consent of
Landlord. The location of burglar alarms, telephones, call
boxes and other office equipment affixed to all premises
shall be subject to the written approval of Landlord.
19. No Tenant shall install any radio or television antenna,
loudspeaker or any other device on the exterior wails or the
roof of the Building. Tenant shall not interfere with radio
or television broadcasting or reception from or in [he
Building or elsewhere.
20. No Tenant shall lay linoleum, tile, carpet or any other
floor covering so that the same shall be affixed to the
floor of its premises in any manner except as approved in
writing by Landlord The expense of repairing any damage
resulting from a violation of this rule or the removal of
any floor covering shall be borne by the Tenant by whom, or
by whose contractors, employees or invitees, the damage
shall have been caused.
21. No furniture, freight, equipment, materials, supplies,
packages, merchandise or other property will be received in
the Building or carried up or down the elevators except
between such hours and in such elevators as shall be
designated by Landlord.
Landlord shall have the right to prescribe the weight, size
and position of all safes, furniture or other heavy
equipment brought into the Building. Safes or other heavy
objects shall, if considered necessary by Landlord, stand on
wood strips of such thickness as determined by Landlord to
be necessary to properly distribute the weight thereof
Landlord will not be responsible for loss of or damage to
any such safe, equipment or property from any cause, and all
damage done to the Building by moving or maintaining any
such safe, equipment or other property shall be repaired at
the expense of Tenant
Business machines and mechanical equipment belonging to
Tenant which cause noise or vibration that may be
transmitted to the structure of the Building or to any space
therein to such a degree as to be objectionable to Landlord
or to any tenants in the
<PAGE>
Building shall be placed and maintained by Tenant, at
Tenant's expense, on vibration eliminators or other devices
sufficient to eliminate noise or vibration. The persons
employed to move such equipment in or out of the Building
must be acceptable to Landlord.
22. No Tenant shall place a load upon any floor of the premises
which exceeds the load per square foot which such floor was
designed to carry and which is allowed by law. No Tenant
shall mark or drive nails, screw or drill into the
partitions, woodwork or plaster or in any way deface such
Premises or any part thereof.
23. No Tenant shall install, maintain or operate upon the
Premises any vending Machine without the written consent of
Landlord.
24. There shall not be used in any space, or in the public areas
of the Building, either by any Tenant or others, any hand
trucks except those equipped with rubber tires and side
guards or such other material-handling equipment as Landlord
may approve. No other vehicles of any kind shall be brought
by any Tenant into or kept in or about the premises.
25. Each Tenant shall store all of its trash and garbage within
the interior of its premises. No material shall be placed
in the trash boxes or receptacles if such material is of
such nature that it may not be disposed of in the ordinary
and customary manner of removing and disposing of trash and
garbage in the city without violation of any law or
ordinance governing such disposal. All trash, garbage and
refuse disposal shall be made only through entryways and
elevators provided for such purposes and at such times as
Landlord shall designate.
26. Canvassing, soliciting, distribution of handbills or any
other written material, and peddling in the Building are
Prohibited and each Tenant shall cooperate to Prevent the
same. No Tenant shall make room-to-room solicitation of
business from other tenants in the building.
27. Landlord shall have the right, exercisable without notice
and without liability to any Tenant, to change the name and
address of the Building.
28. Landlord reserves the right to exclude or expel from the
Building any person who, in Landlord's judgment is
intoxicated or under the influence of liquor or drugs or who
is in violation of any of the rules and regulations of the
Building.
29. Without the prior written consent of Landlord, Tenant shall
not use the name of the Building in connection with or in
Promoting or advertising the business of Tenant except as
Tenant's address.
30. Tenant shall comply with all safety, fire protection and
evacuation procedures and regulations established by
Landlord or any governmental agency.
31. Tenant assumes any and all responsibility for protecting its
Premises from theft, robbery and pilferage, which includes
keeping doors locked and other means of entry to the
Premises closed.
<PAGE>
32. The requirements of Tenants will be attended to only upon
application at the office of the Building by an authorized
individual. Employees of Landlord shall not perform any
work or do anything outside of their regular duties unless
under special instructions from Landlord. and no employees
will admit any person (Tenant or otherwise) to any office
without specific instructions from Landlord.
33. Landlord may waive any one or more of these Rules and
Regulations for the benefit of any particular Tenant or
Tenants, but no such waiver by Landlord shall be construed
as a waiver of such Rules and Regulations in favor of any
other Tenant or Tenants, nor prevent Landlord from
thereafter enforcing any such Rules and Regulations against
any or all Tenants of the Building.
34. Landlord reserves the right to make such other and
reasonable rules and regulations as in its judgment may from
time to time be needed for safety and security, for care and
cleanliness of the Building and for the Preservation of good
order therein. Tenant agrees to abide by all such Rules and
Regulations hereinabove stated and any additional rules and
regulations which are adopted,
35. Landlord reserves the right to designate the use of the
Parking spaces on the Premises.
36. Tenant shall use carpet protectors under all desk chairs.
37. Tenant agrees to keep balcony doors closed at all times,
except during ingress and egress.
38. Tenant or Tenant's guests shall park between designated
parking lines only, and shall not occupy two parking spaces
with one car. Vehicles in violation of the above shall be
subject to tow-away. at vehicle owners expense.
39. Vehicles parked on premises overnight without prior written
consent of the Landlord shall be deemed abandoned and shall
be subject to tow-away at vehicle owner's expense.
40. Tenant shall be responsible for the observance of all of the
foregoing Rules and Regulations by Tenant's employees,
agents, clients, customers, invitees and guests.
41. The Rules and Regulations are in addition to. and shall not
be construed to in any way modify. alter or amend, in whole
or in part, the terms, covenants, agreements and conditions
of any Lease of Premises in the Building. The word
"Building" as used herein means the building of which the
premises are part.
Page 2
<PAGE>
[EXHIBIT B IMAGE OMITTED]
<PAGE>
INTERIOR IMPROVEMENTS
---------------------
Landlord shall furnish and install at its own expense the interior improvements
in accordance with Malesardi Design Group's Space Plan dated 12/13/95 and
further described per this Exhibit C. Any alterations or modifications to the
improvements must be approved in writing by Landlord. Any increase in cost
(including the cost of design) as a result of such alterations or modifications
shall be acknowledged by Tenant in writing and paid to Landlord prior to
occupancy of the Premises. Any delays in construction caused by Tenant's changes
which extend the completion of the improvements shall be acknowledged by Tenant
and, notwithstanding the provisions of paragraph 3, shall accelerate the payment
of rent by the number of days delay.
The tenant improvements installed by Landlord shall include the following:
* Install building standard carpet over pad throughout, exact colors to be
determined and agreed upon by Landlord and Tenant.
* Building standard latex paint throughout, exact colors to be determined and
agreed upon by Landlord and Tenant.
* Remodel HVAC zones, fire sprinklers and flourescent light mixtures at all
new construction areas as determined by Landlord.
* One each electrical duplex, phone and data outlet in each of the new
offices.
* Electrical, phone and data outlets adequate for operation of Tenant's
cubicles.
* Tenant to provide and install, at Tenant's expense, the following:
* All teflon-coated computer cable to computer outlets and telephone outlets
and other areas required by Tenant.
EXHIBIT C
---------
<PAGE>
[EXHIBIT C IMAGE OMITTED]
<PAGE>
Form of Tenant Certificate
EXHIBIT D.
____________________________________
____________________________________
____________________________________
____________________________________
RE:
Gentlemen:
The undersigned, as Tenant under that certain lease (the
"Lease") dated ____________________ 19 ______, made with
_________________ as Landlord (the "Landlord"), does hereby
certify:
1. That the copy of the Lease attached hereto as Exhibit A is
a true and complete copy of the Lease, and there are no
amendments, modifications or extensions of or to the Lease
and the Lease is now in full force and effect.
2. That its leased premises at the above location have been
completed in accordance with the terms of the Lease, that
it has accepted possession of said premises, and that it
now occupies the same.
3. That it began paying rent on ___________________ 19 ______,
and that, save only as may be required by the terms of the
Lease, no rental has been paid in advance, nor has the
undersigned deposited any sums with the Landlord as
security.
4. That there exist no defenses or offsets to enforcement of
the Lease by the Landlord and, so far as is known to the
undersigned, the Landlord is not, as of the date hereof, in
default in the performance of the Lease, nor has the
Landlord committed any breach thereof, nor has any event
occurred which, with the passage of time or the giving of
notice, or both, would constitute a default or breach by
the Landlord.
The undersigned acknowledges that you are relying on the
above representation of the undersigned in (advancing funds
to purchase the existing first mortgage loan covering the
building in which the leased premises are located) (in
purchasing the building in which the leased premises are
located) and does hereby warrant and affirm to and for your
benefit, and that of your successors and assigns, that each
of the foregoing representations is true, correct and
complete as of the date hereof.
Dated:________________________
By______________________
<PAGE>
Its___________________________
EXHIBIT "D"
<PAGE>
PROPERTY DESCRIPTION
--------------------
All that certain real property situate in the City of San Jose,
County of Santa Clara, State of California, described as follows:
ALL OF PARCELS A and B, as shown upon that certain Parcel Map
entitled " Being all of Parcel 3 as shown on the Parcel Map
recorded in Book 451 of Maps at Pages 17 and 18 and lying within
the City of San Jose, California", which Map was filed for record
in the Office of the Recorder of the County of Santa Clara, State
of California on December 2, 1982 in Map Book 506 at Pages 45 and
46, Santa Clara County Records.
EXHIBIT E
<PAGE>
EXHIBIT 10.5.1
SUBLEASE
This Sublease ("SUBLEASE"), dated as of October 10, 1997, is made
between Artisan Components, Inc. (formerly VLSI Libraries Incorporated)
("SUBLANDLORD") and Unison Software, Inc. ("SUBTENANT").
RECITALS
A. Sublandlord is the tenant under that certain lease dated as of
December 13, 1995 ("ORIGINAL MASTER LEASE"), pursuant to which Spieker
Properties, L.P., a California limited partnership ("MASTER LANDLORD") leased to
Sublandlord certain real property located in the City of San Jose, County of
Santa Clara, State of California, at 2077 Gateway Place, Suite 300, as more
fully described in the Original Master Lease ("MASTER PREMISES").
B. The Original Master Lease, together with any amendments, are
collectively referred to as the Master Lease.
C. A copy of the Master Lease is attached and incorporated in this
Sublease as Exhibit A.
SECTION 1. SUBLEASE.
Sublandlord subleases to Subtenant on the terms and conditions in this
Sublease the following portion of the Master Premises ("PREMISES"):
approximately 16,797 square feet located in Suite 300, 2077 Gateway Place, San
Jose, California.
SECTION 2. WARRANTY BY SUBLANDLORD.
Sublandlord warrants to Subtenant that the Master Lease has not been
amended or modified except as expressly set forth in this Sublease; that
Sublandlord is not now, and as of the commencement of the Term (defined in this
Sublease) of this Sublease will not be, in default or breach of any of the
provisions of the Master Lease; and that Sublandlord has no knowledge of any
claim by Master Landlord that Sublandlord is in default or breach of any of the
provisions of the Master Lease.
SECTION 3. TERM.
The term of this Sublease will commence on the latter of November 3,
1997 ("COMMENCEMENT DATE"), or when Master Landlord consents to this Sublease
(if consent is required under the Master Lease), whichever occurs later, and end
on February 28, 2001 ("TERMINATION DATE") ("TERM"), unless terminated sooner in
accordance with the provisions of this Sublease. If the Term commences on a
date other than the Commencement Date, Sublandlord and Subtenant will execute a
memorandum setting forth the actual date of commencement of the Term.
Possession of the Premises ("POSSESSION") will be delivered to Subtenant on the
commencement of the Term. If for any reason Sublandlord does not deliver
Possession to Subtenant on the Commencement of the Term, Sublandlord will not be
subject to any liability for this failure, the Termination Date will not be
extended by the delay, and the validity of this Sublease will not be impaired.
Rent will be abated until delivery of Possession. However, if Sublandlord has
not delivered Possession to Subtenant within thirty (30) days after the
Commencement Date, at any time after that and before delivery of Possession,
Subtenant may give written notice to Sublandlord of Subtenant's intention to
cancel this Sublease. The notice will set forth an effective date for the
cancellation, which will be at least ten (10) days after delivery of notice to
Sublandlord. If Sublandlord delivers Possession to Subtenant on or before this
effective date, this Sublease will remain in full force. If Sublandlord fails
to deliver Possession to Subtenant on or before this effective date, this
Sublease will be canceled. Upon cancellation, all consideration previously paid
by Subtenant to Sublandlord on account of this Sublease will be returned to
Subtenant, this Sublease will have no further force, and Sublandlord will have
no further liability to Subtenant because of this delay or cancellation. If
Sublandlord permits Subtenant to take Possession prior to the commencement of
the Term, the early Possession will not advance the Termination Date and will be
subject to the provisions of this Sublease, including, without limitation, the
payment of rent.
SECTION 4. RENT (AND OPERATING EXPENSES).
Subtenant will pay to Sublandlord on a monthly basis as rent, without
deduction, setoff, notice, or demand, at Sublandlord's address noted below or at
any other place Sublandlord designates by notice to Subtenant, the rent amount
plus operating expenses as specified in Addendum 1 of the Master Lease years 2 -
5 per month, in advance of the first day of each month of the Term. Subtenant
will pay to Sublandlord prior to November 3, 1997 the sum of Thirty Two Thousand
Two Hundred Ninety-Six Dollars and thirteen cents ($32,296.13) as rent for
November 1997. (This $32,296.13 amount is the per diem prorated amount (28 of
30 days because of the Commencement Date of November 3rd) of the current full
month's rent of $34,603.00, which amount includes the current base rent of
$25,363.00 plus the current operating expenses calculated under the Master
Lease, Paragraph 29, at $9,240.00 per month. Subtenant acknowledges that the
base rent will increase and the
1
<PAGE>
operating expenses are subject to adjustment per Addendum 1 and Paragraph 29 of
the Master Lease and Subtenant is responsible for paying such base rent and
operating expenses to Sublandlord hereunder.) If the Term begins or ends on a
day other than the first or last day of a month, the rent for the partial months
will be prorated on a per diem basis.
SECTION 5. SECURITY DEPOSIT.
Subtenant will deposit with Sublandlord on execution of this Sublease
the sum of Thirty Eight Thousand Two Hundred Ninety Seven Dollars ($38,297.00)
as security for Subtenant's faithful performance of Subtenant's obligations
under this Sublease ("SECURITY DEPOSIT"). If Subtenant fails to pay rent or
other charges when due under this Sublease, or fails to perform any obligations
under this Sublease, Sublandlord may use any portion of the Security Deposit for
the payment of any rent or other amount then due and unpaid, for the payment of
any other sum for which Sublandlord may become obligated because of Subtenant's
default or breach, or for any loss sustained by Sublandlord as a result of
Subtenant's default or breach. If Sublandlord uses any portion of the Security
Deposit, Subtenant will, within ten (10) days after written demand by
Sublandlord, restore the Security Deposit to the full amount originally
deposited. Subtenant's failure to do so will constitute a default under this
Sublease. Sublandlord will not be required to keep the Security Deposit
separate from its general accounts, and will have no obligation or liability for
payment of interest on the Security Deposit. If Sublandlord assigns its
interest in this Sublease, Sublandlord will deliver to its assignee as much of
the Security Deposit as Sublandlord then holds. Within ten (10) days after the
Term has expired or Subtenant has vacated the Premises, whichever occurs last,
the Security Deposit, or as much as remains that has not been applied by
Sublandlord, will be returned to Subtenant or to the last assignee, if any, of
Subtenant's interest under this Sublease.
SECTION 6. USE OF PREMISES.
The Premises will be used and occupied only as permitted under the
Master Lease and for no other use or purpose.
SECTION 7. CONDITION OF PREMISES.
Subtenant accepts the Premises in their condition existing as of the
date of execution hereof. Subtenant acknowledges that neither Sublandlord nor
its agents have made any representation or warranty as to suitability of the
premises for the conduct of Subtenant's business.
SECTION 8. ASSIGNMENT AND SUBLETTING.
Subtenant will not assign this Sublease or further sublet all or any
part of the Premises without the prior written consent of Sublandlord (and the
consent of Master Landlord, if this is required under the terms of the Master
Lease).
SECTION 9. OTHER PROVISIONS OF SUBLEASE.
All applicable terms and conditions of the Master Lease are
incorporated into and made a part of this Sublease as if Sublandlord were the
landlord, Subtenant the lessee, and the Premises the Master Premises, except for
the following: None. As between Sublandlord and Subtenant, Subtenant agrees to
perform the lessee's obligations under the Master Lease during the Term to the
extent that these obligations are applicable to the Premises and this Sublease.
However, the obligation to pay rent and operating expenses to Master Landlord
under the Master Lease will be considered performed by Subtenant to the extent
and in the amount rent and operating expenses are paid to Sublandlord in
accordance with Section 4 of this Sublease. Subtenant will not commit any act
or omission that will violate any of the provisions of the Master Lease.
Sublandlord will exercise due diligence in attempting to cause Master Landlord
to perform its obligations under the Master Lease for the benefit of Subtenant.
If the Master Lease terminates, at the option of Master Landlord, this Sublease
will terminate and the parties will be relieved of any further liability or
obligation under this Sublease. However, if the Master Lease terminates as a
result of a default or breach by Sublandlord or Subtenant under this Sublease or
the Master Lease, the defaulting party will be liable to the nondefaulting party
for the damage suffered as a result of the termination. Regardless, if the
Master Lease gives Master Landlord any right to terminate the Master Lease in
the event of the partial or total damage, destruction, or condemnation of the
Master Premises or the building or project of which the Master Premises are a
part, the exercise of this right by Master Landlord will not constitute a
default or breach by Sublandlord.
SECTION 10. ATTORNEY FEES.
If either party commences an action against the other in connection
with this Sublease, the prevailing party will be entitled to recover costs of
suit and reasonable attorney fees.
SECTION 11. NO BROKER FEES.
2
<PAGE>
There are no fees or commissions to be paid to any broker in
connection this transaction. Sublandlord and Subtenant each warrant that they
have not dealt with any real estate broker in connection with this transaction.
SECTION 12. NOTICES.
All notices and demands that may be required or permitted by either
party to the other will be in writing. All notices and demands by the
Sublandlord to Subtenant will be sent by United States Mail, postage prepaid,
addressed to the Subtenant at the Premises, and to the address in this Sublease
below, or to any other place that Subtenant may from time to time designate in a
notice to the Sublandlord. All notices and demands by the Subtenant to
Sublandlord will be sent by United States Mail, postage prepaid, addressed to
the Sublandlord at the address in this Sublease, and to any other person or
place that the Sublandlord may from time to time designate in a notice to the
Subtenant.
To Sublandlord: Artisan Components, Inc.
1195 Bordeaux Drive
Sunnyvale, CA 94089
Attn: Beth Bartel
To Subtenant: Unison Software, Inc.
5101 Patrick Henry Drive
Santa Clara, CA 95054
Attn: Laurie Beemis
SECTION 13. SUCCESSORS AND ASSIGNS.
This Sublease will be binding on and inure to the benefit of the
parties to it, their heirs, executors, administrators, successors in interest,
and assigns.
SECTION 14. ATTORNMENT.
If the Master Lease terminates, Subtenant will, if requested, attorn
to Master Landlord and recognize Master Landlord as Sublandlord under this
Sublease.
SECTION 15. ENTRY.
Sublandlord reserves the right to enter the Premises on reasonable
notice to Subtenant to inspect the Premises or the performance by Subtenant of
the terms and conditions of this Sublease. In an emergency, no notice will be
required for entry.
SECTION 16. LATE CHARGE AND INTEREST.
The late payment of any Rent will cause Sublandlord to incur
additional costs, including the cost to maintain in full force the Master Lease,
administration and collection costs, and processing and accounting expenses. If
Sublandlord has not received any installment of Rent within five (5) days after
that amount is due, Subtenant will pay five percent (5%) of the delinquent
amount, which is agreed to represent a reasonable estimate of the cost incurred
by Sublandlord. In addition, all delinquent amounts will bear interest from the
date the amount was due until paid in full at a rate per annum ("APPLICABLE
INTEREST RATE") equal to the greater of (a) five percent (5%) per annum plus the
then federal discount rate on advances to member banks in effect at the Federal
Reserve Bank of San Francisco on the 25th day of the month preceding the date of
this Sublease or (b) ten percent (10%). However, in no event will the
Applicable Interest Rate exceed the maximum interest rate permitted by law that
may be charged under these circumstances. Sublandlord and Subtenant recognize
that the damage Sublandlord will suffer in the event of Subtenant's failure to
pay this amount is difficult to ascertain and that the late charge and interest
are the best estimate of the damage that Sublandlord will suffer. If a late
charge becomes payable for any three (3) installments or Rent within any twelve
(12) month period, the Rent will automatically become payable quarterly in
advance.
SECTION 17. ENTIRE AGREEMENT.
This Sublease sets forth all the agreements between Sublandlord and
Subtenant concerning the Premises, and there are no other agreements either oral
or written other than as set forth in this Sublease.
SECTION 18. GENERAL.
3
<PAGE>
Time is of the essence in this Sublease. This Sublease will be
governed by and construed in accordance with California law. THIS SUBLEASE WILL
HAVE NO EFFECT UNLESS CONSENTED TO BY MASTER LANDLORD WITHIN 15 DAYS AFTER
EXECUTION IF CONSENT IS REQUIRED UNDER THE TERMS OF THE MASTER LEASE.
SECTION 19. INSURANCE.
Without limiting Subtenant's other obligations under the Master Lease,
Subtenant agrees to purchase and maintain in force during the Term of this
Sublease all of the insurance, and in the amounts, as specified in Paragraph
11(e) of the Master Lease; provided, however, that Subtenant shall name both the
Master Landlord and Sublandlord as insureds under such policies.
In Witness Whereof, the parties have executed this Sublease as of the
date first above written.
Subtenant: UNISON SOFTWARE, INC. Sublandlord: ARTISAN COMPONENTS, INC.
By: /s/ Laurie Beemis By: /s/ Beth Bartel
-------------------------------- ---------------------------------
Name: Laurie Beemis Name: Beth Bartel
----------------------------- ------------------------------
Title: Title: Controller
----------------------------- -----------------------------
4
<PAGE>
EXHIBIT A
MASTER LEASE
[See Exhibit 10.5 to Registrant's Registration Statement on Form S-1]
5
<PAGE>
EXHIBIT 10.5.2
FIRST ADDENDUM TO SUBLEASE
This First Addendum to Sublease (this "Addendum") is made by and between
Artisan Components, Inc. (formerly VLSI Libraries Incorporated) as sublandlord
("Sublandlord"), and Unison Software, Inc. as subtenant ("Subtenant"), to be a
part of that certain Sublease of even date herewith between Sublandlord and
Subtenant (the "Sublease"). Sublandlord and Subtenant agree that,
notwithstanding anything to the contrary in the Sublease, the Sublease is hereby
modified and supplemented as set forth below.
1. Other Provisions of Sublease. The provisions of the Master Lease
----------------------------
shall be incorporated into the Sublease, except to the extent the context would
make it inapplicable, as follows: (a) each reference in such incorporated
sections to "Lease" shall be deemed a reference to "Sublease"; (b) each
reference therein to "Landlord" and "Tenant" shall be deemed a reference to
"Sublandlord" and "Subtenant," respectively; and (c) the following portions of
the Master Lease shall not be incorporated: Basic Lease Information (except for
definitions of Premises, Permitted Use, Schedule Term Expiration Date, Occupancy
Density and Tenant's Proportionate Share), Introductory Paragraph, Paragraph 3,
Paragraph 10(a)(i) (except that Sublandlord shall have the right to terminate
this Sublease to the extent such termination is made by Master Landlord under
the Master Lease under Paragraph 10(a)(i)), Paragraph 15, Paragraph 16 (except
that Sublandlord shall have the right to substitute for the Premises other
premises in the Building to the extent such substitution is made by Master
Landlord under the Master Lease), Paragraph 21(e), Paragraph 24 (except that
Master Landlord retains its right to sell or convey the Building), Interior
Improvements (Exhibit C); (d) references to "Landlord" in Paragraphs 20, 22 and
23 shall mean Master Landlord and references to "either party" shall be deemed a
reference to Subtenant and Master Landlord; provided, however, that Sublandlord
shall be protected from and against all claims and liabilities to the extent
Master Landlord is under Paragraphs 20, 22 and 23; and (e) "by Subtenant" shall
be added to the end of the phrase "or when first installed" in Paragraph 8 and
the phrase "or first installed" in Paragraph 26(b); and (f) the reference in
Paragraph 40 "to the extent of Landlord's interest in the Project" shall be
changed to "to the extent of Master Landlord's interest in the Project".
2. Insurance and Indemnification. Except as set forth in Section 12
-----------------------------
of the Master Lease, neither party shall be released or indemnified from any
damages, liabilities, judgments, actions, claims, attorney's fees, consultants'
fees, payments, costs or expenses arising from the negligence or willful
misconduct of it or its agents, contractors, licensees or invitees, its
violation of laws or a breach of its obligations or representations under the
Sublease.
3. Assignment and Subletting. Subtenant, without Sublandlord's prior
-------------------------
written consent (but subject to any required consent of Master Landlord), may
sublet the Premises or assign the Sublease upon at least forty-five days prior
written notice to Sublandlord to: (a) a corporation controlling, controlled by
or under common control with Subtenant; (b) a purchaser of substantially all of
Subtenant's assets; or (c) in the event Subtenant merges into or with another
entity, the surviving entity of such merger.
4. Rental Adjustments. In no event shall Subtenant's obligation to
------------------
pay Basic Operating Costs exceed the amount of Basic Operating Costs due and
payable by Sublandlord under the
<PAGE>
Master Lease. Subtenant shall pay Subtenant's share of such expenses as and when
the same are due and payable to Master Landlord under the Master Lease.
Subtenant shall be entitled to its pro rata share of all credits, if any, given
by Master Landlord to Sublandlord for Sublandlord's overpayment of such expenses
for the period of this Sublease. Notwithstanding anything to the contrary in the
Sublease, Subtenant shall not be required to pay any additional rent or perform
any obligation that is (i) fairly allocable to any period of time prior to the
commencement date of the Sublease or following the expiration or sooner
termination of the Sublease or (ii) payable as a result of a default by
Sublandlord of any of its obligations under the Master Lease; provided such
default is not caused directly or indirectly by any act or omission of
Subtenant.
5. Surrender of Premises. In no event shall Subtenant's obligation
---------------------
to surrender the Premises require Subtenant to repair or restore the Premises to
a condition better than the condition in which the Premises existed as of the
commencement date of the Sublease and Subtenant shall only be responsible for
repairing or restoring those elements of the Premises damaged during the
Sublease Term. Additionally, Subtenant shall not be required to remove at the
expiration of the Sublease term or otherwise, alterations or improvements to the
Premises made by or for the account of Sublandlord.
6. Taxes Payable by Subtenant. Subtenant shall have no obligation to
--------------------------
pay for taxes, if any, levied or assessed on the value of any leasehold
improvements, alternations or additions made by or for the account of
Sublandlord for any period of time other than the term of the Sublease.
7. Sublandlord's Obligations. Provided Subtenant is not in breach of
-------------------------
the Sublease beyond any applicable notice and cure period, Sublandlord shall
not, without Subtenant's prior written consent, terminate the Master Lease
during the term of the Sublease, commit any acts that would entitle Master
Landlord to terminate the Master Lease during the term of the Sublease, or, to
the extent they apply to the term of the Sublease, amend or waive any provisions
of the Master Lease or make any elections, exercise any right or remedy or give
any consent or approval under the Master Lease. Sublandlord, with respect to
the obligations of Master Landlord under the Master Lease, shall use
Sublandlord's diligent good faith efforts to cause Master Landlord to perform
such obligations for the benefit of Subtenant, meaning that (a) upon Subtenant's
written request, immediately notifying Master Landlord of its nonperformance
under the Master Lease, and requesting that Master Landlord perform its
obligations under the Master Lease; and (b) not to unreasonably withhold or
delay in permitting Subtenant to commence a lawsuit or other action in
Subtenant's name to obtain the performance required from Master Landlord under
the Master Lease; provided, however, that if Subtenant commences a lawsuit or
other action, Subtenant shall pay all costs and expenses incurred in connection
therewith, and Subtenant shall indemnify Sublandlord against, and hold
Sublandlord harmless from, all reasonable costs and expenses incurred by
Sublandlord in connection therewith.
8. Authorization to Direct Sublease Payments. Subtenant shall have
-----------------------------------------
the right to pay all rent and other sums owing by Subtenant to Sublandlord
hereunder for those items which also are owed by Sublandlord to Master Landlord
under the Master Lease directly to Master Landlord if either (a) Subtenant
reasonably believes that Sublandlord has failed to make any payment required to
be made by Sublandlord to Master Landlord under the Master Lease and Sublandlord
fails to provide adequate proof of payment within two (2) business days after
Subtenant's written demand
-2-
<PAGE>
requesting such proof. Notwithstanding the foregoing: (i) Subtenant shall
provide to Sublandlord concurrently with any payment to Master Landlord
reasonable evidence of such payment, and (ii) if Sublandlord notifies Subtenant
that it disputes any amount demanded by Master Landlord, Subtenant shall not
make any such payment to Master Landlord unless Master Landlord has provided a
three-day notice to pay such amount or forfeit the Master Lease.
Any sums paid directly by Subtenant to Master Landlord in accordance with
this paragraph shall be credited toward the amounts payable by Subtenant to
Sublandlord under the Sublease. In the event Subtenant tenders payment directly
to Master Landlord in accordance with this paragraph and Master Landlord refuses
to accept such payment, Subtenant shall have the right to deposit such funds in
an account with a national bank for the benefit of Master Landlord and
Sublandlord, and the deposit of said funds in such account shall discharge
Subtenant's obligations under the Sublease to make the payment in question.
9. Quiet Enjoyment. Subtenant shall peacefully have, hold and enjoy
---------------
the Premises, subject to the terms and conditions of the Sublease, provided that
there is not an event of default by Subtenant.
10. Assignment of Rights. With respect to all warranties given and
--------------------
indemnities made by Master Landlord to Sublandlord under the Master Lease, to
the extent they apply to Subtenant during the term of the Sublease and would
reduce Subtenant's obligations hereunder, Sublandlord shall cooperate with
Subtenant to enforce all such warranties and indemnities.
11. Notice. All notices and demands shall be sent by certified or
------
registered United States Mail, or courier service that provides for a signed
receipt indicating delivery, and shall be deemed delivered upon receipt.
12. Approvals. Whenever the Sublease requires an approval, consent,
---------
designation, determination, selection or judgment by either Sublandlord or
Subtenant, such approval, consent, designation, determination, selection or
judgment and any conditions imposed thereby shall be reasonable and shall not be
unreasonably withheld or delayed and, in exercising any right or remedy
hereunder, each party shall at all times act reasonably and in good faith.
13. Waiver of Subrogation. The parties hereto release each other and
---------------------
their respective agents, employees, successors and assigns from all liability
for damage to any property that is caused by or results from a risk to the
extent it is actually insured against or required to be insured against under
the Master Lease or this Sublease by such damaged party, without regard to the
negligence or willful misconduct of the entity so released. Each party shall
use reasonable efforts to cause each applicable insurance policy it obtains to
provide that the insurer thereunder waives all right of recovery by way of
subrogation as required herein in connection with any damage covered by the
policy.
14. Effect of Addendum. All terms with initial capital letters used
------------------
herein as defined terms shall have the meanings ascribed to them in the Sublease
unless specifically defined herein.
In witness whereof, said parties hereunto subscribe their names.
-3-
<PAGE>
SUBLANDLORD: SUBTENANT:
ARTISAN COMPONENTS, INC. UNISON SOFTWARE, INC.
/s/ Beth Bartel /s/ Laurie Beemis
By:________________________ By:____________________________
Beth Bartel Laurie Beemis
Name:______________________ Name:__________________________
Controller
Title:_____________________ Title:_________________________
10/6/97 10/6/97
Dated:_____________________ Dated:_________________________
4
<PAGE>
EXHIBIT 10.5.3
CONFIDENTIAL
FIXED ASSETS PURCHASE AGREEMENT
-------------------------------
This Fixed Assets Purchase Agreement (this "Agreement") is made and entered
into on October 10, 1997, by and between Artisan Components, Inc., a California
corporation, located at 2077 Gateway Place, 3rd Floor, San Jose, California
95110 ("Seller"), and Unison Software, Inc., a Delaware corporation, located at
5101 Patrick Henry Drive, Santa Clara, California 95054 ("Buyer").
RECITALS
--------
A. Seller is the sole owner of certain office equipment and related
assets, all more fully described in Exhibit A to this Agreement (the "Purchase
Assets").
B. Seller desires to sell to Buyer, and Buyer desires to buy the Purchase
Assets, on the terms and conditions set forth herein.
NOW, THEREFORE, Seller and Buyer agree as follows:
1. SALE OF PURCHASE ASSETS
-----------------------
1.1 Delivery and Sale. Seller hereby agrees to deliver to Buyer the
------------ ----
Purchase Assets free and clear of any liens, mortgages, security interests,
pledges, encumbrances and charges whatsoever. Such delivery will occur by
Seller leaving the Purchase Assets installed at 2077 Gateway Place, 3rd Floor,
Suite 300, San Jose, California 95110 (the "Premises") when Seller moves out of
the Premises on or about November 1, 1997, which Premises will be sublet to
Buyer on or about November 1, 1997 (the "Sublease"). Upon payment in full of
the Purchase Price (defined in Section 2), Seller agrees to sell, convey,
transfer and assign, the Purchase Assets to Buyer as described below.
1.2 Installment Sale and Rights Retained by Seller. Buyer shall have
----------------------------------------------
the option to pay the Purchase Price on an installment basis as set forth below,
and until such time as Seller is paid in full for the Purchase Assets, Buyer and
Seller agree that:
(i) Seller shall retain title and ownership of all of the Purchase Assets,
but Buyer may use the Purchase Assets in Buyer's normal course of business;
(ii) Buyer, at its expense, shall keep the Purchase Assets in good
condition and repair;
(iii) upon Seller's reasonable request(s), which may be made from time to
time, Buyer shall execute and deliver to Seller any documents reasonably
requested by Seller to confirm and/or record Seller's title and ownership
interest in the Purchase Assets;
<PAGE>
(iv) Buyer's right to use the Purchase Assets is non-transferable, and
Buyer shall not encumber the Purchase Assets in any manner, except that
Buyer may, as part of an assignment of this Agreement pursuant to Section
6.4, at any time transfer the Purchase Assets to International Business
Machines Corporation ("IBM") or any subsidiary of IBM pursuant to the terms
of the Agreement and Plan of Merger among the Buyer, IBM and New Orchard
Corp. dated as of September 12, 1997; and
(iv) Buyer shall only use the Purchase Assets at the Premises, or other
location as may be pre-approved in writing by Seller, such approval not to
be unreasonably withheld or delayed.
1.3 Bill of Sale Upon Payment In Full of Purchase Price; Vesting of
---------------------------------------------------------------
Title.
- -----
Within five (5) business days of Seller's receipt of payment in full for the
Purchase Price, Seller shall execute and deliver to Buyer a Bill of Sale for the
Purchase Assets (the "Closing"). Upon execution and delivery to Buyer of the
Bill of Sale and subject to the terms and conditions of this Agreement, Buyer
will be vested with title to all of the Purchase Assets, free and clear of all
liens, mortgages, security interests, pledges, encumbrances and charges.
Notwithstanding anything herein to the contrary, to the extent the
phone/voicemail system making up part of the Purchase Assets ("Phone System")
contains or is made up of software, which software may be covered by license
from the Phone System manufacturer, Seller does not own title to such software
or intellectual property rights in and to any such software, nor is Seller
assigning ownership of such software of any intellectual property rights therein
to Buyer. Instead, the license to use any such software as part of the Phone
System, not the software itself, is being assigned to Buyer hereunder as part of
the purchase of the Phone System.
1.4 Limited Right To Rescind. Notwithstanding anything to the
------------------------
contrary herein, the effective date (the "Effective Date") of this Agreement
shall be the earliest date by which all of the following have occurred: (i) the
Sublease has been executed by Buyer and Seller, and (ii) the Master Landlord (as
defined therein) has consented to the Sublease. This Agreement shall be
conditioned upon, and shall be of no force or effect until, the occurrence of
the Effective Date. If the Effective Date does not occur, for any reason
whatsoever, on or before November 30, 1997, each party shall have the right to
rescind this Agreement by giving written notice to the other party after
November 30, 1997 but prior to the Effective Date, in which event this Agreement
shall be null and void and of no legal force or effect whatsoever.
2. PURCHASE PRICE AND PAYMENT.
---------------------------
2.1 Price and Payment Schedule. The purchase price for the
--------------------------
Purchase Assets shall be Four Hundred Thousand Dollars (US$400,000.00) (the
"Purchase Price"). Buyer agrees to purchase the Purchase Assets for the Purchase
Price. Buyer shall pay the Purchase Price to the Seller on an installment basis
as follows. Beginning the later of November 1, 1997 or three (3) days following
the Effective Date (the "Payment Date"), Buyer shall pay Seller $10,000 per
2
<PAGE>
month for a period of 40 months, with the first payment due on or before the
Payment Date and the last payment due no later than on the date 40 months
thereafter ("Final Due Date").
2.2 Right To Prepay. At no penalty to Buyer and with no
---------------
decrease or deduction to the total Purchase Price amount, Buyer may at any time
prior to Final Due Date, upon at least five (5) days prior written notice to
Seller, pay in full the remaining amount of the Purchase Price.
2.3 Payments and Late Payments. All payments hereunder shall
--------------------------
be made by check to Seller at Seller's address set forth below, or by wire
transfer to Seller's bank account(s), such bank account information to be
provided to Buyer by Seller. Any and all late payments hereunder will be subject
to a late payment charge from the date the amount was due until paid in full at
a rate per annum ("Applicable Interest Rate") equal to the greater of (a) five
percent (5%) per annum plus the then federal discount rate on advances to member
banks in effect at the Federal Reserve Bank of San Francisco on the 25th day of
the month preceding the date of this Agreement, or (b) ten percent (10%).
However, in no event will the Applicable Interest Rate exceed the maximum
interest rate permitted by law that may be charged under these circumstances.
3
<PAGE>
3. REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 In Good Standing. Each party represents and warrants to the
----------------
other party that it is a corporation duly organized, validly existing, and in
good standing under the laws of the State in which it is incorporated, and that
it has all power and authority required to enter into and perform this
Agreement.
3.2 Seller's Warranty of Title and No Encumbrances. Now and at
----------------------------------------------
all times prior to the Closing, Seller represents and warrants to Buyer that,
subject to the terms and conditions hereunder including but not limited to
Sections 2 and 3.3, Seller has good and marketable title to all of the Purchase
Assets free and clear of all liens and encumbrances and Seller shall not
encumber in any manner any of the Purchase Assets, including but not limited to
by way of liens, mortgages, security interests, pledges, charges or any other
encumbrances.
3.3 Buyer's Warranty of No Encumbrance To Title. Buyer
-------------------------------------------
represents and warrants to Seller that until the Purchase Price is paid in full
to Seller and Seller has transferred title in the Purchase Assets to Buyer as
set forth in Section 1, Buyer shall not encumber in any manner any of the
Purchase Assets, including but not limited to by way of liens, mortgages,
security interests, pledges, charges or any other encumbrances.
3.4 DISCLAIMER OF WARRANTY. EXCEPT AS SPECIFICALLY PROVIDED
----------------------
HEREIN, SELLER MAKES NO EXPRESS OR IMPLIED WARRANTIES WHATSOEVER AND EXPRESSLY
DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. EXCEPT AS EXPRESSLY SET FORTH ABOVE, THE PURCHASE ASSETS ARE DELIVERED
AND TO BE SOLD TO SELLER HEREUNDER IN "AS IS" CONDITION. SELLER MAKES NO
WARRANTY OR REPRESENTATION AS TO THE CONDITION OF THE PURCHASE ASSETS, OR THE
USABILITY OR SUITABILITY OF THE PURCHASE ASSETS FOR BUYER.
4. INDEMNIFICATION
---------------
4.1 Indemnification By Seller. Seller agrees to indemnify and
-------------------------
defend Buyer and hold it harmless from and against any and all claims, demands,
losses, costs, expenses, damages, and deficiencies, including, without
limitation, reasonable attorneys' fees, arising from any third party claims
alleging any breach of Seller's warranties hereunder.
4.2 Indemnification By Buyer. Buyer agrees to indemnify and
------------------------
defend Seller and hold it harmless from and against any and all claims, demands,
losses, costs, expenses, damages, and deficiencies, including, without
limitation, reasonable attorneys' fees, arising from (i) any third party claims
alleging any breach of Buyer's warranties hereunder, or (ii) use or misuse of
the Purchase Assets (subject to Seller's warranties in Section 3 herein) by
Buyer, its employees or agents.
4
<PAGE>
5. LIMITATION OF LIABILITY.
EXCEPT FOR EACH PARTY'S OBLIGATIONS UNDER SECTION 4, TO THE EXTENT ALLOWED BY
APPLICABLE LAW, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT,
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, HOWEVER CAUSED,
ARISING FROM OR RELATING TO THIS AGREEMENT EVEN IF IT HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
6. MISCELLANEOUS PROVISIONS
------------------------
6.1 Headings. The headings contained in this Agreement have
--------
been inserted for convenience only and shall not affect the meaning of any of
the language contained herein.
6.2 Notices. Any notice, demand, or request required or
-------
permitted to be given under the provisions of this Agreement shall be in writing
delivered by hand or by private expedited mail, delivery, or courier service
(charges prepaid), and shall be deemed to have been given when received, to the
following persons and addresses or to such other persons or addresses as any
party may designate by subsequent notice to the other party:
To Seller: To Buyer:
Artisan Components, Inc. Unison Software, Inc.
1195 Bordeaux Drive 5101 Patrick Henry Drive
Sunnyvale, CA 94089 Santa Clara, CA 95054
Attention: Beth Bartels Attention: Laurie Beemis
6.3 Severability. The parties intend and believe that each
------------
provision of this Agreement complies with all applicable local, state, and
federal laws and judicial decisions. Nonetheless, if any provision or any
portion of any provision of this Agreement is found by a court of law to violate
any applicable local, state, or federal ordinance, statute, law, administrative
or judicial decision, or public policy, and if such court should declare such
provision or portion to be illegal, invalid, unlawful, void, or unenforceable as
written, it is the intent of the Parties that such provision or portion shall be
given force to the fullest possible extent that it is legal, valid, and
enforceable, that the remainder of this Agreement shall be construed as if such
illegal, invalid, unlawful, void, or unenforceable provision or portion were not
contained in this Agreement, and that the rights, obligations, and interests of
the parties under the remainder of this Agreement shall continue in full force
and effect.
6.4 Successors and Assigns. This Agreement shall be binding
----------------------
upon, inure to the benefit of, and be enforceable by the parties and their
respective representatives, successors, and permitted assigns. Buyer may not
assign this Agreement by operation of law or otherwise without the prior written
consent of Seller; provided, however, that upon written notice to Seller, Buyer
may assign this Agreement without Seller's consent to a wholly-owned subsidiary
of
5
<PAGE>
Buyer or IBM or any subsidiary of IBM. Any assignment by Buyer in violation
of the foregoing shall be null and void.
6.5 Waiver. The failure of any party to insist, in any one or
------
more instances, on the performance of any term, covenant, or condition of this
Agreement shall not be construed as a waiver or relinquishment of any rights
hereunder or of the future performance of any such term, covenant, or condition,
but the obligations of the parties with respect thereto shall continue in full
force and effect.
6.6 Entire Contract and Amendments. This Agreement (together
------------------------------
with the Exhibits and Schedules hereto) is the entire contract between the
parties relating to the subject matter hereof. This Agreement supersedes all
prior and contemporaneous negotiations, understandings, and agreements, written
or oral, between the parties and may not be modified except by a written
amendment executed by each of the parties.
6.7 Governing Law. This Agreement shall be subject to and
-------------
governed in all respects by the statutes and laws of the State of California
without regard to the conflicts of laws principles thereof. The Superior Court
of Santa Clara County and/or the United States District Court for the Northern
District of California shall have exclusive jurisdiction and venue over all
controversies in connection herewith, and each party hereby consents to such
exclusive and personal jurisdiction and venue.
6.8 Attorneys' Fees and Legal Costs. In the event either party
-------------------------------
retains the services of an attorney or attorneys to enforce the terms of this
Agreement or to file or defend any action arising out of this Agreement, then
the prevailing party in any such action shall be entitled to recover from the
other party its reasonable fees for attorneys, plus such court costs and
expenses as may be fixed by any court of competent jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
specified above.
ARTISAN COMPONENTS, INC.: UNISON SOFTWARE, INC.:
/s/ Beth Bartel /s/ Laurie Beemis
By: _____________________ By:________________________
Beth Bartel Laurie Beemis
Name: ___________________ Name:______________________
Controller
Title: __________________ Title:_____________________
10/10/97 10/10/97
Date: ___________________ Date:______________________
6
<PAGE>
EXHIBIT A
PURCHASE ASSETS
[As Described in Attached Lists]
7
<PAGE>
EXHIBIT 10.6
VLSI LIBRARIES INCORPORATED
________________________________________________________________________________
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
March 20, 1996
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1 - Authorization and Sale of Series A Preferred Stock.............. 1
1.1 Authorization................................................... 1
1.2 Sale of Series A Preferred Stock................................ 1
SECTION 2 - Closing Date; Delivery.......................................... 1
2.1 Closing Date.................................................... 1
2.2 Delivery........................................................ 1
SECTION 3 - Representations and Warranties of the Company................... 1
3.1 Corporate Organization and Authority............................ 2
3.2 Capitalization.................................................. 2
3.3 Subsidiaries.................................................... 2
3.4 Authorization................................................... 2
3.5 Validity of Shares.............................................. 3
3.6 No Conflict with Other Instruments.............................. 3
3.7 Litigation...................................................... 3
3.8 Title to Properties, Liens and Encumbrances..................... 3
3.9 Patents and Other Propriety Rights.............................. 3
3.10 Company's Contracts............................................. 4
3.11 No Defaults, Violations or Conflicts............................ 4
3.12 Private Offering................................................ 4
3.13 Prior Registration Rights....................................... 5
3.14 Full Disclosure................................................. 5
3.15 Business Plan................................................... 5
3.16 Related-Party Transactions...................................... 5
3.17 Distributions................................................... 5
3.18 Employee Compensation Plans..................................... 5
3.19 Employee Relations.............................................. 6
3.20 Brokers and Finders............................................. 6
3.21 Transactions with Affiliates.................................... 6
3.22 Governmental Consents........................................... 6
3.23 Environmental Regulations....................................... 6
3.24 Minute Books.................................................... 6
3.25 Financial Statements............................................ 6
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3.26 Absence of Certain Changes...................................... 7
3.27 Tax Returns, Payments and Elections............................. 8
3.28 Insurance....................................................... 8
3.29 Permits......................................................... 8
3.30 Section 83(b) Elections........................................ 8
3.31 Corporate Documents............................................. 8
SECTION 4 - Representations and Warranties of the Purchasers................ 9
4.1 Experience...................................................... 9
4.2 Investment...................................................... 9
4.3 Rule 144........................................................ 9
4.4 No Public Market................................................ 9
4.5 Access to Data.................................................. 9
4.6 Authorization................................................... 10
4.7 Brokers or Finders.............................................. 10
SECTION 5 - Conditions to Closing of Purchasers............................. 10
5.1 Presentations and Warranties Correct............................ 10
5.2 Covenants....................................................... 10
5.3 Compliance Certificate.......................................... 10
5.4 Blue Sky........................................................ 10
5.5 Articles of Incorporation....................................... 10
5.6 Rights Agreement................................................ 10
5.7 Opinion of Company's Counsel.................................... 11
5.8 Minimum Investment.............................................. 11
5.9 Proprietary Information Agreements.............................. 11
5.10 Consulting Agreement............................................ 11
5.11 Co-Sale Agreement............................................... 11
5.12 Board Representation............................................ 11
SECTION 6 - Conditions to Closing of Company................................ 11
6.1 Representations................................................. 11
6.2 Blue Sky........................................................ 11
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
6.3 Articles of Incorporation....................................... 11
6.4 Covenants....................................................... 11
6.5 Rights Agreement................................................ 12
6.6 Co-Sale Agreement............................................... 12
6.7 Board Representation............................................ 12
SECTION 7 - Affirmative Covenants of the Company............................ 12
7.1 Financial Information........................................... 12
7.2 Additional Information.......................................... 12
7.3 Transfer of Information Rights.................................. 13
7.4 Termination of Covenants........................................ 13
7.5 Securities Laws Compliance...................................... 13
7.6 Confidential Information and Invention Assignment Agreement..... 13
7.7 Board Representation............................................ 13
7.8 Vesting of Employee Stock....................................... 14
SECTION 8 - Miscellaneous................................................... 14
8.1 Governing Law................................................... 14
8.2 Survival........................................................ 14
8.3 Successors and Assigns.......................................... 14
8.4 Entire Agreement, Amendment..................................... 14
8.5 Notices, etc.................................................... 14
8.6 Delays or Omissions............................................. 15
8.7 California Corporate Securities Law............................. 15
8.8 Expenses........................................................ 15
8.9 Counterparts.................................................... 15
8.10 Severability.................................................... 16
8.11 Titles and Subtitles............................................ 16
</TABLE>
-iii-
<PAGE>
EXHIBITS
A. Schedule of Purchasers
B. Form of Amended and Restated Articles of Incorporation
C. Schedule of Exceptions
D. Holders of Common Stock
E. Registration Rights Agreement
F. Compliance Certificate
G. Form of Opinion of Wilson, Sonsini, Goodrich & Rosati
H-1. Form of Proprietary Information Agreement
H-2. Form of Consulting Agreement
I. Form of Co-Sale Agreement
-iv-
<PAGE>
VLSI LIBRARIES INCORPORATED
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
This Series A Preferred Stock Purchase Agreement (the "Agreement") is made
as of March 20, 1996 by and among VLSI Libraries Incorporated, a California
corporation (the "Company"), and the investor listed on Exhibit A to this
---------
Agreement (the "Purchasers").
SECTION 1
Authorization and Sale of Series A Preferred Stock
--------------------------------------------------
1.1 Authorization. The Company will authorize the sale and issuance of up
-------------
to 2,263,799 shares of its Series A Preferred Stock, having the rights,
privileges and preferences as set forth in the Amended and Restated Articles of
Incorporation (the "Restated Articles") in the form attached to this Agreement
as Exhibit B.
---------
1.2 Sale of Series A Preferred Stock. Subject to the terms and conditions
--------------------------------
of this Agreement, each Purchaser agrees to purchase at the Closing (as defined
below), and the Company agrees to sell and issue to each Purchaser, that number
of shares of the Company's Series A Preferred Stock (the "Shares" or "Series A
Preferred") set forth opposite each Purchaser's name on Exhibit A to this
---------
Agreement at a purchase price of $1.5461 per share.
SECTION 2
Closing Date; Delivery
----------------------
2.1 Closing Date. The closing of the purchase and sale of the Shares
------------
under this Agreement shall be held at the offices of Wilson, Sonsini, Goodrich &
Rosati, 650 Page Mill Road, Palo Alto, California, at 3:00 p.m., on March 20,
1996, (the "Closing") or at such other time and place upon which the Company and
the Purchasers shall agree (the date of the Closing is hereinafter referred to
as the "Closing Date").
