<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 16, 1998
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
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>
DELAWARE 3674 77-0278185
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</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. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED SHARE(1) PRICE(1) FEE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value per share........ 3,795,000 $20.125 $76,374,375 $22,530
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee. The estimate is made pursuant to Rule 457(c) of the
Securities Act of 1933, as amended and represents the average of the high
and low prices of the Registrant's Common Stock in the Nasdaq National
Market on April 9, 1998.
---------------
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 APRIL , 1998
[ARTISAN LOGO]
- --------------------------------------------------------------------------------
3,300,000 SHARES
COMMON STOCK
- --------------------------------------------------------------------------------
Of the 3,300,000 shares of Common Stock, par value $0.001 per share ("Common
Stock"), being sold hereby, 968,870 are being sold by Artisan Components,
Inc. ("Artisan" or the "Company") and 2,331,130 are being sold by certain
stockholders of the Company (the "Selling Stockholders"). See "Principal and
Selling Stockholders." The Company will not receive any proceeds from the
sale of shares by the Selling Stockholders. The Common Stock is listed on the
Nasdaq National Market under the symbol "ARTI." On April 15, 1998, the last
reported sale price for the Common Stock on the Nasdaq National Market was
$22.125 per share. See "Price Range of Common Stock."
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>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1)(2) COMPANY(3) STOCKHOLDERS(2)
<S> <C> <C> <C> <C>
Per Share $ $ $