2.2 Delivery. At the Closing, the Company will deliver to each Purchaser
--------
a certificate or certificates representing the number of Shares to be purchased
by each Purchaser at the Closing, against delivery to the Company by each
Purchaser of payment by check or wire transfer of immediately available funds.
SECTION 3
Representations and Warranties of the Company
---------------------------------------------
Except as set forth on Exhibit C attached to this Agreement, the Company
---------
hereby represents and warrants to the Purchasers as follows:
<PAGE>
3.1 Corporate Organization and Authority. The Company is a corporation
------------------------------------
duly organized, validly existing, authorized to exercise all its corporate
powers, rights and privileges, and in good standing in the State of California,
has the corporate power and corporate authority to own and operate its
properties and to carry on its business as now conducted and as proposed to be
conducted and is not qualified to do business as a foreign corporation in any
jurisdiction and such qualification is not presently required in any
jurisdiction where a failure to so qualify would have a material adverse effect
on the Company.
3.2 Capitalization. Immediately prior to the Closing, the authorized
--------------
capital stock of the Company shall consist of:
(a) Preferred Stock. 2,263,799 shares of Preferred Stock, of which
---------------
all shares are designated Series A Preferred Stock, none of which shares are
issued and outstanding prior to the date hereof. The rights, preferences,
privileges and beneficial restrictions on the Series A Preferred Stock of the
Company are set forth in the Restated Articles of Incorporation as in effect on
the Closing Date. The Company has reserved an aggregate of 2,263,799 shares of
its Series A Preferred Stock for issuance hereunder;
(b) Common Stock. 15,000,000 shares of Common Stock, of which
------------
5,029,000 shares are duly and validly issued, fully-paid, nonassessable,
outstanding and held by the persons and in the amounts set forth on Exhibit D.
---------
The Company has reserved 2,263,799 shares of Common Stock for issuance upon
conversion of the outstanding shares of Series A Preferred Stock. The Company
has reserved 1,891,396 shares of Common Stock for issuance to employees and
directors of, and consultants to, the Company under the 1993 Stock Option Plan,
of which options to purchase 129,000 shares have been exercised, 1,128,532
shares are subject to outstanding options and 633,864 shares remain available
for future grant. Except as contemplated by this Agreement there are no other
outstanding warrants, options, conversion privileges, preemptive rights, or
other rights or agreements to purchase or otherwise acquire or issue any equity
securities of the Company. The Company is not a party or subject to any
agreement or understanding, and, to the Company's knowledge, there is no
agreement or understanding between any persons and/or entities, which affects or
relates to the voting or giving of written consents with respect to any security
or by a director of the Company.
3.3 Subsidiaries. The Company does not presently own, have any investment
------------
in, or control, directly or indirectly, any Subsidiaries, associations or other
business entities. The Company is not a participant in any joint venture or
partnership.
3.4 Authorization. All corporate action on the part of the Company, its
-------------
officers, directors and shareholders necessary for the authorization, execution,
delivery and performance of all obligations under this Agreement and for the
sale, issuance and delivery of the Shares, and of the Common Stock issuable upon
conversion of the Shares has been taken, and this Agreement, the Registration
Rights Agreement attached hereto as Exhibit E (the "Rights Agreement") and the
---------
Right of First Refusal and Co-Sale Agreement attached hereto as Exhibit I (the
---------
"Co-Sale Agreement"), and entered into with the Purchasers in connection with
this Agreement, constitute legally binding valid obligations of the Company
enforceable in accordance with their terms.
-2-
<PAGE>
3.5 Validity of Shares. The Shares, when issued, sold and delivered in
------------------
accordance with the terms and for the consideration expressed in this Agreement
shall be duly and validly issued (including, without limitation, issued in
compliance with applicable federal and state securities laws), fully-paid and
nonassessable and free and clear of all liens and encumbrances (other than
those, if any, created or imposed by a Purchaser). The Common Stock issuable
upon conversion of the Shares has been reserved, and assuming such Common Stock
is issued to the Purchasers, upon issuance in accordance with the Restated
Articles of Incorporation, shall be duly and validly issued (including, without
limitation, issued in compliance with all applicable federal and state
securities laws), fully-paid and non-assessable.
3.6 No Conflict with Other Instruments. The execution, delivery and
----------------------------------
performance of this Agreement, the Rights Agreement and the Co-Sale Agreement
will not result in any violation of, be in conflict with, or constitute a
default under, with or without the passage of time or the giving of notice: (i)
any provision of the Company's Restated Articles of Incorporation or Bylaws;
(ii) any provision of any judgment, decree or order to which the Company is a
party or by which it is bound; (iii) any material contract, obligation or
commitment to which the Company is a party or by which it is bound; or (iv) any
statute, rule or governmental regulation applicable to the Company.
3.7 Litigation. There is no action, proceeding or investigation pending
----------
or threatened, to the best of the Company's knowledge, or any basis therefor
known to the Company, that questions the validity of this Agreement, the Rights
Agreement or the Co-Sale Agreement or the right of the Company to enter into
this Agreement, the Rights Agreement or the Co-Sale Agreement, or that would
result, either individually or in the aggregate, in any event having a
materially adverse effect on the business, properties, prospects or financial
condition of the Company, including, without limitation, any action, suit,
proceeding or investigation involving the prior employment or consultancy of any
of the Company's employees or consultants or their use of any information or
techniques alleged to be proprietary to any former employer of any such employee
or consultant. There is no judgment, decree or order of any court in effect
against the Company, and the Company is not in default with respect to any order
of any governmental authority to which the Company is a party or by which it is
bound. There is no action, suit, proceeding or investigation by the Company
currently pending or which the Company presently intends to initiate.
3.8 Title to Properties, Liens and Encumbrances. The Company has good and
-------------------------------------------
marketable title to all of its properties and assets, both real and personal,
and has good title to all its leasehold interests, in each case subject to no
mortgage, pledge, lien, security interest, conditional sale agreement,
encumbrance or charge.
3.9 Patents and Other Propriety Rights.
----------------------------------
(a) The Company owns or possesses, has access to or can become
licensed on reasonable terms under, all patents, patent applications,
trademarks, trade names, licenses, inventions, computer software, technical
information and copyrights necessary for the operation of its business as now
conducted and as proposed to be conducted by the Company with no known
infringement of or conflict with the rights of others (nor, to the best of the
Company's knowledge, any basis therefor).
-3-
<PAGE>
(b) There are no outstanding options, licenses or agreements of any
kind relating to the matters listed in subsection 3.9(a), nor is the Company
bound by or a party to any options, licenses or agreements of any kind with
respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, proprietary rights and processes of any
other person or entity.
(c) The Company has not received any communications alleging that the
Company has violated or, by conducting its business as proposed, would violate
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or any proprietary rights of any other person or entity.
(d) The Company is not aware that any of its employees is obligated
under any contract (including licenses, covenants or commitments of any nature)
or other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such employee's best
efforts to promote the interests of the Company or that would conflict with the
Company's business as presently conducted.
(e) Neither the execution nor delivery of this Agreement, the Rights
Agreement or the C-Sale Agreement, nor the carrying on of the Company's business
by the employees of the Company, nor the conduct of the Company's business as
presently conducted, will, to the Company's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such employees is
now obligated.
(f) The Company does not believe it is or will be necessary to
utilize any inventions of any of its employees (or people it currently intends
to hire) made prior to their employment by the Company and the rights to which
have not been fully assigned to the Company.
3.10 Company's Contracts. All of the contracts and agreements with
-------------------
expected receipts or expenditures in excess of $100,000 or involving a license
or grant of rights to or from the Company involving patents, trademarks,
copyrights or other proprietary information applicable to the business of the
Company outside the normal course of business, to which the Company is a party
as of the date of the Closing are listed on Exhibit C. All such contracts and
---------
agreements are legally binding, valid, and in full force and effect in all
material respects, and there is no indication of reduced activity relating to
such contract or agreement (other than in the ordinary course of business) by
any of the parties to any such contract or agreement.
3.11 No Defaults, Violations or Conflicts. The Company is not in violation
------------------------------------
of any term or provision of its Restated Articles of Incorporation or Bylaws, or
any material term or provision of any indebtedness, mortgage, indenture,
contract, agreement, judgment, statute, rule or regulation, or to the Company's
knowledge, any decree or order.
3.12 Private Offering. The Company agrees that neither the Company nor
----------------
anyone acting on its behalf will offer any of the Shares or any similar
securities for issuance or sale to, or solicit any offering to acquire any of
the same from, anyone so as to make the sale and issuance of the Shares
-4-
<PAGE>
subject to the registration requirements of Section 5 of the Securities Act of
1933, as amended (the "Securities Act").
3.13 Prior Registration Rights. Except as provided in the Rights
-------------------------
Agreement, the Company is under no contractual obligation to register under the
Securities Act any of its presently outstanding securities or any of its
securities that may subsequently be issued.
3.14 Full Disclosure. The Company has fully provided the Purchasers with
---------------
all the information which the Purchasers have requested for deciding whether to
purchase the Shares and all information which the Company believes is reasonably
necessary to enable the Purchasers to make such decision. The representations
and warranties of the Company contained in this Agreement, the Rights Agreement
and the Co-Sale Agreement, certificates and other documents made or delivered in
connection herewith, together with the financial projections of the Company
previously delivered to the Purchasers, do not contain any untrue statement of a
material fact or omit any material fact necessary to make the statements
contained therein or herein in view of the circumstances under which they were
made not misleading; provided however, that with respect to the financial
projections, the Company represents only that the Company reasonably believes
there is a reasonable basis for such projections.
3.15 Business Plan. The Business Plan dated October, 1995, has been
-------------
prepared in good faith by the Company and does not contain any untrue statement
of a material fact nor does it omit to state a material fact necessary to make
the statements made therein not misleading, except that with respect to
projections contained in the Business Plan, the Company represents only that
such projections were prepared in good faith and that the Company reasonably
believes there is a reasonable basis for such projections.
3.16 Related-Party Transactions. No employee, officer or director of the
--------------------------
Company or member of his or her immediate family is indebted to the Company, nor
is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them. To the best of the Company's knowledge, none of such
persons has any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation that competes with the Company, except
that employees, officers, or directors of the Company and members of their
immediate families may own stock in publicly traded companies that may compete
with the Company. No member of the immediate family or any officer or director
of the Company is directly or indirectly interested in any material contract
with the Company.
3.17 Distributions. There has been no declaration or payment by the
-------------
Company of any dividend, nor any distribution by the Company of any assets of
any kind, to any class or series of its capital stock.
3.18 Employee Compensation Plans. The Company is not party to or bound by
---------------------------
any currently effective employment contracts, deferred compensation agreements,
bonus plans, incentive plans, profit sharing plans, retirement agreements,
employee benefit plan subject to the Employee Retirement Income Security Act of
1974, or other employee compensation agreements. Subject to applicable law, the
employment of each officer and employee of the Company is terminable at the will
of the Company.
-5-
<PAGE>
3.19 Employee Relations. The Company believes its relations with its
------------------
employees are satisfactory. The Company's employees are not represented by any
labor unions nor, to the Company's knowledge, is any union organization campaign
in progress. The Company is not aware that any of its officers or employees
intends to terminate employment.
3.20 Brokers and Finders. The Company has not retained any investment
-------------------
banker, broker or finder in connection with the transactions contemplated by
this Agreement.
3.21 Transactions with Affiliates. Except for (i) the purchase of shares
----------------------------
of the Company's Common Stock and the issuance by the Company of options to
purchase shares of the Company's Common Stock, (ii) regular salary payments and
fringe benefits under an individual's compensation package with the Company, and
(iii) the issuance and sale of the Shares pursuant to the terms and conditions
of this Agreement, none of the officers, employees, directors or other
affiliates of the Company are a party to any transactions with the Company.
There have been no assumptions or guarantees by the Company of any obligations
of such affiliates.
3.22 Governmental Consents. No consent, approval, order or authorization
---------------------
of, or registration, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority on the part of the
Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for the filing pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended, and the
rules thereunder, which filing will be effected within fifteen (15) days after
the Closing.
3.23 Environmental Regulations. Except for failures which will not have a
-------------------------
material adverse effect on the Company, the Company has met, and continues to
meet, all applicable local, state, federal and national environmental
regulations and has disposed of its waste products and effluents and/or has
caused others to dispose of such waste products and effluents, in accordance
with all applicable state, local, federal and national environmental regulations
and in such a manner that no harm has resulted or will result to any of its
respective employees or properties or to any other person or entities or their
properties.
3.24 Minute Books. The minute books of the Company contain a complete
------------
summary of all meetings of directors and stockholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
3.25 Financial Statements. The unaudited balance sheets dated September
--------------------
30, 1994 and September 30, 1995 and related unaudited statements of income for
the fiscal years then ended, and the unaudited balance sheet dated January 31,
1996 and related unaudited statements of income for the four months then ended
(collectively, the "Financial Statements"), are complete and correct in all
material respects, present fairly the financial position and results of
operations of the Company at the dates and for the periods to which they relate,
have been prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods involved, and show all material
liabilities, absolute or contingent, of the Company required to be recorded
therein in accordance with
-6-
<PAGE>
generally accepted accounting principles consistently applied with prior
statements as at the date thereof, except that the Financial Statements have
been prepared by the Company and have not been audited and are subject to normal
year-end audit adjustments, and do not contain footnotes normally associated
with year-end financial statements. Except as set forth in the Financial
Statements, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
January 31, 1996, (ii) obligations under contracts and commitments incurred in
the ordinary course of business and not required under generally accepted
accounting principles to be reflected in the Financial Statements, which,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company and (iii) obligations under contracts or
arrangements described in Exhibit C hereof. The Company has not had its
---------
historical financial statements audited.
3.26 Absence of Certain Changes. Since January 31, 1996 and at all times
--------------------------
up to the Closing, there has not been, nor, so far as reasonably can be foreseen
at this time, is there reasonably likely to be, any event or condition of any
character which has materially adversely affected, or is likely to affect, the
Company's business operations, assets, condition (financial or otherwise),
liabilities, earnings or prospects including but not limited to:
(a) an event that would have a material adverse effect on the
business, properties, prospects or financial condition of the Company, or became
reasonably foreseeable, and if it were to occur might adversely affect the
business, properties, prospects or financial conditions of the Company;
(b) any declaration, setting aside or payment or other distribution
in respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock by the Company;
(c) any waiver by the Company of a valuable right or of a material
debt owed to it;
(d) any material change or amendment to a contract or arrangement by
which the Company or any of its assets or properties is bound or subject;
(e) any damage, destruction or loss to any asset of the Company
(whether or not covered by insurance) that, individually or in the aggregate,
would have a material adverse effect on the business, properties, prospects or
financial condition of the Company;
(f) any commitment, transaction or other action by the Company other
than in the ordinary course of business and consistent with past practice;
(g) any sale or other disposition of any right, title or interest in
or to any assets or properties of the Company or any revenues derived therefrom
other than in the ordinary course of business and consistent with past practice;
(h) (x) any approval or action to put into effect any general
increase in any compensation-or benefits payable to any class or group of
employees of the Company, any increase in
-7-
<PAGE>
the compensation or benefits payable or to become payable by the Company to any
of their directors, officers or any of their employees whose total compensation
after such increase would exceed $50,000 per annum (collectively, "Key
Employees") or any bonus, service award, percentage compensation or other
benefit paid, granted or accrued to or for the benefit of any Key Employee or
(y) the adoption or amendment in any material respect of any employee benefit
plan or compensation commitment or any severance agreement or employment
contract to which any Key Employee is a party;
(i) any creation, incurrence or assumption of any indebtedness for
money borrowed by the Company exceeding $100,000;
(j) any capital expenditures by the Company in excess of $100,000;
(k) any material change in any accounting principle or method or
election for federal income tax purposes used by the Company;
(l) any authorization, approval, agreement or commitment to do any of
the foregoing.
3.27 Tax Returns, Payments and Elections. To date, the Company filed all
-----------------------------------
tax returns and reports as required by law. The provision for taxes of the
Company as shown in the Financial Statements is adequate for taxes due or
accrued as of the date thereof. The Company has not made any elections-pursuant
to the Internal Revenue Code of 1986, as amended (the "Code") (other than
elections that relate solely to methods of accounting, depreciation or
amortization) that would have a material effect on the Company, its financial
condition, its business as presently conducted or proposed to be conducted or
any of its properties or material assets.
3.28 Insurance. The Company will use its best efforts to obtain fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
3.29 Permits. The Company will use its good faith efforts to obtain all
-------
franchises, permits, licenses and any similar authority as necessary for the
conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect (financially or otherwise) the business,
properties, assets, liabilities or prospects (as contemplated in the Business
Plan) of the Company and believes it can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned to be
conducted (as contemplated in the Business Plan). The Company is not in default
in any material respect under any of such franchises, permits, licenses or other
similar authority.
3.30 Section 83(b) Elections. To the best of the Company's knowledge, all
-----------------------
elections and notices required by Section 83(b) of the Code and any analogous
provisions of applicable state tax- laws have been timely filed by all
individuals who have purchased shares of the Company's Common Stock.
3.31 Corporate Documents. The Company's Amended and Restated Articles of
-------------------
Incorporation and Bylaws are in the form previously provided to the Purchasers.
-8-
<PAGE>
SECTION 4
Representations and Warranties of the Purchasers
------------------------------------------------
Each Purchaser hereby represents and warrants to the Company with respect
to the purchase of the Shares as follows:
4.1 Experience. Purchaser has substantial experience in evaluating and
----------
investing in private placement transactions so that Purchaser is capable of
evaluating the merits and risks of Purchaser's investment in the Company.
Purchaser, by reason of its business or financial experience or the business or
financial experience of its professional advisors who are unaffiliated with and
who are not compensated by the Company or any affiliate or selling agent of the
Company, directly or indirectly, has the capacity to protect its own interests
in connection with the purchase of the Shares under this Agreement.
4.2 Investment. Purchaser is acquiring the Shares and the underlying
----------
Common Stock for investment for Purchaser's own account, not as a nominee or
agent, and not with the view to, or for resale in connection with, any
distribution thereof Purchaser understands that the Shares and the underlying
Common Stock have not been, and will not be, registered under the Securities Act
by reason of a specific exemption therefrom, and that any such exemption would
depend, among other things, upon the bona fide nature of the investment intent
and the accuracy of such Purchaser's representations as expressed in this
Agreement. Purchaser has not been formed for the specific purpose of acquiring
the Shares or the underlying Common Stock.
4.3 Rule 144. Purchaser acknowledges that the Shares and the underlying
--------
Common Stock must be held indefinitely unless subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser
is aware of the provisions of Rule 144 promulgated under the Securities Act
which permit limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things, the
existence of a public market for the shares, the availability of certain current
public information about the Company, the resale occurring not less than two
years after a party has purchased and paid for the security to be sold, the sale
being effected through a "broker's transaction" or in transactions directly with
a "market maker" (as provided by Rule 144(f)) and the number of shares being
sold during any three-month period not exceeding specified limitations.
4.4 No Public Market. Purchaser understands that no public market now
----------------
exists for any of the securities issued by the Company, that the Company has
made no assurances that a public market will ever exist for the Shares or the
underlying Common Stock and that, even if such a public market exists at some
future time, the Company may not then be satisfying the current public
information requirements of Rule 144.
4.5 Access to Data. Purchaser and its representatives have met with
--------------
representatives of the Company and thereby have had the opportunity to ask
questions of, and receive answers from, said representatives concerning the
Company and the terms and conditions of this transaction as well as to
-10-
<PAGE>
obtain any information requested by Purchaser. Any questions raised by Purchaser
or its representatives concerning the transaction have been answered to the
satisfaction of Purchaser and its representatives. Purchaser's decision to
purchase the Shares is based in part on the answers to such questions as
Purchaser and its representatives have raised concerning the transaction and on
its own evaluation of the risks and merits of the purchase and the Company's
proposed business activities.
4.6 Authorization. This Agreement when executed and delivered by the
-------------
Purchaser will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms subject to bankruptcy,
insolvency, fraudulent conveyance, moratorium or other laws affecting creditors
rights generally and to equitable principles of general applicability.
4.7 Brokers or Finders. The Company has not incurred, and will not incur,
------------------
directly or indirectly, as a result of any action taken by the Purchaser any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement.
SECTION 5
Conditions to Closing of Purchasers
-----------------------------------
Each Purchasers obligation to purchase the Shares at the Closing is, at the
option of the Purchaser, subject to the fulfillment or waiver as of the Closing
Date of the following conditions:
5.1 Presentations and Warranties Correct. The representations and
------------------------------------
warranties made by the Company in Section 3 of this Agreement shall be true and
correct in all material respects when made, and shall be true and correct in all
material respects on the Closing Date with the same force and effect as if they
had been made on and as of said date.
5.2 Covenants. All covenants, agreements and conditions contained in this
---------
Agreement to be performed by the Company on or prior to the Closing Date shall
have been performed or complied with in all respects.
5.3 Compliance Certificate. The Company shall have delivered to each
----------------------
Purchaser a certificate of the Company in the form attached hereto as Exhibit F,
executed by the President of the Company, dated the Closing Date, and certifying
to the fulfillment of the conditions specified in Sections 5.1 and 5.2 of this
Agreement.
5.4 Blue Sky. The Company shall have obtained all necessary Blue Sky law
--------
permits and qualifications, or secured exemptions therefrom, required by any
state for the offer and sale of the Shares and the Common Stock issuable upon
conversion of the Shares.
5.5 Articles of Incorporation. The Restated Articles shall have been
-------------------------
filed with the Secretary of State of the State of California.
-11-
<PAGE>
5.6 Rights Agreement. The Company shall have entered into the
----------------
Registration Rights Agreement substantially in the form attached hereto as
Exhibit E.
5.7 Opinion of Company's Counsel. At the Closing, the Purchasers shall
----------------------------
have received from Wilson, Sonsini, Goodrich & Rosati, counsel to the Company, a
favorable opinion addressed to them, dated the Closing Date, in substantially
the form attached to this Agreement as Exhibit G.
---------
5.8 Minimum Investment. The Purchasers shall have tendered, in the
------------------
aggregate, at the Closing consideration of not less than $3,500,000 for purchase
of the Shares.
5.9 Proprietary Information Agreements. Each officer, director and
----------------------------------
employee of the Company, shall have entered into a proprietary information
agreement in the form of Exhibit H-1 hereto.
5.10 Consulting Agreement. The consultants of the Company shall each have
--------------------
executed and delivered to the Company a consulting agreement substantially in
the form of Exhibit H-2 hereto.
5.11 Co-Sale Agreement. Each of the Purchasers and each of Scott T.
-----------------
Becker, Duane R. Hook, John G. Malecki, Daniel I. Rubin and Mark R. Templeton
(collectively, the "Founders") shall have entered into a Co-Sale Agreement in
the form attached hereto as Exhibit I.
5.12 Board Representation. The Company shall have taken all necessary
--------------------
corporate action to cause the Board of Directors of the Company to consist of
Lucio L. Lanza, Irwin Federman, Mark Templeton, Scott T. Becker and one vacancy
effective as of the Closing Date.
SECTION 6
Conditions to Closing of Company
--------------------------------
The Company's obligation to sell and issue the Shares at the Closing is, at
the option of the Company, subject to the fulfillment or waiver of the following
conditions:
6.1 Representations. The representations made by each Purchaser in
---------------
Section 4 of this Agreement shall be true and correct when made, and shall be
true and correct on the Closing Date.
6.2 Blue Sky. The Company shall have obtained all necessary Blue Sky law
--------
permits and qualifications, or secured exemptions therefrom, required by any
state for the offer and sale of the Shares and the Common Stock issuable upon
conversion of the Shares.
6.3 Articles of Incorporation. The Restated Articles shall have been
-------------------------
filed with the Secretary of State of the State of California.
-12-
<PAGE>
6.4 Covenants. All covenants, agreements and conditions contained in this
---------
Agreement to be performed by the Purchasers on or prior to the Closing Date
shall have been performed or complied with in all material respects.
6.5 Rights Agreement. The Purchasers shall have entered into the Rights
----------------
Agreement substantially in the form attached hereto as Exhibit E.
6.6 Co-Sale Agreement. Each of the Purchasers and each of Scott T.
-----------------
Becker, Duane R. Hook, John G. Malecki, Daniel I. Rubin and Mark R. Templeton
(collectively, the "Founders") shall have entered in to a Co-Sale Agreement in
the form attached hereto as Exhibit I.
6.7 Board Representation. The Company shall have taken all necessary
--------------------
corporate action to cause the Board of Directors of the Company to consist of
Lucio L. Lanza, Irwin Federman, Mark Templeton, Scott T. Becker and one vacancy
effective as of the Closing Date.
SECTION 7
Affirmative Covenants of the Company
------------------------------------
The Company hereby covenants and agrees as follows:
7.1 Financial Information. The Company will mail the following reports to
---------------------
each Purchaser for so long as such Purchaser is a holder of any Shares purchased
by such person pursuant to this Agreement (or Common Stock issued upon
conversion of the Shares):
(a) As soon as practicable after the end of each fiscal year, and in
any event within ninety (90) days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and consolidated statements of changes in
financial position of the Company and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and audited by the Company's independent public
accountants.
(b) Contemporaneously with delivery to holders of Common Stock, a
copy of each report of the Company delivered to holders of the Company's Common
Stock.
7.2 Additional Information. For so long as Purchaser holds not less
----------------------
than 255,000 Shares (or an equivalent number of shares consisting of the Shares
or Common Stock issued upon conversion of the Shares), as adjusted for
recapitalizations, stock splits, stock dividends and the like, the Company will
mail the following reports to such Purchaser:
(a) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company and in any
event within 45 days thereafter, a
-13-
<PAGE>
consolidated balance sheet of the Company and its subsidiaries, if any, as of
the end of each such quarterly period, and consolidated statements of income and
consolidated statement of cash flows of the Company and its subsidiaries for
such period, and for the accepted accounting principles, all in reasonable
detail and signed, subject to charges resulting from year-end audit adjustments,
by the principal financial or accounting officer of the Company.
(b) As soon as practicable, but in any event prior to the end of each
fiscal year, a budget for the next fiscal year, including balance sheets and
sources and applications of funds statements and, as soon as prepared, any other
budgets or revised budgets prepared by the Company.
(c) For so long as a Purchaser is eligible to receive reports under
this Section 7.2, it shall also have the right, at its expense, to discuss the
affairs, finances and accounts of the Company with the Company's officers, all
at such reasonable times and as often as may be reasonably requested; provided,
however, that the Company shall not be obligated to provide any information that
it reasonably considers to be a trade secret or to contain confidential
information.
7.3 Transfer of Information Rights. The information rights set forth in
------------------------------
Sections 7.1 and 7.2 may be transferred in any nonpublic transfer of Shares (or
Shares of Common Stock issued upon conversion of the Shares), provided that the
Company is given written notice of such transfer, and provided further that the
right to receive the information set forth in Section 7.2 may only be
transferred to a holder of, or affiliated holders who in the aggregate hold, at
least 255,000 Shares (or an equivalent number of shares consisting of the Shares
or Common Stock issued upon conversion of the Shares, as appropriately adjusted
for stock splits and the like). In the event that the Company reasonably
determines that provision of information to a transferee pursuant to this
Section 7.3 would materially adversely affect its proprietary position, such
information may be edited in the manner necessary to avoid such effect.
7.4 Termination of Covenants. The covenants set forth in Sections 7.1
------------------------
and 7.2 shall terminate on and be of no further force or effect upon the earlier
of (i) the consummation of the Company's sale of its Common Stock in an
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act, immediately subsequent to which the Company
shall be obligated to file annual and quarterly reports with the Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") or (ii) the registration by the Company of a class of its equity
securities under Section 12(b) or 12(g) of the Exchange Act.
7.5 Securities Laws Compliance. The Company shall within fifteen days of
--------------------------
the Closing file a notice of the sale of the Shares to the Purchasers pursuant
to Section 25102(f) of the California Corporations Code.
7.6 Confidential Information and Invention Assignment Agreement. The
-----------------------------------------------------------
Company shall require all of its current and future officers and each employee
with access to confidential information regarding the Company's operations, to
execute and deliver a Confidential Information and Invention Assignment
Agreement in substantially the form attached as Exhibit H-1 hereto.
-----------
-14-
<PAGE>
7.7 Board Representation. Effective as of the Closing Date, the Board
--------------------
of Directors shall consist of (i) Mark R. Templeton and Scott T. Becker,
representing the holders of Common Stock; (ii) Lucio L. Lanza and Irwin
Federman, representing the holders of Series A Preferred Stock; and (iii) one
vacancy to be filled by the Board of Directors as soon as possible after the
Closing with an individual with relevant industry experience.
7.8 Vesting of Employee Stock. Unless otherwise approved by the Board of
-------------------------
Directors, any stock granted to employees of or consultants to the Company as
part of the 633,864 shares (and such other shares as may be returned to the
Plan) of Common Stock remaining available for grant under the Company's 1993
Stock Option Plan shall be subject to the Company's standard vesting provisions,
which allows for a four-year term with 6.25% of the total shares or options
vesting each quarter following the grant, provided, however, that the option may
not be exercised prior to the first anniversary of the vesting date.
SECTION 8
Miscellaneous
-------------
8.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California in the United States of America without
giving effect to the conflicts of laws principles thereof.
8.2 Survival. The representations, warranties, covenants and agreements
--------
made in this Agreement shall survive the closing of the transactions
contemplated hereby, and shall in no way be affected by any investigation of the
subject matter hereof made by or on behalf of the Purchasers or the Company.
8.3 Successors and Assigns. Except as otherwise provided in this
----------------------
Agreement, the provisions of this Agreement shall inure to the benefit of, and
be binding upon, the Successors, assigns, heirs, executors and administrators of
the parties to this Agreement; provided, however, that the right of the
Purchasers to purchase the Shares shall not be assignable without the prior
written consent of the Company.
8.4 Entire Agreement, Amendment. This Agreement and the other documents
---------------------------
delivered pursuant to this Agreement at the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and supersede all prior agreements and merge all
prior discussions, negotiations, proposals and offers (written or oral) between
them, and no party shall be liable or bound to any other party in any manner by
any warranties, representations or covenants except as specifically set forth
herein or therein. Except as expressly provided in this Agreement, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought; provided,
however, that holders of at least a majority of the Shares (or shares of Common
Stock issued upon conversion of the Shares) may, with the
-15-
<PAGE>
written consent of the Company, waive, modify or amend on behalf of all holders,
any provisions hereof benefiting such holders, so long as the effect thereof
will be that all such holders will be treated equally.
8.5 Notices, etc. All notices and other communications required or
-------------
permitted under this Agreement shall be mailed by registered or certified mail,
postage prepaid, or otherwise delivered by hand or by messenger, addressed (a)
if to a Purchaser, at such Purchaser's address set forth on Exhibit A, or, at
---------
such other address as such Purchaser shall have furnished to the Company in
writing, or (b) if to any other holder of any Shares, at such address as such
holder shall have furnished the Company in writing, or, until any such holder so
furnishes an address to the Company, then to and at the address of the last
holder of such Shares who has so furnished an address to the Company, or (c) if
to the Company, one copy should be sent to its offices and addressed to the
attention of the President, or at such other address as the Company shall have
furnished to the Purchaser.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and postage prepaid as
aforesaid.
8.6 Delays or Omissions. Except as expressly provided in this Agreement,
-------------------
no delay or omission to exercise any right, power or remedy accruing to any
holder of any Shares, upon any breach or default of the Company under this
Agreement, shall impair any such right, power or remedy of such holder nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval 'of any kind or character on the part of any holder of any
breach or default under this Agreement, or any waiver on the part of any holder
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
8.7 California Corporate Securities Law. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
8.8 Expenses. The Company and the Purchasers shall each bear their own
--------
expenses incurred on their behalf with respect to this Agreement and the
transactions contemplated hereby; provided, however, that if the transactions
are consummated, the Company will pay the reasonable fees and
-16-
<PAGE>
expenses of Venture Law Group up to a maximum of $10,000 upon presentation of an
itemized invoice therefor.
8.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
8.10 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
8.11 Titles and Subtitles. The titles and subtitles used in this
-------------------
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY" "PURCHASERS"
VLSI LIBRARIES INCORPORATED, U.S. VENTURE PARTNERS IV, L.P.
a California corporation By Presidio Management Group IV, L.P.
Its General Partner
By: /s/ Mark R. Templeton By /s/ Michael P. Maher
--------------------------- ----------------------------
Mark R. Templeton, President Michael P. Maher
Attorney-in-Fact
SECOND VENTURES II, L.P.
By Presidio Management Group IV, L.P.
Its General Partner
By /s/ Michael P. Maher
----------------------------
Michael P. Maher
Attorney-in-Fact
USVP ENTREPRENEUR PARTNERS II, L.P.
A Delaware Limited Partnership
By Presidio Management Group IV, L.P.
Its General Partner
-17-
<PAGE>
By /s/ Michael P. Maher
-----------------------------
Michael P. Maher
Attorney-in-Fact
-18-
<PAGE>
2180 ASSOCIATES FUND
By Michael P. Maher, Attorney-In-Fact
By /s/ Michael P. Maher
-------------------------------
-19-
<PAGE>
EXHIBIT A
---------
SCHEDULE OF PURCHASERS
----------------------
<TABLE>
<CAPTION>
NO. OF SHARES
PURCHASER TO BE PURCHASED PURCHASE PRICE
- --------------------------------------------------------------------------
<S> <C> <C>
U.S. VENTURE PARTNERS IV, L.P. 1,951,395 $3,017,051.81
c/o U.S. Venture Partners
2180 Sand Hill Road
Suite 300
Menlo Park, CA 94025
Attention: Lucio Lanza
SECOND VENTURES II, L.P. 237,699 367,506.42
c/o U.S. Venture Partners
2180 Sand Hill Road
Suite 300
Menlo Park, CA 94025
Attention: Lucio Lanza
USVP ENTREPRENEUR PARTNERS II, L.P. 67,914 105,001.84
c/o U.S. Venture Partners
2180 Sand Hill Road
Suite 300
Menlo Park, CA 94025
Attention: Lucio Lanza
2180 ASSOCIATES FUND 6,791 10,499.57
c/o U.S. Venture Partners
2180 Sand Hill Road
Suite 300
Menlo Park, CA 94025
Attention: Lucio Lanza
--------- -----------
TOTAL 2,263,799 $3,500,059.64
</TABLE>
-20-
<PAGE>
EXHIBIT 10.7
PURCHASE AND LICENSE AGREEMENT
This Purchase and License Agreement, the "Agreement," Number PL1520 with an
------
Effective Date of April 9, 1996, is made by and between VLSI Libraries
--------------
Incorporated, a California Corporation, with its principal place of business at
2077 Gateway Place, Suite #300, San Jose, CA 95110, hereinafter referred to as
"VLSI Libraries," and Oki Electric Industry Co., Ltd. a Japanese Corporation
------------------------------- --------
with its principal place of business at 7-12 Toranomon 1-chome, Minato-ku, Tokyo
----------------------------------------
105, Japan hereinafter referred to as "Licensee."
- ----------
1.0 DEFINITIONS
1.1 LICENSED PRODUCTS: means the data and/or software and related documentation
and any other VLSI Libraries product(s) obtained by Licensee in connection
therewith, whether in object code, reconfigurable binary, ASCII data, binary
data or any other form. Licensed Products includes Layout and Schematics as
described in Section 1.2 below and Models and User Documentation as described in
Section 1.3 below. Appendix A defines the Licensed Products.
1.2 LAYOUT AND SCHEMATICS: means the library element physical design database
and related transistor level schematics, netlists and related documentation,
whether in object code, reconfigurable binary, ASCII data, binary data, or any
other form.
1.3 MODELS AND USER DOCUMENTATION: means the library element timing and
simulation models, logical symbols and related documentation.
1.4 LICENSED SITE(S): Appendix A defines the site(s) that will be licensed to
use the Licensed Products and receive direct product support via email or
telephone from VLSI Libraries.
1.5 USAGE, USING, USE OR USED: means the transmitting, processing, storing,
designing with or displaying of any portion of the Licensed Product through the
use of computer and/or video equipment and/or utilizing Models and User
Documentation for any purpose.
1.6 UPDATE(S): means a derivative work extension, enhancement or modification of
a Licensed Product made by or for VLSI Libraries, which shall be disclosed to
Licensee and which VLSI Libraries in its sole discretion releases to Licensee.
Updates shall not include any new or additional features, enhancements, or
options which increase the basic functionality of the Licensed Product for which
VLSI Libraries charges a separate or additional fee.
1.7 DESIGN: means any integrated circuit, integrated circuit mask, design
database or graphical representation of design database containing
representations of Licensed Products or designed with data from Licensed
Products from VLSI Libraries in any of its various formats, including but not
limited to: circuit schematics, ASCII or binary data, logic diagrams,
simulations models, physical layout, hardware description languages, timing
characteristics and netlists.
1.8 DESIGN DATA AND TECHNIQUES: means the VLSI Libraries supplied data, circuit
and logic elements, libraries, architectures, and technical information
incorporated in the Licensed Products and Documentation, and employed in the
process of creating Designs.
2.0 LICENSE GRANT, RESTRICTED USE AND ADDITIONAL COPIES
2.1 Subject to the conditions herein, VLSI Libraries grants to Licensee a non-
transferable, non-sublicenseable, non-exclusive, perpetual, paid-up, limited
license to Use and modify the Licensed Product(s) in machine readable form and
to reproduce the Licensed Products for internal distribution at the Licensed
Site(s) and for distribution as defined in Section 2.2.
2.2 Licensee may distribute the Models and User Documentation to Licensee's
customers as needed to support Licensee's IC design and manufacture business.
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2.3 Licensee acknowledges and agrees that: (a) unauthorized reproduction,
electronic transfer or other Use of Licensed Product(s) which is not expressly
authorized by this Section 2.0 is a breach of a material obligation of this
Agreement; and (b) in the event that unauthorized copies of Licensed Product(s)
are made and/or Used by Licensee or its personnel, and VLSI Libraries elects not
to terminate this Agreement pursuant to Section 9.0, Licensee shall by virtue of
such act(s) be deemed to order and accept a license for and shall pay VLSI
Libraries the list price and applicable support fees for each such unauthorized
reproduction, electronic Use, other unauthorized Use, or transfer of Licensed
Products. These fees shall be VLSI Libraries' published list prices existing on
the date such unauthorized use first occurred. This amount shall be due, for
purposes of Section 7.0, thirty (30) days following discovery by VLSI Libraries
of such unauthorized use.
2.4 Prior to disposing of any machines, software media (e.g. disks or backup
records) or other similar apparatus, Licensee shall erase or otherwise destroy
any Licensed Product(s) or portion thereof contained on such media or stored in
such apparatus.
2.5 In the event that VLSI Libraries reasonably deems itself insecure with
respect to Licensee's compliance with the foregoing provisions, Licensee shall,
within ten (10) days of written notification provide written certification by a
duly authorized officer of the compliance with the terms of this Section 2.0 to
VLSI Libraries.
2.6 Licensee may license additional copies of the Licensed Products for second
and subsequent sites at any time during the term of this agreement. This license
will be exercised by the Licensee's giving VLSI Libraries notice in writing of
Licensee's exercise of such license. The license fee for the first additional
copy shall be [*** Redacted] and for each additional copy shall be [***
Redacted] of the license fee of the [*** Redacted] whichever is the lesser
amount. Additional copies of the Licensed Products made or used by Licensee
pursuant to this Section 2.6, and any intellectual property rights therein and
thereto, will be included in the license granted to Licensee hereunder. License
fees for any such additional copies or sites shall be due and payable within
[*** Redacted] of the date of VLSI Libraries' invoice for such copies.
3.0 SUPPORT CONDITION, SILICON DEBUGGING AND PRODUCT ENGINEERING
3.1 VLSI Libraries provides Licensed Product support for the Licensed Site(s),
as defined in Section 1.4, as is deemed reasonable by VLSI Libraries at
[***Redacted] charge for a period of [*** Redacted] after delivery to a common
carrier as provided in Section 5.3.
3.2 The design and verification techniques for the Licensed Products used by
VLSI Libraries depend on the accuracy of models, flows and design tools; some
of which are provided by our Licensees and their target foundries. Due to
practical limits on the accuracy of these models, flows and design tools, the
fabricated silicon behavior may not always agree with that predicted. In these
cases, VLSI Libraries will assist the Licensee in silicon debugging and product
engineering at VLSI Libraries then current standard hourly rate plus applicable
expenses. Silicon debugging and product engineering do not fall under the
support condition as described in Section 3.1 above.
4.0 TERM
4.1 This Agreement is effective from its execution by Licensee and VLSI
Libraries, and is valid indefinitely, unless terminated as provided in Section
9.0.
5.0 ORDER, CHANGES AND DELIVERY TERMS
5.1 All orders for Licensed Products submitted by Licensee will be initiated by
Licensee's written purchase orders sent to VLSI Libraries and requesting a
delivery date during the term of this Agreement. All purchases/licenses of
Licensed Products to Licensee by VLSI Libraries during the term of this
Agreement will be subject to the terms and conditions of this Agreement. Except
as otherwise agreed in writing signed by an officer of VLSI Libraries and
Licensee, nothing contained in any purchase order submitted by Licensee pursuant
to this Agreement will in any way modify, delete or add any terms or conditions
to said purchases and licenses, and Licensee hereby waives such purchase order
provisions.
5.2 Changes to the scope of work either requested by and/or necessitated by
Licensee's specifications will be evaluated for both schedule and cost impact.
The Licensee will be asked to
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*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
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complete an Engineering Change Order Request Form, an "ECO," and submit it to
VLSI Libraries for review. If after review by VLSI Libraries, it is determined
that both the schedule and/or quoted sales prices must change to accommodate the
ECO, VLSI Libraries will notify the Licensee in writing on our ECO Response Form
of any such schedule and/or price changes. Licensee must provide written
acceptance or refusal of the new schedule and/or costs within five (5) days of
having been so notified. Failure to do so will cause VLSI Libraries to proceed
with the project as if the Licensee's ECO Request Form had never been received.
Sample ECO Request and ECO Response Forms are attached as Exhibits A and B.
5.3 VLSI Libraries shall deliver the Licensed Product(s) to a common carrier
specified by Licensee, F. C. A. (incoterms 1990) Origin, freight prepaid and
billed.
5.4 Licensee acknowledges and agrees that acceptance shall occur upon delivery
of the Licensed Product by VLSI Libraries to a
common carrier, subject only to the warranty provided in Section 11.0.
6.0 TITLE
6.1 Subject to the licenses granted herein, all right, title and interest in
and to the Licensed Product(s), VLSI Libraries' patents, patent applications,
trademarks, copyrights and all other proprietary rights owned by or the rights
in which are held by VLSI Libraries and its licensors shall remain with VLSI
Libraries and its licensors.
6.2 Subject to licenses granted hereunder, all right, title and interest in and
to Licensee proprietary information, and any other patents, patent applications,
trademarks, copyrights or trade secrets owned by or the rights to which are held
by Licensee shall remain with Licensee.
7.0 PAYMENT TERMS AND TAXES
7.1 Payment terms are per VLSI Libraries' quotation, or otherwise as specified
in this agreement.
7.2 All deposits submitted by Licensee with purchase orders/agreements are non-
refundable.
7.3 Licensee shall pay to VLSI Libraries the license fee(s) set forth in the
relevant VLSI Libraries' quotation, which license fee is incorporated herein by
this reference, as referenced on Licensee's purchase order and accepted by VLSI
Libraries, any amounts due under Section 2.3(b) in the event of unauthorized Use
of Licensed Product(s) and license fees for additional copies of the Licensed
Products, if any, licensed by Licensee under Section 2.6 above.
7.4 This Agreement number and any support agreement number (if applicable),
must appear on all correspondence related to this Agreement or any subsequent
order placed hereunder.
7.5 All invoices will be mailed to Licensee's Accounts Payable Department
specified in the applicable Licensee purchase order.
7.6 In addition to any other sums payable hereunder, Licensee shall pay to or
reimburse VLSI Libraries for any and all taxes arising from or based upon the
license or Use of the Licensed Product(s) (excluding taxes based on VLSI
Libraries' income) as well as the collection of or withholding of such tax,
including penalties and interest.
8.0 EXPORT RESTRICTIONS
8.1 This Agreement, the Licensed Product(s), the direct product resulting from
the use of the Licensed Product(s), and the rights granted hereunder are subject
to any and all laws, regulations, orders or other restrictions relative to
export, re-export or redistribution of the Licensed Product(s) to a new site
that may now or in the future be imposed by the government of the United States.
Licensee agrees to comply with all such applicable laws and regulations.
9.0 TERMINATION
9.1 VLSI Libraries shall have the right, in its sole discretion, to terminate
this Agreement and the licenses granted hereunder prior to the events set forth
in Section 4.0 above, upon the occurrence of any of the following events: (a)
the failure or neglect of Licensee to pay VLSI Libraries any sums or amounts due
hereunder in a timely manner where such delinquency is not fully corrected
within thirty (30) days of VLSI Libraries' written demand; or (b) the failure or
neglect of Licensee to observe, keep, or perform any of the material covenants,
terms and conditions of this Agreement where such non-performance is not fully
remedied by Licensee within thirty (30) days of VLSI Libraries' written demand;
or (c) any breach of Section 2.1 or 2.3
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hereof (effective immediately upon written notification, at VLSI Libraries'
option); or (d) the filing of a petition for Licensee's bankruptcy which is not
discharged within sixty (60) days, whether voluntary or involuntary, or an
assignment of Licensee's assets made for the benefit of creditors, or the
appointment of a trustee or receiver to take charge of Licensee's business for
any reason, or Licensee becoming insolvent or ceasing to conduct business in the
normal course.
9.2 Notwithstanding the foregoing, the provisions of Sections 6.0, 7.0, 10.0,
11.0, 12.0, 13.0, 14.0, 15.0, 16.0, 17.0, 18.0 and 19.0 shall survive the
termination of this Agreement.
9.3 Within fifteen (15) days following the termination date, Licensee shall
cease to Use and shall either destroy or return to VLSI Libraries all of the
Licensed Products, Documentation, copies thereof, in Licensee's possession or
under Licensee's control, together with Licensee's written certification by a
duly authorized officer, that the original and all Updates of the Licensed
Product(s), including copies, modifications or Documentation are no longer in
Use and have been returned to VLSI Libraries or destroyed.
9.4 Termination of this Agreement under this Section 9.0 shall be in addition
to, and not a waiver of, any remedy at law or in equity available to VLSI
Libraries arising from Licensee's breach of this Agreement.
10.0 RIGHT TO DESIGN AND METHODS
10.1 Licensee and VLSI Libraries agree that Licensee shall be the owner of all
Designs created or derived through the Use of the Licensed Product(s).
Accordingly, VLSI Libraries and Licensee agree that Licensee shall be the owner
of the Designs and VLSI Libraries assigns to Licensee all of its rights, if any,
thereto.
10.2 Licensee and VLSI Libraries agree that
VLSI Libraries shall retain all rights to Design Data and Techniques. Licensee
agrees that VLSI Libraries will have the irrevocable right to use in the
Licensed Product(s) any Licensee contribution or voluntarily disclosed
information provided to VLSI Libraries in the course of its relationship with
Licensee, except where such information has been appropriately marked or
identified as Licensee confidential, in which case such information shall be
subject to the restrictions of the appropriate Confidential Disclosure Agreement
separately executed by the parties.
11.0 WARRANTIES
11.1 Performance Warranties: VLSI Libraries warrants that it has the right to
enter this Agreement and to grant the licenses hereunder. VLSI Libraries
warrants for a period of [*** Redacted] from the date of receipt that the
Licensed Product shall be free from defects in media and shall substantially
conform to the material specifications set forth in the Documentation. VLSI
Libraries does not warrant that the use of the Licensed Products will be
uninterrupted or error free. In the event of any nonconformance of the Licensed
Product, Licensee shall promptly notify VLSI Libraries in writing, and provide
VLSI Libraries with evidence and documentation which reproduces the claimed
error and resultant output from the execution or use of such code or data. VLSI
Libraries' sole obligation under this warranty shall be to make its best efforts
to promptly correct such defects. Except as provided under a separate written
valid support agreement between Licensee and VLSI Libraries, VLSI Libraries will
not be under any obligation to provide Licensee with any Updates, releases or
enhancements other than to remedy non-conformance under this warranty. VLSI
Libraries' warranty obligations shall be void if the Licensed Product is
modified without the advance written consent of VLSI Libraries. VLSI Libraries'
warranty obligations hereunder will not apply to failure by the Licensed
Products to comply with the limited warranty herein due to accident, neglect,
abuse, acts of God or misapplication, or due to models, flows, design tools or
any other information provided by Licensee to VLSI Libraries hereunder. Further,
any silicon debugging or product engineering provided by VLSI Libraries pursuant
to Section 3.2 above is provided "AS IS." Notwithstanding anything to the
contrary herein, VLSI Libraries will perform its services provided hereunder in
a professional and workmanlike manner.
11.2 No Further Warranties: EXCEPT AS SPECIFICALLY SET FORTH IN THIS SECTION
11.0, VLSI LIBRARIES AND ITS LICENSORS DO NOT MAKE ANY EXPRESS, IMPLIED OR
STATUTORY WARRANTIES, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, OR ARISING FROM A COURSE
OF DEALING, TRADE
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*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Ommitted portions
have been filed seperately with the Commission.
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USAGE OR TRADE PRACTICE. THE SOLE AND EXCLUSIVE REMEDY FOR ANY BREACH OF THE
WARRANTIES AS SET FORTH IN THIS AGREEMENT SHALL BE FOR VLSI LIBRARIES, AT ITS
OPTION, TO EITHER REPAIR OR REPLACE THE LICENSED PRODUCTS, OR REFUND ANY AMOUNTS
ACTUALLY PAID BY LICENSEE TO VLSI LIBRARIES FOR SUCH LICENSED PRODUCTS IN
QUESTION.
12.0 PATENT, TRADE SECRET AND COPYRIGHT INDEMNIFICATION
12.1 Defense of Suits: VLSI Libraries shall, at its own expense, defend or at
its option, settle any claim, suit or proceeding brought against Licensee for
direct infringement of any valid United States patent or copyright of any third
party, by virtue of Licensee's usage of any of the Licensed Products pursuant to
the terms of this Agreement. VLSI Libraries shall indemnify Licensee against any
costs, expense or damages awarded in such action, provided that Licensee: (a)
promptly notifies VLSI Libraries in writing of such action and provided further
that; (b) Licensee grants VLSI Libraries full authority to defend or settle the
action; and (c) reasonably cooperates and provides all available information,
assistance and authority to defend or settle the action. VLSI Libraries shall
not be liable for any costs, expenses, damages or fees incurred by Licensee in
defending such action or claim unless authorized in advance, in writing by VLSI
Libraries.
12.2 Prosecution of Suits: Any action to be brought to prevent or enjoin any
third party from infringement of any patent, copyright or other proprietary
rights of VLSI Libraries with respect to the Licensed Product(s) shall be
brought exclusively by VLSI Libraries, in its sole discretion and at its sole
cost and expense.
12.3 Infringement Remedies: If Licensed Product(s) is, or in VLSI Libraries'
opinion is likely to become the subject of a claim, suit, or proceedings of
infringement, VLSI Libraries may: (a) procure at no cost to Licensee, the right
to continue Usage of the Licensed Product; (b) replace or modify the Licensed
Product, at no cost to Licensee, to make it non-infringing, provided that
substantially the same function is performed by the replacement of modified
Licensed Product, or (c) if the right to continue Usage cannot be reasonably
procured for Licensee or the Licensed Product cannot be replaced or modified to
make it non-infringing, terminate the license of such, remove the Licensed
Product and grant Licensee refund credit thereon as depreciated on a
[*** Redacted] basis.
12.4 Non-Conforming Use: VLSI Libraries shall have no liability for any claim,
suit or proceeding of infringement based on the Usage of Licensed Product after
Licensee receives notice that the Licensed Product infringes a proprietary right
or intellectual property right of a third party.
12.5 No other Obligations: The foregoing states VLSI Libraries' sole obligations
and entire liability with respect to any claimed infringement of the Licensed
Product(s) or any intellectual property or other rights of any third party.
13.0 LIMITATION OF LIABILITY
13.1 Limitation on Damages. IN NO EVENT WILL VLSI LIBRARIES OR ITS SUPPLIERS BE
LIABLE FOR ANY LOSS OR DAMAGE TO REVENUES, PROFITS, OTHER ECONOMIC LOSS OR
GOODWILL OR COSTS OF REPLACEMENT GOODS OR SERVICES OR OTHER SPECIAL, INCIDENTAL,
EXEMPLARY, INDIRECT AND CONSEQUENTIAL DAMAGES OF ANY KIND, RESULTING FROM ITS
PERFORMANCE OR FAILURE TO PERFORM PURSUANT TO THE TERMS OF THIS AGREEMENT OR
RESULTING FROM THE FURNISHING, PERFORMANCE, DELAY IN DELIVERY, OR USE OR LOSS OF
USE OF ANY LICENSED PRODUCTS OR OTHER MATERIALS DELIVERED TO LICENSEE HEREUNDER,
WHETHER RESULTING FROM BREACH OF CONTRACT, BREACH OF WARRANTY, TORT OR STRICT
LIABILITY EVEN IF VLSI LIBRARIES HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
13.2 Maximum Liability. VLSI Libraries and its suppliers' liability to Licensee
under any provision of this Agreement shall be limited to the license fees
actually paid by Licensee to VLSI Libraries for the Licensed Product(s) in
question. The existence of more than one claim will not enlarge or extend this
limit.
14.0 RELEASE OF PERFORMANCE INFORMATION
14.1 Licensee shall not distribute externally or to third parties, any reports
or statements that directly compare the timing, speed, area,
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*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Ommitted portions
have been filed seperately with the Commission.
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functionality or other performance results of circuit designs created or
designed through the Use of any other similar products of Licensee or any third
party without the prior written approval of VLSI Libraries.
14.2 Neither party shall announce or publicly disclose the terms and conditions
of this Agreement without prior written approval from the other party.
14.3 Notwithstanding the foregoing, Licensee may provide its customers with such
reports and/or statements in order to promote the competitiveness of the
Licensee's products.
15.0 GOVERNING LAW
15.1 This Agreement shall be governed by and construed in accordance with the
laws of the State of California, without regard to the conflict of laws
provisions thereof.
16.0 ASSIGNMENT
16.1 Neither this Agreement nor any rights or obligations hereunder, in whole or
in part, shall be assignable or otherwise transferable by any party except upon
prior written approval of the other party in the event of acquisition,
substantial sale of assets or reorganization. Such approval shall not be
unreasonably withheld. Any unauthorized attempt by Licensee to assign or
transfer this Agreement or any rights or obligations hereunder shall be null and
void. Subject to the foregoing provisions of this Section 16.1, this Agreement
will be binding upon and inure to the benefits of the parties hereto, their
successors and assigns.
17.0 CONFIDENTIALITY
17.1 Neither party shall use any Confidential Information or any other
information acquired from the other party in connection with this agreement
except solely for the purposes of this Agreement. For a period of five (5) years
after receipt of such Confidential Information, or during the effective term of
this Agreement, which may be longer, both parties shall use a reasonable
standard of care not to disclose, publish or disseminate any of the Confidential
Information to any third party.
17.2 Notwithstanding the other provisions of this Article or of this Agreement,
both parties shall have no obligation with respect to the Confidential
Information which is: (a) published or otherwise made available to the public
other than by a breach of this Agreement; or (b) rightfully received from a
third party without any confidentiality limitation; or (c) approved in writing
for release by the other party; or (d) independently developed by the party; or
(e) known to the party prior to its first receipt of the same from the other
party; or (f) hereafter disclosed by the other party to a third party without
restriction on disclosure.
17.3 If any Confidential Information is disclosed by any party pursuant to the
requirement or request of a governmental or judicial agency or if the disclosure
is required by operation of law, such disclosure will not constitute a breach of
this Agreement, provided that the party shall promptly notify the other party,
consult with the other party, and if necessary, seek a protective order with
respect thereto reasonably satisfy to the other party to the extent available
under applicable law.
17.4 Violation of any of the provisions under this Article shall constitute a
material breach of this Agreement.
18.0 ARBITRATION
18.1 All disputes and differences between the parties arising out of or under
this Agreement shall be settled amicably through negotiations. In case such
dispute or difference cannot be settled amicably through negotiations, it shall
be finally settled by arbitration in Tokyo, Japan in accordance with the
Commercial Arbitration Rules of the Japan Commercial Arbitration Association.
The award rendered by arbitrator(s) shall be final and binding upon the parties
hereto.
19.0 NOTICE
19.1 Any notices required to be given pursuant to this Agreement shall be in
writing, sent via certified mail, return receipt requested, express overnight
courier, or by facsimile (a confirmed copy of which to be sent promptly by mail
to addressee) to the address of VLSI Libraries or Licensee as set forth below or
to such other address as may be specified from time to time by notice in
writing, and such notice shall be deemed to have been received on the earlier of
(a) the date when actually received or (b) if by facsimile, when the sending
party shall have received a facsimile confirmation that the message has been
received by the receiving party's facsimile machine.
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If to VLSI Libraries:
VLSI Libraries Incorporated
2077 Gateway Place, #300
San Jose, CA 95110
Attn: Manager, Contracts
Telephone Number: 408/453-1000
Facsimile Number: 408/453-3500
If to Licensee:
OKI Electric Industry Co., Ltd.
550-1 Hiyashiasakawa-cho, Hachioji-shi,
Tokyo 193 Japan
LSICAD Development Department
Attn: Manager
Telephone Number: 0426/63-1111
Facsimile Number: 0426/6536
20.0 SEVERABILITY AND WAIVER
20.1 The invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions of this Agreement and shall be
construed in all respects as if such invalid or unenforceable provisions were
omitted.
20.2 The waiver by either party of any default or breach of this Agreement shall
not constitute a waiver of any other subsequent default or breach.
20.3 Failure or delay by either party in exercising any right or power hereunder
shall not operate as a waiver of such right or power.
20.4 The prevailing party in any action to enforce the terms of this Agreement
shall be entitled to reasonable attorney's fees and other costs and expenses
incurred by it in connection with such action.
21.0 MISCELLANEOUS TERMS
21.1 The relationship of the parties hereto is that of independent contractors,
and neither party is an employee, agent, partner or joint venturer of the other.
21.2 Except payments due hereunder by Licensee, neither party shall have
liability for its failure to perform its obligations hereunder when due to
circumstances beyond its reasonable control.
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BOTH PARTIES ACKNOWLEDGE THAT THIS AGREEMENT IS THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE MUTUAL UNDERSTANDING OF THE PARTIES AND SUPERSEDES AND CANCELS
ALL CONFLICTING TERMS AND CONDITIONS AND ALL PREVIOUS AND CONTEMPORANEOUS
WRITTEN AND ORAL AGREEMENTS AND COMMUNICATIONS RELATING TO THE SUBJECT MATTER
HEREIN, INCLUDING ANY TERMS AND CONDITIONS THAT MAY BE INDICATED IN ANY LICENSEE
PURCHASE ORDER. THIS AGREEMENT MAY NOT BE MODIFIED, SUPPLEMENTED, QUALIFIED, OR
INTERPRETED BY
ANY TRADE USAGE OR PRIOR COURSE OF DEALING NOT MADE A PART OF THIS AGREEMENT BY
ITS EXPRESS TERMS. THIS AGREEMENT MAY NOT BE MODIFIED OR AMENDED EXCEPT IN
WRITING AND EXECUTED BY DULY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES.
BOTH PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS AGREEMENT, UNDERSTAND IT AND
AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS AS EVIDENCED BY THEIR SIGNATURES
BELOW.
VLSI LIBRARIES INCORPORATED LICENSEE:
2077 Gateway Place, #300
San Jose, CA 95110
<TABLE>
<S> <C>
/s/ Mark Templeton /s/ [Unreadable signature]
- ----------------------------------------------- ----------------------------------------------
(By) Signature of an Officer of the Corporation (By) Signature of an Authorized Representative
Mark Templeton [Unreadable]
- ----------------------------------------------- ----------------------------------------------
(By) Printed Name of the Signing Officer (By) Printed Name of the Signing Authorized
Representative
President General Manager
- ---------------------------------------------- ----------------------------------------------
(Title) (Title)
May 2, 1996 April 27, 1996
- ---------------------------------------------- ----------------------------------------------
(Date) (Date)
</TABLE>
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PURCHASE AND LICENSE AGREEMENT
APPENDIX A
LICENSED PRODUCT(S) AND SITE(S):
A.1 VLSI Libraries' Access Standard Cell Library provides approximately
[*** Redacted] functions as listed below. In the case of the Cell
Ensemble library for OKI, all names will have an "E" prepended to them.
[*** Redacted]
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*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
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A.2 Library Deliverables
Access Standard Cell Libraries include models for use with leading design
tools. For OKI, the supported tools are listed below.
[*** Redacted]
HLD Systems Support
In addition to the tool support listed above, VLSI Libraries will provide
support as needed for HLD Systems engineers to create models for their
tools including [*** Redacted] . HLD Systems and VLSI Libaries have
supported other mutual customers in this manner with good success.
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*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
A.3 Licensed Sites
[*** Redacted]
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*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
EXHIBIT A
Engineering Change Order
(ECO) Request Form
VLSI LIBRARIES
INCORPORATED
Customer: Date:
- -----------------------------------------------------------------------
Requestor: Phone:
- -----------------------------------------------------------------------
Email Address: Fax::
- -----------------------------------------------------------------------
Project:
- -----------------------------------------------------------------------
This Engineering Change Order Form (ECO) is to be used as an official
notification to VLSI Libraries of any changes in design or specification made to
a project. Once this form has been received, VLSI Libraries will evaluate the
schedule and cost impacts of these changes and inform you of the results.
Description of Requested Change: ________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Requestor's Signature: ______________________________ Date: _____________
Engineering Manager's Approval: _____________________ Date: _____________
<PAGE>
EXHIBIT B
Engineering Change Order
(ECO) Response Form
VLSI LIBRARIES
INCORPORATED
Customer: Date:
- -----------------------------------------------------------------------
Requestor: Phone:
- -----------------------------------------------------------------------
Email Address: Fax::
- -----------------------------------------------------------------------
Project:
- -----------------------------------------------------------------------
VLSI Libraries has evaluated your attached ECO request, its impact on your
schedule and any additional charges associated with the request. This
evaluation is described below:
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
In summary, this change will:
[_] Add _____ working days to the schedule [_] Will not impact the schedule
[_] Require an increase/decrease in the cost [_] Will not require any
of your project of $_________________ additional charges
Please sign this form to acknowledge that you understand the impact of your
requested changes. Signing the Refusal indicates that you DO NOT authorize VLSI
Libraries to proceed with the requested change(s). Signing the Acceptance
authorizes VLSI Libraries to proceed with these changes. If additional costs
are indicated, then the buyer's signature is required. This form must be signed
and returned to VLSI Libraries by _______________________.
Requester's Refusal: ______________________________ Date: ____________________
Requester's Acceptance: ___________________________ Date: ____________________
Buyer's Approval: _________________________________ Date: ____________________
<PAGE>
PURCHASE AND LICENSE AGREEMENT
ADDENDUM NO. 1
This is the first Addendum to that certain Agreement Number PL1520 with an
Effective Date of April 9, 1996 between VLSI Libraries and Licensee.
The purpose of this addendum No. 1 is to add one additional Licensed site to
Appendix A, Table 5 by incorporating the following Appendix A-1.
APPENDIX A-1
Add to Table 5 under A.3. Licensed Sites:
[*** Redacted]
BOTH PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS ADDENDUM AND ITS ATTACHMENT,
UNDERSTAND IT AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS AS EVIDENCED BY
THEIR SIGNATURE BELOW.
VLSI Libraries Incorporated Licensee:
2077 Gateway Place, #300 OKI Electric Industry Co., Ltd.
San Jose, CA 95110 7-12 Toranomon 1-chome, Minato-ku
Tokyo 105, Japan
/s/ Mark Templeton /s/ [Unreadable]
- ---------------------------------- -----------------------------------
(By) Signature of an Officer of (By) signature of an Authorized
the Corporation Representative
Mark Templeton [Unreadable]
- ---------------------------------- -----------------------------------
(By) Printed Name of the Signing (By) Printed Name of the Signing
Officer Authorized Representative
President General Manager
- ---------------------------------- -----------------------------------
(Title) (Title)
April 2, 1997 April 7, 1997
- ---------------------------------- -----------------------------------
(Date) (Date)
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
PURCHASE AND LICENSE AGREEMENT
ADDENDUM NO. 2
This is the second addendum to that certain Agreement Number PL1520 with an
Effective Date of April 9, 1996 between VLSI Libraries and Licensee.
The first purpose of this Addendum No. 2 is to agree to the changes to Sections
4.1 and 14.2.
The second purpose of this Addendum No. 2 is to incorporate the purchase and
license of memory generators. (Additions to section 7 and Addendum No. 2,
Appendices 1-2.)
CHANGE TO SECTION 4.1
Replace the entire 4.1 with: This Agreement is effective from its execution by
Licensee and VLSI Libraries and shall remain in full force and effect for a
period of twenty (20) years, unless earlier terminated as provided in Section 9
below.
ADD TO SECTION 14.2
...; provided, however, that either party shall have the right to publicly
disclose the following: (a) that Licensee is a customer of VLSI Libraries, (b)
that VLSI Libraries has provided the Licensed Products to the Licensee and that
the Licensed Products were used in the development of the Licensee's integrated
circuits, (c) a product description of the Licensed Products as contained in
VLSI Libraries' standard product literature.
ADD TO SECTION 7
7.7 Within [*** Redacted] after the end of each calendar quarter, Licensee
further shall pay to VLSI Libraries the running royalties set forth in Appendix
2, III, A, with respect to Good Die shipped in such calendar quarter for
products defined in Appendix 2, III, B, and shall submit to VLSI Libraries with
such royalty payment a report stating (a) the part number for each Licensed
Integrated Circuit, (b) the Square Millimeters of VLSI Libraries licensed
product on the part, (c) the number of Good Die shipped during such calendar
quarter, (d) royalties payable hereunder for such calendar quarter; and (e) all
data and supporting calculations used by Licensee to compute the royalties
payable by Licensee to VLSI Libraries with respect to such calendar quarter.
The Royalty payment period for a specific memory generator is [*** Redacted]
from the delivery date of that generator to OKI.
7.8 All payments of the royalties shall be subject to applicable Japanese
withholding tax, Licensee shall deduct the amount equivalent to the tax so
imposed from the payment of the royalty, pay the same to the competent taxing
authorities in Japan and provide to VLSI Libraries the certificate of such
payment.
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
7.9 With respect to License Fees, royalties and other amounts which are payable
to VLSI Libraries under this Agreement, Licensee shall keep complete and
accurate books and records.
These records shall be retained for a period of twelve (12) months from the date
of payment, notwithstanding the expiration or termination of this Agreement.
Licensee agrees to permit its books, records to be examined by VLSI Libraries or
its designee, subject to reasonable confidentiality provisions, not more than
once per year during normal business hours, to verify the accuracy of the
License Fees, royalties and other amounts paid to VLSI Libraries under this
Agreement. Prompt adjustment shall be made by Licensee corresponding to the net
amount of any underpayment of any and all License Fees, royalties and other
amounts disclosed by such examination. If such an examination reveals an
underpayment of more than [*** Redacted], then Licensee shall promptly
reimburse VLSI Libraries for the cost of such examination.
BOTH PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS ADDENDUM AND ITS ATTACHMENT,
UNDERSTAND IT AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS AS EVIDENCED BY
THEIR SIGNATURE BELOW.
VLSI LIBRARIES INCORPORATED LICENSEE:
2077 Gateway Place, #300 OKI Electric Industry Co., Ltd
San Jose, CA 95110 7-12 Toranomon 1-chome, Minato-ku
Tokyo 105, Japan
\s\ Mark Templeton \s\ Yasuaki Ozawa
- ---------------------------------- -----------------------------------
(By) Signature of an Officer of (By) Signature of an Authorized
the Corporation Representative
Mark Templeton Yasuaki Ozawa
- ---------------------------------- -----------------------------------
(By) Printed Name of the Signing (By) Printed Name of the Signing
Officer Authorized Representative
President General Manager, Logic LSI
- ---------------------------------- -----------------------------------
(Title) (Title)
April 2, 1997 April 7, 1997
- ---------------------------------- -----------------------------------
(Date) (Date)
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
PURCHASE AND LICENSE AGREEMENT
ADDENDUM NO. 2
APPENDIX 1
[*** Redacted]
- ------------------
*** Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE>
PURCHASE AND LICENSE AGREEMENT
ADDENDUM NO. 2
APPENDIX 2: BUSINESS TERMS
The terms outlined herein are considered confidential and may not be disclosed
outside of Licensee.
I. The development and initial license fee for VLSI Libraries memory
generators based on VLSI Libraries standard specifications is:
[*** Redacted]
II. VLSI Libraries will finance [*** Redacted] of [*** Redacted] and
[*** Redacted] of [*** Redacted]
A. All financing will be repaid through the payment of royalties.
B. [*** Redacted] of the royalties paid to VLSI Libraries will be applied
to any outstanding financing provided to Licensee under this proposal.
C. Other than this repayment through royalties, Licensee will have no other
obligation to repay the financing provided to Licensee under this
proposal.
III. VLSI Libraries will be paid a royalty rate for the use of the generators
based on the size of the memory instances(s) generated
A. The royalty rate is [*** Redacted] of area occupied by memories
generated (as indicated in the generator report) per integrated
circuit shipped.
B. Royalties will be paid [*** Redacted]
1. Royalties will not be paid on [*** Redacted].
2. Royalties will not be paid on [*** Redacted].
IV. VLSI Libraries will accrue credits for Licensee on all royalties paid by
Licensee after all outstanding financing has been cleared.
A. For each [*** Redacted] paid in royalties to VLSI Libraries, Licensee
will earn [*** Redacted] credits.
B. Each credit has the equivalent value of [*** Redacted].
1. [*** Redacted] of the credits earned can be used towards any product
or service provided by VLSI Libraries.
2. [*** Redacted] of the credits earned must be applied towards royalty
generating products.
C. Accrued credits not used within [*** Redacted] from the date they are
earned will be forfeited
V. Example
A. Licensee purchases a total of [*** Redacted] generators for
[*** Redacted] semiconductor processed.
B. The license/development charge is [*** Redacted] plus [*** Redacted]
for a total of [*** Redacted].
C. Licensee will pay up front [*** Redacted] for the [*** Redacted]
generators.
D. VLSI Libraries will finance the [*** Redacted] balance due for the
[*** Redacted] generators.
E. For each [*** Redacted] paid in royalties to VLSI Libraries by Licensee,
VLSI Libraries will apply [*** Redacted] towards any outstanding finance
balance.
F. Once there is no longer an outstanding balance, VLSI Libraries will
start to accrue credits for Licensee as per Item IV.
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
Exhibit 10.8
COMMERCIAL PROMISSORY NOTE
RENEW SEC
PRP
Borrower Name
VLSI LIBRARIES, INC.
Borrower Address Office Number Loan Number
3135 Kifer Road 205 0001-00-0-000
Santa Clara, CA 95051 Maturity Date Amount
February 28, 1998 $300,000.00
San Jose California Date February 14, 1997 $300,000.00
FOR VALUE RECEIVED, the undersigned ("Debtor") promises to pay to the order of
Union Bank of California, N.A. ("Bank"), as indicated below, the principal sum
of * * * * * * THREE HUNDRED THOUSAND AND NO/100 Dollars * * * * * * * * *
Dollars ($300,000.00), or so much thereof as is disbursed, together with
interest on the balance of such principal sum from time to time outstanding, at
a per annum rate equal to
percent (____%)
x the Reference Rate plus ONE AND FIFTY ONE HUNDREDTHS * * * * * percent
(l.50%) such per annum rate to change as and when the Reference Rate shall
change; or
provided, however, Debtor shall pay total interest over the term of this note of
not less than $500.
As used herein, the term "Reference Rate" shall mean the rate announced by Bank
from time to time at its corporate headquarters as its "Reference Rate." The
Reference Rate is an index rate determined by Bank from time to time as a means
of pricing certain extensions of credit and is neither directly tied to any
external rate of interest or index nor necessarily the lowest rate of interest
charged by Bank at any given time. All computations of interest under this note
shall be made on the basis of a year of 360 days, for actual days elapsed.
1. PAYMENTS.
Principal Payments. Debtor shall pay principal
x in full on February 28,1998; however, at any time prior to the maturity of
this note, the Debtor may borrow, repay and reborrow hereon so long as the
total outstanding at any one time does not exceed the principal amount of
this note.
in full on _________ , 19 _____
in ____________ installments of $______________ each on the __________ day
of each ________
(commencing _________________ 19 _____ ) and a final installment on
___________, 19______ on which date all principal and interest then unpaid
shall be due and payable.
as to each advance under this note, the full amount of the advance on the
earlier of: _____________ days after the advance is made; _________________
days after release of documents relating to the advance or
_________________.
Interest Payments. Debtor shall pay interest
x on the 28th day of each month (commencing Mar 28, 1997).
Interest-Included Option. If a fixed rate of interest is applicable to this
note and other principal and interest payment terms are not stated in the
preceding paragraphs, Debtor shall pay principal and interest together in
_____________ installments of $ ____________________ each
<PAGE>
on the ____________ day of each ___________________ (commencing
_____________________,19 and in a final installment of $ __________________ on
______________________, 19 _______, on which date
all principal an interest then unpaid shall be due and payable.
Debtor shall pay all amounts due under this note in lawful money of the United
States at Bank's San Jose Office, or such other office as may be designated by
Bank, from time to time.
2. LATE PAYMENTS. If any installment payment required by the terms of this note
is unpaid ten days after due, Debtor shall, at the option of Bank, pay a fee of
$100 to Bank.
<PAGE>
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option of
Bank, and, to the extent permitted by law. interest shall be payable on the
outstanding principal under this note at a per annum rate equal to five percent
(5%) in excess of the interest rate specified in the initial paragraph of this
note, calculated from the date of default until all amounts payable under this
note are paid in full.
4. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but
not be limited to, any of the following:
(a) the failure of Debtor to make any payment required under this note
when due;
(b) any breach, misrepresentation or other default by Debtor, any
guarantor, co-maker, endorser, or any person or entity other than
Debtor providing security for this note (hereinafter individually and
collectively referred to as the "Obligor") under any security
agreement, guaranty or other agreement between Bank and any Obligor;
(c) the insolvency of any Obligor or the failure of any Obligor generally
to pay such Obligor's debts as such debts become due;
(d) the commencement as to any Obligor of any voluntary or involuntary
proceeding under any laws relating to bankruptcy. insolvency,
reorganization, arrangement, debt adjustment or debtor relief;
(e) the assignment by any Obligor for the benefit of such Obligor's
creditors;
(f) the appointment, or commencement of any proceedings for the
appointments, of a receiver, trustee, custodian or similar official
for all or substantially all of any Obligor's property;
(g) the commencement of any proceeding for the dissolution or liquidation
of any Obligor;
(h) the termination of existence or death of any Obligor;
(i) the revocation of any guaranty or subordination agreement given in
connection with this note:
(j) the failure of any Obligor to comply with any order, judgment,
injunction, decree, writ or demand of any court or other public
authority;
(k) the filing or recording against any Obligor, or the property of any
Obligor, of any notice of levy, notice to withhold, or other legal
process for taxes other than property taxes;
(l) the default by any Obligor personally liable for amounts owed
hereunder on any obligation concerning the borrowing of money;
(m) the issuance against any Obligor, or the property of any Obligor, of
any writ of attachment, execution, or other judicial lien; or
(n) the deterioration of the financial condition of any Obligor which
results in Bank deeming itself, in good faith, insecure.
Upon the occurrence of any such default, Bank, in its discretion, may cease to
advance funds hereunder and may declare all obligations under this note
immediately due and payable; however, upon the occurrence of an event of default
under (d), (e), (f), or (g), all principal and interest shall automatically
become immediately due and payable.
5. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note are
not paid when due, Debtor promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the collection or enforcement of
this note. Debtor and any endorsers of
<PAGE>
this note, for the maximum period of time and the full extent permitted by law,
(a) waive diligence, presentment, demand. notice of nonpayment, protest, notice
of protest. and notice of every kind; (b) waive the right to assert the defense
of any statute of limitations to any debt or obligation hereunder; and (c)
consent to renewals and extensions of time for the payment of any amounts due
under this note. If this note is signed by more than one party, the term
"Debtor" includes each of the undersigned and any successors in interest
thereof, all of whose liability shall be joint and several. Any married person
who signs this note agrees that recourse may be had against the separate
property of that person for any obligations hereunder. The receipt of any check
or other item of payment by Bank, at its option, shall not be considered a
payment on account until such check or other item of payment is honored when
presented for payment at the drawee bank. Bank may delay the credit of such
payment based upon Bank's schedule of funds availability, and interest under
this note shall accrue until the funds are deemed collected. In any action
brought under or arising out of this note, Debtor and any endorser of this note.
including their successors and assigns, hereby consent to the jurisdiction of
any competent court within the State of California. except as provided in any
alternative dispute resolution agreement executed between Debtor and Bank, and
consent to service of process by any means authorized by California law. The
term "Bank" includes, without limitations, any holder of this note. This note
shall be construed in accordance with and governed by the laws of the State of
California.
This note hereby incorporates any alternative dispute resolution agreement
previously, concurrently or hereafter executed between Debtor and Bank.
Debtor
VLSI LIBRARIES, INC.
/s/ Mark Templeton
Mark Templeton, President
<PAGE>
Business Loan Agreement supersedes the Business Loan Agreement dated
March 8, 1996.
BUSINESS LOAN AGREEMENT
Union Bank, a Division of Union Bank of California, N.A.
This Business Loan Agreement (this "Agreement") is entered into as of the date
set forth below between Union Bank ("Bank") and the undersigned ("Borrower")
with respect to each and every extension of credit (whether one or more,
collectively referred to as the "Loan") from Bank to Borrower. In consideration
of the Loan, Bank and Borrower agree to the following terms and conditions:
1. THE LOAN.
1.1 THE NOTE. The Loan is evidenced by one or more promissory notes or
other evidences of indebtedness, including each amendment, extension,
renewal or replacement thereof, which are incorporated herein by this
reference (whether one or more, collectively referred to as the "Note").
1.2 BORROWING BASE. An amount of the Loan equal to $300,000.00 evidenced
by a Note dated March 8, 1996 is a revolving loan subject to a borrowing
base ("Borrowing Base Loan"). Notwithstanding any other provision of this
Agreement or any other Loan Document, Bank shall not be obligated to
advance funds under the Borrowing Base Loan, if the principal amount of
such Borrowing Base Loan including such advance exceeds n/a % of Borrower's
Eligible Accounts.
The term "Accounts" means all presently existing and hereafter arising
accounts receivable, contract rights, chattel paper, and all other forms of
obligations owing to Borrower, payable in U.S. Dollars, arising out of the
sale or lease of goods, or the rendition of services by Borrower, whether
or not earned by performance, and any and all credit insurance, guaranties
and other security, as well as all merchandise returned to or reclaimed by
Borrower and Borrower's books and records relating to any of the foregoing.
The term "Eligible Accounts" means those Accounts, net of finance charges,
which are due and payable within n/a (___) days, or less, from the date of
the invoice, have been validly assigned to Bank and strictly comply with
all of Borrower's warranties and representations to Bank, but Eligible
Accounts shall not include the following:
(a) Any Account with respect to which the account debtor is an officer,
shareholder, director, employee or agent of Borrower;
(b) Any Account with respect to which the account debtor is a subsidiary
of, related to, or affiliated or has common officers or directors with
Borrower;
(c) Any Account with respect to which goods are placed on consignment,
guaranteed sale or other terms by reason of which the payment by the
account debtor may be conditional;
(d) Any Account with respect to which the account debtor is not a resident
of the United States or Canada;
(e) Any Account with respect to which the account debtor is the United
States or any department, agency or instrumentality of the United States;
(f) Any Account with respect to which Borrower is or may become liable to
the account debtor for goods sold or services rendered by the account
debtor to Borrower;
(g) Any Account with respect to which there is asserted a defense,
counterclaim, discount or setoff, whether well-founded or otherwise, except
for those discounts, allowances and returns arising in the ordinary course
of Borrower's business;
<PAGE>
(h) Any Account with respect to which the account debtor becomes insolvent,
fails to pay its debts as they mature or goes out of business or is owed by
an account debtor which has become the subject of a proceeding under any
provision of the United States Bankruptcy Code, as amended, or under any
other bankruptcy or insolvency law, including, but not limited to,
assignments for the benefit of creditors, formal or informal moratoriums,
compositions or extensions with all or substantially all of its creditors;
(i) Any Account owed by any account debtor with respect to which 25% or
more of the aggregate dollar amount of its Accounts is not paid within 90
days from the date of the invoice;
(j) Any Account that is not paid by the account debtor within 90 days of
its due date;
(k) That portion of any Account owed by any single account debtor which
exceeds 15 % of all of the Accounts;
(l) Any Account which Bank deems not to be an Eligible Account; and
(m) n/a
* Wherever "N/A" appears in a blank in this Agreement, it means the
Subsection in which it appears is deemed deleted from this Agreement.
Page 1 of 6
<PAGE>
1.3 REVOLVING LOAN CLEAN-UP PERIOD. For any portion of the Loan which is
a revolving loan, at least 30 consecutive days during each 12 month period
the principal amount outstanding under such revolving loan must be zero.
1.4 TERM LOAN AVAILABILITY PERIOD. For any portion of the Loan which is a
term loan, loan proceeds shall be available for disbursement from March 8
1996, through February 28, 1997, only.
1.5 FEE. Borrower shall pay. to Bank a fee of $ 1,200
1.6 COLLATERAL. The payment and performance of all obligations of
Borrower under the Loan Documents is and shall be during the term of the
Loan secured by a perfected security interest in such real or personal
property collateral as is required by Bank and each security interest shall
rank in first priority unless otherwise specified in writing by Bank.
1.7 GUARANTY. The payment and performance of all obligations of Borrower
under the Loan Documents are and shall be during the term of the Loan
guaranteed by: n/a
1.8 SUBORDINATION. Certain other obligations of Borrower are and shall be
during the term of the Loan subordinated, to the repayment of the Loan and
all other obligations of Borrower to Bank, pursuant to one or more
subordination agreement(s) in favor of Bank executed and delivered by: n/a
2. CONDITIONS TO AVAILABILITY OF THE LOAN. Before Bank is obligated to
disburse all or any portion of the Loan, Bank must have received (a) the Note
and every other document required by Bank in connection with the Loan, each of
which must be in form and substance satisfactory to Bank (together with this
Agreement, referred to as the "Loan Documents"), (b) confirmation of the
perfection of its security interest in any collateral for the Loan, and (c)
payment of any fee required in connection with the Loan.
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants (and each
request for a disbursement of the proceeds of the Loan shall be deemed a
representation and warranty made on the date of such request) that:
3.1 Borrower is an individual or Borrower is duly organized and existing
under the laws of the state of its organization and is duly qualified to
conduct business in each jurisdiction in which its business is conducted;
3.2 The execution, delivery and performance of the Loan Documents executed
by Borrower are within Borrower's power, have been duly authorized, are
legal, valid and binding obligations of Borrower, and are not in conflict
with the terms of any charter, bylaw, or other organization papers of
Borrower or with any law, indenture, agreement or undertaking to which
Borrower is a party or by which Borrower is bound or affected;
3.3 All financial statements and other financial information submitted by
Borrower to Bank are true and correct in all material respects; and there
has been no material adverse change in Borrower's financial condition since
the date of the latest of such financial statements;
3.4 Borrower is properly licensed and in good standing in each state in
which Borrower is doing business, and Borrower has complied with all laws
and regulations affecting Borrower, including without limitation, each
applicable fictitious business name statute;
3.5 There is no event which is, or with notice or lapse of time or both
would be, an Event of Default (as defined in Article 5);
<PAGE>
3.6 Borrower is not engaged in the business of extending credit for the
purpose of, and no part of the Loan will be used, directly or indirectly,
for purchasing or carrying margin stock within the meaning of Federal
Reserve Board Regulation U; and
Page 2 of 6
<PAGE>
3.7 Borrower is not aware of any fact, occurrence or circumstance which
Borrower has not disclosed to Bank in writing which has, or could
reasonably be expected to have, a material adverse effect on Borrower's
ability to repay the Loan or perform its obligations under the Loan
Documents.
4. COVENANTS. Borrower agrees, so long as the Loan or any commitment to make
any advance under the Loan is outstanding and until full and final payment of
all sums outstanding under any Loan Document, that Borrower will:
4.1 Maintain:
(a) Working Capital equal to at least $300,000.00 (As used herein,
"Working Capital" means the excess of current assets over current
liabilities);
(b) A ratio of current assets to current liabilities of at least
n/a:1.00;
(c) A quick ratio of cash, accounts receivable and marketable
securities to current liabilities of at least n/a: 1.00;
(d) Tangible Net Worth of at least $ 500,000.00 (As used herein
"Tangible Net Worth" means net worth increased by indebtedness of
Borrower subordinated to Bank and decreased by patents, licenses,
trademarks, trade names, goodwill and other similar intangible assets,
organizational expenses, security deposits, prepaid costs and expenses
and monies due from affiliates (including officers, shareholders and
directors);
(e) A ratio of total liabilities to Tangible Net Worth of not greater
than 3.0: 1.00 (As used herein "Tangible Net Worth" means net worth
increased by indebtedness of Borrower subordinated to Bank and
decreased by patents, licenses, trademarks, trade names, goodwill and
other similar intangible assets, organizational expenses, security
deposits, prepaid costs and expenses and monies due from affiliates
(including officers, shareholders directors);
(f) A profit after taxes of not less than $ 10,000.00 and to be
measured as of the end of each fiscal year of Borrower for the 12
month period immediately preceding the date of measurement;
(g) A ratio of Cash Flow to Debt Service of n/a:1.00. Compliance with
this subsection to be measured as of the end of each fiscal n/a of
Borrower. (As used herein, "Debt Service" means that portion of long-
term liabilities and capital leases coming due within n/a months of
the date of calculation, and "Cash Flow" means net profit after taxes,
to which depreciation, amortization and other non-cash expenses are
added for the n/a month period immediately preceding the date of
calculation); and
(h) n/a
All accounting terms used in this Agreement shall have the definitions given
them by generally accepted accounting principles, unless otherwise defined
herein.
4.2 Give written notice to Bank within 15 days of the following:
(a) Any litigation or arbitration proceeding affecting Borrower where
the amount in controversy is $ n/a or more;
(b) Any material dispute which may exist between Borrower and any
government regulatory body or law enforcement body;
<PAGE>
(c) Any Event of Default or any event which, upon notice, or lapse of
time, or both, would become an Event of Default;
(d) Any other matter which has resulted or is likely to result in a
material adverse change in Borrower's financial condition or
operation; and
(e) Any change in Borrower's name or the location of Borrower's
principal place of business, or the location of any collateral for the
Loan, or the establishment of any new place of business or the
discontinuance of any existing place of business.
Page 3 of 6
<PAGE>
4.3 Furnish to Bank an income statement, balance sheet, and statement of
retained earnings, with supportive schedules ("Financial Statement"), and
any other financial information requested by Bank, prepared in accordance
with generally accepted accounting principles and in a form satisfactory to
Bank as follows:
(a) Within 30 days after the close of each quarter, Borrower's
Financial Statement as of the close of such period;
(b) Within 90 days after the close of each fiscal year, a copy of
Borrower's annual Financial Statement prepared by an independent
certified public accountant on a(n) compiled basis. Any independent
certified public accountant who prepares Borrower's Financial
Statement shall be selected by Borrower and reasonably satisfactory to
Bank;
(c) Within n/a days after the close of each fiscal year, a copy of
each guarantor's annual Financial Statement;
(d) If any portion of the Loan is a Borrowing Base Loan, within n/a
days after each calendar month end, a copy of Borrower's monthly
accounts receivable and accounts payable agings, and a certification
of compliance with the borrowing base described in Section 1.2 above,
executed by Borrower, which certificate shall accurately report
Borrower's accounts receivable and Eligible Accounts; and
(e) Promptly upon request, any other financial information requested
by Bank.
4.4 Furnish to Bank, on Bank's request, a copy of Borrower's and each
guarantor's most recently filed federal income tax return with all
accompanying schedules.
4.5 Borrower will pay or reimburse Bank for all costs, expenses and fees
incurred by Bank in preparing and documenting this Agreement and the Loan,
and all amendments and modifications thereof, including but not limited to
all filing and recording fees, costs of appraisals, insurance and
attorneys' fees, including the reasonable estimate of the allocated costs
and expenses of in-house legal counsel and staff.
4.6 Maintain and preserve Borrower's existence, present form of business
and all rights, privileges and franchises necessary or desirable in the
normal course of its business, and keep all of Borrower's properties in
good working order and condition.
4.7 Maintain and keep in force insurance with companies acceptable to Bank
and in such amounts and types, including without limitation fire and public
liability insurance, as is usual in the business carried on by Borrower, or
as Bank may reasonably request. Such insurance policies must be in form
and substance satisfactory to Bank.
4.8 Maintain adequate books, accounts and records and prepare all
financial statements required hereunder in accordance with generally
accepted accounting principles, and in compliance with the regulations of
any governmental regulatory body having jurisdiction over Borrower or
Borrower's business and permit employees or agents of Bank at any
reasonable time to inspect Borrower's assets and properties, and to examine
or audit Borrower's books, accounts and records and make copies and
memoranda thereof.
4.9 At all times comply with, or cause to be complied with, all laws,
statutes, rules, regulations, orders and directions of any governmental
authority having jurisdiction over Borrower or Borrower's business, and all
material agreements to which Borrower is a party.
4.10 Except as provided in this Agreement, or in the ordinary course of its
business as currently conducted, not make any loans or advances, become a
guarantor or surety, pledge its credit or properties in any manner, or
extend credit:
4.11 Not purchase the debt or equity of another person or entity except for
savings accounts and certificates of deposit of Bank, direct U.S.
Government obligations and
<PAGE>
commercial paper issued by corporations with top ratings of Moody's or
Standard & Poor's, provided that all such permitted investments shall
mature within one year of purchase.
4.12 Not create, assume or suffer to exist any mortgage, encumbrance,
security interest, pledge or lien ("Lien") on Borrower's real or personal
property, whether now owned or hereafter acquired, or upon the income or
profits thereof except the following: (a) Liens in favor of Bank, (b) Liens
for taxes or other items not delinquent or contested in good faith, (c)
other Liens which do not exceed in the aggregate $ n/a at any one time.
4.13 Not sell or discount any account receivable or evidence of
indebtedness, except to Bank; not borrow any money, become contingently
liable for money borrowed, except pursuant to agreements made with Bank.
Page 4 of 6
<PAGE>
4.14 Neither liquidate, dissolve, enter into any consolidation, merger,
partnership, or other combination; nor convey, sell or lease all or the
greater part of its assets or business; nor purchase or lease all or the
greater part of the assets or business of another.
4.15 Not engage in any business activities or operations substantially
different from or unrelated to present business activities and operations.
4.16 Not, in any single fiscal year of Borrower, expend or incur
obligations of more than $ n/a for the acquisition of fixed or capital
assets.
4.17 Not, in any single fiscal year of Borrower, enter into any lease of
real or personal property which would cause Borrower's aggregate annual
obligations under all such real and personal property leases to exceed $
n/a.
4.18 Borrower will promptly, upon demand by Bank, take such further action
and execute all such additional documents and instruments in connection
with this Agreement as Bank in its reasonable discretion deems necessary,
and promptly supply Bank with such other information concerning its affairs
as Bank may request from time to time.
5. EVENTS OF DEFAULT. The occurrence of any of the following events ("Events
of Default") shall terminate any obligation on the part of Bank to make or
continue the Loan and automatically, unless otherwise provided under the Note,
shall make all sums of interest and principal and any other amounts owing under
the Loan immediately due and payable, without notice of default, presentment or
demand for payment, protest or notice of nonpayment or dishonor, or any other
notices or demands:
5.1 Borrower shall default in the due and punctual payment of the
principal of or the interest on the Note or any of the Loan Documents;
5.2 Any default shall occur under the Note;
5.3 Borrower shall default in the due performance or observance of any
covenant or condition of the Loan Documents;
5.4 Any guaranty or subordination agreement required hereunder is breached
or becomes ineffective, or any guarantor or subordinating creditor dies or
disavows or attempts to revoke or terminate such guaranty or subordination
agreement; or
5.5 There is a change in ownership or control of 10% or more of the issued
and outstanding stock of Borrower or any guarantor, or (in the case of a
partnership borrower) there is a change in ownership or control of any
general partner's interest.
6. MISCELLANEOUS.
6.1 The rights, powers and remedies given to Bank hereunder shall be
cumulative and not alternative and shall be in addition to all rights,
powers and remedies given to Bank by law against Borrower or any other
person, including but not limited to Bank's rights of set off or banker's
lien.
6.2 Any forbearance or failure or delay by Bank in exercising any right,
power or remedy hereunder shall not be deemed a waiver thereof and any
single or partial exercise of any right, power or remedy shall not preclude
the further exercise thereof. No waiver shall be effective unless it is in
writing and signed by an officer of Bank.
6.3 The benefits of this Agreement shall inure to the successors avid
assigns of Bank and the permitted successors and assignees of Borrower, and
any assignment by Borrower without Bank's consent shall be null and void.
<PAGE>
6.4 This Agreement and all other agreements and instruments required by
Bank in connection therewith shall be governed by and construed according
to the laws of the State of California.
6.5 Should any one or more provisions of this Agreement be determined to
be illegal or unenforceable, all other provisions nevertheless shall be
effective.
6.6 Except for documents and instruments specifically referenced herein,
this Agreement constitutes the entire agreement between Bank and Borrower
regarding the Loan and all prior communications, verbal or written, between
Borrower and Bank shall be of no further effect or evidentiary value.
6.7 The section headings herein are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
Page 5 of 6
<PAGE>
6.8 This Agreement may be amended only in writing signed by all parties
hereto.
6.9 Borrower and Bank may execute one or more counterparts to this
Agreement, each of which shall be deemed an original.
6.10 Any notices or other communications provided for or allowed hereunder
shall be effective only when given by one of the following methods and
addressed to the respective party at its address given with the signatures
at the end of this Agreement and shall be considered to have been validly
given: (a) upon delivery, if delivered personally; (b) upon receipt, if
mailed, fist class postage prepaid, with the United States Postal Service;
(c) on the next business day if sent by overnight courier service of
recognized standing; and (d) upon telephoned confirmation of receipt, if
telecopied.
7. ADDITIONAL PROVISIONS. The following additional provisions, if any, are
hereby made part of this Agreement:
1. Submit quarterly Accounts Receivable and Accounts Payable agings
within 30 days of quarter end.
2. Submit complete copy of corporate Federal tax return within 90 days of
year end.
3. Maintain profit on an annual basis.
IN WITNESS WHEREOF, the parties hereto have duty executed this Agreement as 5-8-
96
("Borrower")
VLSI LIBRARIES, INC.
Union Bank ("Bank")
By: /s/ Patricia R. Pierce By: /s/ Beth Bartel
Title: Assistant Vice President Title: Director of Finance & Admin.
Printed Name: Patricia R. Pierce Printed Name: Beth Bartel
By: /s/ Mark Templeton
Title: President
Printed Name Mark Templeton
Address where notices to Bank Address where notices to Borrower
are to be sent: are to be sent:
990 North First Street 3135 Kifer Road
San Jose. CA 95112 Santa Clara, CA 95051
Fax Number: (408) 279-7964 Fax Number: ( ) ____________________
Page 6 of 6
<PAGE>
This STATEMENT is presented for filing pursuant to the California Uniform
Commercial Code
1. FILE NO. OF ORIG. FINANCING STATEMENT
9514260728
1A. DATE OF FILING OF ORIG. FINANCING STATEMENT
May 19, 1995
1B. DATE OF ORIG. FINANCING STATEMENT
May 18, 1995
1C. PLACE OF FILING ORIG. FINANCING STATEMENT
Sacramento, California
2. DEBTOR (LAST NAME FIRST)
VLSI LIBRARIES, INC.
2A. SOCIAL SECURITY OF FEDERAL TAX
77-0278185
2B. MAILING ADDRESS
2077 GATEWAY PL. STE 300
2C. CITY, STATE
SAN JOSE, CALIFORNIA
2D. ZIP CODE
95110
3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST)
3A. SOCIAL SECURITY OR FEDERAL TAX
3B. MAILING ADDRESS
3C. CITY, STATE
3D. ZIP CODE
4. SECURED PARTY
NAME UNION BANK OF CALIFORNIA, N.A.
MAILING ADDRESS 990 NORTH FIRST STREET
CITY SAN JOSE STATE CALIFORNIA ZIP CODE 95112
4A. SOCIAL SECURITY NO., FEDERAL TAX NO. OR BANK TRANSIT AND A.B.A. NO.
CFBD 01205
5. ASSIGNEE OF SECURED PARTY (IF ANY)
NAME
MAILING ADDRESS
CITY STATE ZIP CODE
6.A CONTINUATION--The original Financing Statement between the foregoing
Debtor and Secured Party bearing the file number date shown above is
continued. If collateral is crops or timber, check here and insert of
real property on (word unreadable) growing or to be grown in Item 7
below.
B RELEASE--From the collateral describe in the Financing Statement
bearing the file number shown above, the Secured Party (word
unreadable) the collateral described in Item 7 below.
C ASSIGNMENT--The Secured Party certifies that the Secured Party has
assigned to the Assignee above named, all the Secured Party rights
under the Financing Statement bearing the file number shown above in
the collateral described in Item 7 below.
D TERMINATION--The Secured Party certifies that the Secured Party no
longer claims a security interest under the Financing Statement
bearing the file number shown above.
E X AMENDMENT--The Financing Statement bearing the file number shown
above is amended as set forth in Item 7 below. (Signature of Debtor
required on all amendments.)
F OTHER
7. CHANGE DEBTOR NAME TO: ARTISAN COMPONENTS, INC.
CHANGE DEBTOR ADDRESS TO: 2077 GATEWAY PL. STE 300
SAN JOSE, CA 95110
8. (Date) 4-25 1997
VLSI LIBRARIES, INC.
<PAGE>
By: /s/ Patricia R. Pierce
SIGNATURE(S) OF DEBTOR(S) (TITLE)
UNION BANK OF CALIFORNIA, N.A.
By: Patricia R. Pierce, AVP
SIGNATURE(S) OF SECURED PARTY(IES) (TITLE)
9. This Space for Use of Filing Officer (Date, Time, Filing Office)
10. Return Copy to
NAME UNION BANK OF CALIFORNIA, N.A.
ADDRESS 990 NORTH FIRST STREET
CITY AND SAN JOSE CA 95112
STATE
(1) FILLING OFFICER COPY
UNIFORM COMMERCIAL CODE--FORM UCC-2 FORM 53464(7/90) Approved by the
Secretary of State
STANDARD FORM--FILING FEE S3
<PAGE>
UNION BANK OF CALIFORNIA
SAN JOSE OFFICE
February 14, 1997
Mark Templeton, President
VLSI LIBRARIES, INC.
2077 Gateway Place
San Jose, CA 95110-1016
Dear Mark:
This Covenant Agreement (this "Agreement") is entered into as of the date set
forth below between Union Bank of California, N.A. ("Bank") and the undersigned
("Borrower") with respect to each and every extension of credit (whether one or
more, collectively referred to as the "Loan") from Bank to Borrower.
The Loan is evidenced by one or more promissory notes or other evidences of
indebtedness, including each amendment, renewal Or replacement thereof, which
are incorporated herein by this reference (whether extension, one or more,
collectively referred to as the "Note"). Any financial statement required by
this Agreement must be prepared in accordance with generally accepted accounting
principles and in a form satisfactory to the Bank. In consideration of the
Loan, Bank and Borrower agree to the following terms and conditions:
COVENANTS
REVOLVING LOAN CLEAN-UP PERIOD
- ------------------------------
The principal amount outstanding under any loan must be at zero for at least 30
--
consecutive during each 12 month period.
FINANCIAL STATEMENTS AND TAX RETURNS
- ------------------------------------
Borrower to provide Bank with a copy of Borrowers company prepared financial
----------------
statement within 30 days after each quarter end and copy of Borrower's CPA
-- ---
audited financial statement within 120 days after fiscal year end.
- ------- --- ---------------
Borrower to provide Bank with a copy of Borrower's most recently filed federal
income tax return with all accompanying schedules within 30 days of filing.
--
WORKING CAPITAL
- ---------------
Borrower agrees to maintain working capital of at least $2,000,000 (Two Million
---------- -----------
Dollars) at all times. Working capital is defined as the excess of Current
- -------
Assets over Current Liabilities.
LIQUIDITY REQUIREMENT
- ---------------------
<PAGE>
Borrower will maintain at all times unencumbered and unrestricted liquid assets
in an aggregate amount equal to at least $2,000,000. Liquid assets shall mean
----------
immediately available: cash, bank deposits or accounts, obligations or
guaranteed by the U.S. Government or an agency thereof stocks, bonds and other
debt instruments regularly traded on the New York or American stock exchange and
which can be readily converted to cash.
<PAGE>
Exhibit 10.9
[VLSI LIBRARIES INCORPORATED LOGO]
VLSI Libraries Incorporated
2077 Gateway Place
San Jose, CA 95110-1016
Phone: 408.453.1000
Fax: 408.453.3500
Aug. 29, 1996
Jeffrey Lewis
Dear Jeff,
VLSI Libraries is pleased to offer you the position of Vice President of
Marketing at VLSI Libraries reporting directly to me. We are in need of your
services immediately, and we would like you to start no later than Sept.9, 1996.
Your starting semi-monthly salary will be $5,833.33 paid on the fifteenth and
the last working day of the month. Additionally, you will be eligible to
receive an annual performance bonus of $20,000 against mutually agreed goals.
Our Profit Sharing Plan should give you at least another $15,000 per year.
Since we believe you will be making a significant contribution to the success of
VLSI Libraries, we are offering you an option of 253,705 (3% of issued and
granted shares) shares of VLSI Libraries' common stock. The exercise price of
your option will be fair market value as determined by the board of directors on
the date the option is granted. Your option will be granted by the board at its
first meeting following your date of employment. This stock vests ratably over
a four year period from your date of hire, however you must work for the company
for one year before any stock vests to you.
We offer a comprehensive benefit program and you will be eligible to participate
in most of it on your date of hire. These benefits are summarized on the
attached Benefits at a Glance form, and will be explained to you in detail once
you are on board. We are looking forward to having you join us.
Best regards,
/s/ Mark Templeton
Mark Templeton,
President
Please acknowledge your acceptance by signing and returning one copy of this
letter.
/s/ Jeffrey Lewis 9/4/96
- -----------------------------------------------------------
Accepted Date
<PAGE>
[VLSI LIBRARIES INCORPORATED LOGO]
VLSI Libraries Incorporated
2077 Gateway Place
San Jose, CA 95110-1016
Phone: 408.453.1000
Fax: 408.453.3500
Sept. 5, 1996
Jeffrey Lewis
Dear Jeff,
VLSI Libraries is pleased you have accepted the position of Vice President of
Marketing at VLSI Libraries reporting directly to me. Since we are in need of
your services immediately, it is great that you were able to join us today.
In addition to the terms of our offer and your acceptance as stated in our
letter to you of Aug. 29, 1996, we have agreed to the following accelerated
vesting for your Incentive Stock Option.
Your termination for reasons other than cause if VLSI Libraries is
either sold or merged with another entity, will accelerate you vesting
by 25%. For example, if you are vested in 50% of your stock option this
acceleration will increase it to 75%.
Jeff, I am very excited about working with you.
Best regards,
/s/ Mark Templeton
Mark Templeton,
President
Please acknowledge your acceptance by signing and returning one copy of this
letter.
/s/ Jeffrey A. Lewis 9/5/96
- -----------------------------------------------------------
Accepted Date
<PAGE>
SGS-THOMSON LOGO
COLLABORATION AGREEMENT
BETWEEN
- -------
SGS-THOMSON MICROELECTRONICS S.r.l., a company incorporated and existing under
- -----------------------------------
the laws of Italy, having its registered office at 20041 Agrate Brianza, Via C.
Olivetti 2 (hereinafter referred to as "SGS-THOMSON")
also acting for the benefit of other Affiliated Companies of SGS-THOMSON
MICROELECTRONICS N.V.
(Affiliated companies shall mean companies in which SGS-THOMSON MICROELECTRONICS
N.V. holds directly or indirectly at least 50% of the share capital or voting
rights and major external design teams subcontracted by an SGS-THOMSON company
to create products in SGS-THOMSON Technologies)
on the first part
AND
- ---
VLSI LIBRARIES, INC., a company incorporated and existing under the laws of the
State of California, U.S.A. having its registered office at 2077 Gateway Place,
San Jose, CA 95110-1016 (hereinafter referred to as "VLI")
on the second part
COLLABORATION AGREEMENT December 4, 1996 SGS-Thomson Microelectronics
1 of 9
<PAGE>
SGS-THOMSON LOGO
Whereas
-------
* SGS-THOMSON is willing to establish a long term collaboration with a
qualified supplier in the field of memories, libraries and associated
technologies;
* VLI is available to enter into such collaboration in order to become a key
supplier of SGS-THOMSON and provide it with memories, libraries and some
design tools particularly, but not limited to, for the HCMOS7 and HCMOS8
processes;
* the Parties hereto intend to fix some general terms and conditions under
which the above mentioned collaboration has to be carried on.
Now, it is hereby agreed and declared as follows:
1. PREMISES
The Premises hereto constitute an integral part of this Collaboration Agreement.
2. DEFINITIONS
As used for the purposes of this Collaboration Agreement, in the singular or the
plural, the following terms and expressions shall have the following means:
a) "SGS-THOMSON TECHNOLOGY" shall mean any technology developed by SGS-THOMSON
such as, but not limited to, HCMOS7, HCMOS8, etc., as well as technologies
derived by SGS-THOMSON from such technologies, such as, but not limited to,
HCMOS7A, HCMOS7S, HF7CMOS, BICMOS7, HCMOS8A, HCMOS8S, HF8CMOS, BICMOS8,
etc., and layout specifically related to the above technologies, especially
for memories.
COLLABORATION AGREEMENT December 4, 1996 SGS-Thomson Microelectronics
2 of 9
<PAGE>
SGS-THOMSON LOGO
b) "PRODUCTS" shall mean the products developed by VLI for use with SGS-
THOMSON Technology, such as, but not limited to, RAM and ROM Generators,
Libraries of Standard Cells, Macroblocks, etc.
c) "Front-End Data" shall mean:
Simulation Models
Timing Information
Bounding Box Generator
Schematic Icons
Specification Level Documentation
relating to the Products.
d) "Product Data" shall mean:
Layout Level Data
Schematic Level Data with transistor sizing
Design Details
Critical Path Generators
Design Documentation
Transistor Level Netlists or Equivalent Models
relating to the Products.
e) "DESIGN DATA" shall mean the Design Details (in particular Schematics,
Simulation Results, Layout) and Documentation included in the Product Data.
f) "VLI GENERAL TECHNOLOGY" shall mean:
Design styles
Design architectures
Electrical schematics without transistor sizing
Layout styles
Analysis and verification techniques and tools
Tools for automatic layout assembly
Tools for automatic design verification and characterization
relating to the Products.
g) "VLI COMPETITORS" shall mean the companies listed in Appendix whose
business could include the design and sale in third parties of libraries of
circuits (standard cells, generators) and whose business could include the
design and sale of Electronic the Design Automation tools to third parties.
The list of VLI competitors is attached hereto as Appendix. From time to
time, VLI may propose to SGS-THOMSON an update of Appendix which will enter
into force upon its written approval by SGS-THOMSON.
COLLABORATION AGREEMENT December 4,1996 SGS-Thomson Microelectronics
3 of 9
<PAGE>
SGS-THOMSON LOGO
3. OBJECTIVES
The objectives of this Collaboration Agreement between SGS-THOMSON and VLI are
the development and supply by VLI to SGS-THOMSON of memories, libraries and
associated technologies according to the development and supply orders issued
from time to time by SGS-THOMSON during the term of this Collaboration
Agreement.
To this purpose SGS-THOMSON will agree with VLI proper work plannings that will
in particular state, for each development and supply work required by SGS-
THOMSON, the specific development and commercial tasks, the time schedule, and
the related costs. The work plannings, duly signed by SGS-THOMSON and VLI
Authorized Representative, will be annexed to this Collaboration Agreement and
will constitute an integral part of it. It is understood that the work
plannings will be governed by the provisions of this Collaboration Agreement,
unless specific provisions will be agreed and inserted; in such case the
provisions of the work plannings will prevail.
4. PROJECT LEADERS
Each Party shall designate a Project Leader who will have the responsibility of
all the technical and operative aspects of any work planning agreed upon between
the Parties. Each Party hereby also designates Authorized Representatives, who
will have the responsibility of all the operative and contractual aspects of the
Collaboration Agreement
* SGS-THOMSON designates as Authorized Representative [*** Redacted].
* VLI designates as Authorized Representatives Mr. Mark Templeton and Mr.
Dhrumil Gandhi.
All communications or informations either in oral or written form have to be
addressed to the Authorized Representatives and/or the Project Leaders, as the
case may be, at the following address or at other places, as may be designated
by the Parties during the course of the Collaboration Agreement.
* SGS-THOMSON Microelectronics
via C. Olivetti 2
20041 Agrate Brianza (Mi)
Italy
COLLABORATION AGREEMENT December 4, 1996 SGS-Thomson Microelectronics
4 of 9
- ----------------
***Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
* VLSI Libraries Inc.
2077 Gateway Place
San Jose
USA, 95110-1016 California
5. TERM AND TERMINATION
This Collaboration Agreement shall become effective as of December 1st 1996 and
shall continue in full force and effect until December 31st 2000, unless
terminated ear-lier in accordance with the provision of this Section 5.
The present Collaboration Agreement will expire in the following cases:
a) by means of a written notice of termination to be given by the Authorized
Representative, in case a Party breaches any of its obligations in the
performance of this Collaboration Agreement, and the relevant breach is not
cured within 90 days from the written notice by the non breaching Party;
b) by advance notice to be served by a Party to the other at least 4 months
before the expiration of any year of duration of this Collaboration
Agreement. In any case such termination shall not affect, unless different
agreements in writing are agreed upon between the Parties, the contractual
activities relevant to work plannings still in progress at the date;
c) the termination of this Agreement as a result of breach of VLI shall not
prevent SGS-THOMSON from using the deliverables and information provided by
VLI for having the work performed by a third Party. In any event, VLI will
not be liable to SGS-THOMSON for an amount exceeding SGS-THOMSON's payments
to VLI for the deliverable which is the subject of the breach.
6. COMPENSATION
SGS-THOMSON will recognize VLI, for the contractual activities duly performed in
accordance with the agreed work plannings, the amounts that will be fixed in the
development and supply orders issued in reference to the said documents.
The payments will be normally due at [*** Redacted] from the date of issue of
the relevant invoices from VLI, subject to the approval in writing by SGS-
THOMSON Authorized Representative within such period. The money remittance will
be performed in USA
COLLABORATION AGREEMENT December 4, 1996 SGS-Thomson Microelectronics
5 of 9
- -------------------
***Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
unless another currency will be agreed upon between the Parties, to the Bank
account previously indicated by VLI.
7. MAINTENANCE
VLI agrees to provide maintenance [*** Redacted] for [*** Redacted] following
the delivery of any complete product. During this period, VLI will use its
commercial efforts to support SGS-THOMSON and will dedicate resources to SGS-
THOMSON issues with a higher priority than other VLI customers.
8. RIGHT OF USE
a) Products, including Design Data, Front-End Data and Product Data can be
used without restriction within SGS-THOMSON sites and sites of Affiliated
Companies. SGS-THOMSON undertakes to ensure that Design Data, Front-End
Data and Product Data shall be considered as proprietary information and as
such shall receive the same degree of protection as SGS-THOMSON proprietary
information.
SGS-THOMSON shall ensure that its customers that access the Products at
SGS-THOMSON deign centers, shall sign appropriate non-disclosure agreements
relating to the protection of Confidential Information.
b) SGS-THOMSON may distribute without restriction the Front-End Data, for use
outside SGS-THOMSON sites by design houses or customers.
c) Design Data, Front-End Data and Product Data could be given out to any
third Party who would have products manufactured under its own designs, by
a foundry company not wholly owned by SGS-THOMSON subject to a common
agreement between SGS-THOMSON and VLI.
d) Nothing in this Collaboration Agreement shall authorize SGS-THOMSON to
distribute Product Data to VLI Competitors.
e) Nothing in this Collaboration Agreement shall authorize VLI to make, have
made, use, and sell the Products, Design Data, Front-End Data, Product Data
and information developed and supplied for SGS-THOMSON under the work
programs referred to this Collaboration Agreement, without the SGS-
THOMSON's prior written authorization.
All such products, Design Data, Front-End Data, Product Data and
information will be the sole property of SGS-THOMSON, that will also retain
all the rights con-
COLLABORATION AGREEMENT December 4, 1996 SGS-Thompson Microelectronics
6 of 9
- -------------------
***Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
nected therewith.
VLI will retain rights to all of VLI General Technology, which is used to
provide products to ST and to other VLI customers.
9. PERMITTED DISCLOSURE OF PROPRIETARY INFORMATION
The Parties intend to exchange on a confidential basis proprietary information
such as, but not limited to, deep submicron technology and design methodology
information with a view to successfully designing memories and libraries.
Notwithstanding VLI and SGS-THOMSON shall have the right to disclose the third
Parties on an unrestricted basis proprietary information which, at the time of
disclosure is:
a) in or passes into the public domain other than by breach of this
Collaboration Agreement; or
b) known to the receiving Party prior to disclosure by the disclosing Party;
or
c) disclosed to the receiving Party by a third Party having the full right to
disclose; or
d) independently developed by an employee of the receiving Party to whom no
disclosure of confidential information has been made.
10. PRESS RELEASES
SGS-THOMSON and VLI will agree specific press releases and other promotional
materials to publicize their relationship as well as specific successes. Any
press release shall be authorized in writing by both Authorized Representatives
and by SGS-THOMSON and VLI competent offices before their disclosure in the
public.
11. ASSIGNMENT
This Agreement may not be assigned by other Party, without the consent of the
other Party.
COLLABORATION AGREEMENT December 4, 1996 SGS-Thomson Microelectronics
7 of 9
<PAGE>
SGS-THOMSON LOGO
12. APPLICABLE LAW
This Agreement shall be governed by and interpreted according to the laws of
Italy.
13. DISPUTES
Any disputes which may arise between the Parties hereto in connection with this
Agreement, its construction, validity, performance or non performance shall be
finally settled by the Court of Milan, Italy.
All the above read, confirmed and signed
Date and place: Agrate Brianza, November 29th 1996
SGS-THOMSON Microelectronics S.r.l.
/s/ J. Monnier /s/ G. Potenza /s/ G Zocchi
J. MONNIER G. POTENZA G. ZOCCHI
VLSI Libraries Inc.
COLLABORATION AGREEMENT December 4, 1996 SGS-Thomson Microelectronics
8 of 9
<PAGE>
APPENDIX
LIST OF VLI COMPETITORS
[*** Redacted]
COLLABORATION AGREEMENT December 4, 1996 SGS-Thomson Microelectronics
9 of 9
- -------------------
***Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
Work Planning
HCMOS7 Phase 1
Memory Generators
DEVELOPMENT
BY VLSI LIBRARIES INCORPORATED
FOR SGS-THOMSON MICROELECTRONICS SRL
By the signatures of this document, the two parties agree fully to the project
description defined below.
CONTENT:
1.0 Scope of the Work Planning ("Program")
2.0 Task Definition and Responsibilities
3.0 Program Management
4.0 Project Schedule and Milestones
5.0 Costs
6.0 Specific rights to use and to distribute
ACCEPTED BY:
/s/ unrecognized signature FOR SGS-THOMSON MICROELECTRONICS SRL
FOR VLSI LIBRARIES, INC.
ANNEXES:
* Statement of Work
* Generator Specifications (4)
HCMOS7 Phase 1 Work Planning December 5, 1996 SGS-Thomson Microelectronics
1 of 6
<PAGE>
1.0 SCOPE OF THE WORK PLANNING ("PROGRAM")
Within the general framework defined by the "Collaboration Agreement", VLI will
develop the following [*** Redacted] Memory Generators for SGS-THOMSON's in
[*** Redacted] (HCMOS7) process:
[*** Redacted]
The Program will be composed by the porting of the [*** Redacted] generators
from the corresponding HCMOS6 ones.
Within this Program the "Definitions" given in Section 2 of the "Collaboration
Agreement" are valid with the following specification:
* "Product" means "Generator" within this Program
* "Product Data" means "Generator Data" within this Program
2.0 TASK DEFINITION AND RESPONSIBILITIES
VLI is fully responsible for the Program execution and the deliverables
according- to the Statement of Work hereafter attached. This includes actions
that may be performed by SGS-THOMSON like Silicon processing (if there is any
problem, it is the responsibility of VLI to draw the attention of SGS-THOMSON to
the problem and to propose effective remedial action).
The split of responsibilities for all the tasks necessary to complete the Memory
Generators is also described in the STATEMENT OF WORK attached. VLI will take
full responsibility for all the VLI tasks mentioned in such document.
The electrical design, layout design, characterization, design documentation are
under VLI's responsibility.
The target specifications of these Memory Generators are defined in the four
attached SPECIFICATION DOCUMENTS.
Design knowledge transfer will be performed by having SGS-THOMSON engineers on-
site at VLI to interact directly with the VLI designers, during one month after
each generator release [*** Redacted].
HCMOS7 Phase I Work Planning December 4, 1996 SGS-Thomson Microelectronics
3 of 6
- -------------------
***Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
3.0 PROGRAM MANAGEMENT
A monthly program management review and design review will be held throughout
the project duration, in alternate locations.
VLI should only interface to a limited number of SGS-THOMSON representatives
appointed by [*** Redacted].
* SGS-THOMSON designates as Project Leader for this Work Planning [***
Redacted]
* VLI designates as Project Leader for this Work Planning [*** Redacted].
4.0 PROJECT SCHEDULE AND MILESTONES
Below are listed the major milestones and deliverables.
[*** Redacted]
HCMOS7 Phase I Work Planning December 4, 1996 SGS-Thomson Microelectronics
4 of 6
- -------------------
***Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
[*** Redacted]
5.0 COSTS
Based on the scope of work and approach defined above, payments for SGS-THOMSON
will be for amounts and schedules listed below, subject to the completion by VLI
of the deliverables according to the provisions of this agreement.
TABLE 1. COSTS
DATE DELIVERABLE AMOUNT
[*** Redacted]
Payment terms are [*** Redacted] for all terms.
6.0 SPECIFIC RIGHTS TO USE AND TO DISTRIBUTE
6.1 RIGHTS OF DISTRIBUTION OUTSIDE SGS-THOMSON SITES AND SITES OF AFFILATED
-----------------------------------------------------------------------
COMPANIES, OF FRONT-END DATA, GENERATOR DATA and DESIGN DATA
------------------------------------------------------------
6.1.1 SGS-THOMSON may distribute without restriction the Front-End Data, for
use outside SGS-THOMSON sites by design houses or customers.
6.1.2 SGS-THOMSON may distribute Generator Data outside SGS-THOMSON sites
subject to the following conditions and restrictions:
The receiver of such data must sign with SGS-THOMSON an agreement
whereby such receiver:
. acknowledges that all Generator Data received is confidential mad
covered by the terms of the SGS-THOMSON standard Non-Disclosure
Agreement;
HCMOS7 Phase I Work Planning December 4, 1996 SGS-Thomson Microelectronics
5 of 6
- -------------------
***Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
. undertakes not to use the Generator Data received except for the
purpose of designing integrated circuits to be manufactured by SGS-
THOMSON;
. undertakes (i) not to map the Design Data received to another
process, (ii) not to reverse engineer such design, (iii) not to use
the knowledge learned through use of the received Design Data to make
its own design, (iv) not to modify the Design Data other than for the
purposes of designing IC's to be manufactured by SGS-THOMSON.
6.1.3 SGS-THOMSON may, subject to VLI prior written approval, install Generator
Data within sites of companies which are collaborating with SGS-THOMSON on a
technology partnership. In particular SGS-THOMSON is authorized to install
Generator Data at [*** Redacted]. From time to time SGS-THOMSON may propose
to VLI an update of this list of companies which will enter into force upon its
written approval by VLI.
[*** Reacted] could be delivered to [*** Redacted]. [*** Redacted] may be
delivered to any other third Party subject to a common agreement, in writing,
between VLI and SGS-THOMSON. In any case the receiver of the data has to sign an
agreement with SGS-THOMSON whereby such receiver:
. acknowledges that all data received are confidential and are covered
by the terms of the SGS-THOMSON standard Non-Disclosure Agreement;
. undertakes not to use the data received except for the purpose of
designing integrated circuits to be manufactured with SGS-THOMSON
TECHNOLOGY;
. undertakes (i) not to map the Design Data received to another
process, (ii) not to reverse engineer such design, (iii) not to use
the knowledge learned through use of the received Design Data to make
its own design, (iv) not to modify the Design Data other than for the
purposes of designing IC's to be manufactured by SGS-THOMSON.
HCMOS7 Phase I Work Planning December 4, 1996 SGS-Thomson Microelectronics
6 of 6
- -------------------
***Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
WORK PLANNING
HCMOS6 Memory Generators
DEVELOPMENT
BY VLSI LIBRARIES INCORPORATED
FOR SGS-THOMSON MICROELECTRONICS SRL
By the signatures of this document, the two parties agree fully to the project
description defined below.
CONTENT:
1.0 Scope of the Work Planning ("Program")
2.0 Task Definition and Responsibilities
3.0 Program Management
4.0 Project Schedule and Milestones
5.0 Costs
6.0 Specific rights to use and to distribute
ACCEPTED BY:
/s/ unrecognized signature FOR SGS-THOMSON MICROELECTRONICS SRL
FOR VLSI LIBRARIES, INC.
ANNEXES:
* Statement of Work
* Generator Specifications (2)
HCMOS6 Work Planning December 5, 1996 SGS-Thomson Microelectronics
1 of 7
<PAGE>
SGS-THOMSON LOGO
WORK PLANNING
BETWEEN
- -------
SGS-THOMSON MICROELECTRONICS SRL., a company incorporated and existing under the
laws of Italy, having its registered office at 20041 Agrate Brianza, Via C.
Olivetti 2
(hereinafter referred to as "SGS-THOMSON")
also acting for the benefit of other Affiliated Companies of SGS-THOMSON
MICROELECTRONICS N.V.
(Affiliated companies shall mean companies in which SGS-THOMSON MICROELECTRONICS
N.V. holds directly or indirectly at least 50% of the share capital or voting
rights and major external design teams subcontracted by an SGS-THOMSON company
to create products in SGS-THOMSON Technologies)
on the first part
AND
- ---
VLSI LIBRARIES, INC., a company incorporated and existing under the laws of the
State of California, U.S.A. having its registered office at 2077 Gateway Place,
San Jose, CA 95110-1016
(hereinafter referred to as "VLI")
on the second part
HCMOS6 Work Planning December 4, 1996 SGS-Thomson Microelectronics
2 of 7
<PAGE>
SGS-THOMSON LOGO
1.0 SCOPE OF THE WORK PLANNING ("PROGRAM")
Within the general framework defined by the "Collaboration Agreement", VLI will
develop the following [*** Redacted] Memory Generators for SGS-THOMSON's in
[*** Redacted] (HCMOS60) process:
* [*** Redacted]
* [*** Redacted]
The Program will be composed by the improvement of the layout of the
[*** Redacted] generators, done in a previous contract, using HCMOS6
specific design rules for static memories.
Within this Program the "Definitions" given in Section 2 of the "Collaboration
Agreement" are valid with the following specification:
* "PRODUCT" means "GENERATOR" within this Program
* "PRODUCT DATA" means "GENERATOR DATA" within this Program
2.0 TASK DEFINITION AND RESPONSIBILITIES
VLI is fully responsible for the Program execution and the deliverables
according to the Statement of Work hereafter attached. This includes actions
that may be performed by SGS-THOMSON like Silicon processing (if there is any
problem, it is the responsibility of VLI to draw the attention of SGS-THOMSON to
the problem and to propose effective remedial action).
The split of responsibilities for all the tasks necessary to complete the Memory
Generators is also described in the STATEMENT OF WORK attached. VLI will take
full responsibility for all the VLI tasks mentioned in such document.
The electrical design, layout design, characterization, design documentation are
under VLI's responsibility.
The target specifications of these Memory Generators are defined in the two
attached SPECIFICATION DOCUMENTS.
Design knowledge transfer will be performed by having SGS-THOMSON engineers on-
site at VLI to interact directly with the VLI designers, during one month after
each generator release [*** Redacted].
HCMOS6 Work Planning December 4, 1996 SGS-Thomson Microelectronics
3 of 7
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
3.0 PROGRAM MANAGEMENT
A monthly program management review and design review will be held throughout
the project duration, in alternate locations.
VLI should only interface to a limited number of SGS-THOMSON representatives
appointed by [*** Redacted].
* SGS-THOMSON designates as Project Leader for this Work Planning
[*** Redacted].
* VLI designates as Project Leader for this Work Planning [*** Redacted].
4.0 PROJECT SCHEDULE AND MILESTONES
Below are listed the major milestones and deliverables.
[*** Redacted]
HCMOS6 Work Planning December 4, 1996 SGS-Thomson Microelectronics
4 of 7
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
5.0 COSTS
Based on the scope of work and approach defined above, payments for SGS-THOMSON
will be for amounts and schedules listed below, subject to the completion by VLI
of the deliverables according to the provisions of this agreement.
TABLE 1. COSTS
[*** Redacted]
The silicon dependent payment schedule assumes that SGS-THOMSON is able to
achieve definitive silicon test results within [*** Redacted] of VLI delivering
the appropriate test cuts. If silicon results are delayed beyond this, at no
fault of VLI, the corresponding silicon dependent payment will be made by SGS-
THOMSON to VLI for half the due amount. If silicon results are delayed by other
additional [*** Redacted], again at no fault of VLI, the corresponding silicon
dependent payment will be completed by SGS-THOMSON to VLI.
Payment terms are [*** Redacted] for all terms.
HCMOS6 Work Planning December 4, 1996 SGS-Thomson Microelectronics
5 of 7
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
6.0 SPECIFIC RIGHTS TO USE AND TO DISTRIBUTE
6.1 RIGHTS OF DISTRIBUTION OUTSIDE SGS-THOMSON SITES AND SITES OF AFFILATED
-----------------------------------------------------------------------
COMPANIES. OF FRONT-END DATA. GENERATOR DATA and DESIGN DATA
------------------------------------------------------------
6.1.1 SGS-THOMSON may distribute without restriction the Front-End Data, for
use outside SGS-THOMSON sites by design houses or customers.
6.1.2 SGS-THOMSON may distribute Generator Data outside SGS-THOMSON sites
subject to the following conditions and restrictions:
The receiver of such data must sign with SGS-THOMSON an agreement
whereby such receiver:
. acknowledges that all Generator Data received is confidential and
covered by the terms of the SGS-THOMSON standard Non-Disclosure
Agreement;
. undertakes not to use the Generator Data received except for the
purpose of designing integrated circuits to be manufactured by SGS-
THOMSON;
. undertakes (i) not to map the Design Data received to another
process, (ii) not to reverse engineer such design, (iii) not to use
the knowledge teamed through use of the received Design Data to make
its own design, (iv) not to modify the Design Data other than for the
purposes of designing IC's to be manufactured by SGS-THOMSON.
6.1.3 SGS-THOMSON may subject to VLI prior written approval, install Generator
Data within sites of companies which are collaborating with SGS-THOMSON on a
technology partnership. In particular SGS-THOMSON is authorized to install
Generator Data at [*** Redacted]. From time to time SGS-THOMSON may propose
to VLI an update of this list of companies which will enter into force upon its
written approval by VLI.
HCMOS6 Work Planning December 4, 1996 SGS-Thomson Microelectronics
6 of 7
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
[*** Redacted] could be delivered to [*** Redacted]. [*** Redacted] may be
delivered to any other third Party subject to a common agreement, in writing,
between VLI and SGS-THOMSON. In any case the receiver of the data has to sign an
agreement with SGS-THOMSON whereby such receiver:
. acknowledges that all data received are confidential and are covered
by the terms of the SGS-THOMSON standard Non-Disclosure Agreement;
. undertakes not to use the data received except for the purpose of
designing integrated circuits to be manufactured with SGS-THOMSON
TECHNOLOGY;
. undertakes (i) not to map the Design Data received to another
process, (ii) not to reverse engineer such design, (iii) not to use
the knowledge learned through use of the received Design Data to make
its own design, (iv) not to modify the Design Data other than for the
purposes of designing IC's to be manufactured by SGS-THOMSON.
HCMOS6 Work Planning December 4, 1996 SGS-Thomson Microelectronics
7 of 7
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
WORK PLANNING
MCMOS7 Phase 2
Memory Generators
DEVELOPMENT
BY VLSI LIBRARIES INCORPORATED
FOR SGS-THOMSON MICROELECTRONICS SRL
By the signatures of this document, the two parties agree fully to the project
description defined below.
CONTENT:
1.0 Scope of the Work Planning ("Program")
2.0 Task Definition and Responsibilities
3.0 Program Management
4.0 Project Schedule and Milestones
5.0 Costs
6.0 Specific rights to use and to distribute
ACCEPTED BY:
/s/ unrecognized signature FOR SGS-THOMSON MICROELECTRONICS SRL
FOR VLSI LIBRARIES, INC.
ANNEXES:
* Statement of Work
* Generator Specifications (4)
HCMOS7 Phase 2 Work Planning December 5, 1996 SGS-Thomson Microelectronics
1 of 8
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
WORK PLANNING
BETWEEN
- -------
SGS-THOMSON MICROELECTRONICS SRL., a company incorporated and existing under the
laws of Italy, having its registered office at 20041 Agrate Brianza, Via C.
Olivetti 2
(hereinafter referred to as "SGS-THOMSON")
also acting for the benefit of other Affiliated Companies of SGS-THOMSON
MICROELECTRONICS N.V.
(Affiliated companies shall mean companies in which SGS-THOMSON MICROELECTRONICS
N.V. holds directly or indirectly at least 50% of the share capital or voting
rights and major external design teams subcontracted by an SGS-THOMSON company
to create products in SGS-THOMSON Technologies)
on the first part
AND
- ---
VLSI LIBRARIES, INC., a company incorporated and existing under the laws of the
State of California, U.S.A. having its registered office at 2077 Gateway Place,
San Jose, CA 95110-1016
(hereinafter referred to as "VLI")
on the second part
HCMOS7 Phase 2 Work Planning December 4, 1996 SGS-Thomson Microelectronics
2 of 8
<PAGE>
SGS-THOMSON
1.0 SCOPE OF THE WORK PLANNING ("PROGRAM")
Within the general framework defined by the "Collaboration Agreement", VLI will
develop the following [*** Redacted] Memory Generators for SGS-THOMSON's in
[*** Redacted] process:
[*** Redacted]
The Program will be composed by the fine tuning of the design and layout of the
HCMOS7 generators done during Phase 1; moreover specific design rules
for static memories will be used. The specifications will be similar in term of
logical behavior, targeting anyway better electrical/geometrical/layout
performances and wider parameters range (including but not limited to more
output bits, more total memory capacity, etc.).
Within this !Program the "Definitions" given in Section 2 of the "Collaboration
Agreement" are valid with the following specification:
* "PRODUCT" means "GENERATOR" within this Program
* "PRODUCT DATA" means "GENERATOR DATA" within this Program
2.0 TASK DEFINITION AND RESPONSIBILITIES
VLI is fully responsible for the Program execution and the deliverables
according to the Statement of Work hereafter attached. This includes actions
that may be performed by SGS-THOMSON like Silicon processing (if there is any
problem, it is the responsibility of VLI to draw the attention of SGS-THOMSON to
the problem and to propose effective remedial action).
The split of responsibilities for all the tasks necessary to complete the Memory
Generators is also described in the STATEMENT OF WORK attached. VLI will take
full responsibility for all the VLI tasks mentioned in such document.
The electrical design, layout design, characterization, design documentation are
under VLI's responsibility.
Detailed specifications for these [*** Redacted] memory generators will be
defined by SGS-THOMSON within the end of January 1997.
HCMOS7 Phase 2 Work Planning December 4, 1996 SGS-Thomson Microelectronics
3 of 8
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
Design knowledge transfer will be performed by having SGS-THOMSON engineers on-
site at VLI to interact directly with the VLI designers, during one month after
each generator release [*** Redacted].
3.0 PROGRAM MANAGEMENT
A monthly program management review and design review will be held throughout
the project duration, in alternate locations.
VLI should only interface to a limited number of SGS-THOMSON representatives
appointed by [*** Redacted].
* SGS-THOMSON designates as Project Leader for this Work Planning
[*** Redacted].
* VLI designates as Project Leader for this Work Planning [*** Redacted].
4.0 PROJECT SCHEDULE AND MILESTONES
The detailed project schedule and definition of Milestones are given in the
Statement of Work annexed to this contract. Below are listed the major
Milestones and deliverables. The scheduling for Phase I Milestones is defined
below; the scheduling for Phase 2 Milestones could have minor adjustment, agreed
upon between VLI and SGS-THOMSON, after the final Phase 2 specifications will be
issued by SGS-THOMSON.
[*** Redacted]
HCMOS7 Phase 2 Work Planning December 4, 1996 SGS-Thomson Microelectronics
4 of 8
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
[*** Redacted]
HCMOS7 Phase 2 Work Planning December 4, 1996 SGS-Thomson Microelectronics
5 of 8
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
5.0 COSTS
Based on the scope of work and approach defined above, payments for SGS-THOMSON
will be for amounts and schedules listed below, subject to the completion by VLI
of the deliverables according to the provisions of this agreement.
TABLE 1. COSTS
[*** Redacted]
The silicon dependent payment schedule assumes that SGS-THOMSON is able to
achieve definitive silicon test results within [*** Redacted] of VLI delivering
the appropriate test cuts. If silicon results are delayed beyond this, at no
fault of VLI, the corresponding silicon dependent payment will be made by SGS-
THOMSON to VLI for half the due amount. If silicon results are delayed by other
additional [*** Redacted], again at no fault of VLI, the corresponding silicon
dependent payment will be completed by SGS-THOMSON to VLI.
Payment terms are net [*** Redacted] for all terms.
HCMOS7 Phase 2 Work Planning December 4, 1996 SGS-Thomson Microelectronics
6 of 8
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
6.0 SPECIFIC RIGHTS TO USE AND TO DISTRIBUTE
6.1 RIGHTS OF DISTRIBUTION OUTSIDE SGS-THOMSON SITES AND SITES OF AFFILATED
-----------------------------------------------------------------------
COMPANIES, OF FRONT-END DATA, GENERATOR DATA and DESIGN DATA
------------------------------------------------------------
6.1.1 SGS-THOMSON may distribute without restriction the Front-End Data, for
use outside SGS-THOMSON sites by design houses or customers.
6.1.2 SGS-THOMSON may distribute Generator Data outside SGS-THOMSON sites
subject to the following conditions and restrictions:
The receiver of such data must sign with SGS-THOMSON an agreement
whereby such receiver:
. acknowledges that all Generator Data received is confidential and
covered by the terms of the SGS-THOMSON standard Non-Disclosure
Agreement;
. undertakes not to use the Generator Data received except for the
purpose of designing integrated circuits to be manufactured by SGS-
THOMSON;
. undertakes (i) not to map the Design Data received to another
process, (ii) not to reverse engineer such design, (iii) not to use
the knowledge learned through use of the received Design Data to make
its own design, (iv) not to modify the Design Data other than for the
purposes of designing IC's to be manufactured by SGS-THOMSON.
6.1.3 SGS-THOMSON may, subject to VLI prior written approval, install Generator
Data within sites of companies which are collaborating with SGS-THOMSON on a
technology partnership. In particular SGS-THOMSON is authorized to install
Generator Data at [*** Redacted]. From time to time SGS-THOMSON may propose
to VLI an update of this list of companies which will enter into force upon its
written approval by VLI.
HCMOS7 Phase 2 Work Planning December 4, 1996 SGS-Thomson Microelectronics
7 of 8
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
[*** Redacted] could be delivered to [*** Redacted]. [*** Redacted] may be
delivered to any other third Party subject to a common agreement, in writing,
between VLI and SGS-THOMSON. In any case the receiver of the data has to sign an
agreement with SGS-THOMSON whereby such receiver:
. acknowledges that all data received are confidential and are covered
by the terms of the SGS-THOMSON standard Non-Disclosure Agreement;
. undertakes not to use the data received except for the purpose of
designing integrated circuits to be manufactured with SGS-THOMSON
TECHNOLOGY;
. undertakes (i) not to map the Design Data received to another
process, (ii) not to reverse engineer such design, (iii) not to use
the knowledge learned through use of the received Design Data to make
its own design, (iv) not to modify the Design Data other than for the
purposes of designing IC's to be manufactured by SGS-THOMSON.
HCMOS7 Phase 2 Work Planning December 4, 1996 SGS-Thomson Microelectronics
8 of 8
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
STATEMENT OF WORK
BETWEEN VLSI LIBRARIES INCORPORATED (VLI) AND SGS-THOMSON (ST)
1.0 TASK DEFINITION AND RESPONSIBILITIES
The split of responsibilities for all the tasks necessary to complete the Memory
Generators is described in this section. VLI will take full responsibility for
all the VLI tasks mentioned below in sections 1.1, 1.2.2, 1.3, 1.3.1, 1.3.3,
1.3.4, 1.4.1, 1.4.3, 1.4.5, 1.5, 1.5.1.
ALL EXECUTABLE CODE DELIVERED BY VLI TO ST WILL BE ALSO PROVIDED IN SOURCE
FORMAT.
1.1 DESIGN
The electrical design, layout design, characterization, design documentation are
under VLI's responsibility.
Design knowledge transfer will be performed by having ST engineers on-site at
VLI to interact directly with the VLI designers.
1.2 FRONT-END
1.2.1 VHDL AND VERILOG MODELS, SYMBOL
These will be developed under ST's responsibility.
1.2.2 MERLINO AND MIF
VLI will be in charge of the integration and validation of the timing,
geometrical and power data into the Merlino and MIF formats.
1.2.3 HUMAN INTERFACE
This will be developed under ST's responsibility.
1.3 CHARACTERIZATION
Electrical, power and area characterization will be done by VLI only for
MCMOS6 generators, not for HCMOS7 phase 1 ones; within the end
of January 1997 VLI and ST will agree upon the tools that VLI will use (either
VLI proprietary environment, or ST tools).
Statement of Work November 28, 1996 SGS-Thomson Microelectronics 1
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
ST will provide its customers with a complete cut characterization environment
and data, based on Eldo simulations, so as to alleviate the inaccuracies due to
the curve-fitting process encountered for previous HCMOS5 generators.
The list of representative cuts for characterization will be agreed between ST
and VLI. The number of cuts will be similar to the number used for HCMOS6
generators.
1.3.1 ELDO NETLISTS AND STIMULI FOR CHARACTERIZATION CUTS.
VLI will provide these to ST
1.3.2 RDB, EQN DATA IN BC, TYP, WC
For all the above ELDO netlists and stimuli, these will be run in best
conditions, typical conditions, and worst case conditions. The results of these
runs will be provided to ST. QA for these data will be performed by VLI, and
checked by ST, according to a methodology agreed upon between VLI and ST.
1.3.3 CADENCE SCHEMATICS FOR MEMORY LEAF-CELLS AND HIERARCHY LEVELS
VLI will provide Cadence schematics for all the memory leaf cells and hierarchy
levels. These schematics will use ST's components, to be compatible with ST's
proprietary Generator Characterization System.
For each leaf-cell there are 2 or 3 schematics, as follows:
* The actual cell components schematics.
* The cell schematics + parasitic elements for critical path simulation.
* An optional simplified cell schematics to be used as loading for critical
path simulation.
ST will provide to VLI the Cadence libraries necessary to enter these
schematics, a.k.a. "HCMOS7 design kit", as well as ST's netlister for
these library components ("SEP").
1.3.4 CRITICAL PATH GENERATORS IN ST'S PROPRIETARY ENVIRONMENT
VLI will support ST engineers on VLI premises to allow a complete know-how
acquisition by ST
1.3.5 CRITICAL PATH ELDO STIMULI GENERATOR
VLI and ST will each use their own tools for generating the Eldo stimuli for the
critical path Generator.
1.4 BACK-END
1.4.1 LAYOUT GENERATORS
VLI will be in charge of the layout generators development, as it was for
HCMOS6. Moreover, VLI will be in charge of their integration into the
UNIGEN environment.
Statement of Work November 28, 1996 SGS-Thomson Microelectronics 2
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
After that, VLI will also validate the integrated back-end generators into the
corresponding validation flow.
1.4.2 ABSTRACT GENERATOR
ST will develop the abstract generator for Cell3 and Block-Ensemble for all
memories. ST will add the post-processing routines to bring all pins to the
Cell3 grid.
1.4.3 POWER DISTRIBUTION
VLI will develop the layout generators without power-rings. The number of Vdd
and Gnd connections will be limited to one or two of each. Metal3 will be used
for distributing power and ground internally to the memories. Metal3 will also
be used to shield sensitive nodes from potentially noisy Metal4 lines running
above the memories.
1.4.4 SOG EMBEDDABILITY
ST will develop the routines to make the memories layout SOG-compatible.
1.4.5 SPICE NETLIST GENERATOR FOR LVS
VLI will develop a spice netlist generator for Dracula/LVS. A solution not using
the Cadence netlister will be provided: Either Skill-based or C-based
(preferred).
1.5 SILICON VALIDATION
VLI is fully responsible for this phase, including actions that may be done by
ST, such as processing or testing. In case of problems, VLI should escalate the
issue within ST to insure prompt resolution.
1.5.1 SILICON VALIDATION PLAN
VLI is responsible for the definition and implementation of the silicon
validation plan. VLI will generate the necessary generator cuts.
VLI will describe in the plan how to fully characterize the memory generator
cuts.
1.5.2 TEST CHIPS DESIGN AND FAB
ST will provide the layout of cavities in which the test cuts will be inserted.
VLI will complete the layout of the test cavities with the layout of the test
cuts and with the connections between them and the IO PADS.
ST will provide manpower to assemble the layout of the test cavities into test
chips, do reticle assembly, and process these test chips in HCMOS7/HCMOS6
processes.
1.5.3 SILICON DEBUG AND CHARACTERIZATION
ST will run the characterization plan according to VLI specifications. In case
of any problem during testing, VLI will send their engineers to ST, in a
location decided by ST, to perform silicon debug. This may require the use of
E-Beam equipment to probe internal nodes. Test targets or test pins on the
layout will have been provided by VLI to this effect.
Statement of Work November 28, 1996 SGS-Thomson Microelectronics 3
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
SGS-THOMSON LOGO
VLI will assemble the Memory Generator Silicon Characterization reports for all
memories.
2.0 PROGRAM MANAGEMENT
A monthly program management review and design review will be held throughout
the project duration, in alternate locations.
VLI should only interface to a limited number of SGS-THOMSON representatives
appointed by [*** Redacted].
Statement of Work November 28, 1996 SGS-Thomson Microelectronics 4
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
EXHIBIT 10.11
VLSI LIBRARIES INCORPORATED
________________________________________________________________________________
SERIES B PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
December 17, 1996
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1
Authorization and Sale of Series B Preferred Stock................ 1
1.1 Authorization................................................ 1
1.2 Sale of Series B Preferred Stock............................. 1
1.3 Issuance of Warrant to Purchase Preferred Stock.............. 1
SECTION 2
Closing Date; Delivery............................................ 1
2.1 Closing Date................................................. 1
2.2 Delivery..................................................... 1
SECTION 3
Representations and Warranties of the Company..................... 2
3.1 Corporate Organization and Authority......................... 2
3.2 Capitalization............................................... 2
3.3 Subsidiaries................................................. 3
3.4 Authorization................................................ 3
3.5 Validity of Shares........................................... 3
3.6 No Conflict with Other Instruments........................... 3
3.7 Litigation................................................... 3
3.8 Title to Properties, Liens and Encumbrances.................. 4
3.9 Patents and Other Propriety Rights........................... 4
3.10 Company's Contracts.......................................... 5
3.11 No Defaults, Violations or Conflicts......................... 5
3.12 Private Offering............................................. 5
3.13 Prior Registration Rights.................................... 5
3.14 Full Disclosure.............................................. 5
3.15 Related-Party Transactions................................... 5
3.16 Distributions................................................ 6
3.17 Employee Compensation Plans.................................. 6
3.18 Employee Relations........................................... 6
3.19 Brokers and Finders.......................................... 6
3.20 Transactions with Affiliates................................. 6
3.21 Governmental Consents........................................ 6
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3.22 Environmental Regulations.................................... 6
3.23 Minute Books................................................. 6
3.24 Financial Statements......................................... 7
3.25 Absence of Certain Changes................................... 7
3.26 Tax Returns, Payments and Elections.......................... 8
3.27 Insurance.................................................... 8
3.28 Permits...................................................... 8
3.29 Section 83(b) Elections..................................... 9
3.30 Corporate Documents.......................................... 9
SECTION 4
Representations and Warranties of the Purchasers.................. 9
4.1 Experience................................................... 9
4.2 Investment................................................... 9
4.3 Rule 144..................................................... 9
4.4 No Public Market............................................. 10
4.5 Access to Data............................................... 10
4.6 Authorization................................................ 10
4.7 Brokers or Finders........................................... 10
SECTION 5
Conditions to Closing of Purchasers............................... 10
5.1 Representations and Warranties Correct....................... 10
5.2 Covenants.................................................... 11
5.3 Compliance Certificate....................................... 11
5.4 Blue Sky..................................................... 11
5.5 Articles of Incorporation.................................... 11
5.6 Rights Agreement............................................. 11
5.7 Opinion of Company's Counsel................................. 11
5.8 Proprietary Information Agreements........................... 11
5.9 Consulting Agreement......................................... 11
5.10 Co-Sale Agreement............................................ 11
5.11 By-Laws...................................................... 11
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 6
Conditions to Closing of Company....................................... 12
6.1 Representations.............................................. 12
6.2 Blue Sky..................................................... 12
6.3 Articles of Incorporation.................................... 12
6.4 Covenants.................................................... 12
6.5 Rights Agreement............................................. 12
6.6 Co-Sale Agreement............................................ 12
6.7 By-Laws...................................................... 12
SECTION 7
Affirmative Covenants of the Company.............................. 12
7.1 Financial Information........................................ 12
7.2 Additional Information....................................... 13
7.3 Transfer of Information Rights............................... 13
7.4 Termination of Covenants..................................... 14
7.5 Securities Laws Compliance................................... 14
7.6 Confidential Information and Invention Assignment Agreement.. 14
7.7 Share Repurchases............................................ 14
SECTION 8
Miscellaneous..................................................... 14
8.1 Governing Law................................................ 14
8.2 Survival..................................................... 14
8.3 Successors and Assigns....................................... 15
8.4 Entire Agreement, Amendment.................................. 15
8.5 Notices, etc................................................. 15
8.6 Delays or Omissions.......................................... 15
8.7 California Corporate Securities Law.......................... 16
8.8 Expenses..................................................... 16
8.9 Counterparts................................................. 16
8.10 Severability................................................. 16
8.11 Titles and Subtitles......................................... 16
</TABLE>
-iii-
<PAGE>
TABLE OF CONTENTS
(continued)
PAGE
----
EXHIBITS
A. Schedule of Purchasers
B. Form of Certificate of Amendment of Restated Articles of Incorporation
C. Form of Warrant to Purchase Preferred Stock
D. Schedule of Exceptions
E. Holders of Common Stock
F. Amended and Restated Registration Rights Agreement
G. Compliance Certificate
H. Form of Opinion of Wilson, Sonsini, Goodrich & Rosati
I-1. Form of Proprietary Information Agreement
I-2. Form of Consulting Agreement
J. Form of Amended and Restated Right of First Refusal and Co-Sale Agreement
K. Form of By-Law Amendment
-iv-
<PAGE>
<PAGE>
<PAGE>
<PAGE>
VLSI LIBRARIES INCORPORATED
SERIES B PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
This Series B Preferred Stock and Warrant Purchase Agreement (the
"Agreement") is made as of December 17, 1996 by and among VLSI Libraries
Incorporated, a California corporation (the "Company"), and the investors listed
on Exhibit A to this Agreement (the "Purchasers").
---------
SECTION 1
Authorization and Sale of Series B Preferred Stock and
------------------------------------------------------
Issuance of a Warrant to Purchase Preferred Stock
-------------------------------------------------
1.1 Authorization. The Company will authorize the sale and issuance of up
-------------
to 1,171,931 shares of its Series B Preferred Stock, having the rights,
privileges and preferences as set forth in the Certificate of Amendment of
Restated Articles of Incorporation (the "Certificate of Amendment") in the form
attached to this Agreement as Exhibit B.
---------
1.2 Sale of Series B Preferred Stock. Subject to the terms and conditions
--------------------------------
of this Agreement, each Purchaser agrees to purchase at the Closing (as defined
below), and the Company agrees to sell and issue to each Purchaser, that number
of shares of the Company's Series B Preferred Stock (the "Shares" or "Series B
Preferred") set forth opposite each Purchaser's name on Exhibit A to this
---------
Agreement at a purchase price of $3.77 per share.
1.3 Issuance of Warrant to Purchase Preferred Stock. In addition to the
-----------------------------------------------
Shares to be issued at the Closing, and subject to the terms and conditions
hereof, the Company will issue to Synopsys, Inc. ("Synopsys"), a warrant for the
purchase of additional shares of Preferred Stock in the form attached hereto as
Exhibit C (the "Warrant").
- ---------
SECTION 2
Closing Date; Delivery
----------------------
2.1 Closing Date. The closing of the purchase and sale of the Shares and
------------
the Warrant under this Agreement shall be held at the offices of Wilson,
Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California, at 3:00
p.m., on December 17, 1996 (the "Closing"), or at such other time and place upon
which the Company and the Purchasers shall agree (the date of the Closing is
hereinafter referred to as the "Closing Date").
2.2 Delivery. At the Closing, the Company will deliver to each Purchaser a
--------
certificate or certificates representing the number of Shares to be purchased by
each Purchaser at the Closing, against delivery to the Company by each Purchaser
of payment by check or wire transfer of immediately available funds. At the
Closing, the Company will also deliver the Warrant to Synopsys.
<PAGE>
SECTION 3
Representations and Warranties of the Company
---------------------------------------------
Except as set forth on Exhibit D attached to this Agreement, the Company
---------
hereby represents and warrants to the Purchasers as follows:
3.1 Corporate Organization and Authority. The Company is a corporation
------------------------------------
duly organized, validly existing, authorized to exercise all its corporate
powers, rights and privileges, and in good standing in the State of California,
has the corporate power and corporate authority to own and operate its
properties and to carry on its business as now conducted and as proposed to be
conducted and is not qualified to do business as a foreign corporation in any
jurisdiction and such qualification is not presently required in any
jurisdiction where a failure to so qualify would have a material adverse effect
on the Company.
3.2 Capitalization. Immediately prior to the Closing, the authorized
--------------
capital stock of the Company shall consist of:
(a) Preferred Stock. 3,435,730 shares of Preferred Stock, of which
---------------
2,263,799 shares are designated Series A Preferred Stock, all of which shares
are issued and outstanding prior to the date hereof, and of which 1,171,931
shares are designated Series B Preferred Stock, none of which shares are issued
and outstanding prior to the date hereof. Such outstanding shares of Series A
Preferred are duly and validly issued (including, without limitation, issued in
compliance with applicable federal and state securities laws), fully paid,
nonassessable, outstanding and held by the persons and in the amounts set forth
on Exhibit E. The rights, preferences, privileges and beneficial restrictions
---------
of each series of the Company's Preferred Stock are set forth in the Certificate
of Amendment of Restated Articles of Incorporation as in effect on the Closing
Date. The Company has reserved an aggregate of 1,171,931 shares of its Series
B Preferred Stock for issuance hereunder and under the Warrant.
(b) Common Stock. 15,000,000 shares of Common Stock, of which
------------
5,113,750 shares are duly and validly issued, fully-paid, nonassessable,
outstanding and held by the persons and in the amounts set forth on Exhibit E.
---------
The Company has reserved 2,263,799 shares of Common Stock for issuance upon
conversion of the outstanding shares of Series A Preferred Stock, and 1,171,931
shares of Common Stock for issuance upon conversion of the Series B Preferred
Stock. The Company has reserved 1,891,396 shares of Common Stock for issuance
to employees and directors of, and consultants to, the Company under the 1993
Stock Option Plan, of which options to purchase 213,750 shares have been
exercised, 1,382,987 shares are subject to outstanding options and 294,659
shares remain available for future grant. Except as contemplated by this
Agreement there are no other outstanding warrants, options, conversion
privileges, preemptive rights, or other rights or agreements to purchase or
otherwise acquire or issue any equity securities of the Company. The Company is
not a party or subject to any agreement or understanding, and, to the Company's
knowledge, there is no agreement or understanding between any persons and/or
entities, which affects or relates to the voting or giving of written consents
with respect to any security or by a director of the Company.
-2-
<PAGE>
3.3 Subsidiaries. The Company does not presently own, have any investment
------------
in, or control, directly or indirectly, any subsidiaries, associations or other
business entities. The Company is not a participant in any joint venture or
partnership.
3.4 Authorization. All corporate action on the part of the Company, its
-------------
officers, directors and shareholders necessary for the authorization, execution,
delivery and performance of all obligations under this Agreement and for the
sale, issuance and delivery of the Shares, the Warrant, the shares of Series B
Preferred Stock issuable upon exercise of the Warrant (the "Warrant Shares") and
of the Common Stock issuable upon conversion of the Shares and the Warrant
Shares has been taken, and this Agreement, the Amended and Restated Registration
Rights Agreement attached hereto as Exhibit F (the "Rights Agreement") and the
---------
Amended and Restated Right of First Refusal and Co-Sale Agreement attached
hereto as Exhibit J (the "Co-Sale Agreement"), and entered into with the
---------
Purchasers in connection with this Agreement, constitute legally binding valid
obligations of the Company enforceable in accordance with their terms.
3.5 Validity of Shares. The Shares and the Warrant, when issued, sold and
------------------
delivered in accordance with the terms and for the consideration expressed in
this Agreement, shall be duly and validly issued (including, without limitation,
issued in compliance with applicable federal and state securities laws), fully-
paid and nonassessable and free and clear of all liens and encumbrances (other
than those, if any, created or imposed by a Purchaser). The Common Stock
issuable upon conversion of the Shares and the Warrant Shares has been reserved,
and assuming such Common Stock is issued to the Purchasers, upon issuance in
accordance with the Restated Articles of Incorporation, as amended, shall be
duly and validly issued (including, without limitation, issued in compliance
with all applicable federal and state securities laws), fully-paid and non-
assessable.
3.6 No Conflict with Other Instruments. The execution, delivery and
----------------------------------
performance of this Agreement, the Rights Agreement and the Co-Sale Agreement
will not result in any violation of, be in conflict with, or constitute a
default under, with or without the passage of time or the giving of notice: (i)
any provision of the Company's Restated Articles of Incorporation, as amended,
or Bylaws; (ii) any provision of any judgment, decree or order to which the
Company is a party or by which it is bound; (iii) any material contract,
obligation or commitment to which the Company is a party or by which it is
bound; or (iv) any statute, rule or governmental regulation applicable to the
Company.
3.7 Litigation. There is no action, proceeding or investigation pending
----------
or threatened, to the best of the Company's knowledge, or any basis therefor
known to the Company, that questions the validity of this Agreement, the Rights
Agreement or the Co-Sale Agreement or the right of the Company to enter into
this Agreement, the Rights Agreement or the Co-Sale Agreement, or that would
result, either individually or in the aggregate, in any event having a
materially adverse effect on the business, properties, prospects or financial
condition of the Company, including, without limitation, any action, suit,
proceeding or investigation involving the prior employment or consultancy of any
of the Company's employees or consultants or their use of any information or
techniques alleged to be proprietary to any former employer of any such employee
or consultant. There is no judgment, decree or order of any court in effect
against the Company, and the Company is not in default with respect to any order
of any governmental authority to which the Company is a party or by which it is
bound. There is no action,
-3-
<PAGE>
suit, proceeding or investigation by the Company currently pending or which the
Company presently intends to initiate.
3.8 Title to Properties, Liens and Encumbrances. The Company has good and
-------------------------------------------
marketable title to all of its properties and assets, both real and personal,
and has good title to all its leasehold interests, in each case subject to no
mortgage, pledge, lien, security interest, conditional sale agreement,
encumbrance or charge.
3.9 Patents and Other Propriety Rights.
----------------------------------
(a) The Company owns or possesses, has access to or can become
licensed on reasonable terms under, all patents, patent applications,
trademarks, trade names, licenses, inventions, computer software, technical
information and copyrights necessary for the operation of its business as now
conducted and as proposed to be conducted by the Company with no known
infringement of or conflict with the rights of others (nor, to the best of the
Company's knowledge, any basis therefor).
(b) There are no outstanding options, licenses or agreements of any
kind relating to the matters listed in subsection 3.9(a), nor is the Company
bound by or a party to any options, licenses or agreements of any kind with
respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, proprietary rights and processes of any
other person or entity.
(c) The Company has not received any communications alleging that the
Company has violated or, by conducting its business as proposed, would violate
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or any proprietary rights of any other person or entity.
(d) The Company is not aware that any of its employees is obligated
under any contract (including licenses, covenants or commitments of any nature)
or other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of such employee's best
efforts to promote the interests of the Company or that would conflict with the
Company's business as presently conducted.
(e) Neither the execution nor delivery of this Agreement, the Rights
Agreement or the Co-Sale Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as presently conducted, will, to the Company's knowledge, conflict with
or result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any of such
employees is now obligated.
(f) The Company does not believe it is or will be necessary to utilize
any inventions of any of its employees (or people it currently intends to hire)
made prior to their employment by the Company and the rights to which have not
been fully assigned to the Company.
-4-
<PAGE>
3.10 Company's Contracts. All of the contracts and agreements with
-------------------
expected receipts or expenditures in excess of $100,000 or involving a license
or grant of rights to or from the Company involving patents, trademarks,
copyrights or other proprietary information applicable to the business of the
Company outside the normal course of business, to which the Company is a party
as of the date of the Closing are listed on Exhibit D. All such contracts and
---------
agreements are legally binding, valid, and in full force and effect in all
material respects, and there is no indication of reduced activity relating to
such contract or agreement (other than in the ordinary course of business) by
any of the parties to any such contract or agreement.
3.11 No Defaults, Violations or Conflicts. The Company is not in violation
------------------------------------
of any term or provision of its Restated Articles of Incorporation, as amended,
or Bylaws, or any material term or provision of any indebtedness, mortgage,
indenture, contract, agreement, judgment, statute, rule or regulation, or to the
Company's knowledge, any decree or order.
3.12 Private Offering. The Company agrees that neither the Company nor
----------------
anyone acting on its behalf will offer any of the Shares or any similar
securities for issuance or sale to, or solicit any offering to acquire any of
the same from, anyone so as to make the sale and issuance of the Shares and the
Warrant subject to the registration requirements of Section 5 of the Securities
Act of 1933, as amended (the "Securities Act").
3.13 Prior Registration Rights. Except as provided in the Rights
-------------------------
Agreement, the Company is under no contractual obligation to register under the
Securities Act any of its presently outstanding securities or any of its
securities that may subsequently be issued.
3.14 Full Disclosure. The Company has fully provided the Purchasers with
---------------
all the information which the Purchasers have requested for deciding whether to
purchase the Shares and the Warrant and all information which the Company
believes is reasonably necessary to enable the Purchasers to make such decision.
The representations and warranties of the Company contained in this Agreement,
the Rights Agreement and the Co-Sale Agreement, certificates and other documents
made or delivered in connection herewith, together with the financial
projections of the Company previously delivered to the Purchasers, do not
contain any untrue statement of a material fact or omit any material fact
necessary to make the statements contained therein or herein in view of the
circumstances under which they were made not misleading; provided however, that
with respect to the financial projections, the Company represents only that the
Company reasonably believes there is a reasonable basis for such projections.
3.15 Related-Party Transactions. No employee, officer or director of the
--------------------------
Company or member of his or her immediate family is indebted to the Company, nor
is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them. To the best of the Company's knowledge, none of such
persons has any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation that competes with the Company, except
that employees, officers, or directors of the Company and members of their
immediate families may own stock in publicly traded companies that may compete
with the Company. No member of the immediate family or any officer or director
of the Company is directly or indirectly interested in any material contract
with the Company.
-5-
<PAGE>
3.16 Distributions. There has been no declaration or payment by the
-------------
Company of any dividend, nor any distribution by the Company of any assets of
any kind, to any class or series of its capital stock.
3.17 Employee Compensation Plans. The Company is not party to or bound by
---------------------------
any currently effective employment contracts, deferred compensation agreements,
bonus plans, incentive plans, profit sharing plans, retirement agreements,
employee benefit plan subject to the Employee Retirement Income Security Act of
1974, or other employee compensation agreements. Subject to applicable law, the
employment of each officer and employee of the Company is terminable at the will
of the Company.
3.18 Employee Relations. The Company believes its relations with its
------------------
employees are satisfactory. The Company's employees are not represented by any
labor unions nor, to the Company's knowledge, is any union organization campaign
in progress. The Company is not aware that any of its officers or employees
intends to terminate employment.
3.19 Brokers and Finders. The Company has not retained any investment
-------------------
banker, broker or finder in connection with the transactions contemplated by
this Agreement.
3.20 Transactions with Affiliates. Except for (i) the purchase of shares
----------------------------
of the Company's Common Stock and the issuance by the Company of options to
purchase shares of the Company's Common Stock, (ii) regular salary payments and
fringe benefits under an individual's compensation package with the Company, and
(iii) the issuance and sale of the Shares pursuant to the terms and conditions
of this Agreement, none of the officers, employees, directors or other
affiliates of the Company are a party to any transactions with the Company.
There have been no assumptions or guarantees by the Company of any obligations
of such affiliates.
3.21 Governmental Consents. No consent, approval, order or authorization
---------------------
of, or registration, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority on the part of the
Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for the filing pursuant to Section
25102(f) of the California Corporate Securities Law of 1968, as amended, and the
rules thereunder, which filing will be effected within fifteen (15) days after
the Closing.
3.22 Environmental Regulations. Except for failures which will not have a
-------------------------
material adverse effect on the Company, the Company has met, and continues to
meet, all applicable local, state, federal and national environmental
regulations and has disposed of its waste products and effluents and/or has
caused others to dispose of such waste products and effluents, in accordance
with all applicable state, local, federal and national environmental regulations
and in such a manner that no harm has resulted or will result to any of its
respective employees or properties or to any other person or entities or their
properties.
3.23 Minute Books. The minute books of the Company contain a complete
------------
summary of all meetings of directors and stockholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
-6-
<PAGE>
3.24 Financial Statements. The unaudited balance sheet dated September
--------------------
30, 1995 and the related unaudited statements of income for the fiscal year then
ended, and the audited balance sheet dated September 30, 1996 and the related
audited statements of income for the fiscal year then ended, and the unaudited
balance sheet dated October 31, 1996 and related unaudited statements of income
for the month then ended (collectively, the "Financial Statements"), are
complete and correct in all material respects, present fairly the financial
position and results of operations of the Company at the dates and for the
periods to which they relate, have been prepared in accordance with generally
accepted accounting principles consistently followed throughout the periods
involved, and show all material liabilities, absolute or contingent, of the
Company required to be recorded therein in accordance with generally accepted
accounting principles consistently applied with prior statements as at the date
thereof, except that the Financial Statements as of September 30, 1995 and for
the year then ended and as of October 31, 1996 and for the month then ended have
been prepared by the Company and have not been audited and are subject to normal
year-end audit adjustments, and do not contain footnotes normally associated
with year-end financial statements. Except as set forth in the Financial
Statements, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
October 31, 1996, (ii) obligations under contracts and commitments incurred in
the ordinary course of business and not required under generally accepted
accounting principles to be reflected in the Financial Statements, which,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company and (iii) obligations under contracts or
arrangements described in Exhibit D hereof. The Company has not had its
historical financial statements audited.
3.25 Absence of Certain Changes. Since October 31, 1996 and at all times
--------------------------
up to the Closing, there has not been, nor, so far as reasonably can be foreseen
at this time, is there reasonably likely to be, any event or condition of any
character which has materially adversely affected, or is likely to affect, the
Company's business operations, assets, condition (financial or otherwise),
liabilities, earnings or prospects including but not limited to:
(a) an event that would have a material adverse effect on the
business, properties, prospects or financial condition of the Company, or became
reasonably foreseeable, and if it were to occur might adversely affect the
business, properties, prospects or financial conditions of the Company;
(b) any declaration, setting aside or payment or other distribution
in respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock by the Company;
(c) any waiver by the Company of a valuable right or of a material
debt owed to it;
(d) any material change or amendment to a contract or arrangement by
which the Company or any of its assets or properties is bound or subject;
(e) any damage, destruction or loss to any asset of the Company
(whether or not covered by insurance) that, individually or in the aggregate,
would have a material adverse effect on the business, properties, prospects or
financial condition of the Company;
-7-
<PAGE>
(f) any commitment, transaction or other action by the Company other
than in the ordinary course of business and consistent with past practice;
(g) any sale or other disposition of any right, title or interest in
or to any assets or properties of the Company or any revenues derived therefrom
other than in the ordinary course of business and consistent with past practice;
(h) (x) any approval or action to put into effect any general increase
in any compensation or benefits payable to any class or group of employees of
the Company, any increase in the compensation or benefits payable or to become
payable by the Company to any of their directors, officers or any of their
employees whose total compensation after such increase would exceed $175,000 per
annum (collectively, "Key Employees") or any bonus, service award, percentage
compensation or other benefit paid, granted or accrued to or for the benefit of
any Key Employee or (y) the adoption or amendment in any material respect of any
employee benefit plan or compensation commitment or any severance agreement or
employment contract to which any Key Employee is a party;
(i) any creation, incurrence or assumption of any indebtedness for
money borrowed by the Company exceeding $100,000;
(j) any capital expenditures by the Company in excess of $100,000;
(k) any material change in any accounting principle or method or
election for federal income tax purposes used by the Company;
(l) any authorization, approval, agreement or commitment to do any of
the foregoing.
3.26 Tax Returns, Payments and Elections. To date, the Company has filed
-----------------------------------
all tax returns and reports as required by law. The provision for taxes of the
Company as shown in the Financial Statements is adequate for taxes due or
accrued as of the date thereof. The Company has not made any elections pursuant
to the Internal Revenue Code of 1986, as amended (the "Code") (other than
elections that relate solely to methods of accounting, depreciation or
amortization) that would have a material effect on the Company, its financial
condition, its business as presently conducted or proposed to be conducted or
any of its properties or material assets.
3.27 Insurance. The Company will use its best efforts to obtain fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
3.28 Permits. The Company will use its good faith efforts to obtain all
-------
franchises, permits, licenses and any similar authority as necessary for the
conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect (financially or otherwise) the business,
properties, assets, liabilities or prospects of the Company and believes it can
obtain, without undue burden or expense, any similar authority for the conduct
of its business as currently planned to be
-8-
<PAGE>
conducted. The Company is not in default in any material respect under any of
such franchises, permits, licenses or other similar authority.
3.29 Section 83(b) Elections. To the best of the Company's knowledge,
------------------------
all elections and notices required by Section 83(b) of the Code and any
analogous provisions of applicable state tax laws have been timely filed by all
individuals who have purchased shares of the Company's Common Stock.
3.30 Corporate Documents. The Company's Amended and Restated Articles of
-------------------
Incorporation and Bylaws are in the form previously provided to the Purchasers.
SECTION 4
Representations and Warranties of the Purchasers
------------------------------------------------
Each Purchaser hereby represents and warrants to the Company with respect
to the purchase of the Shares and, with respect to Synopsys, the Warrant, as
follows:
4.1 Experience. Purchaser has substantial experience in evaluating and
----------
investing in private placement transactions so that Purchaser is capable of
evaluating the merits and risks of Purchaser's investment in the Company.
Purchaser, by reason of its business or financial experience or the business or
financial experience of its professional advisors who are unaffiliated with and
who are not compensated by the Company or any affiliate or selling agent of the
Company, directly or indirectly, has the capacity to protect its own interests
in connection with the purchase of the Shares and the Warrant under this
Agreement.
4.2 Investment. Purchaser is acquiring the Shares and the underlying
----------
Common Stock, and, with respect to Synopsys, the Warrant and the Warrant Shares
and the Common Stock issuable upon conversion of the Warrant Shares for
investment for Purchaser's own account, not as a nominee or agent, and not with
the view to, or for resale in connection with, any distribution thereof.
Purchaser understands that the Shares and the underlying Common Stock and, with
respect to Synopsys, the Warrant and the Warrant Shares and the shares of Common
Stock issuable upon conversion of the Warrant Shares have not been, and will not
be, registered under the Securities Act by reason of a specific exemption
therefrom, and that any such exemption would depend, among other things, upon
the bona fide nature of the investment intent and the accuracy of such
Purchaser's representations as expressed in this Agreement. Purchaser has not
been formed for the specific purpose of acquiring the Shares or the underlying
Common Stock or, with respect to Synopsys, the Warrant and the Warrant Shares
and the shares of Common Stock issuable upon conversion of the Warrant Shares.
4.3 Rule 144. Purchaser acknowledges that the Shares and the underlying
--------
Common Stock and, with respect to Synopsys, the Warrant and the Warrant Shares
and the shares of Common Stock issuable upon conversion of the Warrant Shares
must be held indefinitely unless subsequently registered under the Securities
Act or an exemption from such registration is available. Purchaser is aware of
the provisions of Rule 144 promulgated under the Securities Act which permit
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other
-9-
<PAGE>
things, the existence of a public market for the shares, the availability of
certain current public information about the Company, the resale occurring not
less than two years after a party has purchased and paid for the security to be
sold, the sale being effected through a "broker's transaction" or in
transactions directly with a "market maker" (as provided by Rule 144(f)) and the
number of shares being sold during any three-month period not exceeding
specified limitations.
4.4 No Public Market. Purchaser understands that no public market now
----------------
exists for any of the securities issued by the Company, that the Company has
made no assurances that a public market will ever exist for the Shares or the
underlying Common Stock or the Warrant Shares or the shares of Common Stock
issuable upon conversion of the Warrant Shares and that, even if such a public
market exists at some future time, the Company may not then be satisfying the
current public information requirements of Rule 144.
4.5 Access to Data. Purchaser and its representatives have met with
--------------
representatives of the Company and thereby have had the opportunity to ask
questions of, and receive answers from, said representatives concerning the
Company and the terms and conditions of this transaction as well as to obtain
any information requested by Purchaser. Any questions raised by Purchaser or
its representatives concerning the transaction have been answered to the
satisfaction of Purchaser and its representatives. Purchaser's decision to
purchase the Shares (and Synopsys' decision to purchase the Warrant) is based in
part on the answers to such questions as such Purchaser and its representatives
have raised concerning the transaction and on its own evaluation of the risks
and merits of the purchase and the Company's proposed business activities.
4.6 Authorization. This Agreement when executed and delivered by the
-------------
Purchaser will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms subject to bankruptcy,
insolvency, fraudulent conveyance, moratorium or other laws affecting creditors
rights generally and to equitable principles of general applicability.
4.7 Brokers or Finders. The Company has not incurred, and will not incur,
------------------
directly or indirectly, as a result of any action taken by the Purchaser any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement.
SECTION 5
Conditions to Closing of Purchasers
-----------------------------------
Each Purchaser's obligation to purchase the Shares and Synopsys'
obligation to purchase the Warrant at the Closing is, at the option of the
Purchaser, subject to the fulfillment or waiver as of the Closing Date of the
following conditions:
5.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company in Section 3 of this Agreement shall be true and
correct in all material respects when made, and shall be true and correct in all
material respects on the Closing Date with the same force and effect as if they
had been made on and as of said date.
-10-
<PAGE>
5.2 Covenants. All covenants, agreements and conditions contained in
---------
this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with in all respects.
5.3 Compliance Certificate. The Company shall have delivered to each
----------------------
Purchaser a certificate of the Company in the form attached hereto as Exhibit G,
---------
executed by the President of the Company, dated the Closing Date, and certifying
to the fulfillment of the conditions specified in Sections 5.1 and 5.2 of this
Agreement.
5.4 Blue Sky. The Company shall have obtained all necessary Blue Sky law
--------
permits and qualifications, or secured exemptions therefrom, required by any
state for the offer and sale of the Shares and the Common Stock issuable upon
conversion of the Shares and the Warrant and the Warrant Shares and the shares
of Common Stock issuable upon exercise of the Warrant.
5.5 Articles of Incorporation. The Certificate of Amendment shall have
-------------------------
been filed with the Secretary of State of the State of California.
5.6 Rights Agreement. The Company shall have entered into the Amended
----------------
and Restated Registration Rights Agreement substantially in the form attached
hereto as Exhibit F.
---------
5.7 Opinion of Company's Counsel. At the Closing, the Purchasers shall
----------------------------
have received from Wilson Sonsini Goodrich & Rosati, counsel to the Company, a
favorable opinion addressed to them, dated the Closing Date, in substantially
the form attached to this Agreement as Exhibit H.
---------
5.8 Proprietary Information Agreements. Each officer, director and
----------------------------------
employee of the Company shall have entered into a proprietary information
agreement in the form of Exhibit I-1 hereto.
-----------
5.9 Consulting Agreement. The consultants of the Company shall each have
--------------------
executed and delivered to the Company a consulting agreement substantially in
the form of Exhibit I-2 hereto.
-----------
5.10 Co-Sale Agreement. Each of the Purchasers and each of Scott T.
-----------------
Becker, Duane R. Hook, John G. Malecki, Daniel I. Rubin and Mark R. Templeton
(collectively, the "Founders") shall have entered into an Amended and Restated
Right of First Refusal and Co-Sale Agreement in the form attached hereto as
Exhibit J.
- ---------
5.11 By-Laws. The Company shall have amended its By-Laws in the form
-------
attached hereto as Exhibit K.
-11-
<PAGE>
SECTION 6
Conditions to Closing of Company
--------------------------------
The Company's obligation to sell and issue the Shares and the Warrant at
the Closing is, at the option of the Company, subject to the fulfillment or
waiver of the following conditions:
6.1 Representations. The representations made by each Purchaser in Section
---------------
4 of this Agreement shall be true and correct when made, and shall be true and
correct on the Closing Date.
6.2 Blue Sky. The Company shall have obtained all necessary Blue Sky law
--------
permits and qualifications, or secured exemptions therefrom, required by any
state for the offer and sale of the Shares and the Common Stock issuable upon
conversion of the Shares and the Warrant and the Warrant Shares and the shares
of Common Stock issuable upon exercise of the Warrant.
6.3 Articles of Incorporation. The Certificate of Amendment shall have
-------------------------
been filed with the Secretary of State of the State of California.
6.4 Covenants. All covenants, agreements and conditions contained in this
---------
Agreement to be performed by the Purchasers on or prior to the Closing Date
shall have been performed or complied with in all material respects.
6.5 Rights Agreement. The Purchasers shall have entered into the Amended
----------------
and Restated Registration Rights Agreement substantially in the form attached
hereto as Exhibit F.
---------
6.6 Co-Sale Agreement. Each of the Purchasers and each of Scott T.
-----------------
Becker, Duane R. Hook, John G. Malecki, Daniel I. Rubin and Mark R. Templeton
(collectively, the "Founders") shall have entered into an Amended and Restated
Right of First Refusal and Co-Sale Agreement in the form attached hereto as
Exhibit J.
- ---------
6.7 By-Laws. The Company shall have amended its By-Laws in the form
-------
attached hereto as Exhibit K.
SECTION 7
Affirmative Covenants of the Company
------------------------------------
The Company hereby covenants and agrees as follows:
7.1 Financial Information. The Company will mail the following reports to
---------------------
each Purchaser for so long as such Purchaser is a holder of any Shares or
Warrant Shares purchased by such person pursuant to this Agreement (or Common or
Preferred Stock issued upon conversion of the Shares or Warrant Shares):
-12-
<PAGE>
(a) As soon as practicable after the end of each fiscal year, and in
any event within ninety (90) days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and consolidated statements of changes in
financial position of the Company and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and audited by the Company's independent public
accountants.
(b) Contemporaneously with delivery to holders of Common Stock, a copy
of each report of the Company delivered to holders of the Company's Common
Stock.
7.2 Additional Information. For so long as Purchaser holds not less
----------------------
than 255,000 Shares (or an equivalent number of shares consisting of the shares
of Common Stock issued upon conversion of the Shares or Warrant Shares or Common
or Preferred Stock issued upon conversion of the Warrant Shares), as adjusted
for recapitalizations, stock splits, stock dividends and the like, the Company
will mail the following reports to such Purchaser:
(a) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company and in any
event within 45 days thereafter, a consolidated balance sheet of the Company and
its subsidiaries, if any, as of the end of each such quarterly period, and
consolidated statements of income and consolidated statement of cash flows of
the Company and its subsidiaries for such period, and for the accepted
accounting principles, all in reasonable detail and signed, subject to charges
resulting from year-end audit adjustments, by the principal financial or
accounting officer of the Company.
(b) As soon as practicable, but in any event prior to the end of each
fiscal year, a budget for the next fiscal year, including balance sheets and
sources and applications of funds statements and, as soon as prepared, any other
budgets or revised budgets prepared by the Company.
(c) For so long as a Purchaser is eligible to receive reports under
this Section 7.2, it shall also have the right, at its expense, to discuss the
affairs, finances and accounts of the Company with the Company's officers, all
at such reasonable times and as often as may be reasonably requested; provided,
however, that the Company shall not be obligated to provide any information that
it reasonably considers to be a trade secret or to contain confidential
information.
7.3 Transfer of Information Rights. The information rights set forth in
------------------------------
Sections 7.1 and 7.2 may be transferred in any nonpublic transfer of Shares or
Warrant Shares (or Shares of Common or Preferred Stock issued upon conversion of
the Shares or Warrant Shares), provided that the Company is given written notice
of such transfer, and provided further that the right to receive the information
set forth in Section 7.2 may only be transferred to a holder of, or affiliated
holders who in the aggregate hold, at least 255,000 Shares or Warrant Shares (or
an equivalent number of shares consisting of the Shares, Warrant Shares or
Common or Preferred Stock issued upon conversion of the Shares or Warrant
Shares, as appropriately adjusted for stock splits and the like). In the event
that the Company reasonably determines that provision of information to a
transferee pursuant to this Section 7.3 would materially
-13-
<PAGE>
adversely affect its proprietary position, such information may be edited in the
manner necessary to avoid such effect.
7.4 Termination of Covenants. The covenants set forth in Sections 7.1 and
------------------------
7.2 shall terminate and be of no further force or effect upon the earlier of (i)
the consummation of the Company's sale of its Common Stock in an underwritten
public offering pursuant to an effective registration statement filed under the
Securities Act, immediately subsequent to which the Company shall be obligated
to file annual and quarterly reports with the Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") or (ii) the
registration by the Company of a class of its equity securities under Section
12(b) or 12(g) of the Exchange Act.
7.5 Securities Laws Compliance. The Company shall within fifteen days of
--------------------------
the Closing file a notice of the sale of the Shares to the Purchasers and the
sale of the Warrant to Synopsys pursuant to Section 25102(f) of the California
Corporations Code.
7.6 Confidential Information and Invention Assignment Agreement. The
-----------------------------------------------------------
Company shall require all of its current and future officers and each employee
with access to confidential information regarding the Company's operations, to
execute and deliver a Confidential Information and Invention Assignment
Agreement in substantially the form attached as Exhibit I-1 hereto.
-----------
7.7 Share Repurchases. The Company covenants that at any time it conducts
-----------------
a repurchase of shares of the Company's stock held by any of the Company's
shareholders, and such repurchase would cause Synopsys' ownership interest in
the Company to increase to an amount in excess of 9.9% of the Company's then
outstanding capital stock, the Company shall repurchase shares of the Company's
stock held by Synopsys on a pro rata basis to the extent necessary to prevent
Synopsys' ownership interest in the Company from increasing to an amount in
excess of 9.9% of the Company's then outstanding capital stock. This covenant
shall terminate and be of no further force or effect upon the earlier of (i) the
consummation of the Company's sale of its Common Stock in an underwritten public
offering pursuant to an effective registration statement filed under the
Securities Act and (ii) the closing of a merger or acquisition in which the
shareholders of the Company prior to such event own less than a majority of the
securities of the Company following such event.
SECTION 8
Miscellaneous
-------------
8.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California in the United States of America without
giving effect to the conflicts of laws principles thereof.
8.2 Survival. The representations, warranties, covenants and agreements
--------
made in this Agreement shall survive the closing of the transactions
contemplated hereby, and shall in no way be
-14-
<PAGE>
affected by any investigation of the subject matter hereof made by or on behalf
of the Purchasers or the Company.
8.3 Successors and Assigns. Except as otherwise provided in this
----------------------
Agreement, the provisions of this Agreement shall inure to the benefit of, and
be binding upon, the Successors, assigns, heirs, executors and administrators of
the parties to this Agreement; provided, however, that the right of the
Purchasers to purchase the Shares or the Warrant shall not be assignable without
the prior written consent of the Company.
8.4 Entire Agreement, Amendment. This Agreement and the other documents
---------------------------
delivered pursuant to this Agreement at the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and supersede all prior agreements and merge all
prior discussions, negotiations, proposals and offers (written or oral) between
them, and no party shall be liable or bound to any other party in any manner by
any warranties, representations or covenants except as specifically set forth
herein or therein. Except as expressly provided in this Agreement, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought; provided,
however, that holders of at least a majority of the then outstanding Shares
(including any outstanding Warrant Shares and shares of Common Stock issued upon
conversion of the Shares or Warrant Shares) may, with the written consent of the
Company, waive, modify or amend on behalf of all holders, any provisions hereof
benefiting such holders, so long as the effect thereof will be that all such
holders will be treated equally.
8.5 Notices, etc. All notices and other communications required or
-------------
permitted under this Agreement shall be mailed by registered or certified mail,
postage prepaid, or otherwise delivered by hand or by messenger, addressed (a)
if to a Purchaser, at such Purchaser's address set forth on Exhibit A, or, at
---------
such other address as such Purchaser shall have furnished to the Company in
writing, or (b) if to any other holder of any Shares or the Warrant, at such
address as such holder shall have furnished the Company in writing, or, until
any such holder so furnishes an address to the Company, then to and at the
address of the last holder of such Shares or Warrant who has so furnished an
address to the Company, or (c) if to the Company, one copy should be sent to its
offices and addressed to the attention of the President, or at such other
address as the Company shall have furnished to the Purchaser.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and postage prepaid as
aforesaid.
8.6 Delays or Omissions. Except as expressly provided in this Agreement,
-------------------
no delay or omission to exercise any right, power or remedy accruing to any
holder of any Shares or Warrant, upon any breach or default of the Company under
this Agreement, shall impair any such right, power or remedy of such holder nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or
-15-
<PAGE>
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
8.7 California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
-----------------------------------
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
8.8 Expenses. The Company and the Purchasers shall each bear their own
--------
expenses incurred on their behalf with respect to this Agreement and the
transactions contemplated hereby.
8.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
8.10 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
8.11 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
-16-
<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY" "PURCHASERS"
VLSI LIBRARIES INCORPORATED, U.S. VENTURE PARTNERS IV, L.P.
a California corporation By Presidio Management Group IV, L.P.
Its General Partner
By: /s/ Mark R. Templeton By /s/ Michael P. Maher
____________________________ __________________________________
Mark R. Templeton, President Michael P. Maher
Attorney-in-Fact
SECOND VENTURES II, L.P.
By Presidio Management Group IV, L.P.
Its General Partner
By /s/ Michael P. Maher
__________________________________
Michael P. Maher
Attorney-in-Fact
USVP ENTREPRENEUR PARTNERS II, L.P.
A Delaware Limited Partnership
By Presidio Management Group IV, L.P.
Its General Partner
By /s/ Michael P. Maher
__________________________________
Michael P. Maher
Attorney-in-Fact
2180 ASSOCIATES FUND
By Michael P. Maher, Attorney-In-Fact
By /s/ Michael P. Maher
__________________________________
SYNOPSYS, INC.
By /s/ Steven K. Shevick
___________________________________
Title Assistant General Counsel
________________________________
-16-
<PAGE>
EXHIBIT A
---------
SCHEDULE OF PURCHASERS
----------------------
<TABLE>
<CAPTION>
NO. OF SHARES
PURCHASER TO BE PURCHASED PURCHASE PRICE
- ------------------------------------ ----------------- -----------------
<S> <C> <C>
U.S. VENTURE PARTNERS IV, L.P. 241,777 $ 911,499.29
c/o U.S. Venture Partners
2180 Sand Hill Road
Suite 300
Menlo Park, CA 94025
Attention: Lucio Lanza
SECOND VENTURES II, L.P. 29,451 111,030.27
c/o U.S. Venture Partners
2180 Sand Hill Road
Suite 300
Menlo Park, CA 94025
Attention: Lucio Lanza
USVP ENTREPRENEUR PARTNERS II, L.P. 8,414 31,720.78
c/o U.S. Venture Partners
2180 Sand Hill Road
Suite 300
Menlo Park, CA 94025
Attention: Lucio Lanza
2180 ASSOCIATES FUND 841 3,170.57
c/o U.S. Venture Partners
2180 Sand Hill Road
Suite 300
Menlo Park, CA 94025
Attention: Lucio Lanza
SYNOPSYS, INC. 841,448 3,172,258.96
700 East Middlefield Road
Mountain View, CA 94043
Attention: Steve Shevick
---------- ------------
TOTAL 1,121,931 $4,229,679.87
</TABLE>
<PAGE>
Exhibit 10.12
OEM AGREEMENT
BETWEEN
VLSI LIBRARIES INCORPORATED
AND
SYNOPSYS, INC.
This OEM Agreement ("Agreement") is entered into and effective this 6th of
December, 1996 ("Effective Date"), by and between VLSI Libraries Incorporated, a
California corporation with principal offices at 2077 Gateway Place, San Jose,
CA 95110-1016 ("VLSI") and Synopsys, Inc., a Delaware corporation with principal
offices at 700 E. Middlefield Road, Mountain View, California 94043-4033
("Synopsys").
RECITALS
A. VLSI has developed and markets memory generators and standard cell
libraries and Synopsys has developed and markets a unique and proprietary
approach for creating high density, high speed. complex gate arrays using
its proprietary cell architecture ("CBA /TM/" Technology).
B. VLSI and Synopsys, desire to enter into a relationship whereby Synopsys
shall be authorized to license VLSI's (i) [***Redacted] that have been
modified to provide a highly integrated link with Synopsys' CBA Technology
and (ii) [***Redacted].
C. In consideration of the mutual promises contained herein. the parties agree
as follows:
AGREEMENT
1. DEFINITIONS
1.1 "Bug Fix" means an embodiment of the Licensed Software that corrects
-------
Errors.
1.2 "Change of Control" means (a) the acceptance by VLSI or the Controlling
-----------------
Shareholders of any offer from any person or group to acquire any shares of
voting stock which would result in such person (other than a Controlling
Shareholder) or group (other than a group consisting entirely of
Controlling Shareholders) owning or having the right to acquire (i) more
than 50% of the voting stock of VLSI than outstanding or (ii) all or
substantially all of the assets of VLSI, or (b) the approval by VLSI's
board of directors of any merger or consolidation of VLSI with or into any
other entity in which VLSI stockholders prior to such transaction do not
hold more than 50% of the voting power in the surviving entity.
1.3 "Confidential Information" means (i) any information disclosed by one party
------------------------
to the other pursuant to this Agreement. which is in written, graphic,
machine-readable or other tangible form and is marked "Confidential,"
"Proprietary" or in some other manner to indicate its confidential nature,
(ii) oral information disclosed by one party to the other pursuant to this
Agreement, provided that such information is designated as confidential at
the time of disclosure and reduced to a written summary by the disclosing
party, within thirty (30) days after its oral disclosure. which is marked
in a manner to indicate its confidential nature and delivered to the
receiving party; and (iii) the existence of and terms and conditions of
this Agreement. Notwithstanding any failure to so identify it, however. all
source code will be deemed "Confidential Information" hereunder.
Notwithstanding the above, Confidential
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
Information shall not include information which: (i) was generally known
and available at the time it was disclosed or becomes generally known and
available through no fault of the receiver, (ii) was known to the receiver.
without restriction, at the time of disclosure as shown by the files of the
receiver in existence at the time of disclosure-, (iii) is disclosed with
the prior written approval of the discloser; (iv) was independently
developed by the receiver without any use of the Confidential Information
and by employees or other agents
1.
<PAGE>
of the receiver who have not been exposed to the Confidential Information.
provided that the receiver can demonstrate such independent development by
documented evidence prepared contemporaneously with such independent
development. (v) becomes known to the receiver. without restriction. from a
source other than the discloser without breach of this Agreement by the
receiver and otherwise not in violation of the discloser's rights: or (vi)
is disclosed pursuant to the order or requirement of a court.
administrative agency, or other governmental body, provided, that the
receiver shall provide prompt advance notice thereof to enable the
discloser to seek a protective order or otherwise prevent such disclosure.
1.4 "Controlling Shareholders" means Scott Becker, Duane Hook, John Milecki,
------------------------
Daniel I. Rubin and Mark Templeton.
1.4 "Documentation" means any user manuals. reference manuals. release,
-------------
application and methodology notes, written utility programs and other
materials in any form provided for use with the Licensed Software.
1.5 "End User" means an entity who acquires the Licensed Software for personal
--------
use. with no rights granted to subsequently sell or sublicense to others.
1.6 "Error" means a defect which causes the Licensed Software not to perform
-----
substantially in accordance with the specification set forth in Exhibit A.
1.7 "Licensed Software" means collectively the VLSI Libraries and VLSI
-----------------
Products.
1.8 "Updates" means a version of the Licensed Software that delivers
-------
enhancements. improvements, architectural changes or new features and/or
functionality to the Licensed Software.
1.9 "VLSI Libraries" means VLSI's [***Redacted] as more fully described
--------------
in Exhibit A, as amended from time to time, including any Bug Fixes or
Updates.
1.10 "VLSI Products" means VLSI's [***Redacted] products that have been
-------------
[***Redacted] as more fully described in Exhibit A, as amended from time to
time, including any Bug Fixes or Updates.
2. SYNOPSYS' RIGHTS TO THE LICENSED SOFTWARE
2.1 Appointment. VLSI hereby grants Synopsys a nonexclusive. nontransferable,
-----------
worldwide, right to distribute the Licensed Software in object code form
and Documentation to End Users in accordance with the restrictions set
forth herein. through any and all Synopsys normal distribution channels.
However, Synopsys and its agents shall be the exclusive sellers of the VLSI
Products. VLSI agrees that the Licensed Software, including Bug Fixes and
Updates, shall contain its best available technology, consistent with
Synopsys' market needs and the target resale price. Synopsys agrees to
enter into written agreements with its distributors and resellers; binding
them to the restrictions contained herein. The Licensed Software and the
porting services will be sold under the Synopsys brand name as Synopsys
products.
2.2 Software License and Other Restrictions. The Licensed Software is subject
to license
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*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
and not sale. Each reference in this Agreement to a "purchase" or "sale"
of the Licensed Software, or like terms. shall mean a "license" of the
Licensed Software. VLSI shall retain full title to the Licensed Software
(including all intellectual property rights embodied therein) and all
copies thereof. End Users may use the licensed Software in accordance with
the provisions of an end user license agreement in a form mutually
acceptable to VLSI and Synopsys. Synopsys agrees that the Licensed
Software will be sold only in conjunction with the sale of CBA Technology
to an End User or to End User's who are current CBA Technology licensee's.
Synopsys will include appropriate proprietary notices on or in the Licensed
Software to protect Synopsys' and VLSI' intellectual property rights in the
Licensed Software.
2.
<PAGE>
2.3 Internal Use License. VLSI hereby grants Synopsys and its subsidiaries,
--------------------
distributors and resellers, at no charge, a nonexclusive, nontransferable.
worldwide. right and license to copy and use the Licensed Software in
connection with the manufacturing, testing, demonstration. training,
marketing, technical support of the Licensed Software and other tasks
incidental to the rights granted under this Agreement and supporting End
Users in their use of the Licensed Software.
2.4 Design Center License. VLSI hereby grants Synopsys, its subsidiaries and
---------------------
its certified third party design centers, at no charge. a nonexclusive.
nontransferable. worldwide right and license to copy and use the Licensed
Software to provide design services to its customers.
2.5 End User Support. Synopsys shall be solely responsible for all maintenance
----------------
and support obligations to its End Users.
2.6 Manufacturing and Distribution. Manufacturing and distribution of the
------------------------------
Licensed Software and Documentation shall be the responsibility of
Synopsys. VLSI shall provide master copies of the Licensed Software and
Documentation.
3. VLSI OBLIGATIONS AND RIGHTS TO SYNOPSYS SOFTWARE
3.1 Development Work. In order for Synopsys to act as an OEM of the VLSI
----------------
Products. certain engineering tasks related to modifying the VLSI Products
for Synopsys' CBA Technology (set forth in Exhibit C. as may be amended
from time to time) must first be performed by VLSI. VLSI agrees to use its
best commercial efforts to perform the engineering tasks set forth in
Exhibit C, as may be amended from time to time, in accordance with the
schedules set forth in Exhibit C.
3.2 Porting Services. During the term of this Agreement. VLSI agrees to provide
----------------
porting services to customize the Licensed Software for use with Synopsys'
customer's foundry processes. VLSI agrees to perform such porting, services
in a diligent and timely manner according to specifications and schedules
mutually agreed upon by the parties. Synopsys will be responsible for
providing VLSI with the necessary customer information.
33 License to Synopsys Products. Synopsys hereby grants VLSI, at no charge, a
----------------------------
nonexclusive, nontransferable, right and license to use internally the
Synopsys products set forth in Exhibit D, as may be amended from time to
time by mutual agreement of the parties, for the purpose of verifying
integration with Synopsys' CBA Technology and to provide support to
Synopsys CBA licensees who have licensed the Licensed Software from
Synopsys. VLSI's use of the Synopsys products shall be pursuant to the End
User Software License set forth in Exhibit B.
4. CONSIDERATION
4.1 Royalty Advance. Synopsys agrees to advance VLSI [*** Redacted] against
---------------
royalties payable to VLSI under Section 4.4 below. Such advance is payable
to VLSI within fifteen (15) working days of the Effective Date. In the
event. VLSI is unable to successfully modify the VLSI Products for
Synopsys' CBA Technology as set forth in Section 3.1 and Synopsys
reasonably determines, after
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*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
consultation with VLSI that VLSI will be unable to complete the required
modification, VLSI agrees to return the entire advance to Synopsys within
fifteen (15) working days of such determination. VLSI agrees that
[*** Redacted] of the royalty amounts otherwise payable by Synopsys to VLSI
pursuant to Section 4.4 below shall be retained by Synopsys to offset this
advance until the entire amount of the advance has been fully offset.
4.2 List Price. Synopsys and VLSI will [*** Redacted] sold by Synopsys to
[*** Redacted] pursuant to this Agreement [*** Redacted] and after
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*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
3.
<PAGE>
Synopsys holds discussions with its key customers and sales organization.
Based on the parties' current understanding of the market and current
expectations of the product specifications. the [***Redacted] for the
VLSI Products and VLSI Libraries [***Redacted]:
(i) VLSI Products
-------------
(1) [***Redacted] versions of the [***Redacted] including
[***Redacted] will have a [***Redacted] of [*** Redacted]:
(2) [***Redacted] versions of the [***Redacted] will have a
[***Redacted] of [*** Redacted]:
(3) [***Redacted] versions of [***Redacted] will have a
[***Redacted] of [*** Redacted]: and
(ii) VLSI Libraries. The [***Redacted] will have a [***Redacted]
--------------
of [*** Redacted].
4.3 Fees/Discounts. Synopsys will pay VLSI a fee on Licensed Software
--------------
distributed to End Users pursuant to this Agreement. Fees shall be
determined by [*** Redacted] of the VLSI Products and VLSI libraries.
Synopsys will receive [*** Redacted] from the [*** Redacted] of all VLSI
Products sold and a [*** Redacted] from the [*** Redacted] of [***Redacted]
sold. This fee includes all costs and expenses associated with
the porting services required to customize the Licensed Software for use
with Synopsys' specific customer's foundry processes.
4.4 Royalty.
-------
(a) VLSI Products. Subject to Section 4.7, Synopsys will pay to VLSI a
-------------
royalty calculated as [*** Redacted] of the royalty Synopsys
receives from its CBA licensees that is attributable to the sale of
VLSI Products. Royalty owed to Synopsys by such CBA licensees are
calculated in one of two ways as follows:
(i) Synopsys receives [***Redacted] based on [***Redacted] using
[***Redacted] and [***Redacted] (collectively the "Combined
Product") which is currently targeted to be [*** Redacted]
depending on the customer. In this case, Synopsys will pay VLSI a
royalty that is [***Redacted] by Synopsys [***Redacted] by
[***Redacted]. This [***Redacted] of the Combined Product which
is attributable to the VLSI Products. For example, if Synopsys
[*** Redacted] based on the Combined Product and the [***
Redacted] then VLSI would [*** Redacted] for that [*** Redacted].
(ii) Synopsys receives a [***Redacted] which is currently targeted to
be [*** Redacted]. In this case, Synopsys will pay VLSI a royalty
[*** Redacted]. It is anticipated that this method of calculating
royalties will apply [***Redacted]
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*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
[***Redacted] and the royalty attributable to VLSI products
[***Redacted]. VLSI agrees that it shall be entitled to
[***Redacted]
4.
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*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
(b) VLSI Libraries. In the event that Synopsys does receive royalties on
--------------
the VLSI Libraries then Synopsys will pay VLSI a royalty equal to
[*** Redacted] of the royalty received by Synopsys and
attributable to the VLSI Libraries.
(c) Design Center Use. In connection with the design center activities
-----------------
authorized pursuant to Section 2.4 above. Synopsys will pay to VLSI a
royalty calculated as [*** Redacted] of the royalty Synopsys receives
from its CBA licensees that is attributable to the sale of VLSI
Products.
4.5 Payment. Subject to Section 4.7, fees under Section 4.3 shall be due and
-------
payable to VLSI upon acceptance of the Licensed Software by Synopsys' CBA
licensee. Upon notification from Synopsys that the Licensed Software has
been accepted. VLSI shall invoice Synopsys and such invoice shall be due
and payable thirty (30) days from receipt. Royalty payments under Section
4.4 (except for royalty amounts retained by Synopsys pursuant to Section
4.1 above) shall be made within [***Redacted] calendar days after the end
of each calendar quarter in which Synopsys receives a royalty payment from
its CBA licensees that is attributable to the sale of VLSI Products.
4.6 Reports, Records and Audit Rights. With each royalty payment, Synopsys will
---------------------------------
deliver to VLSI a written report setting forth in reasonable detail the
information necessary to determine the accuracy of the calculation of the
royalties payable. Upon at least thirty (30) days prior written notice and
not more than once annually, VLSI's independent auditors who are reasonably
acceptable to Synopsys and who have entered into appropriate nondisclosure
agreements may inspect and audit such records during Synopsys' normal
business hours. VLSI shall bear the cost and expense of the audit:
provided, however, in the event of an underpayment to VLSI of
[*** Redacted] or more, Synopsys shall reimburse VLSI the reasonable costs
and expenses of any such audit as well as the unpaid royalty amounts.
4.7 Exception. In the event Synopsys is unable to license the Licensed Software
---------
to certain customers within the license and royalty parameters established
by this Agreement, VLSI and Synopsys agree to negotiate in good faith to
find mutually agreeable terms.
4.8 Preferred Treatment. If, during the Term of this Agreement, either party
-------------------
enters into an OEM agreement with a third party relating to memory products
that contains terms that, considered as a whole, are more favorable to the
counterparty than the terms of this Agreement, the parties agree that this
Agreement will be deemed to be modified by the appropriate party to include
such terms.
5. MAINTENANCE AND SUPPORT
VLSI shall provide Synopsys will standard support and maintenance services,
including without limitation, Updates and Bug Fixes, to be provided to
Synopsys and Synopsys' customers, at no charge, to the same extent and on
the same schedule that VLSI makes them available to VLSI's other customers.
6. CONFIDENTIALITY
Each party shall treat as confidential all Confidential Information of the
other party, shall not use such Confidential Information except as
expressly set forth herein or otherwise authorized in writing, shall
implement reasonable procedures to prohibit the disclosure, unauthorized
duplication, misuse or removal of the other
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*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
party's Confidential Information and shall not disclose such Confidential
Information to any third party without the prior written consent of the
disclosing party. Without limiting the foregoing, each party shall use at
least the same procedures and degree of care that it uses to prevent the
disclosure of its own
5.
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*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
Confidential Information of like importance to prevent the disclosure of
Confidential Information disclosed to it by the other party under this
Agreement. but in no event less than reasonable care.
7. WARRANTY
VLSI warrants and represents that (i) VLSI is the sole and exclusive owner
of VLSI Products, VLSI Libraries and Licensed Software and the rights
granted to Synopsys in this Agreement: (ii) the Licensed Software is or
will be the original product of VLSI. (iii) to the best of VLSI's
knowledge, the VLSI Products. VLSI Libraries and Licensed Software does
not and will not infringe any patent, copyright, trademark, trade secret or
other proprietary right of any third party: (iv) VLSI has not previously
granted and will not grant any rights to any third party that are
inconsistent with or present a conflict of interest with the rights granted
to Synopsys herein: and (v) VLSI has the right and full power to enter into
this Agreement, to carry out its obligations under this Agreement and to
grant the rights granted to Synopsys.
8. INTELLECTUAL PROPERTY INFRINGEMENT
8.1 Indemnification. Except as provided in Section 8.3 below, VLSI will, at its
---------------
own expense and at Synopsys' request, defend any claim or action brought
against Synopsys and its subsidiaries, agents, distributors, resellers and
end users, to the extent it is based on a claim that the VLSI Products.
VLSI Libraries, Licensed Software and/or Documentation provided under this
Agreement infringes or violates any patent, copyright, trademark, trade
secret or other proprietary right of a third party, and VLSI will indemnify
and hold Synopsys and its subsidiaries, agents, distributors, resellers and
end users harmless from and against any damages, costs and fees reasonably
incurred (including reasonable attorneys' fees) that are attributable to
such claim or action. Synopsys will provide VLSI with: (i) prompt written
notification of the claim or action-, (ii) sole control and authority over
the defense or settlement thereof, and (iii) all available information.
assistance and authority, at VLSI's expense, to settle and/or defend any
such claim or action.
8.2 Limited Remedies. If the VLSI Products, VLSI Libraries, Licensed Software
----------------
and/or Documentation becomes, or in the opinion of VLSI is likely to
become, the subject of an infringement claim or action, VLSI may at its
sole option: (i) procure, at no cost to Synopsys, the right to continue
using such VLSI Products, VLSI Libraries, Licensed Software and/or
Documentation: or (ii) replace or modify the VLSI Products. VLSI Libraries,
Licensed Software and/or Documentation to render them noninfringing,
provided there is no material loss of functionality.
8.3 Exceptions. VLSI will have no liability under this Section 8 for any claim
----------
or action where: (i) such claim or action would have been avoided but for
modifications of the VLSI Products. VLSI Libraries, Licensed Software
and/or Documentation, or portions thereof, made by Synopsys or a third
party after delivery to Synopsys and/or its customer; (ii) such claim or
action would have been avoided but for the combination or use of the VLSI
Products, VLSI Libraries, Licensed Software and/or Documentation, or
portions thereof, with other products, processes or materials; or (iii)
such claim or action would have been avoided but for the product
characteristics resulting from instruction or requirements provided by
Synopsys.
9. TERM AND TERMINATION
9.1 Term. This Agreement shall commence as of the Effective Date and shall
----
expire in
<PAGE>
five (5) years unless terminated earlier as provided herein. Synopsys has
the option to extend the initial term of the Agreement for an additional
eighteen (18) months.
6.
<PAGE>
9.2 Termination for Cause. Either party has the right to terminate this
---------------------
Agreement immediately upon written notice at any time if:
(a) the other party breaches or is in default of any obligation hereunder,
which default is incapable of cure or which. being capable of cure,
has not been cured with thirty (30) days after receipt of written
notice from the nondefaulting party or within such additional cure
period as the nondefaulting party may authorize: or
(b) the other party: (i) becomes insolvent; (ii) fails to pay its debts or
perform its obligations in the ordinary course of business as they
mature. (iii) admits in writing its insolvency or inability to pay its
debts or perform its obligations as they mature: or (iv) makes an
assignment for the benefit of creditors.
9.3 Termination for Convenience. Each party has the right to terminate this
---------------------------
Agreement upon eighteen (18) months written notice to the other party.
During the eighteen (18) month notice period. this Agreement will remain in
effect and VLSI shall remain obligated to perform all services it has
agreed to provide under this Agreement at the same level of service that it
is providing to its customers generally ("Comparable Service").
9.4 Termination following Change of Control. In the event that VLSI gives
---------------------------------------
notice of termination following a Change of Control of VLSI. Synopsys will
take over the provision of all services that VLSI has agreed to provide
under this Agreement under the following circumstances: (i) if VLSI fails
to provide Comparable Service to Synopsys and such failure continues for a
period of thirty (30) days from the receipt of notice from Synopsys
providing evidence of VLSI's failure to provide Comparable Service: and
(ii) VLSI elects to transfer its service obligations to Synopsys. Under
either of such circumstances, Synopsys will be entitled to have access to
the source code for the VLSI products marketed by Synopsys and Synopsys
shall have the right to use and modify such source code for the purpose of
providing support to Synopsys customers, and VLSI shall be obligated to
provide training to Synopsys personnel in order to permit Synopsys to
provide such services. If, following the transfer of support obligations
from VLSI, Synopsys and not VLSI performs porting services on a sale of the
VLSI Products, the discount to Synopsys, identified in Section 4.3 above,
for the VLSI Products involved in such sale will be [*** Redacted] in
lieu of the [*** Redacted] stated.
9.5 Effect of Termination. Upon termination of this Agreement, Synopsys shall
---------------------
immediately cease all manufacturing and distribution of the Licensed
Software. Termination will not relieve either party from any liability
arising from any breach of this Agreement. Neither party will be liable to
the other for damages of any sort solely as a result of terminating this
Agreement in accordance with its terms. Termination of this Agreement will
be without prejudice to any other right or remedy of either party. The
provisions of Sections 4, 6, 8, 9.4, 10, and 12 shall survive the
expiration or termination of this Agreement for any reason. All End User
sublicenses in effect prior to the date of expiration or termination of
this Agreement shall survive. All other rights and obligations of the
parties shall cease upon expiration or termination of this Agreement.
10. LIMITATION OF LIABILITY-
EXCEPT AS PROVIDED IN SECTION 8, UNDER NO CIRCUMSTANCES, SHALL EITHER
PARTIES LIABILITY WITH RESPECT TO ANY CLAIM ARISING IN ANY WAY OUT OF THIS
AGREEMENT OR THE USE OF THE LICENSED SOFTWARE AND DOCUMENTATION, HOWEVER
CAUSED, (WHETHER ARISING
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*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
UNDER A THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE); OR OTHERWISE),
EXCEED THE TOTAL AMOUNT PAID TO VLSI BY SYNOPSYS HEREUNDER.
7.
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*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
11. ANNOUNCEMENT
The parties agree that the existence of this Agreement and its terms and
conditions shall not, under any circumstances, be disclosed by either party
without the prior written consent of the other party. The parties will
consider announcing the existence of this Agreement and the relationship of
the parties after VLSI has successfully integrated its products with CBA in
several customers' processes.
12. GENERAL PROVISIONS
12.1 Choice of Law. The rights and obligations of the parties under this
-------------
Agreement shall not be governed by the 1980 U.N. Convention on Contracts
for the International Sale of Goods. This Agreement will in all respects be
interpreted and construed in accordance with. and governed by, the laws of
the State of California excepting that body of California law concerning
conflicts of law provisions, regardless of the place of execution or
performance of this Agreement.
12.2 Jurisdiction The federal and state courts within Santa Clara County,
------------
California shall have exclusive jurisdiction to adjudicate any dispute
arising out of this Agreement. Each party hereto expressly consents to the
personal jurisdiction of. and venue in. such courts and service of process
being effected upon it by registered mail and sent to the address set forth
at the beginning of this Agreement.
12.3 Assignment. This Agreement may not be assigned by Synopsys without the
----------
prior written consent of VLSI. Synopsys may not delegate its duties
hereunder without the prior written consent of VLSI.
12.4 Notices. Any notice, report, approval or consent required or permitted
-------
hereunder shall be in writing and will be deemed to have been duly given if
delivered personally, by facsimile, or mailed by first-class. registered or
certified mail, postage prepaid to the respective addresses of the parties
as set forth in this Agreement. If to Synopsys, Attention: General Counsel.
If to VLSI, Attention: President.
12.5 No Waiver. Failure by either party to enforce any provision of this
---------
Agreement will not be deemed a waiver of future enforcement of that or any
other provision.
12.6 Independent Contractors. The relationship of VLSI and Synopsys established
-----------------------
by this Agreement is that of independent contractors, and nothing contained
in this Agreement shall be construed (i) to give either party the power to
direct or control the day-to-day activities of the other or (ii) to
constitute the parties as partners, joint venturers, co-owners or otherwise
as participants in a joint or common undertaking.
12.7 Severability. If for any reason a court of competent jurisdiction finds any
------------
provision of the Agreement, or portion thereof. to be unenforceable, that
provision of the Agreement will be enforced to the maximum extent
permissible so as to effect the intent of the parties, and the remainder of
this Agreement will continue in full force and effect.
12.8 Attorneys' Fees. The prevailing party in any action to enforce the
---------------
Agreement shall
<PAGE>
be entitled to recover costs and expenses including, without limitation,
reasonable attorneys' fees.
12.9 Injunctive Relief. The parties agree that a material breach of this
-----------------
Agreement adversely affecting either party's intellectual property rights
would cause irreparable injury for which monetary damages would not be an
adequate remedy and the non-breaching party shall be entitled to
equitable relief in addition to any remedies it may have hereunder or at
law.
12.10 Force Majeure. Except for the obligation to make payments hereunder,
-------------
nonperformance, of either party shall be excused to the extent that
performance is rendered impossible by strike, fire, flood, governmental
action, failure of suppliers, earthquake, or any other reason where
failure to perform is beyond the reasonable control of the nonperforming
party.
8.
<PAGE>
12.12 Export Controls. Synopsys agrees and certifies that neither the Licensed
---------------
Software, nor any other technical data received from VLSI will be
exported or re-exported outside the United States except as authorized
and as permitted by the laws and regulations of the United States.
12.12 Entire Agreement. This Agreement, including all Exhibits, constitutes the
----------------
entire agreement between the parties with respect to the subject matter
hereof, and supersedes all prior agreements or representations, oral or
written, regarding such subject matter. This Agreement may not be
modified or amended except in a writing signed by a duly authorized
representative of both parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives:
VLSI LIBRARIES INCORPORATED SYNOPSYS, INC.
By: /s/ Mark Templeton By:/s/ [Unreadable Signature]
Name: Mark Templeton Name: [Unreadable]
(Print) (Print)
Executive Vice President,
Title: President Title: Office of the President
9.
<PAGE>
EXHIBIT A
---------
LICENSED SOFTWARE DESCRIPTION AND SPECIFICATIONS
[*** Redacted]
10.
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*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
EXHIBIT B
---------
END USER LICENSE AGREEMENT
11.
<PAGE>
EXHIBIT C
---------
ENGINEERING SERVICES
[*** Redacted]
12.
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*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
EXHIBIT D
---------
SYNOPSYS PRODUCTS LICENSED TO VLSI
[*** Redacted]
13.
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*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
Exhibit 10.13
LICENSE AGREEMENT
This License Agreement, the "Agreement," Number PL0626, with an "Effective Date"
of June 16, 1997, is made by and between Artisan Components, Inc., a California
-------------
corporation, with its principal place of business at 2077 Gateway Place, #300,
San Jose, California 95110, hereinafter referred to as "Artisan Components," and
Fujitsu Microelectronics, Inc. a California corporation with its principal place
of business at 3545 North First Street, San Jose, CA 95134 hereinafter referred
to as "Licensee."
1. DEFINITIONS
1.1 "AFFILIATE" means any corporation or other business entity during the
term of this Agreement in which, but only for so long as, Licensee owns or
controls directly or indirectly, at least 50% of the outstanding stock or other
voting rights entitled to elect directors; provided, however, that in any
country where the local law does not permit equity participation of at least
50%, then Affiliate will include any company in which Licensee owns or controls,
directly or indirectly, the maximum percentage of such outstanding stock or
voting rights permitted by law.
1.2 "DESIGN" means any integrated circuit, integrated circuit mask, design
database or graphical representation of a design database containing
representations of Licensed Products or designed with data from Licensed
Products from Artisan Components in any of its various formats, including but
not limited to: circuit schematics, ASCII or binary data, logic diagrams,
simulations models, physical layout, hardware description languages, timing
characteristics and netlists.
1.3 "DESIGN DATA AND TECHNIQUES" means the Artisan Components supplied
data, circuit and logic elements, libraries, architectures, and technical
information incorporated in the Licensed Products and Documentation, and
employed in the process of creating Designs.
1.4 "GOOD DIE" means the number of yielded good Licensed Integrated
Circuits manufactured by Licensee, whether such Licensed Integrated Circuits are
bare die, fully packaged, or otherwise.
1.5 "LAYOUT AND SCHEMATICS" means the library element physical design
database and related transistor level schematics, netlists and related
documentation, whether in object code, reconfigurable binary, ASCII data, binary
data, or any other form.
1.6 "LICENSED INTEGRATED CIRCUIT" shall mean a single die manufactured
Using all or any portion of the Licensed Products.
1.7 "LICENSED PRODUCTS" means the data and/or software and related
documentation set forth in Appendix A and Updates thereto, whether in object
code, reconfigurable binary, ASCII data, binary data or any other form. Licensed
Products includes Layout and Schematics and Models and User Documentation.
Appendix A defines the Licensed Products.
<PAGE>
1.8 "LICENSED SITE(S)." Appendix A defines the site(s) that will be
licensed to Use the Licensed Products and receive direct product support via e-
mail or telephone Artisan Components.
1.9 "MODELS AND USER DOCUMENTATION" means the library element timing and
simulation models, logical symbols and related documentation.
1.10 "SQUARE MILLIMETERS" means the square millimeters occupied on each
Good Die by (a) the placed and routed standard cells within the Licensed
Products or (b) other portions of the Licensed Products. Square Millimeters
occupied by Licensed Products other than placed and routed standard cells shall
be as reported by the Artisan Components generator or as documented in the
Licensed Products documentation.
1.11 "UPDATE(S)" means a derivative work extension, enhancement or
modification of a Licensed Product made by or for Artisan Components, which
Artisan Components in its sole discretion releases to its licensees free of
charge. Updates shall not include any new or additional features, enhancements,
or options which increase the basic functionality of the Licensed Product for
which Artisan Components charges a separate or additional fee.
1.12 "USAGE, USING, USE OR USED" means the transmitting, processing,
storing, designing with or displaying of any portion of the Licensed Product
through the use of computer and/or video equipment and/or utilizing Models and
User Documentation, in each case solely for the purpose of designing and
manufacturing Licensed Integrated Circuits.
2. LICENSE GRANT, RESTRICTED USE AND ADDITIONAL COPIES
2.1 Subject to the terms and conditions stated herein, Artisan Components
grants to Licensee a non-transferable, non-sublicenseable, non-exclusive,
royalty-bearing, limited license to Use the Licensed Product(s) in machine
readable form and to reproduce the Licensed Products for internal distribution
at the Licensed Sites(s) and for distribution of the Models and User
Documentation as set forth in Section 2.2.
2.2 Licensee may distribute the Models and User Documentation to
Licensee's customers of Licensed Integrated Circuits as needed to support
Licensee's IC design and manufacture business.
2.3 Licensee acknowledges and agrees that: (a) unauthorized reproduction,
electronic transfer or other Use of Licensed Product(s) which is not expressly
authorized by this Article 2 is a breach of a material obligation of this
Agreement; and (b) in the event that unauthorized copies of Licensed Product(s)
are made and/or Used by Licensee or its personnel, and Artisan Components elects
not to terminate this Agreement pursuant to Article 9, Licensee shall by virtue
of such act(s) be deemed to order and accept a license for and shall pay Artisan
Components the list price and applicable royalties and support fees for each
such unauthorized production, electronic Use, other unauthorized Use, or
transfer of Licensed Products. These fees shall be Artisan Components'
published list prices and
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applicable royalties and support fees existing on the date such unauthorized use
first occurred. License Fees, support fees and previously accrued royalties
shall be due, for purposes of Article 7, thirty (30) days following discovery by
Artisan Components of such unauthorized use.
2.4 Prior to disposing of any machines, software media (e.g. disks or
backup records) or other similar apparatus, Licensee shall erase or otherwise
destroy any Licensed Product(s) or portion thereof contained on such media or
stored in such apparatus.
2.5 In the event that Artisan Components reasonably deems itself insecure
with respect to Licensee's compliance with the foregoing provisions, Licensee
shall, within ten (10) days of written notification provide written
certification by a duly authorized officer of the compliance with the terms of
this Article 2 to Artisan Components.
2.6 Subject to the terms and conditions stated herein, including without
limitation the License Fee and royalty provisions stated herein, Licensee may
license additional copies of the Licensed Products for second and subsequent
sites at any time during the term of this Agreement. The license will be
exercised by the Licensee's giving Artisan Components notice in writing of
Licensee's exercise of such license, the number of additional copies of the
Licensed Products to be licensed and the address of each additional Licensed
Site. The License Fee for the any additional copy(s) shall be as stated on
Appendix B.
2.7 If Licensee is an agency, department, or other entity of the United
States Government ("Government"), Licensee's use, reproduction, release,
modification, disclosure or transfer of the Licensed Products, or of any related
documentation of any kind, including technical data, is restricted in accordance
with Federal Acquisition Regulation ("FAR") 12.212 for civilian agencies and
Defense Federal Acquisition Regulation Supplement ("DFARS") 227.7202 for
military agencies. The Licensed Products are commercial. The use of the
Licensed Products by any Government agency, department, or other entity of the
Government, is further restricted in accordance with the terms of this
Agreement, or any modification hereto. Licensee will affix the following legend
upon delivery of each of the Licensed Products which are the subject of this
Agreement:
Use, duplication, reproduction, release, modification,
disclosure or transfer of this commercial product and
accompanying documentation, is restricted in accordance
with FAR 12.212 and DFARS 227.7202, and by a license
agreement. Contractor/manufacturer is: Artisan Components,
Inc., 2077 Gateway Place, #300, San Jose, California 95110.
2.8 Licensee shall indemnify, defend and hold harmless Artisan Components
from and against any and all claim, losses, damages and liabilities arising out
of or in connection with Licensee's use of the Licensed Products; the
manufacture, use or sale of Licensed Integrated Circuits; or Licensee's
negligence or willful misconduct apart from infringement covered in Section 12.
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3. SUPPORT CONDITION, SILICON DEBUGGING AND PRODUCT
ENGINEERING
3.1 Artisan Components provides telephone or email support to one primary
site, to be designated by Fujitsu, as is deemed reasonable by Artisan Components
[*** Redacted] for a period of [*** Redacted] months after delivery of the
Licensed Products to a common carrier as provided in Section 5.3. This support
covers any usage questions or bugs related to the generators.
3.2 The design and verification techniques for the Licensed Products used
by Artisan Components depend on the accuracy of models, flows and design tools;
some of which are provided by Artisan Components' licensees and their target
foundries. Due to practical limits on the accuracy of these models, flows and
design tools, the fabricated silicon behavior may not always agree with that
predicted. In these cases, Artisan Components will assist the Licensee in
silicon debugging and product engineering at Artisan Components then current
standard hourly rate plus applicable expenses. Silicon debugging and product
engineering do not fall under the support provisions set forth in Section 3.1
above.
4. TERM
This Agreement is effective from its execution by Licensee and Artisan
Components and shall remain in full force and effect for a period of twenty (20)
years, unless earlier terminated as provided in Article 9 below.
5. ORDER, CHANGES AND DELIVERY TERMS
5.1 All orders for Licensed Products submitted by Licensee will be
initiated by Licensee's written purchase orders sent to Artisan Components and
requesting a delivery date during the term of this Agreement. All Licensed
Products provided to Licensee by Artisan Components during the term of this
Agreement will be subject to the terms and conditions of this Agreement. Except
as otherwise agreed in writing signed by an officer of Artisan Components,
nothing contained in any purchase order submitted by Licensee pursuant to this
Agreement will in any way modify, delete or add any terms or conditions to said
purchases and licenses, and Licensee hereby waives such purchase order
provisions.
5.2 Changes to the scope of work either requested by and/or necessitated
by Licensee's specifications will be evaluated for both schedule and cost
impact. The Licensee will be asked to complete an Engineering Change Order
Request Form, an "ECO," and submit it to Artisan Components for review. If after
review by Artisan Components, it is determined that both the schedule and/or
quoted sales prices must change to accommodate the ECO, Artisan Components will
notify the Licensee in writing on our ECO Response Form of any such schedule
and/or price changes. Licensee must provide written acceptance or refusal of the
new schedule and/or costs within five (5) days of having been so notified.
Failure to do so will cause Artisan Components to proceed with the project as if
the Licensee's ECO Request Form had never been received. Sample ECO Request and
ECO Response Forms are attached as Exhibits A and B.
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confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
5.3 Artisan Components shall deliver the Licensed Product(s) to a common
carrier specified by Licensee, F.O.B. Origin, freight prepaid and billed or as
otherwise mutually agreed in writing.
5.4 Licensee shall review each delivery of the Licensed Products and
advise Artisan Components within fourteen (14)days of delivery of any defects in
the deliverables or the accompanying documentation.
5.5 Licensee may terminate this agreement for convenience with respect to
any or all of the Licensed Products by giving written notice to Artisan
Components at any time prior to delivery of such Licensed Products. In such
event, Artisan Components shall be entitled to receive subject to the terms
hereof all License Fees earned and accrued for previously-delivered Licensed
Products. Artisan Components shall also be entitled in such event to receive a
pro-rata License Fee for undelivered Licensed Product. Such pro-rata amount
shall be based on the time elapsed from date of work commencement to date of
termination as a percentage of the projected delivery schedule for such Licensed
Product. Royalty provisions hereof will remain unchanged for Licensed Products
delivered to Licensee prior to the termination date.
6. TITLE
Subject to the licenses granted herein, Artisan Components and its
licensors retain all of their right, title and interest in and to the Licensed
Product(s) and all patent rights, trademarks, trade secrets, copyrights, mask
work rights and all other proprietary rights therein or relating thereto. Except
for the licenses granted in Article 2, no other grants of licenses or rights to
Licensee shall be implied from the provisions stated herein.
7. PAYMENT TERMS AND TAXES
7.1 All deposits submitted by Licensee to Artisan Components shall be non-
refundable and noncreditable.
7.2 Unless otherwise mutually agreed in writing, with respect to Licensed
Products ordered under this Agreement as of the Effective Date or through
placement of a purchase order, Licensee shall pay to Artisan Components
[*** Redacted] of the license fee(s) (less the [*** Redacted] already paid) set
forth in Appendix B ("License Fees") upon the Effective Date or upon submission
of the purchase order, respectively, and the remaining [*** Redacted] of the
License Fees net [*** Redacted] thereafter after acceptance. Acceptance will
occur within [*** Redacted] unless Licensee has within such time advised Artisan
Components, as per Section 5.4, of any defect Licensee has discovered in the
deliverables. In the event such defect has been advised, acceptance will occur
upon the earlier notification of acceptance by Licensee or [*** Redacted] days
after delivery of Licensed Products that remedy such defects. The foregoing
provisions of this Section 7.2 shall not limit the provisions of Section 2.3
above. License Fees are nonrefundable and noncreditable. Licensee also shall pay
to Artisan Components all amounts set forth in Section 2.3(b) with respect to
unauthorized Use of Licensed Product(s) and/or Section 2.6 with respect to
additional copies of the Licensed Products, if any, licensed by Licensee under
Section 2.6 above.
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confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
7.3 Within [*** Redacted] after the end of each calendar quarter,
Licensee further shall pay to Artisan Components the running royalties set forth
in Appendix B with respect to finished goods shipped, net of returns, in such
calendar quarter, and shall submit to Artisan Components with such royalty
payment a report stating (a) the part number for each Licensed Integrated
Circuit, (b) the Square Millimeters on each Licensed Integrated Circuit, (c) the
number of finished goods shipped during such calendar quarter, (d) royalties
payable hereunder for such calendar quarter; and (e) all data and supporting
calculations used by Licensee to compute the royalties payable by Licensee to
Artisan Components with respect to such calendar quarter.
7.4 This Agreement number and any support agreement number (if
applicable), must appear on all correspondence related to this Agreement or any
subsequent purchase order placed hereunder.
7.5 All invoices will be mailed to Licensee's Accounts Payable Department
specified in the applicable Licensee purchase order.
7.6 Any and all amounts payable hereunder do not include any government
taxes (including without limitation sales, use, excise, and value added taxes)
or duties imposed by any governmental agency that are applicable to the export,
import, or purchase of the Products (other than taxes on the net income of
Artisan Components), and Licensee shall bear all such taxes and duties. When
Artisan Components has the legal obligation to collect and/or pay such taxes,
the appropriate amount shall be added to Licensee's invoice and paid by
Licensee, unless Licensee provides Artisan Components with a valid tax exemption
certificate authorized by the appropriate taxing authority.
7.7 All payments by Licensee specified hereunder are expressed as net
amounts and shall be made free and clear of, and without reduction for, any
withholding taxes. Any such taxes which are otherwise imposed on payments to
Artisan Components shall be the sole responsibility of Licensee. Licensee shall
provide Artisan Components with official receipts issued by the appropriate
taxing authority or such other evidence as is reasonably requested by Artisan
Components to establish that such taxes have been paid.
7.8 With respect to License Fees, royalties and other amounts which are
payable to Artisan Components under this Agreement, Licensee shall keep complete
and accurate books and records. These records shall be retained for a period of
twelve (12) months from the date of payment, notwithstanding the expiration or
termination of this Agreement. Licensee agrees to permit its books, records to
be examined by Artisan Components or its designee, subject to reasonable
confidentiality provisions, [*** Redacted] during normal business hours, to
verify the accuracy of the License Fees, royalties and other amounts paid to
Artisan Components under this Agreement. Prompt adjustment shall be made by
Licensee corresponding to the net amount of any underpayment of any and all
License Fees, royalties and other amounts disclosed by such examination. If such
an examination reveals an underpayment of more than [*** Redacted], then
Licensee shall promptly reimburse Artisan Components for the cost of such
examination.
7.9 If any currency conversion shall be required in connection with the
calculation of amounts payable under this Agreement, such conversion shall be
made using the selling exchange rate for
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*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
conversion of the foreign currency into U.S. Dollars, quoted for current
transactions reported in The Wall Street Journal for the last business day of
the calendar quarter to which such payment pertains.
8. EXPORT RESTRICTIONS
This Agreement, the Licensed Product(s), Licensed Integrated Circuits, and
the rights granted hereunder are subject to any and all laws, regulations,
orders or other restrictions relative to export, re-export or redistribution of
the Licensed Product(s) that may now or in the future be imposed by the
government of the United States or foreign governments. Licensee agrees to
comply with all such applicable laws and regulations.
9. TERMINATION
9.1 Artisan Components shall have the right, in its sole discretion, to
terminate this Agreement and the licenses granted hereunder, upon the occurrence
of any of the following events: (a) the failure or neglect of Licensee to pay
Artisan Components any sums or amounts due hereunder in a timely manner where
such delinquency is not fully corrected within thirty (30) days of Artisan
Components' written demand; or (b) the failure or neglect of Licensee to
observe, keep, or perform any of the material covenants, terms or conditions of
this Agreement where such non-performance is not fully remedied by Licensee
within thirty (30) days of Artisan Components' written demand; or (c) any breach
of Section 2.1 or 2.3 hereof (effective immediately upon written notification,
at Artisan Components' option); or (d) the filing of a petition for Licensee's
bankruptcy which is not discharged within sixty (60) days, whether voluntary or
involuntary, or an assignment of Licensee's assets made for the benefit of
creditors, or the appointment of a trustee or receiver to take charge of
Licensee's business for any reason, or Licensee becoming insolvent or ceasing to
conduct business in the normal course.
9.2 The provisions of Articles 6, 7, 8, 10, 12, 13, 14, 15, 16, 17, 18, 19
and 20 and Sections 9.3 and 9.4 shall survive the expiration or any termination
of this Agreement.
9.3 Upon the effective date of termination, Licensee shall cease to Use
and shall either destroy or return to Artisan Components all of the Licensed
Products, Licensed Integrated Circuits in Licensee's possession or under
Licensee's control, Documentation, and copies thereof, together with Licensee's
written certification by a duly authorized officer, that the Licensed
Product(s), Licensed Integrated Circuits in Licensee's possession or under
Licensee's control, and Documentation and all copies thereof are no longer in
Use and have been returned to Artisan Components or destroyed. Licensee has
continued rights to ship work in progress and finished goods.
9.4 Termination of this Agreement under this Section 9 shall be in
addition to, and not a waiver of, any remedy at law or in equity available to
Artisan Components arising from Licensee's breach of this Agreement.
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10. RIGHT TO DESIGN AND METHODS
10.1 Licensee and Artisan Components agree that Licensee shall retain all
of its ownership rights to Designs created or derived through the Use of the
Licensed Product(s).
10.2 Licensee and Artisan Components agree that Artisan Components shall
retain all rights to Design Data and Techniques. Licensee agrees that Artisan
Components will have the irrevocable right to use in the Licensed Product(s) any
Licensee contribution or voluntarily disclosed information provided to Artisan
Components in the course of its relationship with Licensee, except where such
information has been appropriately marked or identified as Licensee
confidential, in which case such information shall be subject to the
restrictions of the appropriate Confidential Disclosure Agreement separately
executed by the parties.
11. WARRANTIES
11.1 PERFORMANCE WARRANTIES. Artisan Components warrants that it has the
right to enter this Agreement and to grant the licenses hereunder. Artisan
Components warrants for a period of [*** Redacted] from the date of delivery
that the Licensed Product shall be free from defects in media and shall
substantially conform to the material specifications set forth in the
Documentation. Artisan Components does not warrant that the use of the Licensed
Products will be uninterrupted or error free. In the event of any nonconformance
of the Licensed Product, Licensee shall promptly notify Artisan Components in
writing, and provide Artisan Components with evidence and documentation which
reproduces the claimed error and resultant output from the execution or use of
such code or data. Artisan Components' sole obligation and Licensee's exclusive
remedy under this warranty shall be limited to use of its commercially
reasonable efforts to correct such defects. Except as provided under a separate
written valid support agreement between Licensee and Artisan Components, Artisan
Components will not be under any obligation to provide Licensee with any
Updates, releases or enhancements other than to remedy non-conformance under
this warranty. Artisan Components' warranty obligations shall be void if the
Licensed Product is modified without the advance written consent of Artisan
Components. Artisan Components' warranty obligations hereunder will not apply to
failure by the Licensed Products to comply with the limited warranty herein due
to accident, neglect, abuse, acts of God or misapplication, or due to models,
flows, design tools or any other information provided by Licensee to Artisan
Components hereunder. Further, any silicon debugging or product engineering
provided by Artisan Components pursuant to Section 3.2 above is provided "AS
IS." Notwithstanding anything to the contrary herein, Artisan Components will
perform its services provided hereunder in a professional and workmanlike
manner.
11.2 Artisan Components recognizes that Licensee has a very tight
development schedule for these products in order to get to market and Artisan
Components will fulfill its warranty responsibilities on a priority basis using
its [*** Redacted].
11.3 NO FURTHER WARRANTIES. EXCEPT AS SPECIFICALLY SET FORTH IN THIS
SECTION 11, ARTISAN COMPONENTS AND ITS LICENSORS DO NOT MAKE ANY EXPRESS,
IMPLIED OR STATUTORY WARRANTIES, INCLUDING BUT NOT LIMITED TO
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*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, OR
ARISING FROM A COURSE OF DEALING, TRADE USAGE OR TRADE PRACTICE.
12. PATENT AND COPYRIGHT INDEMNIFICATION
12.1 DEFENSE OF SUITS. Artisan Components shall, at its own expense,
defend or at its option, settle any claim, suit or proceeding brought by a third
party against Licensee for direct infringement of any valid United States patent
or copyright of such third party, by virtue of Licensee's authorized Use of any
of the Licensed Products pursuant to the terms of this Agreement and shall pay
any settlement amounts or damages finally awarded in such claim, suit or
proceeding; provided that Licensee: (a) promptly notifies Artisan Components in
writing of such claim, suit or proceeding, (b) gives Artisan Components sole
control over the defense and/or settlement of such claim, suit or proceeding;
and (c) reasonably cooperates and provides all available information, assistance
and authority to defend or settle the claim, suit or proceeding. Artisan
Components shall not be liable for any costs, expenses, damages or fees incurred
by Licensee in defending such action or claim unless authorized in advance, in
writing by Artisan Components.
12.2 PROSECUTION OF SUITS. Any action to be brought to prevent or enjoin
any third party from infringement of any patent, copyright or other proprietary
rights of Artisan Components with respect to the Licensed Product(s) shall be
brought exclusively by Artisan Components or Artisan Components' designee, in
Artisan Components' sole discretion and as between Licensee and Artisan
Components, at Artisan Components' sole cost and expense.
12.3 INFRINGEMENT REMEDIES. If Licensed Product(s) is, or in Artisan
Components' opinion is likely to become the subject of a claim, suit, or
proceeding alleging infringement, Artisan Components may: (a) procure at no
cost to Licensee, the right to continue Usage of the Licensed Product; (b)
replace or modify the Licensed Product, at no cost to Licensee, to make it non-
infringing, provided that substantially the same function is performed by the
replacement of modified Licensed Product, or (c) if the right to continue Usage
cannot be reasonably procured for Licensee or the Licensed Product cannot be
replaced or modified to make it non-infringing, terminate the license of such
Licensed Product, remove the Licensed Product and grant Licensee refund credit
thereon as depreciated on a [*** Redacted]. The [*** Redacted] begins with the
date of first shipment of licensed integrated circuits by FMI and ends
[*** Redacted] thereafter.
12.4 NON-CONFORMING USE. Artisan Components shall have no liability for
any claim, suit or proceeding of infringement based on the Usage of Licensed
Product after Licensee receives notice that the Licensed Product infringes a
proprietary right or intellectual property right of a third party.
12.5 NO OTHER OBLIGATIONS. The foregoing states Artisan Components' sole
obligations and entire liability with respect to any claimed infringement of the
Licensed Product(s) of any intellectual property or other rights of any third
party.
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confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
13. LIMITATION OF LIABILITY
13.1 LIMITATION ON DAMAGES. IN NO EVENT WILL ARTISAN COMPONENTS OR ITS
LICENSORS OR SUPPLIERS BE LIABLE FOR ANY LOSS OR DAMAGE TO REVENUES, PROFITS,
OTHER ECONOMIC LOSS OR GOODWILL OR COSTS OF REPLACEMENT GOODS OR SERVICES OR ANY
OTHER SPECIAL, INCIDENTAL, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY
KIND, ARISING OUT OF OR RELATING TO THIS AGREEMENT, LICENSED INTEGRATED CIRCUITS
OR THE LICENSED PRODUCTS, OR RESULTING FROM ARTISAN'S PERFORMANCE OR FAILURE TO
PERFORM PURSUANT TO THE TERMS OF THIS AGREEMENT OR RESULTING FROM THE
FURNISHING, PERFORMANCE, DELAY IN DELIVERY, OR USE OR LOSS OF USE OF ANY
LICENSED PRODUCTS OR OTHER MATERIALS DELIVERED TO LICENSEE HEREUNDER, HOWEVER
CAUSED AND WHETHER BASED IN BREACH OF CONTRACT, BREACH OF WARRANTY, TORT
(INCLUDING NEGLIGENCE) OR ANY OTHER THEORY OF LIABILITY. THE FOREGOING
LIMITATIONS SHALL APPLY EVEN IF ARTISAN COMPONENTS HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE
OF ANY LIMITED REMEDY STATED HEREIN.
13.2 MAXIMUM LIABILITY. Artisan Components and its licensors' and suppliers'
aggregate liability to Licensee under any provision of this Agreement shall be
limited to the sum of the License Fees and royalties actually paid by Licensee
to Artisan Components for the Licensed Product(s) in question. The existence of
more than one claim will not enlarge or extend this limit.
14. RELEASE OF PERFORMANCE INFORMATION
Licensee shall not distribute externally or to third parties, any reports or
statements that directly compare the timing, speed, area, functionality or other
performance results of circuit designs created or designed through the Use of
any other products of Licensee or any third party that are similar to the
Licensed Products without the prior written approval of Artisan Components.
15. PUBLICITY; DISLOSURE OF TERMS
Neither party shall announce or publicly disclose the terms or conditions of
this Agreement without prior written approval from the other party; provided,
however, that either party shall have the right to publicly disclose the
following: (a) that Licensee is a customer of Artisan Components, (b) that
Artisan Components has provided the Licensed Products to the Licensee and that
the Licensed Products were used in the development of the Licensed Integrated
Circuit, (c) a product description of the Licensed Products as contained in
Artisan Components' standard product literature.
16. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws
of the State of California, without regard to the conflict of laws provisions
thereof.
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17. ASSIGNMENT
Neither this Agreement nor any rights or obligations hereunder, in whole or in
part, shall be assignable or otherwise transferable by Licensee except upon
prior written approval of Artisan Components in the event of acquisition,
substantial sale of assets or reorganization. Such approval shall not be
unreasonably withheld. Any unauthorized attempt by Licensee to assign or
transfer this Agreement or any rights or obligations hereunder shall be null and
void. This Agreement shall be freely assignable by Artisan Components without
Licensee's consent. Subject to the foregoing provisions of this Section 16,
this Agreement will be binding upon and inure to the benefits of the parties
hereto, their successors and assigns.
18. NOTICE
Any notices required to be given pursuant to this Agreement shall be in
writing, sent via certified mail, return receipt requested, express overnight
courier, or by facsimile (a confirmed copy of which to be sent promptly by mail
to addressee) to the address of Artisan Components or Licensee as set forth
below or to such other address as may be specified from time to time by notice
in writing, and such notice shall be deemed to have been received on the earlier
of (a) the date when actually received or (b) if by facsimile, when the sending
party shall have received a facsimile, when the sending party shall have
received a facsimile confirmation that the message has been received by the
receiving party's facsimile machine.
If to Artisan Components: If to Licensee:
- ------------------------- ---------------
Artisan Components, Inc. Fujitsu Microelectronics, Inc.
2077 Gateway Place, #300 -----------------------------
San Jose, CA 95110 3545 North First Street
Attn: Manager, Contracts -----------------------------
Telephone: (408) 453-1000 San Jose, CA 95134-1804
Facsimile: (408) 453-3500 -----------------------------
Attn: Legal Dept. M/S142
-----------------------------
Attn:
-----------------------------
Telephone: 408/922-9000
-----------------------------
Facsimile: 408/432-9044
-----------------------------
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19. SEVERABILITY AND WAIVER
19.1 The invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions of this Agreement and shall be
construed in all respects as if such invalid or unenforceable provisions were
omitted.
19.2 The waiver by either party of any default or breach of this Agreement
shall not constitute a waiver of any other subsequent default or breach.
19.3 Failure or delay by either party in exercising any right or power
hereunder shall not operate as a waiver of such right or power.
20. INHERENTLY DANGEROUS APPLICATIONS
The Licensed Products are not specifically developed or licensed for use in
the planning, construction, maintenance, operation or other use of any nuclear
facility, or for the flight, navigation or communication of aircraft or ground
support equipment, or for military use, medical use or in any other inherently
dangerous activity. Licensee agrees that Artisan Components shall not be liable
for any claims, losses, costs or liabilities arising from such use if Licensee
or its distributors or customers use the Licensed Products for such
applications. Licensee shall notify each distributor and customer of Licensee
of such limitation of use of the Licensed Products and Licensed Integrated
Circuits. Licensee agrees to indemnify and hold Artisan Components harmless
from any claims, losses, costs, and liabilities arising out of or in connection
with the use of the Licensed Programs or Licensed Integrated Circuits in any
such applications.
21. ATTORNEYS FEES
The prevailing party in any action to enforce the terms of this Agreement
shall be entitled to reasonable attorney's fees and other costs and expenses
incurred by it in connection with such action.
22. NDA
22.1 Each party (i.e., Artisan Components or Licensee, the "Receiving Party")
understands that the other party (the "Disclosing Party") has disclosed or may
disclose tangible information designated as "Confidential" or "Proprietary",
relating to this Agreement (hereinafter "Proprietary Information"). For a period
of four (4) years from the date upon which the receiving party first receives
the Proprietary Information from the Disclosing Party and, except to the extent
otherwise provided for under this Agreement, the Receiving Party agrees (i) to
hold the Disclosing Party's Proprietary Information in confidence as a fiduciary
and to take precautions to protect such Proprietary Information (including,
without limitation, those precautions the Receiving Party employs with respect
to its confidential materials of similar type), and (ii) not to divulge any such
Proprietary Information or any information derived therefrom to any third party.
22.2 Notwithstanding the above, all information which is disclosed in
intangible form by the Disclosing Party for the purpose of this Agreement and
which is identified by the Disclosing Party as
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"confidential" or "proprietary" shall be deemed to be Proprietary Information
for purposes of this Agreement for a period of sixty (60) days from the date of
disclosure thereof, provided, however, that if the Receiving Party receives from
the Disclosing Party within such sixty-day period a written document summarizing
such information and designating such information as "Confidential" or
Proprietary", such information shall be deemed to be Proprietary Information for
purposes of this Agreement for a period of four (4) years from the disclosure
thereof.
22.3 Without granting any right or license, the Disclosing Party agrees that
the foregoing shall not apply with respect to any information that (i) is in the
public domain at the time of disclosure or thereafter enters the public domain,
through no improper action or inaction by the Receiving Party or any of its
affiliates, agents or employees, or (ii) was in its possession or known by it
prior to receipt from the Disclosing Party, or (iii) was rightfully disclosed to
it by any third party, provided, however, that the Receiving Party complies with
any restrictions imposed by such third party, or (iv) was developed by employees
of the Receiving Party who did not have access to the Proprietary Information.
22.4 Due to the unique nature of the Disclosing Party's Proprietary
Information hereunder and the competitive advantage they give the parties, there
can be no adequate remedy at law for any breach of each party's obligations
under this Section and upon any such breach or any threat thereof, the non-
breaching party shall be entitled to appropriate equitable relief in addition
to whatever other remedies it might be entitled. The provisions of this Section
shall survive the expiration or other termination of this Agreement.
23. MISCELLANEOUS TERMS
23.1 The relationship of the parties hereto is that of independent
contractors, and neither party is an employee, agent, partner or joint venturer
of the other.
23.2 Except for payments due hereunder by Licensee, neither party shall have
liability for its failure to perform its obligations hereunder when due to
circumstances beyond its reasonable control.
23.3 Artisan represents that it has the capabilities and resources to perform
the work required under this agreement according to the mutually agreed
specifications and delivery schedule. Artisan shall perform the development
work covered by this agreement in a professional and workmanlike manner
according to standards practiced by Silicon Valley's leading semiconductor
design firms.
BOTH PARTIES ACKNOWLEDGE THAT THIS AGREEMENT INCLUDING THE EXHIBITS AND
APPENDICES ATTACHED HERETO IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE
MUTUAL UNDERSTANDING OF THE PARTIES AND SUPERSEDES AND CANCELS ALL CONFLICTING
TERMS AND CONDITIONS AND ALL PREVIOUS AND CONTEMPORANEOUS WRITTEN AND ORAL
AGREEMENTS AND COMMUNICATIONS RELATING TO THE SUBJECT MATTER HEREOF, INCLUDING
ANY TERMS AND CONDITIONS THAT MAY BE INDICATED IN ANY LICENSEE PURCHASE ORDER.
THIS AGREEMENT MAY NOT BE MODIFIED, SUPPLEMENTED, QUALIFIED, OR INTERPRETED BY
ANY TRADE USAGE OR PRIOR COURSE OF DEALING NOT MADE A PART OF THIS
13
<PAGE>
THIS AGREEMENT MAY NOT BE MODIFIED OR AMENDED EXCEPT IN WRITING AND EXECUTED BY
DULY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES.BOTH PARTIES ACKNOWLEDGE THAT
THEY HAVE READ THIS AGREEMENT, UNDERSTAND IT AND AGREE TO BE BOUND BY ITS TERMS
AND CONDITIONS AS EVIDENCED BY THEIR SIGNATURES BELOW
ARTISAN COMPONENTS, INC. LICENSEE
By: /s/ Daniel I. Rubin By: /s/ [Unreadable]
____________________________________ ________________________________
Signature of an Officer of Signature of an Authorized
the Corporation Representative
By: Daniel I. Rubin By:
____________________________________ ________________________________
Printed Name of the Signing Officer Printed Name of the Signing
Authorized Representative
Title: V.P. Worldwide Sales Title: E.V.P.
_________________________________ _____________________________
Date: 6/6/97 Date: 6/16/97
__________________________________ ______________________________
14
<PAGE>
EXHIBIT A
ENGINEERING CHANGE ORDER
(ECO) REQUEST FORM
- --------------------------------------------------------------------------------
Customer: Date:
- --------------------------------------------------------------------------------
Requestor: Phone:
- --------------------------------------------------------------------------------
E-mail Address: Fax:
- --------------------------------------------------------------------------------
Project:
- --------------------------------------------------------------------------------
This Engineering Change Order Form (ECO) is to be used as an official
notification to Artisan Components of any changes in design or specification
made to a project. Once this form has been received, Artisan Components will
evaluate the schedule and cost impacts of these changes and inform you of the
results.
Description of Requested Change:________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Requestor's Signature:________________________________ Date:___________________
Engineering Manager's Approval:_______________________ Date:___________________
<PAGE>
EXHIBIT B
ENGINEERING CHANGE ORDER
(ECO) RESPONSE FORM
- --------------------------------------------------------------------------------
Customer: Date:
- --------------------------------------------------------------------------------
Requestor: Phone:
- --------------------------------------------------------------------------------
E-mail Address: Fax:
- --------------------------------------------------------------------------------
Project:
- --------------------------------------------------------------------------------
Artisan Components has evaluated your attached ECO request, its impact on your
schedule and any additional charges associated with the request. This
evaluation is described below:
In summary, this change will:
[_] Add ______ working days to the schedule [_] Will not impact the schedule
[_] Require an increase/decrease in the cost [_] Will not require any
of your project of $____________ additional charges
Please sign this form to acknowledge that you understand the impact of your
requested changes. Signing the Refusal indicates that you DO NOT authorize
Artisan Components to proceed with the requested change(s). Signing the
Acceptance authorizes Artisan Components to proceed with these changes. If
additional costs are indicated, then the buyer's signature is required. This
form must be signed and returned to Artisan Components by ___________________.
Requestor's REFUSAL:_________________________ Date:_________________________
Requestor's ACCEPTANCE:______________________ Date:_________________________
Buyer's Approval:____________________________ Date:_________________________
<PAGE>
LICENSE AGREEMENT
APPENDIX A
Licensed Product(s) and Site(s)
LICENSED PRODUCTS:
[*** Redacted]
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
LICENSE AGREEMENT
APPENDIX B
LICENSE FEES, ROYALTIES, AND DELIVERY SCHEDULES
License Fee
Total of the following [*** Redacted] products: [*** Redacted]
<TABLE>
<CAPTION>
LICENSED PRODUCTS SCHEDULED DELIVERY
- --------------------------------------------------------------------------------
<S> <C>
[*** Redacted] [*** Redacted]
</TABLE>
<TABLE>
<CAPTION>
OPTIONAL LICENSED PRODUCTS PRICE
- --------------------------------------------------------------------------------
<S> <C>
[*** Redacted] [*** Redacted]
</TABLE>
[*** Redacted]
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
APPENDIX B
(continued)
ROYALTIES
Licensee shall pay to Artisan Components the following running royalties with
respect to finished goods shipped:
<TABLE>
<CAPTION>
U.S. CENTS PER
LICENSED PRODUCTS SQUARE MILLIMETER
- --------------------------------------------------------------------------------
<S> <C>
[*** Redacted] [*** Redacted]
</TABLE>
Running royalties for the [*** Redacted] and [*** Redacted] of chips
(not to exceed [*** Redacted]) will have the following declining royalty
schedule. The [*** Redacted] of chips refers to the [*** Redacted] product
family, including those parts code-named [*** Redacted] and the other parts
included in the joint [*** Redacted] which has been previously disclosed to
Artisan Components. "Initial production" is defined as the date that the first
[*** Redacted], covered by the agreement have been qualified and shipped for
revenue. For example, a product family member that is introduced in the second
year after initial production of the first part in the family is subject to the
[*** Redacted] royalty rate set by the table below.
ROYALTY SCHEDULE FOR THE [*** Redacted]:
<TABLE>
<CAPTION>
TIME PERIOD ROYALTY RATE
- ----------------------------------------------------------------------------------------------------
<S> <C>
[***Redacted] [*** Redacted]
</TABLE>
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
APPENDIX B
(continued)
CREDIT BACK ON ROYALTIES
[*** Redacted] of the royalty collected, up to the purchase amount
[*** Redacted], is held as credit for future Artisan Components' standard
products or the recharacterization of the generators. These credits must be used
within [*** Redacted] of accrual.
[*** Redacted]
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
LICENSE AGREEMENT
APPENDIX C
DOCUMENTATION
<TABLE>
<CAPTION>
LICENSED PRODUCTS DOCUMENTATION
- --------------------------------------------------------------------------------
<S> <C>
[*** Redacted] User Manual
User Manual
User Manual
Databook
N/A
Databook
</TABLE>
- --------------
*** Confidential treatment requested pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.
Omitted portions have been filed separately with the Commission.
<PAGE>
EXHIBIT 10.14
LEASE
-----
(SINGLE TENANT MODIFIED NET)
1. Parties.
-------
THIS LEASE (the "Lease"), dated June 16, 1997, is entered into by and
between Richard V. Bowling, Jr. and Kathleen S. Bowling, Trustees of the
Bowling Revocable Trust ("Landlord"), whose address is P.O. Box 1085, Danville,
CA 94526, and Artisan Components, Inc., a California corporation ("Tenant"),
whose address is 2077 Gateway Place, San Jose, CA 95110-1015.
2. Premises.
--------
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the building located at 1195 Bordeaux Drive, Sunnyvale, California,
consisting of approximately thirty-two thousand six hundred sixty (32,660)
square feet and located on that certain real property consisting of
approximately two and 41/100ths (2.41) acres as more particularly described in
EXHIBIT A, together with a right to use the Outside Area as defined in Paragraph
- ----------
3.D. (collectively, the "Premises"). Tenant shall at all times during the Term
of this Lease have the exclusive right to use the entire Premises, including the
Outside Area.
3. Definitions.
-----------
The following terms shall have the following meanings in this Lease:
A. Alterations. Any alterations, additions or improvements made in,
-----------
on or about the Building after the Commencement Date, including, but not limited
to, lighting, heating, ventilating, air conditioning, electrical, partitioning
(other than demountable partitioning), and carpentry installations.
B. Building. That certain building located at 1195 Bordeaux Drive,
--------
Sunnyvale, California, consisting of approximately thirty-two thousand six
hundred sixty (32,660) square feet.
C. Commencement Date. The Commencement Date of this Lease shall be
-----------------
the first day of the Term determined in accordance with Paragraph 4.A.
D. Outside Area. All areas and facilities within the Premises
------------
exclusive of the Building, such as parking areas, sidewalks, landscaped areas,
service areas, trash disposal facilities, and similar areas and facilities.
E. HVAC. Heating, ventilating and air conditioning.
----
-1-
<PAGE>
F. Interest Rate. Twelve percent (12%) per annum, however, in no
-------------
event to exceed the maximum rate of interest permitted by law.
G. Landlord's Agents. Landlord's authorized agents, partners,
-----------------
subsidiaries, directors, officers, trustees and employees.
H. Monthly Rent. The rent payable pursuant to Paragraph 5.A., as
------------
adjusted from time to time pursuant to the terms of this Lease.
I. Real Property Taxes. Any form of assessment, license, fee, rent
-------------------
tax, levy, penalty (if a result of Tenant's delinquency), or tax (other than net
income, estate, succession, gift, inheritance, transfer or franchise taxes),
imposed by any authority having the direct or indirect power to tax, or by any
city, county, state or federal government or any improvement or other district
or division thereof, whether such tax is: (i) determined by the area of the
Premises or any part thereof or the rent and other sums payable hereunder by
Tenant, including, but not limited to, any gross income or excise tax levied by
any of the foregoing authorities with respect to receipt of such rent or other
sums due under this Lease; (ii) upon any legal or equitable interest of Landlord
in the Premises or any part thereof; (iii) upon this transaction or any document
to which Tenant is a party creating or transferring any interest in the
Premises; (iv) levied or assessed in lieu of, in substitution for, or in
addition to, existing or additional taxes against the Premises whether or not
now customary or within the contemplation of the parties; or (v) surcharged
against the parking area.
J. Rent. Monthly Rent plus the Additional Rent defined in Paragraph
----
5.B.
K. Security Deposit. That amount paid by Tenant pursuant to
----------------
Paragraph 7.
L. Sublet. Any transfer, sublet, assignment, license or concession
------
agreement, change of ownership, mortgage, or hypothecation of this Lease or the
Tenant's interest in the Lease or in and to all or a portion of the Premises.
M. Subrent. Any consideration of any kind received, or to be
-------
received, by Tenant from a Subtenant if such sums are related to Tenant's
interest in this Lease or in the Premises.
N. Subtenant. The person or entity with whom a Sublet agreement is
---------
proposed to be or is made.
O. Tenant Improvements. Those certain improvements to the Building
-------------------
to be constructed by Tenant pursuant to EXHIBIT B.
---------
P. Tenant's Personal Property. Tenant's trade fixtures, furniture,
--------------------------
equipment and other personal property in the Premises.
Q. Term. The term of this Lease set forth in Paragraph 4.A., as it
----
may be extended hereunder pursuant to any options to extend granted herein.
-2-
<PAGE>
4. Lease Term.
----------
A. Term. The Term of this Lease shall be seven (7) years,
----
commencing on the Commencement Date and expiring seven (7) years thereafter,
unless sooner terminated and subject to any extension granted hereunder. The
Commencement Date of this Lease shall be the earliest occurring of the
following:
(i) The date a Notice of Completion for the Exterior ADA Work,
the Seismic Work and the Tenant Improvements to be constructed or installed by
Tenant pursuant to EXHIBIT B is filed by Tenant's contractor; or
---------
(ii) The date the City of Sunnyvale has approved the Exterior
ADA Work, the Seismic Work and the Tenant Improvements constructed pursuant to
EXHIBIT B in accordance with its building code, evidenced by its completion of a
- ---------
final inspection and written approval of such improvements as so completed in
accordance with the building permit issued for such work; or
(iii) The date Tenant commences occupancy of the Premises and
commences operation of its business in the Premises.
When the actual Commencement Date is determined, the parties shall execute a
Commencement Date Memorandum setting forth such date in the form shown in
EXHIBIT C.
- ---------
B. Tenant Delays. If the Commencement Date has not occurred within
-------------
seventy-five (75) days after the date this Lease has been fully executed, then,
beginning on the seventy-sixth (76th) day and continuing on the first day of
each calendar month thereafter until the Commencement Date, Tenant shall pay to
Landlord the Monthly Rent set forth in Paragraph 5.A. Notwithstanding the
foregoing, if the Exterior ADA Work, the Seismic Work and the Tenant
Improvements are not substantially completed within such 75-day period due to no
fault of Tenant (as defined below), then, in lieu of the Monthly Rent and
Additional Rent due pursuant to Paragraphs 5.A. and 5.B., Tenant shall pay to
Landlord monthly, as Monthly Rent, Landlord's actual out-of-pocket costs
incurred in connection with the ownership and operation of the Premises during
such period, which shall include insurance premiums, Real Property Taxes,
principal and interest due under any mortgage or deed of trust recorded against
the Premises, and any charges due under any on-going maintenance, repair or
service contracts for the Premises, which out-of-pocket costs shall not exceed a
total amount of $20,000.00 per month. Such payments by Tenant shall be due
beginning on the seventy-sixth (76th) day and continuing on the first day of
each calendar month thereafter until the Commencement Date. In no event,
however, will the Commencement Date occur later than October 1, 1997 unless
delays in completion of the Tenant Improvements and the Seismic Work are due to
Landlord's failure to timely approve the Tenant Improvement Plans, and/or the
Seismic Plans or Landlord's failure to pay when due the cost of the Exterior ADA
Work or the Seismic Work as provided in EXHIBIT B. For purposes of this Lease,
---------
the term "due to the fault of Tenant" shall mean: (i) Tenant's election to use
special materials, finishes or installations which are not readily available;
(ii) Tenant's failure to submit any plans in accordance with time frames
specified in EXHIBIT B; (iii) any changes to the Tenant Improvement Plans and/or
---------
the Seismic Plans after their approval by Landlord, where such changes are made
by Tenant at its election, and
-3-
<PAGE>
not required by Landlord or any governmental authority; and (iv) Tenant's
failure to make timely payment of any amounts due to Tenant's architect and/or
general contractor in connection with the Tenant Improvements.
C. Early Entry. Tenant shall be permitted to enter the Premises
-----------
upon execution of this Lease for the purpose of demolishing and/or removing the
existing interior improvements in the Building, completing the seismic
improvements approved by Landlord, constructing the Tenant Improvements,
installing Tenant's equipment and furniture, and otherwise preparing the
Premises for Tenant's occupancy. Such early entry shall be at Tenant's sole
risk and subject to all the terms and provisions hereof, except for the payment
of Rent which, subject to the provisions of Paragraph 4.B., shall commence on
the Commencement Date. Tenant shall, however, pay when due any utility charges
incurred during such early entry period. Prior to such early entry, Tenant
shall deliver to Landlord a certificate of insurance satisfying the requirements
set forth in Paragraphs 21.B.(i) and 21.F. Landlord shall have the right to
impose such additional reasonable conditions on Tenant's early entry as Landlord
shall deem appropriate.
D. Delay in Delivery of Possession. Upon execution of this Lease by
-------------------------------
Landlord and Tenant, payment by Tenant of the Security Deposit and the Monthly
Rent due for the first month of the Term, and delivery to Landlord of Tenant's
insurance certificate (collectively, the "Execution Date"), Landlord shall
deliver possession of the Premises to Tenant. Notwithstanding anything to the
contrary in this Lease, if Landlord fails to deliver possession of the Premises
to Tenant on the Execution Date, the Commencement Date and Tenant's obligation
to pay Rent or Landlord's out-of-pocket costs incurred in connection with the
ownership and operation of the Premises shall be delayed by one day for each day
that Landlord fails to deliver possession of the Premises to Tenant. For example
if Landlord fails to deliver possession of the Premises to Tenant for five (5)
days after the Execution Date, then the Commencement Date, and Tenant's
obligation to pay Rent or Landlord's out-of-pocket costs, shall be five (5) days
after the date described in Paragraph 4.A. or 4.B. of the Lease, as applicable.
In addition, if Landlord fails to deliver possession of the Premises to Tenant
within thirty (30) days after the Execution Date, then in addition to Tenant's
other rights or remedies, Tenant may terminate this Lease by written notice to
Landlord, and in such event Landlord shall promptly refund to Tenant all monies
previously paid by Tenant to Landlord.
5. Rent.
----
A. Monthly Rent. Tenant shall pay to Landlord, in lawful money of
------------
the United States, for each calendar month of the Term, net Monthly Rent in
accordance with the following schedule, in advance, on the first day of each
calendar month and, except as otherwise expressly permitted in this Lease,
without abatement, deduction, claim, offset, prior notice or demand, except that
the net Monthly Rent due for the first month of the Term shall be paid upon
Lease execution.
-4-
<PAGE>
Months of Term Net Monthly Rent
-------------- ----------------
1 through 12 $35,926.00/month
13 through 24 $37,559.00/month
25 through 36 $39,192.00/month
37 through 48 $40,825.00/month
49 through 60 $42,458.00/month
61 through 72 $44,091.00/month
73 through 84 $45,724.00/month
Additionally, Tenant shall pay, as and with the net Monthly Rent, the monthly
Real Property Taxes as set forth in paragraph 15.
B. Additional Rent. All monies required to be paid by Tenant under
---------------
this Lease, including Real Property Taxes pursuant to Paragraph 15, and
insurance premiums pursuant to Paragraph 21, fee shall be deemed Additional
Rent.
C. Prorations. If the Commencement Date is not the first (1st) day of
----------
a month, or if the termination date of this Lease is not the last day of a
month, a prorated installment of Rent based on a thirty (30) day month shall be
paid for the fractional month during which the Lease commences or terminates.
6. Late Payment Charges.
--------------------
Tenant acknowledges that late payment by Tenant to Landlord of Rent and
other charges provided for under this Lease will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of such costs being extremely
difficult or impracticable to fix. Therefore, if any installment of Rent or any
other charge due from Tenant is not received by Landlord when due, and such Rent
or other charge remains unpaid for more than five (5) days after such amount is
due, Tenant shall pay to Landlord an additional sum equal to four percent (4%)
of the amount overdue as a late charge. The parties agree that this late charge
represents a fair and reasonable estimate of the costs that Landlord will incur
by reason of the late payment by Tenant. In addition, if any Rent or other sum
due hereunder is not paid by Tenant within thirty (30) days after the date such
Rent or other payment is due, then Tenant shall pay interest on the amount due
at the Interest Rate from the date such Rent or other sum was due until paid.
Initials:
- --------
RVB KSB MRT
- -------------------- ---------------------
Landlord Tenant
7. Security Deposit.
----------------
Tenant shall deposit with Landlord upon execution the sum of Forty-Five
Thousand Seven Hundred Twenty-Four and no/100th Dollars ($45,724.00) as the
Security Deposit for the full
-5-
<PAGE>
and faithful performance of every provision of this Lease to be performed by
Tenant. If Tenant defaults with respect to any provision of this Lease, Landlord
may apply all or any part of the Security Deposit for the payment of any rent or
other sum in default, the repair of any damage to the Premises caused by Tenant
or the payment of any other amount which Landlord may spend or become obligated
to spend by reason of Tenant's default or to compensate Landlord for any other
loss or damage which Landlord may suffer by reason of Tenant's default to the
full extent permitted by law. Tenant hereby waives any restriction on the use or
application of the Deposit by Landlord as set forth in California Civil Code
Section 1950.7. If any portion of the Security Deposit is so applied, Tenant
shall, within ten (10) days after written demand therefor, deposit cash with
Landlord in an amount sufficient to restore the Security Deposit to its original
amount. Landlord shall not be required to keep the Security Deposit separate
from its general funds, and Tenant shall not be entitled to interest on the
Security Deposit. If Tenant is not otherwise in default, the Security Deposit or
any balance thereof shall be returned to Tenant within thirty (30) days of
termination of the Lease. In the event of any termination of Landlord's interest
in the Premises, Landlord shall transfer the Security Deposit to Landlord's
successor-in-interest whereupon Landlord shall be released from liability for
the return of the Security Deposit or the accounting therefor.
8. Holding Over.
------------
Tenant shall have no right to holdover possession of the Premises
after the expiration or termination of this Lease. If, however, Tenant remains
in possession of all or any part of the Premises after the expiration of the
Term, or the extended term, if extended, such tenancy shall be month-to-month
only and shall not constitute a renewal or extension for any further term. If
Tenant remains in possession either with or without Landlord's consent, Monthly
Rent shall be increased to an amount equal to one hundred fifty percent (150%)
of the Monthly Rent payable during the last month of the Term, and any other
sums due under this Lease shall be payable in the amount and at the times
specified in this Lease. Such month-to-month tenancy shall be subject to every
other term, condition, and covenant contained herein. If Tenant fails to
surrender the Premises upon the expiration of the Term despite demand to do so
by Landlord, Tenant shall indemnify and hold Landlord harmless from all loss or
liability, including without limitation any claim made by a succeeding tenant,
resulting from Tenant's failure to surrender.
9. Tenant Improvements.
-------------------
If Tenant Improvements are to be constructed within the Premises by
Tenant, Tenant agrees to construct such Tenant Improvements pursuant to the
terms of EXHIBIT B. Tenant covenants that the Tenant Improvements (as defined
---------
in EXHIBIT B) to be installed in the Premises by Tenant will be valued at at
---------
least Twenty and no/100ths Dollars ($20.00) per square foot. The Tenant
Improvements shall be and remain the property of Tenant during the Term of this
Lease but shall become the property of Landlord, and shall remain upon the
Premises, upon the expiration or sooner termination of this Lease. Landlord
shall have the right, however, to require Tenant to remove any special purpose
Tenant Improvements from the Premises if Landlord has indicated in writing at
the time of Landlord's approval of the Tenant Improvements that such removal
will be required upon the termination of this Lease. For purposes of this
Lease, "special purpose Tenant Improvements" shall mean those Tenant
Improvements which are special or unique to Tenant's
-6-
<PAGE>
business and which would not be usable by an average tenant occupying the
Premises for the uses permitted under Paragraph 11.A. of this Lease. Any
cubicles installed in the Premises by Tenant shall not be considered Tenant
Improvements or Alterations but shall be and remain Tenant's Personal Property
and may be removed from the Premises by Tenant at any time.
10. Condition of Premises.
---------------------
Landlord represents and warrants to Tenant that, to the best of
Landlord's knowledge, as of the date that Landlord delivers possession of the
Premises to Tenant, all structural portions of the Premises, including, without
limitation, the roof, the foundation, exterior walls and interior load-bearing
walls; all paved surfaces; the roof membrane; and all sewer, plumbing and HVAC
systems currently serving the Premises will be in good operating condition,
order and repair. Subject to the foregoing representation and warranty, by
taking possession of the Premises, Tenant shall be deemed to have accepted the
Premises in its then current condition, "as is," subject to all applicable Laws.
Except as expressly set forth herein, Tenant acknowledges that neither Landlord
nor Landlord's Agents have made any representations or warranties as to
condition of the Premises or the suitability or fitness of the Premises for the
conduct of Tenant's business or for any other purpose, nor has Landlord or
Landlord's Agents agreed to undertake any Alterations or construct any Tenant
Improvements to the Premises.
11. Use of the Premises.
-------------------
A. Tenant's Use. Tenant shall use the Premises solely for research
------------
& development and general office purposes and shall not use the Premises for any
other purpose without the prior written consent of Landlord, which consent shall
not be unreasonably withheld. Tenant acknowledges that the Premises are subject
and this Lease is subordinate to any covenants, conditions and restrictions
which may be recorded against the Premises. Throughout the Term, Tenant shall
not violate any such covenants, conditions and restrictions.
B. Compliance.
----------
(i) Tenant shall not use the Premises or suffer or permit
anything to be done in or about the Premises which will in any way conflict with
any law, statute, zoning restriction, ordinance or governmental law, rule,
regulation or requirement of public authorities now in force or which may
hereafter be in force, relating to or affecting the condition, use or occupancy
of the Premises. Tenant shall not commit any public or private nuisance or any
other act or thing which might or would disturb the quiet enjoyment of any
occupant of nearby property. Tenant shall place no loads upon the floors, walls
or ceilings in excess of the maximum designed load for the Building or which
endanger the structure; nor place any harmful liquids in the drainage systems;
nor dump or store waste materials or refuse or allow such to remain outside the
Building proper, except in the enclosed trash areas provided. Tenant shall not
store or permit to be stored or otherwise placed any other material of any
nature whatsoever outside the Building, except in designated storage areas
reasonably approved by Landlord.
-7-
<PAGE>
(ii) In particular, Tenant, at its sole cost, shall comply with
all laws relating to the storage, use and disposal of hazardous, toxic or
radioactive matter by Tenant during the Term of this Lease, including those
materials identified in Sections 66680 through 66685 of Title 22 of the
California Code of Regulations, Division 4, Chapter 30 as they may be amended
from time to time (collectively "Hazardous Materials"). If Tenant does store,
use or dispose of any Hazardous Materials, Tenant shall notify Landlord in
writing at least ten (10) days prior to their first appearance on the Premises.
Tenant shall be solely responsible for and shall indemnify, defend, protect and
hold harmless Landlord and Landlord's Agents from and against all costs, claims,
damages, liabilities and expenses (including reasonable attorneys' and
consultants' fees) arising out of or in connection with any storage, use,
generation, release or disposal of Hazardous Materials in, on or about the
Premises by Tenant, its agents, employees, contractors, invitees or subtenants
during the Term of this Lease or during the early entry period described in
Paragraph 4.C. above, which indemnity shall include, without limitation, damages
for personal or bodily injury, property damage, damage to the environment or
natural resources occurring on or off the Premises, and the cost of any
investigation, monitoring, government oversight, removal, remediation,
restoration, abatement and disposal. If any governmental agency or the
beneficiary of any deed of trust covering the Premises requires any testing of
the Premises, including the soil or groundwater of the Premises, to ascertain
whether there has been any release of Hazardous Materials in, on or about the
Premises, then upon reasonable prior notice to Tenant Landlord shall have the
right to install monitoring wells on or about the Outside Area and to perform
such other tests and investigations of the Premises for such purpose. Tenant
shall reimburse Landlord as Additional Rent for the reasonable cost of such
tests and investigations and of the installation, maintenance, repair and
replacement of such monitoring wells or other measuring devices to the extent
the results of such tests and investigations disclose that such Hazardous
Materials were used, stored, generated, released or disposed of in, on or about
the Premises by Tenant, its agents, employees, contractors, invitees or
subtenants during the Term of this Lease or during the early entry period
described in Paragraph 4.C. above. Tenant's obligations hereunder shall survive
the termination of this Lease.
(iii) Landlord represents that, to the best of Landlord's actual,
current knowledge, based on the results of that certain Phase I Site Assessment
prepared by Tetra Tech and dated as of September 1992 (the "Environmental
Report"): (A) there are no Hazardous Materials present on or about the Premises
or the soil, surface water or ground water of the Premises; (B) no underground
storage tanks or asbestos-containing building materials ("ACM's") are present on
the Premises, except for the possible presence of ACM's in the Building's floor
tiles, as disclosed by the Environmental Report; and (C) no action, proceeding,
or claim is pending or threatened against the Premises with respect to any
Hazardous Materials. Tenant shall not be liable for, and Landlord shall
indemnify, defend, protect and hold harmless Tenant, its agents, employees,
shareholders, directors, and officers from and against all costs, claims,
damages, liabilities and expenses (including reasonable attorneys' and
consultants' fees) arising out of or in connection with any Hazardous Materials
which were present on or about the Premises or the soil, surface water or ground
water of the Premises as of the date that Landlord delivers possession of the
Premises to Tenant including, without limitation, any Hazardous Materials that
may be disclosed by the Environmental Report or that certain Asbestos Survey
prepared by Dames and Moore dated June 1, 1997, Job #19150-005-043, or any
Hazardous Materials used, released, discharged, emitted or disposed of on or
about the Premises by Landlord or Landlord's Agents or contractors.
-8-
<PAGE>
(iv) The provisions of Paragraphs 11.B.(ii)-(iv) constitute the
entire agreement between Landlord and Tenant regarding Hazardous Materials and
the parties agree that no other provision of this Lease shall be deemed to apply
thereto.
12. Quiet Enjoyment.
---------------
Landlord covenants that Tenant, upon performing the terms, conditions
and covenants of this Lease, shall have quiet and peaceful possession of the
Premises as against any person claiming the same by, through or under Landlord.
13. Alterations.
-----------
After the Commencement Date, Tenant shall not make any Alterations in,
on or about the Premises, except for nonstructural Alterations not exceeding
Ten Thousand Dollars ($10,000.00) in cost per Alteration, without the prior
written consent of Landlord, and according to plans and specifications approved
in writing by Landlord, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing Tenant shall not, without the prior written
consent of Landlord, make any (i) Alterations to the exterior of the Building;
(ii) Alterations to and penetrations of the roof of the Building; and (iii)
Alterations to the Outside Area, to which Landlord may withhold Landlord's
consent on wholly aesthetic grounds. All Alterations shall be installed at
Tenant's sole expense (except as otherwise provided in EXHIBIT B), in compliance
---------
with all applicable Laws, by a licensed contractor, shall be done in a good and
workmanlike manner conforming in quality and design with the Premises existing
as of the Commencement Date, and shall not diminish the value of the Premises.
Tenant shall give Landlord written notice of Tenant's intention to perform work
on the Premises at least ten (10) days prior to the commencement of such work to
enable Landlord to post and record a Notice of Nonresponsibility or other notice
deemed proper before the commencement of any such work. If Landlord's consent
is required for any Alteration, Landlord shall notify Tenant in writing of its
approval or disapproval thereof, specifying in reasonable detail the basis for
disapproval, if applicable, within ten (10) business days after Landlord's
receipt of reasonably detailed plans and specifications, if applicable, for the
proposed Alterations. If Landlord fails to notify Tenant of approval or
disapproval within such 10-day period, Tenant may again request approval of such
Alterations in writing. If Landlord fails to notify Tenant of Landlord's
approval or disapproval of such Alterations within five (5) business days after
Landlord's receipt of Tenant's second notice, then Landlord shall be deemed to
have approved the proposed Alterations as shown on the plans and specifications
provided to Landlord. Upon request, Landlord shall advise Tenant in writing
whether Landlord reserves the right to require Tenant to remove any Alterations
from the Premises upon termination of the Lease. If Landlord fails to require
removal upon such request, Tenant shall not be required to remove such
Alterations from the Premises. All Alterations and Tenant Improvements
installed at Tenant's expense shall remain Tenant's property during the Term of
this Lease and Tenant shall be entitled to all depreciation, amortization and
other tax benefits with respect thereto. Except for Alterations which cannot be
removed without structural damage to the Premises, Tenant may remove any
Alterations from the Premises at any time provided Tenant repairs all damage
caused by such removal. Notwithstanding any other provision of this Lease,
Tenant shall be solely responsible for the maintenance and repair of any and all
Alterations made by it to the Premises.
-9-
<PAGE>
14. Surrender of the Premises.
-------------------------
Upon the expiration or earlier termination of the Term, Tenant shall
surrender the Premises to Landlord in the same condition and repair as on the
Commencement Date, normal wear and tear and damage by fire or other casualty,
acts of God and condemnation, Hazardous Materials which are not released or
emitted in, on or under the Premises during the Term of this Lease by Tenant,
its agents, employees, contractors or invitees, and Alterations and Tenant
Improvements which Tenant is not required to remove under the terms of this
Lease all excepted. The Tenant Improvements and Alterations installed in the
Building by Tenant shall become Landlord's property upon the expiration or
sooner termination of this Lease and shall remain in and be surrendered with the
Building unless Landlord has previously notified Tenant in writing that Landlord
desires to have Tenant remove any special purpose Tenant Improvements or
Alterations from the Premises. In such event Tenant shall remove such special
purpose Tenant Improvements and such Alterations from the Premises, as well as
Tenant's Personal Property, and repair any damage and perform any restoration
work caused by such removal. If Tenant fails to remove such special purpose
Tenant Improvements or such Alterations or any of Tenant's Personal Property,
and such failure continues after the termination of this Lease, Landlord may
retain such property and all rights of Tenant with respect to it shall cease, or
Landlord may place all or any portion of such property in public storage for
Tenant's account. Tenant shall be liable to Landlord for costs of removal of any
such special purpose Tenant Improvements, Alterations and Tenant's Personal
Property and storage and transportation costs of same, and the cost of repairing
and restoring the Premises, together with interest at the Interest Rate from the
date of expenditure by Landlord. If Landlord elects to sell any of Tenant's
Personal Property which remains on the Premises after the termination of this
Lease, Landlord shall provide Tenant with at least five (5) days' prior written
notice of such sale. If the Premises are not surrendered at the termination of
this Lease in the condition required herein, Tenant shall indemnify Landlord and
Landlord's Agents against all loss or liability, including reasonable attorneys'
fees and costs, resulting from delay by Tenant in so surrendering the Premises.
Normal wear and tear, for the purposes of this Lease, shall be
construed to mean wear and tear caused to the Premises by a natural aging
process which occurs in spite of prudent application of the best standards for
maintenance, repair and janitorial practices. It is not intended, nor shall it
be construed, to include items of neglected or deferred maintenance which would
have or should have been attended to during the Term of the Lease if the best
standards had been applied to properly maintain and keep the Premises at all
times in good condition and repair.
15. Real Property Taxes.
-------------------
A. Payment by Tenant. Tenant shall pay to Landlord monthly, as
-----------------
Additional Rent, on or before the first day of each calendar month of the Term,
one-twelfth of the annual Real Property Taxes for the Premises as set forth on
the county assessor's tax statement for such period. If Tenant fails to pay any
Real Property Taxes when due, Tenant shall pay to Landlord any penalty incurred
by such late payment. Tenant shall pay any Real Property Tax not included
within the county tax assessor's tax statement within ten (10) days after being
billed for same by Landlord. Assessments, taxes, fees, levies and charges may be
imposed by governmental agencies for such purposes as fire protection, street,
sidewalk, road, utility construction and maintenance, refuse
-10-
<PAGE>
removal and for other governmental services which may formerly have been
provided without charge to property owners or occupants. It is the intention of
the parties that all new and increased assessments, taxes, fees, levies and
charges are to be included within the definition of Real Property Taxes for
purposes of this Lease.
B. Taxes on Tenant Improvements and Personal Property. Tenant shall
--------------------------------------------------
pay any increase in Real Property Taxes resulting from any and all Alterations
and Tenant Improvements of any kind whatsoever placed in, on or about the
Premises for the benefit of, at the request of, or by Tenant. Tenant shall pay
prior to delinquency all taxes assessed or levied against Tenant's Personal
Property in, on or about the Premises or elsewhere. When possible, Tenant shall
cause its Personal Property to be assessed and billed separately from the real
or personal property of Landlord.
C. Proration. Tenant's liability to pay Real Property Taxes shall
---------
be prorated on the basis of a 365-day year to account for any fractional portion
of a fiscal tax year included at the commencement or expiration of the Term.
With respect to any assessments which may be levied against or upon the
Premises, or which under the Laws then in force may be evidenced by improvements
or other bonds or may be paid in annual installments, only the amount of such
annual installment (with appropriate proration for any partial year) and
interest due thereon shall be included within the computation of the annual Real
Property Taxes levied against the Premises.
16. Utilities and Services.
----------------------
Tenant shall be responsible for and shall pay promptly all charges for
water, gas, electricity, telephone, refuse pickup, janitorial service and all
other utilities used by Tenant in, on or about the Premises during the Term,
together with any taxes thereon. Landlord shall not be liable in damages or
otherwise for any failure or interruption, of any utility service or other
service furnished to the Premises, except that resulting from the gross
negligence or willful misconduct of Landlord or Landlord's Agents. In addition,
Tenant shall not be entitled to any abatement or reduction of Rent by reason of
such failure or interruption, no eviction of Tenant shall result from such
failure or interruption and Tenant shall not be relieved from the performance of
any covenant or agreement in this Lease because of such failure or interruption;
provided, however, that in the event Tenant's use or occupancy of the Premises
is materially impaired as a result of any failure or interruption of utilities,
and such impairment continues for three (3) consecutive business days or longer,
then Rent shall be abated proportionately, to the extent of such impairment and
for the duration of such impairment, if and only if such failure or interruption
was caused by the gross negligence or willful misconduct of Landlord or
Landlord's Agents or contractors, or the abatement of Rent will be covered by
Landlord's rent loss insurance or other insurance maintained by Landlord.
Furthermore, if any failure or interruption of utilities occurs that materially
impairs Tenant's use or occupancy of the Premises for ninety (90) consecutive
days or longer, then so long as such failure or interruption was not caused by
the negligence or willful misconduct of Tenant, its agents, employees,
contractors, or invitees, Tenant shall have the right to terminate this Lease
upon written notice to Landlord.
-11-
<PAGE>
17. Repair and Maintenance.
----------------------
A. Landlord's Obligations. Landlord shall keep in good order,
----------------------
condition and repair the structural parts of the Building, which structural
parts include only the foundation and subflooring of the Building and the
structural condition of the roof and the exterior walls of the Building (but
excluding interior surfaces of exterior walls, windows, doors which shall be
maintained and repaired by Tenant), except that any damage to any of the
foregoing caused by the negligence or willful acts or omissions of Tenant or of
Tenant's agents, employees or invitees, or by reason of the failure of Tenant to
perform any of its repair and maintenance obligations in accordance with the
terms of this Lease, or caused by Alterations made by Tenant or by Tenant's
agents, employees or contractors shall be repaired by Tenant, at Tenant's
expense, with contractors approved by Landlord. It is an express condition
precedent to all obligations of Landlord to repair that Tenant shall have
notified Landlord of the need for such repairs. Tenant waives the provisions of
Sections 1941 and 1942 of the California Civil Code and any similar or successor
law regarding Tenant's right to make repairs and deduct the expenses of such
repairs from the Rent due under this Lease.
B. Tenant's Obligations. Tenant shall at all times and at its own
--------------------
expense clean, keep and maintain in good order, condition and repair every part
of the Premises which is not within Landlord's obligation pursuant to Paragraph
17.A. Tenant's repair and maintenance obligations shall include all parking
areas, sidewalks, driveways, entrances and exits, landscaping and exterior
lighting, all plumbing and sewage facilities within the Building, fixtures,
interior walls and ceiling, the roof membrane, floors, windows, doors,
entrances, plateglass, showcases, skylights, all electrical facilities and
equipment, including lighting fixtures, lamps, fans and any exhaust equipment
and systems, the HVAC system, any automatic fire extinguisher equipment within
the Premises, electrical motors and all other appliances and equipment of every
kind and nature located in, upon or about the Premises. Notwithstanding the
foregoing, if the roof membrane requires replacement during the Term of this
Lease, including any extended term, then Landlord shall replace the roof
membrane and the cost of such replacement shall be paid by Landlord and Tenant
as follows. The cost to replace the roof membrane shall be fully amortized on a
straight-line basis over the useful life of the roof membrane and Tenant shall
pay to Landlord, within thirty (30) days after receipt of an itemized invoice
for the cost of replacing the roof membrane, the amortized portion of such cost
that is allocable to the then remaining Term of this Lease. For instance, if
the useful life of the roof membrane is twenty (20) years and, at the time the
roof membrane is replaced there are three (3) years remaining in the Term, then
Tenant would pay to Landlord three-tenths (3/20ths) of the cost of such
replacement and Landlord would pay the balance. If, however, the Term of this
Lease is extended as provided in Paragraph 39, then Tenant shall pay to Landlord
the amortized portion of the cost that is allocable to such extended Term. If
this Lease is terminated prior to the expiration of the Term or any extended
Term, for any reason other than a default by Tenant, then Landlord shall
reimburse Tenant that portion of the amortized cost of such replacement that is
allocable to the period from the date of termination until the expiration date
of the Term or the extended Term, as applicable. The cost for replacement shall
be reasonably incurred and shall be consistent with replacement costs charged
by owners of buildings of similar age and construction in Santa Clara County for
similar replacements. Tenant shall also be responsible for all pest control
within the Premises. Landlord shall assign to Tenant any warranties with
respect to the Premises which would
-12-
<PAGE>
reduce Tenant's maintenance obligations under this Lease and shall cooperate
with Tenant to enforce such warranties.
Tenant shall obtain HVAC systems preventive maintenance contracts
with bimonthly or monthly service in accordance with manufacturer
recommendations, which shall be subject to the reasonable approval of Landlord
and paid for by Tenant, and which shall provide for and include replacement of
filters, oiling and lubricating of machinery, parts replacement, adjustment of
drive belts, oil changes and other preventive maintenance, including annual
maintenance of duct work, interior unit drains and caulking at sheet metal, and
recaulking of jacks and vents on an annual basis. Tenant shall have the benefit
of all warranties available regarding the equipment in such HVAC systems.
Landlord may, at Landlord's election, have the HVAC systems inspected by a
licensed HVAC contractor at the expiration of the Term to confirm whether Tenant
has maintained the HVAC systems as required herein. The cost of such inspection
shall be paid by Tenant within ten (10) days after Landlord's written request
therefor. Additionally, if any repairs and/or replacements to the HVAC system
are recommended by the contractor, Tenant shall perform such repairs and/or
replacements and shall provide Landlord with evidence that such repairs and/or
replacements have been completed in accordance with the contractor's
recommendations. If at any time during the Term of this Lease Landlord
determines that Tenant is not maintaining the roof membrane and/or the HVAC
system in good order, condition and repair as required herein, Landlord may,
upon not less than thirty (30) days prior written notice to Tenant, elect to
assume the obligation to maintain and repair the roof membrane and/or the HVAC
system, as applicable, and to enter into one or more maintenance contracts with
third parties for the provision of such repair and maintenance obligations. Upon
such election, Tenant shall be relieved from its obligations to perform only
those maintenance and repair obligations covered by such maintenance contracts,
and Tenant shall pay Landlord monthly as Additional Rent the cost of such
maintenance contracts, including the cost of any maintenance, repairs and
replacements incurred thereunder.
D. Compliance with Governmental Regulations. Subject to the
----------------------------------------
provisions of Exhibit B, Tenant shall, at its cost, comply with all present and
---------
future regulations, rules, laws, ordinances, and requirements of all
governmental authorities, including, without limitation state, municipal, county
and federal governments and their departments, bureaus, boards and officials
(collectively, "Laws"), arising from Tenant's use or occupancy of the Premises;
provided, however, that Tenant shall not be required to make any alterations or
improvements to the Premises that are required to comply with any Laws unless
such alterations or improvements are required by Laws applicable to the Premises
and effective after the Commencement Date, and provided further that Tenant
shall not be required to make any capital or structural improvements to the
Premises unless such compliance is necessitated solely as a result of Tenant's
particular use of the Premises or any Alterations to the Premises made by
Tenant. If any capital or structural improvements to the Premises are required
to comply with any Laws applicable to the Premises and effective after the
Commencement Date and such improvements are not required solely as a result of
Tenant's particular use of the Premises or any Alterations to the Premises made
by Tenant, then such improvements shall be made by Landlord and the cost of such
improvements shall be allocated between Landlord and Tenant as follows. The
cost of such improvements shall be fully amortized on a straight-line basis over
the useful life of such improvements and Tenant shall pay to Landlord, within
thirty (30) days after receipt of a description of the improvements to be
completed and an
-13-
<PAGE>
itemized invoice for the cost of designing, constructing and/or installing such
improvements in the Premises, the amortized portion of such cost that is
allocable to the then remaining Term of this Lease. For instance, if the useful
life of the improvements is ten (10) years and, at the time the improvements are
completed there are three (3) years remaining in the Term, then Tenant would pay
to Landlord three-tenths (3/10ths) of the cost of such improvements and Landlord
would pay the balance. If, however, the Term of this Lease is extended as
provided in Paragraph 39, then Tenant shall pay to Landlord the amortized
portion of the cost that is allocable to such extended Term. If this Lease is
terminated prior to the expiration of the Term or any extended Term, for any
reason other than a default by Tenant, then Landlord shall reimburse Tenant that
portion of the amortized cost of such improvements that is allocable to the
period from the date of termination until the expiration date of the Term or the
extended Term, as applicable.
18. Liens.
-----
Tenant shall keep the Premises free from any liens arising out of any
work performed, materials furnished or obligations incurred by or on behalf of
Tenant and hereby indemnifies and holds Landlord and Landlord's Agents harmless
from all liability and cost, including attorneys' fees and costs, in connection
with or arising out of any such lien or claim of lien. Tenant shall cause any
such lien imposed to be released of record by payment or posting of a proper
bond acceptable to Landlord within ten (10) days after written request by
Landlord. Tenant shall give Landlord written notice of Tenant's intention to
perform work on the Premises which might result in any claim of lien at least
ten (10) days prior to the commencement of such work to enable Landlord to post
and record a Notice of Nonresponsibility. If Tenant fails to so remove any such
lien within the prescribed ten (10) day period, then Landlord may do so at
Tenant's expense and Tenant shall reimburse Landlord as Additional Rent for such
amounts upon demand. Such reimbursement shall include all costs incurred by
Landlord including Landlord's reasonable attorneys' fees with interest thereon
at the Interest Rate.
19. Landlord's Right to Enter the Premises.
--------------------------------------
Tenant shall permit Landlord and Landlord's Agents to enter the
Premises at all reasonable times with written notice, except for emergencies in
which case no notice shall be required, to inspect the same, to post Notices of
Nonresponsibility and similar notices , to show the Premises to interested
parties such as prospective lenders and purchasers, to make necessary repairs,
to discharge Tenant's obligations hereunder when Tenant has failed to do so
within thirty (30) days after written notice from Landlord (or such longer time
as may be reasonably necessary to complete the performance of such obligation so
long as Tenant is diligently pursuing such performance to completion), and at
any reasonable time within one hundred and twenty (120) days prior to the
expiration of the Term, to place upon the Building ordinary "For Lease" signs
and to show the Premises to prospective tenants. The above rights are subject
to reasonable security regulations of Tenant, and to the requirement that
Landlord shall at all times act in a manner to cause the least possible
interference with Tenant's business and shall be accompanied by a representative
of Tenant during any scheduled entry and, to the extent reasonably possible,
during emergencies.
-14-
<PAGE>
20. Signs.
-----
Tenant shall have the right to install a Tenant identification sign on
the monument sign structure located in the Outside Area of the Premises and in
any other location on the Building or in the Outside Area permitted by
applicable Laws. The size, design, color and other physical aspects of any
Tenant identifications sign shall be subject to Landlord's written approval
prior to installation, which approval shall not be unreasonably withheld, the
CC&R's and any appropriate municipal or other governmental approvals. The cost
of any signs, their installation, maintenance and removal expense shall be
Tenant's sole expense. If Tenant fails to maintain its signs, or, if Tenant
fails to remove its signs upon termination of this Lease, Landlord may do so
at Tenant's expense and Tenant's reimbursement to Landlord for such amounts
shall be deemed Additional Rent.
21. Insurance.
---------
A. Indemnification.
---------------
(i) Tenant hereby agrees to defend, indemnify, protect, and
hold harmless Landlord and Landlord's Agents from and against any and all
damage, loss, liability or expense, including attorneys' fees and legal costs,
suffered directly or by reason of any claim, suit or judgment brought by or in
favor of any person or persons for damage, loss or expense due to, but not
limited to, bodily injury and property damage sustained by such person or
persons to the extent arising out of, occasioned by or in any way attributable
to the use or occupancy of the Premises or any part thereof by Tenant, the acts
or omissions of Tenant, its agents, employees or any contractors brought onto
the Premises by Tenant, except to the extent caused by the gross negligence or
willful misconduct of Landlord or Landlord's Agents or contractors. Tenant
agrees that the obligations assumed herein shall survive this Lease.
(ii) Landlord hereby agrees to defend, indemnify, protect, and
hold harmless Tenant from and against any and all damage, loss, liability or
expense, including attorneys' fees and legal costs, suffered directly or by
reason of any claim, suit or judgment brought by or in favor of any person or
persons for damage, loss or expense due to, but not limited to, bodily injury
and property damage sustained by such person or persons to the extent arising
from the negligence or willful misconduct of Landlord or Landlord's Agents or
contractors or from Landlord's violation of applicable Laws. Landlord agrees
that the obligations assumed herein shall survive this Lease.
B. Tenant's Insurance. Tenant agrees to maintain in full force and
------------------
effect at all times during the Term, at its own expense, for the protection of
Tenant and Landlord, as their interests may appear, policies of insurance issued
by a responsible carrier or carriers acceptable to Landlord which afford the
following coverages:
(i) Commercial general liability insurance protecting Landlord
and Tenant against claims for bodily injury, personal injury and property damage
based upon or arising out of the use, occupancy or maintenance of the Premises.
Such insurance shall be on an occurrence basis providing single limit coverage
in an amount not less than Two Million and no/100ths Dollars ($2,000,000.00) per
occurrence with an "Additional Insured - Managers or Lessors of Premises
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<PAGE>
Endorsement" and contain the "Amendment of the Pollution Exclusion Endorsement"
for damage caused by heat, smoke or fumes from a hostile fire. The policy
shall not contain any intra-insured exclusions between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Tenant's indemnity obligations
under this Lease. All insurance carried by Tenant shall be primary to and not
contributing with any similar insurance carried by Landlord, whose insurance
shall be considered excess insurance only.
(ii) "All-risk" or causes of loss-special form property
insurance (including, without limitation, vandalism, malicious mischief,
inflation endorsement, and sprinkler leakage endorsement) on Tenant's Personal
Property located on or in the Premises and any Alterations to the Premises
constructed by Tenant at Tenant's expense. Such insurance shall be in the full
amount of the replacement cost, as the same may from time to time increase as a
result of inflation or otherwise. Landlord shall have no interest in the
insurance proceeds on Tenant's Personal Property, any Alterations to the
Premises constructed at Tenant's expense, or any additional insurance that
Tenant may elect to maintain with respect to the Tenant Improvements.
C. Premises Insurance. During the Term Landlord shall maintain
------------------
"all-risk" or causes of loss - special form property insurance (including
vandalism, malicious mischief, inflation endorsement, sprinkler leakage
endorsement) and earthquake insurance on the Building in the full amount of the
replacement cost thereof, excluding coverage of all Tenant's Personal Property
or Alterations located on or in the Premises, but including the Tenant
Improvements. Such insurance shall also include insurance against loss of rents
on an all-risk basis and coverage for earthquake in an amount equal to the
Monthly Rent and Additional Rent, and any other sums payable under the Lease,
for a period of twelve (12) months commencing on the date of loss. Such
insurance shall name Landlord and Landlord's Agents as named insureds and
include a lender's loss payable endorsement in favor of Landlord's lender (Form
438 BFU Endorsement). Tenant shall reimburse Landlord annually, as Additional
Rent, for the annual premiums for such insurance within thirty (30) days after
Tenant's receipt of an invoice therefor. For the first year of the Term, the
total premiums for Landlord's insurance, including earthquake insurance, shall
not exceed Eighteen Thousand Five Hundred and no/100ths Dollars ($18,500.00).
If the property insurance premiums are increased after the Commencement Date,
due to an increase in the value of the Building or its replacement cost, or due
to Tenant's use of the Premises or any improvements installed by in the Building
by Tenant, Tenant shall pay such increase within ten (10) days of notice of such
increase. Any insurance maintained by Landlord covering the Premises and/or the
Tenant Improvements shall be primary to and not contributing with any insurance
maintained by Tenant covering the Premises and/or the Tenant Improvements, which
insurance shall be considered excess insurance only.
D. Increased Coverage. Upon demand, Tenant shall provide Landlord,
------------------
at Tenant's expense, with such increased amount of existing insurance, and such
other insurance as Landlord or Landlord's lender may reasonably require to
afford Landlord and Landlord's lender adequate protection; provided that such
increased insurance or other insurance is warranted due to a substantial change
in the nature of Tenant's operations at the Premises and the increased risks
associated therewith or due to the total amount of any claims paid on Tenant's
insurance policies in the prior twelve (12) month period, or such insurance is
customarily required for similar uses by owners of comparable buildings in Santa
Clara County.
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<PAGE>
E. Co-Insurer. If, on account of Tenant's failure to maintain any
----------
of the insurance required by this Lease, Landlord is adjudged a co-insurer by
its insurance carrier, then, any loss or damage Landlord shall sustain by reason
thereof, including attorneys' fees and costs, shall be borne by Tenant and shall
be immediately paid by Tenant upon receipt of a bill therefor and evidence of
such loss.
F. Insurance Requirements. All insurance shall be in a form
----------------------
satisfactory to Landlord and shall be carried with companies that have a general
policy holder's rating of not less than "A" due to Tenant's use of the Premises,
improvements installed by Tenant and a financial rating of not less than Class
"X" in the most current edition of Best's Insurance Reports; shall provide that
------------------------
such policies shall not be subject to material alteration or cancellation except
after at least thirty (30) days' prior written notice to Landlord. The policy
or policies, or duly executed certificates for them, together with satisfactory
evidence of payment of the premium thereon shall be deposited with Landlord
prior to the Commencement Date, and upon renewal of such policies, not less than
thirty (30) days prior to the expiration of the term of such coverage. If
Tenant fails to procure and maintain the insurance required hereunder, Landlord
may, but shall not be required to, order such insurance at Tenant's expense and
Tenant shall reimburse Landlord upon demand. Such reimbursement shall include
all costs incurred by Landlord including Landlord's reasonable attorneys' fees,
with interest thereon at the Interest Rate.
G. Landlord's Disclaimer. Neither Landlord nor Landlord's Agents
---------------------
shall be liable for any loss or damage to persons or property resulting from
fire, explosion, falling plaster, glass, tile or sheetrock, steam, gas,
electricity, water or rain which may leak from any part of the Building or from
the pipes, appliances or plumbing works therein or from the roof, street or
subsurface, or from any other cause whatsoever, unless caused by or due to the
sole negligence or willful misconduct of Landlord or Landlord's Agents or
contractors. Tenant shall give prompt written notice to Landlord in case of a
casualty, accident or repair needed in the Premises.
22. Waiver of Subrogation.
---------------------
Notwithstanding anything to the contrary in this Lease, Landlord and
Tenant each hereby release each other and their respective agents, employees,
successors, assigns and Subtenants (so long as in the event of any Sublet such
Subtenant provides a mutual release to Landlord), from any liability for, and
waive all rights of recovery against the other on account of, loss or damage
occasioned to such waiving party for its property or the property of others
under its control to the extent that such loss or damage would be covered by a
standard form policy of all-risk or causes of loss - special form insurance
(including, without limitation, vandalism, malicious mischief, inflation
endorsement, and sprinkler leakage endorsement) or is otherwise insured against
by Landlord or Tenant under any insurance policies which may be in force at the
time of such loss or damage, without regard to the negligence or willful
misconduct of the party so released. Tenant and Landlord shall, upon obtaining
policies of insurance required hereunder, give notice to the insurance carrier
that the foregoing mutual waiver of subrogation is contained in this Lease and
Tenant and Landlord shall cause each insurance policy obtained by such party to
provide that the insurance company waives all right of recovery by way of
subrogation against either Landlord or Tenant in connection with any damage
covered by such policy.
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23. Damage or Destruction.
---------------------
A. Landlord's Obligation to Rebuild. If the Premises are damaged or
--------------------------------
destroyed, Landlord shall promptly and diligently repair the same unless it has
the right to terminate this Lease as provided herein and it elects to so
terminate.
B. Right to Terminate. Landlord shall have the right to terminate
------------------
this Lease in the event any of the following events occur:
(i) The cost to repair any uninsured damage to the Premises
exceeds One Hundred Fifty Thousand and no/100ths Dollars ($150,000.00) and
Tenant has not agreed to pay the cost of repair in excess of One Hundred Fifty
Thousand Dollars ($150,000.00);
(ii) The Building cannot, with reasonable diligence, be fully
repaired by Landlord within two hundred forty (240) days after the date of the
damage or destruction; or
(iii) The Building cannot be safely repaired because of the
presence of hazardous factors, including, but not limited to, earthquake faults,
radiation, chemical waste and other similar dangers.
If Landlord elects to terminate this Lease, Landlord may give Tenant
written notice of its election to terminate within thirty (30) days after such
damage or destruction, and this Lease shall terminate fifteen (15) days after
the date Tenant receives such notice. In such event, Landlord shall pay to
Tenant from any insurance proceeds received by Landlord an amount equal to the
then unamortized portion of the cost of the Tenant Improvements in excess of
$10.00 per square foot. For example, if the casualty occurred during the forty-
eighth month of the Term, and the original cost of the Tenant Improvements was
$30.00 per square foot, or $979,800.00, then $20.00 per square foot, or
$653,200.00, would be fully amortized over the seven-year Term, and 3/7ths of
such amount, or $279,942.86, would be paid to Tenant from the insurance proceeds
received by Landlord. If Landlord elects not to terminate the Lease, subject to
Tenant's termination right set forth below, Landlord shall promptly commence the
process of obtaining necessary permits and approvals and repair of the Building
as soon as practicable, and this Lease will continue in full force and effect.
All insurance proceeds from insurance under Paragraph 21.C., excluding proceeds
for Tenant's Personal Property and Alterations, shall be disbursed and paid to
Landlord.
Tenant shall be required to pay to Landlord the amount of any
deductible payable in connection with Landlord's all risk or causes of loss-
special form policy of insurance (which deductible shall not exceed $5,000.00
per occurrence without the prior written consent of Tenant), unless the casualty
was caused by the sole negligence or willful misconduct of Landlord. Landlord
and Tenant shall each pay one-half ( 1/2) of the deductible payable under
Landlord's policy of earthquake insurance. Landlord and Tenant agree that any
deductible payable under all earthquake insurance policies maintained by
Landlord shall not exceed a total of $300,000.00 per occurrence unless a greater
amount is agreed to by both Landlord and Tenant. Landlord and Tenant shall
review Landlord's earthquake insurance coverage annually to determine whether
the premium and deductible payable under such policy are reasonable in light of
the coverage provided and the total
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<PAGE>
value of the improvements insured and whether Landlord should continue to
maintain earthquake insurance coverage for the Premises and the Tenant
Improvements.
Tenant shall have the right to terminate this Lease, if the Building
cannot with reasonable diligence be fully repaired, or is not fully repaired,
within one hundred eighty (180) days from the date of damage or destruction.
The determination of the estimated repair period shall be made by Landlord's
architect or engineer in its good faith business judgment within thirty (30)
days after such damage or destruction. Landlord shall deliver written notice of
the repair period to Tenant after such determination has been made and Tenant
shall exercise its right to terminate this Lease, if at all, within thirty (30)
days of receipt of such notice from Landlord.
C. Limited Obligation to Repair. Landlord's obligation, should it
----------------------------
elect or be obligated to repair or rebuild, shall be limited to the basic
Building provided by Landlord as of the date of this Lease and the original
Tenant Improvements installed by Tenant, as the case may be, and Tenant shall,
at Tenant's expense, replace or fully repair all Tenant's Personal Property and
any Alterations installed by Tenant and existing at the time of such damage or
destruction. Landlord shall not be entitled to share in the proceeds of any
separate insurance which may be maintained by Tenant covering the Tenant
Improvements nor shall Tenant be required to contribute the proceeds of any such
insurance to rebuild the Tenant Improvements.
D. Abatement of Rent. Rent shall be temporarily abated
-----------------
proportionately during any period when, by reason of such damage or destruction,
there is interference with Tenant's use of the Premises, having regard to the
extent to which Tenant may be required to discontinue Tenant's use of the
Premises. Such abatement shall commence upon such damage or destruction and end
upon substantial completion by Landlord of the repair or reconstruction which
Landlord is obligated or undertakes to do. If, however, the damage or
destruction to the Premises is caused by the negligence or willful misconduct of
Tenant, its agents or employees, Rent shall be abated only to the extent of any
proceeds received by Landlord from rental abatement insurance described in
Paragraph 21.C. Tenant shall not be entitled to any compensation or damages
from Landlord for loss of the use of the Premises, damage to Tenant's Personal
Property or any inconvenience occasioned by such damage, repair or restoration.
Tenant hereby waives the provisions of Section 1932, Subdivision 2, and Section
1933, Subdivision 4, of the California Civil Code, and the provisions of any
similar law hereinafter enacted.
E. Damage Near End of Term. Anything herein to the contrary
-----------------------
notwithstanding, if the Building is destroyed or damaged during the last twelve
(12) months of the Term, then Landlord may, at its option, cancel and terminate
this Lease as of the date of the occurrence of such damage. If Landlord does not
elect to so terminate this Lease, the repair of such damage shall be governed by
Paragraphs 23.A. and 23.B.
24. Condemnation.
------------
If title to all of the Building or the Premises is taken for any
public or quasipublic use under any statute or by right of eminent domain, or
title to a portion of the Building or the Premises is taken so that
reconstruction of the Building or the Premises will not, in Landlord's and
Tenant's
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<PAGE>
mutual opinion, result in the Premises being reasonably suitable for Tenant's
continued occupancy for the uses and purposes permitted by this Lease, this
Lease shall terminate as of the date that possession of the Building or the
Premises or part thereof be taken. If as a result of any partial taking of the
Building or the Premises, the remaining portion of the Premises will not be
reasonably suitable for Tenant's continued occupancy, Tenant may terminate this
Lease by written notice to Landlord. A sale by Landlord to any authority having
the power of eminent domain, either under threat of condemnation or while
condemnation proceedings are pending, shall be deemed a taking under the power
of eminent domain for all purposes of this paragraph.
If any part of the Building or the Premises is taken and the remaining
part is reasonably suitable for Tenant's continued occupancy for the purposes
and uses permitted by this Lease, this Lease shall, as to the part so taken,
terminate as of the date that possession of such part of the Building or the
Premises is taken. The Rent and other sums payable hereunder shall be reduced
in the same proportion that Tenant's use and occupancy of the Premises is
reduced. If any portion of the Outside Area is taken, Tenant's Rent shall be
reduced to the extent such taking interferes with Tenant's use of the Premises
for the purposes permitted by this Lease. Each party hereby waives the
provisions of Section 1265.130 of the California Code of Civil Procedure
allowing either party to petition the Superior Court to terminate this Lease in
the event of a partial taking of the Premises.
No award for any partial or entire taking shall be apportioned.
Tenant assigns to Landlord its interest in any award which may be made in such
taking or condemnation, together with any and all rights of Tenant arising in or
to the same or any part thereof; provided, however, that Landlord shall pay to
Tenant from any award received by Landlord an amount equal to the then
unamortized portion of the cost of the Tenant Improvements in excess of $10.00
per square foot, which shall be determined as described in Paragraph 23.B.
Nothing contained herein shall be deemed to give Landlord any interest in or
require Tenant to assign to Landlord any separate award made to Tenant for the
taking of Tenant's Personal Property or any Alterations, or its moving costs.
25. Assignment and Subletting.
-------------------------
A. Landlord's Consent. Tenant shall not enter into a Sublet without
------------------
Landlord's prior written consent, which consent shall not be unreasonably
withheld. Any Sublet made without Landlord's prior written consent shall be
void and confer no rights upon any third person and, at Landlord's election,
shall terminate this Lease. Each assignee shall agree in writing, for the
benefit of Landlord, to assume, to be bound by, and to perform the terms,
conditions and covenants of this Lease to be performed by Tenant.
Notwithstanding anything contained herein, Tenant shall not be released from
liability for the performance of each term, condition and covenant of this Lease
by reason of Landlord's consent to a Sublet unless Landlord specifically grants
such release in writing. Consent by Landlord to any Sublet shall not be deemed a
consent to any subsequent Sublet.
B. Information to be Furnished. If Tenant desires at any time to
---------------------------
Sublet the Premises or any portion thereof, it shall first notify Landlord of
its desire to do so and shall submit in writing to Landlord: (i) the name of
the proposed Subtenant; (ii) the nature of the proposed Subtenant's business to
be carried on in the Premises; (iii) the terms and provisions of the proposed
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<PAGE>
Sublet and a copy of the proposed Sublet form containing a description of the
subject premises; and (iv) such financial information, including financial
statements, as Landlord may reasonably request concerning the proposed
Subtenant.
C. Landlord's Alternatives. Within twenty (20) days after
-----------------------
Landlord's receipt of the information specified in Paragraph 25.B., Landlord
shall, by written notice to Tenant, elect: (i) to consent to the Sublet by
Tenant; or (ii) to refuse its consent to the Sublet. If Landlord consents to
the Sublet, Tenant may thereafter enter into a valid Sublet of the Premises or
portion thereof, upon the terms and conditions and with the proposed Subtenant
set forth in the information furnished by Tenant to Landlord pursuant to
Paragraph 25.B., subject, however, at Landlord's election, to the condition that
one-half ( 1/2) of any excess of the Subrent over the sum of the Rent required
to be paid by Tenant under this Lease, plus reasonable and customary brokerage
commissions, attorneys' fees and tenant improvement costs paid by Tenant in
connection with such Sublet and, in the event of a Sublet made during the
initial Term, the then unamortized portion of the cost of the Tenant
Improvements in excess of $10.00 per square foot, shall be paid to Landlord. If
Landlord fails to notify Tenant of its consent or refusal to grant consent to
the proposed Sublet within such 20-day period, Tenant may again request approval
of such Sublet in writing. If Landlord fails to notify Tenant of Landlord's
consent or refusal to grant consent to such Sublet within ten (10) days after
Landlord's receipt of Tenant's second notice, then Landlord shall be deemed to
have approved the proposed Sublet as described in the information provided to
Landlord pursuant to Paragraph 25.B.
D. Proration. If a portion of the Premises is Sublet, the pro rata
---------
share of the Rent attributable to such partial area of the Premises shall be
determined by Landlord by dividing the Rent payable by Tenant hereunder by the
total square footage of the Premises and multiplying the resulting quotient (the
per square foot rent) by the number of square feet of the Premises which are
Sublet.
E. Exempt Sublets. Notwithstanding the above, Landlord's prior
--------------
written consent shall not be required for a Sublet of this Lease to (and
Landlord shall not be entitled to payment of any excess Subrent in connection
with such Sublet) a corporation controlling, controlled by or under common
control with Tenant; a subsidiary or affiliate of Tenant; a successor to Tenant
by merger, consolidation, nonbankruptcy reorganization or government action; or
a purchaser of substantially all of Tenant's assets located at the Premises
provided that (i) Tenant gives Landlord prior written notice of the name of any
such assignee, (ii) at the time of such assignment, the assignee has a net worth
that is equal to or greater than the net worth of Tenant immediately prior to
such assignment; and (iii) the assignee assumes, in writing, for the benefit of
Landlord all of Tenant's obligations under this Lease. For purposes of this
Lease, any sale or transfer of Tenant's capital stock through any national
market system or public exchange shall not be deemed a Sublet.
26. Default.
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A. Tenant's Default. A default under this Lease by Tenant shall
----------------
exist if any of the following occurs:
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<PAGE>
(i) If Tenant fails to pay Rent or any other sum required to be
paid hereunder when due and Tenant fails to cure such breach within five (5)
days after written notice from Landlord that such Rent or other sum is past due;
provided, however, that such notice shall be in lieu of, and not in addition to,
any notice required under Section 1161 of the California Code of Civil Procedure
regarding unlawful detainer actions;
(ii) If Tenant fails to execute and deliver to Landlord, within
ten (10) days after Landlord's written request therefor, any subordination
documentation required under Paragraph 27, or any estoppel certificate required
under Paragraph 31;
(iii) If Tenant fails to perform any other term, covenant or
condition of this Lease except as provided in Paragraphs 26.A.(i) or (ii) above,
and Tenant fails to cure such breach within thirty (30) days after written
notice from Landlord where such breach could reasonably be cured within such
thirty (30) day period; provided, however, that where such failure could not
reasonably be cured within the thirty (30) day period, that Tenant shall not be
in default if it commences such performance within the thirty (30) day period
and diligently thereafter prosecutes the same to completion;
(iv) If Tenant assigns its assets for the benefit of its
creditors;
(v) If the sequestration or attachment of or execution on any
material part of Tenant's Personal Property essential to the conduct of Tenant's
business occurs, and Tenant fails to obtain a return or release of such Personal
Property within thirty (30) days thereafter, or prior to sale pursuant to such
sequestration, attachment or levy, whichever is earlier;
(vi) If Tenant shall have abandoned the Premises and failed to
pay Rent when due; or
(vii) If a court makes or enters any decree or order other than
under the bankruptcy laws of the United States adjudging Tenant to be insolvent;
or approving as properly filed a petition seeking reorganization of Tenant; or
directing the winding up or liquidation of Tenant and such decree or order shall
have continued for a period of thirty (30) days.
B. Remedies. Upon a default, Landlord shall have the following
--------
remedies, in addition to all other rights and remedies provided by law or
otherwise provided in this Lease, to which Landlord may resort cumulatively or
in the alternative:
(i) Landlord may continue this Lease in full force and effect,
and this Lease shall continue in full force and effect as long as Landlord does
not terminate this Lease, and Landlord shall have the right to collect Rent when
due.
(ii) Landlord may terminate Tenant's right to possession of the
Premises at any time by giving written notice to that effect, and relet the
Premises or any part thereof. Reletting may be for a period shorter or longer
than the remaining term of this Lease. No act by Landlord other than giving
written notice to Tenant shall terminate this Lease. Acts of maintenance,
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<PAGE>
efforts to relet the Premises or the appointment of a receiver on Landlord's
initiative to protect Landlord's interest under this Lease shall not constitute
a termination of Tenant's right to possession. On termination, Landlord has the
right to remove all Tenant's Personal Property and store same at Tenant's cost
and to recover from Tenant as damages:
(a) The worth at the time of award of unpaid Rent and other sums
due and payable which had been earned at the time of termination; plus
(b) The worth at the time of award of the amount by which the
unpaid Rent and other sums due and payable which would have been payable after
termination until the time of award exceeds the amount of such Rent loss that
Tenant proves could have been reasonably avoided; plus
(c) The worth at the time of award of the amount by which the
unpaid Rent and other sums due and payable for the balance of the Term after the
time of award exceeds the amount of such Rent loss that Tenant proves could be
reasonably avoided; plus
(d) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease, or which, in the ordinary course of things, would be likely to
result therefrom, including, without limitation, any costs or expenses incurred
by Landlord: (i) in retaking possession of the Premises; (ii) in maintaining,
repairing, or cleaning the Premises or any portion thereof, including such acts
for reletting to a new tenant or tenants; (iii) for leasing commissions; or (iv)
for any other reasonable costs necessary or appropriate to relet the Premises;
plus
(e) At Landlord's election, such other amounts in addition to or
in lieu of the foregoing as may be permitted from time to time by the Laws of
the State of California.
The "worth at the time of award" of the amounts referred to in Paragraphs
26.B.(ii)(a) and 26.B.(ii)(b) is computed by allowing interest at the Interest
Rate on the unpaid rent and other sums due and payable from the termination date
through the date of award. The "worth at the time of award" of the amount
referred to in Paragraph 26.B.(ii)(c) is computed by discounting such amount at
the discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percent (1%).
(iii) If the Premises have been abandoned by Tenant or this
Lease has been terminated, Landlord may re-enter the Premises and remove all
property from the Premises; such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of Tenant.
C. Landlord's Default. Landlord shall not be deemed to be in default in
the performance of any obligation required to be performed by it hereunder
unless and until it has failed to perform such obligation within thirty (30)
days after receipt of written notice by Tenant to Landlord specifying the nature
of such default; provided, however, that if the nature of Landlord's obligation
is such that more than thirty (30) days are required for its performance, then
Landlord
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<PAGE>
shall not be deemed to be in default if it shall commence such performance
within such thirty (30) day period and thereafter diligently prosecute the same
to completion.
27. Subordination.
-------------
This Lease is subject and subordinate to any ground and underlying
leases and any first mortgages and first deeds of trust (collectively
"Encumbrances") which may now affect the Premises and to all renewals,
modifications, consolidations, replacements and extensions thereof; provided,
however, if the holder or holders of any such Encumbrance ("Holder") shall
require this Lease be prior and superior to such Encumbrance, within ten (10)
days of written request of Landlord to Tenant, Tenant shall execute, have
acknowledged and deliver any and all reasonable documents or instruments, in
substantially the form presented to Tenant, which Landlord or Holder deems
necessary or desirable for such purposes. Landlord shall have the right to cause
this Lease to be and become and remain subject and subordinate to any and all
Encumbrances which are now or may hereafter be executed covering the Premises or
any renewals, modifications, consolidations, replacements or extensions thereof,
for the full amount of all advances made or to be made thereunder and without
regard to the time or character of such advances, together with interest thereon
and subject to all the terms and provisions thereof; provided only, that in the
event of termination of any such lease or upon the foreclosure of any such
mortgage or deed of trust, so long as Tenant is not in default beyond any notice
and applicable cure period, Holder agrees to recognize Tenant's rights under
this Lease as long as Tenant shall pay the Rent and observe and perform all the
provisions of this Lease to be observed and performed by Tenant. Within ten
(10) days after Landlord's written request, Tenant shall execute any and all
reasonable documents required by Landlord or the Holder to make this Lease
subordinate to any lien of the Encumbrance.
Notwithstanding anything to the contrary set forth in this paragraph,
Tenant hereby attorns and agrees to attorn to any entity purchasing or otherwise
acquiring the Premises at any sale or other proceeding or pursuant to the
exercise of any other rights, powers or remedies under such Encumbrance provided
such entity agrees to recognize all of Tenant's rights under this Lease in
writing.
Prior to the Commencement Date, or following the Commencement Date if
Landlord refinances any Encumbrance or places any new Encumbrance on the
Premises which the Holder thereof desires to be prior to this Lease, Landlord
shall obtain from any Holder of any Encumbrance a written agreement, in form
reasonably acceptable to Tenant, providing for the non-disturbance and
recognition of Tenant's rights and interests under this Lease in the event of a
foreclosure or termination of the Holder's Encumbrance.
28. Notices.
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Any notice or demand required or desired to be given under this Lease
shall be in writing and shall be personally served or in lieu of personal
service may be given by mail. If given by mail, such notice shall be deemed to
have been given when seventy-two (72) hours have elapsed from the time when such
notice was deposited in the United States mail, registered or certified, and
postage prepaid, addressed to the party to be served. At the date of execution
of this Lease, the
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<PAGE>
addresses of Landlord and Tenant are as set forth in Paragraph 1. After the
Commencement Date, the address of Tenant shall be the address of the Premises.
Either party may change its address by giving notice of same in accordance with
this paragraph.
29. Attorneys' Fees.
---------------
If either party brings any action or legal proceeding for damages for
an alleged breach of any provision of this Lease, to recover rent, or other sums
due, to terminate the tenancy of the Premises or to enforce, protect or
establish any term, condition or covenant of this Lease or right of either
party, the prevailing party in such action or proceeding shall be entitled to
recover its reasonable attorneys' fees (including attorneys' fees on appeal, and
costs and expenses incurred in out-of-court negotiations, workouts and/or
settlements or in seeking relief from stay or otherwise seeking to protect its
rights in any bankruptcy proceeding) and all reasonable costs (including costs
of consultants and experts) incurred, which shall be payable whether or not such
action is prosecuted to judgment. In addition, the prevailing party shall be
entitled to its reasonable attorneys' fees, costs and expenses incurred in post-
judgment proceedings to collect and enforce a judgment. This provision is
separate and several and shall survive the merger of this Lease into any
judgment on this Lease.
30. Estoppel Certificates.
---------------------
Tenant shall within twenty (20) days following written request by
Landlord:
(i) Execute and deliver to Landlord an estoppel certificate, in the
form prepared by Landlord (a) certifying that this Lease is unmodified and in
full force and effect or, if modified, stating the nature of such modification
and certifying that this Lease, as so modified, is in full force and effect and
the date to which the Rent and other charges are paid in advance, if any, and
(b) acknowledging that there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord, or, if there are uncured defaults on the part
of the Landlord, stating the nature of such uncured defaults, and (c) evidencing
the status of the Lease as may be required either by a lender making a loan to
Landlord to be secured by deed of trust or mortgage covering the Premises or a
purchaser of the Premises from Landlord. Tenant's failure to deliver an
estoppel certificate within twenty (20) days after delivery of Landlord's
written request therefor shall be a breach of this Lease and shall be conclusive
upon Tenant (a) that this Lease is in full force and effect, without
modification except as may be represented by Landlord, (b) that there are now no
uncured defaults in Landlord's performance and (c) that no Rent has been paid in
advance.
(ii) Deliver to Landlord the current financial statements of Tenant,
and financial statements of the two (2) years prior to the current financial
statements year, with an opinion of a certified public accountant, including a
balance sheet and profit and loss statement for the most recent prior year, all
prepared in accordance with generally accepted accounting principles
consistently applied. All financial statements delivered by Tenant to Landlord
shall be held in strict confidence by Landlord (and Landlord's lender or any
prospective purchaser of the Premises requiring such financial statements) and
shall be used by Landlord, Landlord's lender or such prospective purchaser only
to evaluate Tenant's financial condition in connection with this Lease.
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<PAGE>
31. Transfer of the Premises by Landlord.
------------------------------------
In the event of any conveyance of the Premises and assignment by
Landlord of this Lease, Landlord shall be and is hereby entirely released from
all liability under any and all of its covenants and obligations contained in or
derived from this Lease occurring after the date of such conveyance and
assignment (but excluding any obligations or liabilities which arose prior to
the date of such transfer) and, with respect to the Security Deposit, shall be
released of its obligations with respect thereto so long as Landlord transfers
the Security Deposit to the transferee in accordance with California Civil Code
Section 1950.7. Tenant agrees to attorn to such transferee provided such
transferee assumes Landlord's obligations under this Lease in writing for the
benefit of Tenant.
32. Landlord's Right to Perform Tenant's Covenants.
----------------------------------------------
If Tenant shall at any time fail to make any payment or perform any
other act on its part to be made or performed under this Lease, Landlord may,
but shall not be obligated to and without waiving or releasing Tenant from any
obligation of Tenant under this Lease, make such payment or perform such other
act to the extent Landlord may deem desirable, and in connection therewith, pay
expenses and employ counsel, but only if Tenant has failed to make such payment
or perform such obligation within thirty (30) days after written notice from
Landlord specifying the payment to be made or the obligation to be performed.
All reasonable sums so paid by Landlord and all penalties, interest and costs in
connection therewith shall be due and payable by Tenant on the next day after
written notice to Tenant of any such payment by Landlord, together with interest
thereon at the Interest Rate from such date to the date of payment by Tenant to
Landlord, plus collection costs and attorneys' fees. Landlord shall have the
same rights and remedies for the nonpayment thereof as in the case of default in
the payment of Rent.
33. Tenant's Remedy.
---------------
If, as a consequence of a default by Landlord under this Lease, Tenant
recovers a money judgment against Landlord, such judgment shall be satisfied
only out of the proceeds of sale received upon execution of such judgment and
levied thereon against the right, title and interest of Landlord in the Premises
and out of Rent or other income from such property received by Landlord or out
of consideration received by Landlord from the sale or other disposition of all
or any part of Landlord's right, title or interest in the Premises, and neither
Landlord nor Landlord's Agents shall be liable for any deficiency.
34. Mortgagee Protection.
--------------------
If Landlord defaults under this Lease, Tenant will notify any
beneficiary of a first deed of trust or mortgagee of a first mortgage covering
the Premises of which Tenant has received written notice, including its address.
Such beneficiary or mortgagee shall have thirty (30) days after receipt of such
notice to cure the default specified therein; provided, however, that if the
nature of the default is such that more than thirty (30) days are reasonably
required to cure the default, such beneficiary or mortgagee shall have such
additional time as is reasonably necessary to cure such
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<PAGE>
default so long as such beneficiary or mortgagee commences to cure the default
within such 30-day period and thereafter diligently prosecute such cure to
completion.
35. Brokers.
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Tenant warrants and represents that it has had no dealings with any
real estate broker or agent in connection with the negotiation of this Lease,
except for Bristol Commercial Brokerage and CPS, The Commercial Property
Services Company and that it knows of no other real estate broker or agent who
is or might be entitled to a commission in connection with this Lease. Tenant
and Landlord shall each indemnify, defend and hold each other harmless from
and against any and all liabilities or expenses, including reasonable attorneys'
fees and costs, arising out of or in connection with claims for commissions or
fees made by any other broker or individual who represented or claims to have
represented the indemnifying party. Landlord shall pay to CPS, The Commercial
Property Services Company, pursuant to a separate written agreement, any
commission due in connection with this Lease.
36. Acceptance.
----------
This Lease shall only become effective and binding upon full execution
hereof by Landlord and delivery of a signed copy to Tenant. Neither party shall
record this Lease nor a short form memorandum thereof.
37. Parking.
-------
Tenant shall have the exclusive right to use the Premises' parking
facilities upon such reasonable terms and conditions as may from time to time be
established by Landlord.
38. Option to Extend.
----------------
A. Option Periods. Provided that Tenant is not in default of any
--------------
material obligation hereunder beyond any applicable notice and cure or grace
period granted to Tenant by this Lease, either at the time of exercise or at the
time the extended Term commences, Tenant shall have the option to extend the
initial seven (7) year Term of this Lease for two (2) additional periods of
three (3) years each (each, an"Option Period") on the same terms, covenants and
conditions provided herein, except that upon such renewal the Monthly Rent due
hereunder shall be determined pursuant to Paragraph 38.B. Tenant shall exercise
its option by giving Landlord written notice ("Option Notice") at least one
hundred twenty (120) days but not more than one hundred eighty (180) days prior
to the expiration of the initial Term of this Lease or the first Option Period,
as applicable.
B. Option Period Monthly Rent. The Monthly Rent for each Option
--------------------------
Period shall be determined as follows:
(i) The parties shall have thirty (30) days after Landlord
receives the Option Notice within which to agree on the Monthly Rent for the
first year of the Option Period based upon the then fair market rental value of
the Premises as defined in Paragraph 38.B.(ii). If the
-27-
<PAGE>
parties agree on the Monthly Rent for the first year of the Option Period within
thirty (30) days, they shall immediately execute an amendment to this Lease
stating the Monthly Rent for the first year of the Option Period and the
increases in Monthly Rent during such Option Period which shall be calculated as
provided in Paragraph 38.C. If the parties are unable to agree on the Monthly
Rent for the first year of the Option Period within thirty (30) days, then, the
Monthly Rent for the first year of the Option Period shall be the then current
fair market rental value of the Premises as determined in accordance with
Paragraph 38.B.(iii).
(ii) The "then fair market rental value of the Premises" shall
be defined to mean the fair market rental value of the Premises as of the
commencement of the Option Period, taking into consideration Tenant's obligation
to pay additional rent and expenses, the uses permitted under this Lease, the
quality, size, design, age and location of the Premises, the rent for comparable
buildings located in Sunnyvale, including any economic incentives such as free
rent and tenant improvement allowances. In no event shall the fair market
monthly rental value of the Premises for the first year of the Option Period be
less than the Monthly Rent last payable under the Lease.
(iii) Within thirty (30) days after the expiration of the thirty
(30) day period set forth in Paragraph 38.B.(i), each party, at its cost and by
giving notice to the other party, shall appoint a real estate appraiser with at
least five (5) years' full-time commercial appraisal experience in the area in
which the Premises are located to appraise and set the Monthly Rent. If a party
does not appoint an appraiser within such 30-day period, the single appraiser
appointed shall be the sole appraiser and shall set the Monthly Rent. If the two
(2) appraisers are appointed by the parties as stated in this paragraph, they
shall meet promptly and attempt to set the Monthly Rent. If they are unable to
agree within thirty (30) days after the second appraiser has been appointed,
they shall attempt to elect a third appraiser meeting the qualifications stated
in this paragraph within fifteen (15) days after the last day the two (2)
appraisers are given to set the Monthly Rent. If they are unable to agree on the
third appraiser, either of the parties to this Lease, by giving ten (10) days'
notice to the other party, can apply to the then Presiding Judge of the Santa
Clara County Superior Court, for the selection of a third appraiser who meets
the qualifications stated in this paragraph. Each of the parties shall bear one-
half ( 1/2) of the cost of appointing the third appraiser and of paying the
third appraiser's fee. The third appraiser, however selected, shall be a person
who has not previously acted in any capacity for either party.
Within thirty (30) days after the selection of the third appraiser, a
majority of the appraisers shall set the Monthly Rent. If a majority of the
appraisers are unable to set the Monthly Rent within the stipulated period of
time, the three (3) appraisals for either unresolved item shall be added
together and their total divided by three (3); the resulting quotient shall be
the Monthly Rent. If, however, the low appraisal and/or the high appraisal
are/is more than ten percent (10%) lower and/or higher than the middle
appraisal, the low appraisal and/or the high appraisal shall be disregarded. If
only one appraisal is disregarded, the remaining two (2) appraisals shall be
added together and their total divided by two (2); the resulting quotient shall
be the Monthly Rent. If both the low appraisal and the high appraisal are
disregarded as stated in this paragraph, then only the middle appraisal shall be
used as the result of the appraisal. After the Monthly Rent has been set, the
appraisers shall immediately notify the parties and the parties shall amend this
Lease to set forth such amount.
-28-
<PAGE>
C. Adjustments to Option Period Rent. The Monthly Rent payable
---------------------------------
during the Option Period shall increase by four percent (4%) every twelve (12)
months during the Option Period.
39. General.
-------
A. Captions. The captions and headings used in this Lease are for
--------
the purpose of convenience only and shall not be construed to limit or extend
the meaning of any part of this Lease.
B. Executed Copy. Any fully executed copy of an original of this
-------------
Lease shall be deemed an original for all purposes.
C. Time. Time is of the essence for the performance of each term,
----
condition and covenant of this Lease.
D. Separability. If one or more of the provisions contained herein,
------------
except for the payment of Rent, is for any reason held invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision of this Lease, but this Lease shall be
construed as if such invalid, illegal or unenforceable provision had not been
contained herein.
E. Choice of Law. This Lease shall be construed and enforced in
-------------
accordance with the Laws of the State of California. The language in all parts
of this Lease shall in all cases be construed as a whole according to its fair
meaning and not strictly for or against either Landlord or Tenant.
F. Gender; Singular, Plural. When the context of this Lease
------------------------
requires, the neuter gender includes the masculine, the feminine, a partnership
or corporation or joint venture, and the singular includes the plural.
G. Binding Effect. The covenants and agreement contained in this
--------------
Lease shall be binding on the parties hereto and on their respective successors
and assigns to the extent this Lease is assignable.
H. Waiver. The waiver by Landlord of any breach of any term,
------
condition or covenant, of this Lease shall not be deemed to be a waiver of such
provision or any subsequent breach of the same or any other term, condition or
covenant of this Lease. The subsequent acceptance of Rent hereunder by Landlord
shall not be deemed to be a waiver of any preceding breach at the time of
acceptance of such payment. No covenant, term or condition of this Lease shall
be deemed to have been waived by Landlord unless such waiver is in writing
signed by Landlord.
I. Building Area. Landlord and Tenant agree that each has had an
-------------
opportunity to determine to its satisfaction the actual area of the Building.
All measurements of area contained in this Lease are conclusively agreed to be
correct and binding on the parties, even if a subsequent
-29-
<PAGE>
measurement of one of these areas determines that it is more or less than the
area reflected in this Lease. Any such subsequent determination that the area is
more or less than the area shown in this Lease shall not result in a change in
any of the computations of Rent or any other matters described in this Lease
where area is a factor.
J. Approvals. Whenever this Lease requires an approval, consent,
---------
designation, determination or judgment by either Landlord or Tenant, such
approval, consent, designation, determination or judgment shall be reasonable
(unless another standard is expressly stated), shall not be unreasonably
withheld or delayed and, in exercising any right or remedy hereunder, each party
shall at all times act reasonably and in good faith.
K. Reasonable Expenditures. Any expenditure by a party permitted or
-----------------------
required under this Lease for which such party is entitled to demand and does
demand reimbursement from the other party, shall be reasonably incurred and
shall be substantiated by documentary evidence available for inspection and
review by the other party or its authorized representative during normal
business hours.
L. Rules and Regulations. Any rules and regulations adopted by
---------------------
Landlord shall be reasonable and shall not unreasonably interfere with Tenant's
use of or access to the Premises or Tenant's parking rights hereunder nor shall
they materially increase Tenant's obligations or decrease Tenant's rights under
this Lease.
M. Entire Agreement. This Lease is the entire agreement between the
----------------
parties, and there are no agreements or representations between the parties
except as expressed herein. Except as otherwise provided herein, no subsequent
change or addition to this Lease shall be binding unless in writing and signed
by the parties hereto.
N. Authority. If Tenant is a corporation or a partnership, Tenant
---------
represents and warrants that each individual executing this Lease on behalf of
said corporation or partnership, as the case may be, is duly authorized to
execute and deliver this Lease on behalf of said entity in accordance with its
corporate bylaws, statement of partnership or certificate of limited
partnership, as the case may be, and that this Lease is binding upon said entity
in accordance with its terms. Landlord, at its option, may require a copy of
such written authorization to enter into this Lease.
O. Exhibits. All exhibits, amendments, riders and addendums
--------
attached hereto are hereby incorporated herein and made a part hereof.
-30-
<PAGE>
P. Lease Summary. The Lease Summary attached to this Lease is
-------------
intended to provide general information only. In the event of any inconsistency
between the Lease Summary and the specific provisions of this Lease, the
specific provisions of this Lease shall prevail.
THIS LEASE is effective as of the date the last signatory necessary to
execute the Lease shall have executed this Lease.
TENANT:
Dated 6-17-97 Artisan Components, Inc., a
-------------------- California corporation
By /s/ Mark R. Templeton
----------------------------
Mark Templeton,
President and CEO
LANDLORD:
Dated 6-17-97 /s/ Richard V. Bowling, Jr.
-------------------- -----------------------------------
Richard V. Bowling, Jr., Trustee of
the Bowling Revocable Trust
/s/ Kathleen S. Bowling
-----------------------------------
Kathleen S. Bowling, Trustee of the
Bowling Revocable Trust
-31-
<PAGE>
THE PREMISES
------------
[to be attached]
EXHIBIT A
---------
<PAGE>
WORK LETTER AGREEMENT
---------------------
In connection with the Demolition Work, the Exterior ADA Work, the
Seismic Work and the Tenant Improvements to be performed or installed in the
Premises the parties hereby agree as follows:
1. Demolition, Exterior ADA Work and Seismic Work. In addition, to
----------------------------------------------
the Tenant Improvements to the Premises to be constructed by Tenant as provided
herein, Tenant shall (i) remove and/or demolish the existing interior
improvements in the Building so that the Building is in shell condition (the
"Demolition Work"), (ii) complete any alterations and improvements to the
Outside Area of the Premises that are required to comply with applicable
provisions of the Americans with Disabilities Act of 1990 (the "Exterior ADA
Work"), and (iii) construct such improvements to the Building shell as may be
necessary to meet the most current seismic standards of the Uniform Building
Code for single-story buildings of similar construction (the "Seismic Work").
The cost of the Demolition Work, the Exterior ADA Work and the Seismic Work
shall be paid by Landlord as provided in Paragraph 6 below. Landlord shall have
the right to review and approve the scope of the Demolition Work, the Exterior
ADA Work and the Seismic Work and to approve the contractor or contractors
selected by Tenant to perform the Demolition Work, the Exterior ADA Work and
the Seismic Work, which approvals shall not be unreasonably withheld or delayed.
2. Plans and Specifications.
------------------------
(a) Exterior ADA Work and Seismic Work. Tenant shall retain a
----------------------------------
licensed architect reasonably acceptable to Landlord for the completion of final
working architectural and engineering plans and specifications for the Seismic
Work (the "Seismic Plans") and, to the extent applicable, final working
architectural and engineering plans and specifications for the Exterior ADA
Work, or if not required, a detailed description and accompanying site drawings
outlining in reasonable detail the scope of the Exterior ADA Work (the "Exterior
ADA Plans"). Landlord hereby approves of Malesardi Design Group as Tenant's
architect for preparation of the Seismic Plans and the Exterior ADA Plans.
Tenant shall submit the Seismic Plans to Landlord by June 30, 1997 and the
Exterior ADA Plans to Landlord by June 30, 1997. Within five (5) business days
after Landlord's receipt of the Seismic Plans and the Exterior ADA Plans,
Landlord shall notify Tenant of Landlord's approval or disapproval thereof,
specifying in reasonable detail the basis for Landlord's disapproval, if
applicable. Landlord shall not unreasonably withhold or delay its consent to
the Exterior ADA Plans or the Seismic Plans. If Landlord fails to notify Tenant
of its approval or disapproval, specifying in reasonable detail the basis for
any disapproval, within such 5-day period, Tenant may again request approval of
the Exterior ADA Plans and/or the Seismic Plans, as applicable, in writing. If
Landlord fails to notify Tenant of Landlord's approval or disapproval of the
applicable plans within three (3) business days after Landlord's receipt of
Tenant's second notice, then Landlord shall be deemed to have approved the
applicable plans. If Landlord reasonably disapproves the Exterior ADA Plans
and/or the Seismic Plans, Tenant shall re-submit revised plans to Landlord for
Landlord's review and approval within fifteen (15) business days thereafter.
Landlord shall have three (3) business days after receipt of the revised plans
to approve or disapprove the revised plans. This process shall continue until
Landlord has approved the plans or fails to timely
EXHIBIT B
---------
Page 1 of 5
<PAGE>
disapprove such plans as provided herein. No material revisions to the approved
Seismic Plans and/or the approved Exterior ADA Plans shall be made by Tenant
unless approved in writing by Landlord, which approval shall not be unreasonably
withheld or delayed. If any revisions to the Exterior ADA Plans and/or the
Seismic Plans are required by any governmental agency to comply with applicable
Laws or to obtain any necessary permits, Landlord shall consent to such
revisions.
(b) Tenant Improvements. Landlord hereby approves Tenant's
-------------------
preliminary space plan for the Tenant Improvements, a copy of which is attached
as Exhibit B-1. Tenant shall prepare and submit to Landlord for Landlord's
-----------
review and approval a final space plan for Tenant's proposed Tenant Improvements
to the Premises by June 30, 1997. Within five (5) business days after receipt
of Tenant's space plan, Landlord shall notify Tenant of Landlord's approval or
disapproval thereof, specifying in reasonable detail the basis for Landlord's
disapproval, if applicable. Tenant shall retain a licensed architect for the
completion of final working architectural and engineering plans and
specifications for the interior improvements based upon the approved space plan
("Tenant Improvement Plans"). Landlord hereby approves of Malesardi Design
Group as Tenant's architect for preparation of the Tenant Improvement Plans.
Tenant shall submit the Tenant Improvement Plans to Landlord by July 15, 1997.
Within five (5) business days after Landlord's receipt of the Tenant
Improvement Plans, Landlord shall notify Tenant of Landlord's approval or
disapproval thereof, specifying in reasonable detail the basis for Landlord's
disapproval, if applicable. Landlord shall not unreasonably withhold or delay
its consent to the Tenant Improvement Plans. If Landlord fails to notify Tenant
of its approval or disapproval, specifying in reasonable detail the basis for
any disapproval, within such 5-day period, Tenant may again request approval of
the Tenant Improvement Plans in writing. If Landlord fails to notify Tenant of
Landlord's approval or disapproval of the Tenant Improvement Plans within three
(3) business days after Landlord's receipt of Tenant's second notice, then
Landlord shall be deemed to have approved the Tenant Improvement Plans. If
Landlord reasonably disapproves the Tenant Improvement Plans, Tenant shall re-
submit revised plans to Landlord for Landlord's review and approval within
fifteen (15) business days thereafter. Landlord shall have three (3) business
days after receipt of the revised Tenant Improvement Plans to approve or
disapprove the revised plans. This process shall continue until Landlord has
approved the Tenant Improvement Plans or fails to timely disapprove such plans
as provided herein. No material revisions to the approved Tenant Improvement
Plans shall be made by Tenant unless approved in writing by Landlord, which
approval shall not be unreasonably withheld. If any revisions to the Tenant
Improvement Plans are required by any governmental agency to comply with
applicable Laws or to obtain any necessary permits, Landlord shall consent to
such revisions.
(c) Landlord's Review of Plans. Landlord's review of the Exterior ADA
--------------------------
Plans, the Seismic Plans and the Tenant Improvement Plans shall be for
Landlord's sole purpose and shall not imply Landlord's review of the same, nor
obligate Landlord to review the same, for quality, design, compliance with Laws
or other like matters. Accordingly, notwithstanding that the Exterior ADA
Plans, Seismic Plans and/or Tenant Improvement Plans are reviewed by Landlord or
its space planner, architect, engineers or consultants, Landlord shall have no
liability whatsoever in connection therewith and shall not be responsible for
any omissions or errors contained in the Exterior ADA Plans, Seismic Plans
and/or Tenant Improvement Plans.
EXHIBIT B
---------
Page 2 of 5
<PAGE>
3. Permits and Approvals. Tenant shall be responsible for obtaining
---------------------
all necessary permits and approvals (including the building and occupancy
permits) and other authorizations from the City of Sunnyvale or other
governmental agencies in connection with the Demolition Work and the
construction of the Exterior ADA Work, the Seismic Work, and the Tenant
Improvements. The cost of all such permits and approvals, including inspection,
outside plan check, and other building fees required to obtain any such permits,
shall be paid by Tenant.
4. Construction and Work Quality. The general contractor and/or
-----------------------------
contractors selected by Tenant for Demolition Work and construction of the
Exterior ADA Improvements, the Seismic Work and the Tenant Improvements shall be
subject to Landlord's approval, which shall not be unreasonably withheld or
delayed. Tenant shall complete construction of the Exterior ADA Work, the
Seismic Work and the Tenant Improvements in a good and workmanlike manner with
new materials of good quality, in accordance with the respective plans and
specifications therefor which have been approved by Landlord, and in compliance
with all applicable Laws. Tenant shall keep Landlord fully informed of the
progress and shall allow representatives of Landlord to observe, inspect and
monitor the construction at Landlord's sole cost and expense. Tenant shall
arrange for the Exterior ADA Work, the Seismic Work and the Tenant Improvements
to be fully warranted (labor and materials) by the general contractor, sub-
contractor, or appropriate supplier, as the case may be, for a period of one (1)
year after the completion thereof. Prior to commencement of construction of the
Exterior ADA Work, the Seismic Work and the Tenant Improvements Tenant shall
deliver to Landlord a certification by the general contractor listing all
contractors, subcontractors and suppliers to be employed in connection with such
work. Tenant shall deliver to Landlord a copy of the building permit obtained
by Tenant for the Exterior ADA Work, the Seismic Improvements, and the Tenant
Improvements upon receipt of the permit(s) from the City of Sunnyvale. Tenant
may, at Tenant's election, commence and complete the Demolition Work prior to
obtaining Landlord's approval of the Tenant Improvement Plans.
5. Tenant Improvements Cost. All costs of designing and
------------------------
constructing the Tenant Improvements shall be paid by Tenant without
contribution by Landlord. The Tenant Improvements cost shall include the
following: (a) all costs of preliminary and final architectural and engineering
plans and specifications for the Tenant Improvements, and engineering costs
associated with completion of the State of California energy utilization
calculations under Title 24 legislation; (b) all costs of obtaining building
permits and other necessary authorizations from the City of Sunnyvale; (c) all
costs of interior design and finish schedule plans and specifications including
as-built drawings to be delivered to Landlord upon completion of the Tenant
Improvements; (d) all direct and indirect costs of procuring, constructing and
installing the Tenant Improvements in the Premises.
6. Demolition, Exterior ADA and Seismic Work Costs.
-----------------------------------------------
(a) The cost of the Demolition Work, the Exterior ADA Work and
the Seismic Work shall be paid by Landlord at its sole cost and expense, without
contribution by Tenant, subject to the following limitations: (i) the scope of
the Demolition Work, the Exterior ADA Work and the Seismic Work shall be subject
to Landlord's reasonable approval as provided in Paragraph 1 above; (ii) Tenant
shall obtain competitive bids from three (3) licensed general contractors
EXHIBIT B
---------
Page 3 of 5
<PAGE>
reasonably approved by Landlord for each of the Demolition Work, the Exterior
ADA Work and the Seismic Work; (iii) the general contractor(s) selected by
Tenant for completion of the Demolition Work, the Exterior ADA Work and the
Seismic Work shall be subject to Landlord's reasonable approval; (iv) any
architectural and engineering fees incurred by Tenant in connection with the
Demolition Work, the Exterior ADA Work, and the Seismic Work shall be paid by
Tenant; and (v) in no event shall Landlord be required to spend in excess of (A)
Fifty Thousand and no/100ths Dollars ($50,000.00) for completion of the
Demolition Work, (B) One Thousand Nine Hundred Forty and no/100ths Dollars
($1,940.00) for completion of the Exterior ADA Work, and (C) Twenty-Five
Thousand and no/100ths Dollars ($25,000.00) for completion of the Seismic Work.
(b) The cost of the Demolition Work, the Exterior ADA Work and
the Seismic Work shall be paid by Landlord on a progress payment basis within
ten (10) business days after Landlord's receipt of (i) a description of the work
completed to date, the cost of the work completed and a list of the contractors,
subcontractors and suppliers to be paid at such time; and (ii) appropriate lien
releases for the work completed from each of the contractors, subcontractors and
suppliers to be paid. A ten percent (10%) retainage shall be withheld from each
progress payment. The remaining ten percent (10%) due shall be paid to Tenant
within ten (10) business days after a Notice of Completion has been recorded for
the Exterior ADA Work and the Seismic Work, as applicable, and Landlord has
received all of the following: (i) an unconditional waiver and release upon
final payment from Tenant's general contractor and each subcontractor and
supplier; (ii) a letter executed by Tenant's architect certifying that the
Exterior ADA Work and the Seismic Work have been completed in accordance with
the Exterior ADA Plans and the Seismic Plans, respectively; and (iii) evidence
that the Exterior ADA Work and the Seismic Work have been inspected and approved
by the building department of the City of Sunnyvale.
(c) If Landlord fails to make any progress payment to Tenant in
connection with the Demolition Work, the Exterior ADA Work or the Seismic Work
within such 10-day period, then Tenant may again request payment of the
applicable costs in writing. If Landlord fails to pay any such costs within
five (5) business days after receipt of Tenant's second request for payment,
and Landlord's failure to pay such costs is not due to Tenant's failure to
submit any of the information required under Paragraph 6(b), then Tenant may
stop construction of all work and the Commencement Date of this Lease, and
Tenant's obligation to pay Rent or Landlord's out-of-pocket costs, as
applicable, shall be extended by one (1) day for each day that Landlord fails to
make the required progress payment. If Landlord fails to make any progress
payment within sixty (60) days after Tenant's request therefor and Landlord's
failure to pay such costs is not due to Tenant's failure to submit any of the
information required under Paragraph 6(b), then Landlord shall be in breach of
this Lease. In such event, Tenant shall be entitled to terminate this Lease
and/or sue Landlord for all damages proximately caused by such breach,
including, without limitation, all amounts owed under any construction contract
for the Demolition Work, the Exterior ADA Work, the Seismic Work and the Tenant
Improvements.
7. Change Requests. No material revisions to the approved Tenant
---------------
Improvement Plans, Exterior ADA Plans or Seismic Plans shall be made by either
Landlord or Tenant unless approved in writing by both parties. Tenant agrees to
make all changes required by any public agency to conform with governmental
regulations, or reasonably requested in writing by Landlord.
EXHIBIT B
---------
Page 4 of 5
<PAGE>
Any costs related to changes to the Tenant Improvement Plans, the Exterior ADA
Plans and/or the Seismic Plans that are required by any public agency to conform
with governmental regulations shall be paid for by Tenant. Any costs related to
changes to the Exterior ADA Plans or the Seismic Plans that are requested by
Landlord and any changes to the Tenant Improvement Plans that are requested by
Landlord after the same have been approved by Landlord shall be paid for by
Landlord.
8. Insurance. During demolition of the existing interior
---------
improvements and construction of the Exterior ADA Work, the Seismic Work and the
Tenant Improvements, Tenant shall be required to carry (or cause its contractor
to carry) workers' compensation insurance in the statutory limits, builder's
all-risk insurance, and liability insurance satisfying the requirements of
Paragraphs 21.B.(i) and 21.F. of the Lease.
EXHIBIT B
---------
Page 5 of 5
<PAGE>
COMMENCEMENT DATE MEMORANDUM
----------------------------
LANDLORD: Richard V. Bowling, Jr. and Kathleen S. Bowling,
Trustees of the Bowling Revocable Trust
TENANT: Artisan Components, Inc.
LEASE DATE: June 16, 1997
PREMISES: 1195 Bordeaux Drive
Sunnyvale, California
Pursuant to Paragraph 4.A. of the above referenced Lease, the
Commencement Date is hereby established as _________________, 1997.
TENANT:
Dated____________________ Artisan Components, Inc., a
California corporation
By____________________________
Mark Templeton,
President and CEO
LANDLORD:
Dated____________________ _______________________________
Richard V. Bowling, Jr., Trustee of
the Bowling Revocable Trust
_______________________________
Kathleen S. Bowling, Trustee of the
Bowling Revocable Trust
EXHIBIT C
---------
<PAGE>
LEASE
-----
(SINGLE-TENANT MODIFIED NET)
by and between
Richard V. Bowling, Jr. and Kathleen S. Bowling,
Trustees of the Bowling Revocable Trust
("Landlord")
and
Artisan Components, Inc.
("Tenant")
For the approximately 32,660 SF Premises at
1195 Bordeaux Drive, Sunnyvale, CA 94089
<PAGE>
LEASE SUMMARY
-------------
Lease Date: June 16, 1997
Landlord: Richard V. Bowling, Jr. and Kathleen S. Bowling,
Trustees of the Bowling Revocable Trust
Address of Landlord: P.O. Box 1085
Danville, CA 94526
Tenant: Artisan Components, Inc.
Address of Tenant: 2077 Gateway Place
San Jose, CA 95110-1016
Contact: Beth Bartel
Telephone: (408)453-1000
Building Address: 1195 Bordeaux Drive
Building Square Footage: approximately 32,660 square feet
Commencement Date: See Paragraph 4.A.
Term: seven (7) years
Monthly Rent:
Months of Term Net Monthly Rent
-------------- ----------------
1 through 12 $35,926.00/month
13 through 24 $37,559.00/month
25 through 36 $39,192.00/month
37 through 48 $40,825.00/month
49 through 60 $42,458.00/month
61 through 72 $44,091.00/month
73 through 84 $45,724.00/month
Security Deposit: $45,724.00
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
1. Parties 1
2. Premises 1
3. Definitions 1
4. Lease Term 3
5. Rent 4
6. Late Payment Charges 5
7. Security Deposit 5
8. Holding Over 6
9. Tenant Improvements 6
10. Condition of Premises 7
11. Use of the Premises 7
12. Quiet Enjoyment 9
13. Alterations 9
14. Surrender of the Premises 10
15. Real Property Taxes 10
16. Utilities and Services 11
17. Repair and Maintenance 12
18. Liens 14
19. Landlord's Right to Enter the Premises 14
20. Signs 15
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
21. Insurance 15
22. Waiver of Subrogation 17
23. Damage or Destruction 18
24. Condemnation 19
25. Assignment and Subletting 20
26. Default 21
27. Subordination 24
28. Notices 24
29. Attorneys' Fees 25
30. Estoppel Certificates 25
31. Transfer of the Premises by Landlord 26
32. Landlord's Right to Perform Tenant's Covenants 26
33. Tenant's Remedy 26
34. Mortgagee Protection 26
35. Brokers 27
36. Acceptance 27
37. Parking 27
38. Option to Extend. 27
39. General 29
</TABLE>
ii
<PAGE>
TABLE OF EXHIBITS
-----------------
EXHIBIT A The Premises
EXHIBIT B Work Letter Agreement
EXHIBIT C Commencement Date Memorandum
iii
<PAGE>
EXHIBIT 10.15
ARTISAN COMPONENTS, INC.
Severance Agreement
This Agreement is made by and between Artisan Components, Inc. (the
"Company") and Robert Selvi ("Executive") as of the date set forth below.
WHEREAS, the Company has employed Executive as the Company's Chief
Financial Officer, effective as of June 20, 1997, and
WHEREAS, the Company and the Executive understand and acknowledge that
Executive's employment with the Company constitutes "at-will" employment, and
that the employment relationship may be terminated at any time, with or without
good cause or for any or no cause, at the option either of the Company or the
Executive,
NOW THEREFORE, the Company and the Executive hereby agree as follows:
1. Termination of Employment. If Executive's employment with the Company
-------------------------
terminates other than voluntarily (which shall include a "Constructive
Termination" as defined below) or for "Cause" (as defined below), then (i)
Executive shall be entitled to receive as severance pay (less applicable
withholding taxes) a continuation of his base salary, as then in effect, for a
period of six (6) months, plus any targeted bonus amount pro rated for such six
(6) month period as determined by the Board of Directors of the Company and paid
ratably over such six (6) month period, and (ii) Executive's option to purchase
503,386 shares of Common Stock, shall continue to vest for a period of 18 months
following Executive's date of termination. For this purpose, "Constructive
Termination" is defined as (i) a material reduction in salary or benefits, (ii)
a material change in responsibilities from those of the Chief Financial Officer
of the Company, (iii) a requirement to relocate, except for office relocation
that would not increase the Executive's current one-way commute distance by more
than twenty-five (25) miles or (iv) subjection of Executive to unreasonable
working conditions, such as violation of Executive's civil rights, defamation of
Executive, intentional infliction of emotional distress, coercion to condone,
tolerate or participate in illegal or immoral acts, or similar conditions. In
the event of a Constructive Termination, the Company will be deemed to have
involuntarily terminated the Executive even if the Executive tenders his
resignation to the Company. For this purpose, "Cause" is defined as (i) an act
of dishonesty made by Executive in connection with Executive's responsibilities
as an employee and intended to result in Executive's substantial personal
enrichment, (ii) Executive's conviction of a felony, (iii) a willful act by
Executive which constitutes gross misconduct and which is injurious to the
Company, or (iv) Executive's continued substantial violations of his employment
duties which are demonstrably willful and deliberate on Executive's part after
Executive has received a written demand for performance from the Company which
specifically sets forth the factual basis for the Company's belief that
Executive has not substantially performed his duties.
2. Termination Incident to an Acquisition of the Company.
-----------------------------------------------------
Notwithstanding Section 1 above, in the event of a change of control of the
Company, followed within six (6) months thereafter by the Constructive
Termination or involuntary termination of Executive's employment with the
Company or its successor entity without Cause, (i) Executive shall be entitled
to receive a cash payment of
<PAGE>
severance pay (less applicable withholding taxes) representing an amount equal
to six months at a rate equal to his base salary rate as then in effect, plus
any targeted bonus amount pro rated for such six (6) month period as determined
by the Board of Directors of the Company, and (ii) Executive's option to
purchase 503,386 shares of Common Stock shall become 100% vested. For this
purpose, "change of control of the Company" is defined as:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing 50% or more of the total voting power
represented by the Company's then outstanding voting securities; or
(b) A change in the composition of the Board of Directors of the Company
occurring within a two-year period, as a result of which fewer than a majority
of the directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of the date hereof, or
(B) are elected, or nominated for election, to the Board of Directors of the
Company with the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but shall not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company);
or
(c) The date of the consummation of a merger or consolidation of the
Company with any other corporation that has been approved by the stockholders of
the Company, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
3. Enforcement. In the event of any action to enforce the terms of this
-----------
Agreement, the prevailing party in such action shall be entitled to such party's
reasonable costs and expenses of enforcement including, without limitation,
reasonable attorneys' fees.
4. Entire Agreement. This Agreement, the Stock Option Plan, the Option
----------------
Agreement, and the Proprietary Information Agreement of even date herewith
represent the entire agreement and understanding between the Company and
Executive concerning Executive's employment relationship with the Company,
supersedes and replaces any and all prior agreements and understandings
concerning Executive's employment relationship with the Company.
5. No Oral Modification, Cancellation or Discharge. This Agreement may
-----------------------------------------------
only be amended, canceled or discharged in writing signed by Executive and the
Company.
6. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of California.
<PAGE>
7. Effective Date. This Agreement is effective immediately after it has
--------------
been signed.
8. Acknowledgment. Executive acknowledges that he has had the
--------------
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of June
20, 1997.
ARTISAN COMPONENTS, INC.
By: /s/ Mark R. Templeton
-------------------------------
Mark R. Templeton
President
ROBERT SELVI
/s/ Robert D. Selvi
- ------------------------------
<PAGE>
Exhibit 10.16
[ARTISAN COMPONENTS LOGO]
July 31, 1996
Mr. Larry Fagg
Dear Larry:
Artisan Components, Inc. ("Artisan") is pleased to offer you the position of
Vice President of Worldwide Sales reporting directly to me. Your starting base
salary will be $140,000 per year with an opportunity to earn an additional
$100,000 in sales commissions at 100% of your annual fiscal year target. For
the first six months of your employment, Artisan will advance up to 100% of your
monthly commissions at target (i.e. up to $9,167 per month) at your request. Up
to half of the total amount advanced to you will be recoverable by Artisan
should you fall short of reaching you annual sales target.
Since we believe you will be making a significant contribution to the success of
Artisan Components, we are offering you an option of 218,863 shares of Artisan
common stock. The exercise price of your option will be fair market value as
determined by the board of directors on the date the option is granted. This
stock vests ratably over a four-year period from your date of hire, however you
must work for the company for one year before any stock vests to you.
In the event of a "Change of Control" which is defined as the acceptance of
Artisan of any offer from an entity to acquire any shares of voting stock which
would result in such entity owning more than 50% of the voting stock of Artisan
then outstanding that results in the termination of your employment with
Artisan, you will receive a severance payment equal to six months of base salary
and commissions at target. You will also be allowed to continue to participate
in Artisan's benefit programs for a period of six months after the effective
date of your termination at no cost to you. In addition, one half of your
remaining unvested stock options will immediately vest from the effective date
of your termination.
We offer a comprehensive benefit program and you will be eligible to participate
in most of it on your date of hire. These benefits are summarized on the
attached Benefits at a Glance form, and will be explained to you in detail once
you are on board. We are looking forward to having you join us.
Best regards,
/s/ Mark Templeton
Mark Templeton,
President
Please acknowledge your acceptance by signing and returning one copy of this
letter.
/s/ Larry J. Fagg
- -----------------
Accepted
<PAGE>
EXHIBIT 11.1
ARTISAN COMPONENTS, INC.
STATEMENT OF COMPUTATION OF NET INCOME (LOSS) PER SHARE (1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
----------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Weighted average common shares outstanding for the
period................................................. 5,018 7,070 8,557
Common equivalent shares pursuant to Staff Accounting
Bulletin No. 83........................................ 979 979 979
------ ------ ------
Shares used in computing per share amount............... 5,997 8,049 9,536
====== ====== ======
Net income (loss)....................................... $ (33) $ 532 $ 725
====== ====== ======
Net income per share (historical)....................... $ 0.08
======
Proforma net income data (unaudited):
Income before provision for income taxes................ $ 3 $ 669
------ ------
Proforma income tax benefit (expense)................... $ 18 $ (260)
------ ------
Proforma net income..................................... $ 21 $ 409
====== ======
Proforma net income per share........................... $ 0.00 $ 0.05
====== ======
</TABLE>
- --------
(1) Primary and fully diluted calculations are substantially the same.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 333- ) of our reports dated November 24, 1997, on our audits of the
financial statements and the financial statement schedule of Artisan
Components, Inc. We also consent to the reference to our firm under the
caption "Experts" and "Selected Financial Data."
COOPERS & LYBRAND L.L.P.
San Jose, California
November 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 1,069
<SECURITIES> 2,499
<RECEIVABLES> 3,109
<ALLOWANCES> 275
<INVENTORY> 2,834
<CURRENT-ASSETS> 6,966
<PP&E> 5,353
<DEPRECIATION> 1,384
<TOTAL-ASSETS> 12,011
<CURRENT-LIABILITIES> 2,614
<BONDS> 0
0
7,564
<COMMON> 109
<OTHER-SE> 1,675
<TOTAL-LIABILITY-AND-EQUITY> 12,011
<SALES> 8,912
<TOTAL-REVENUES> 8,912
<CGS> 2,855
<TOTAL-COSTS> 8,128
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,081
<INCOME-TAX> 356
<INCOME-CONTINUING> 725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 725
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
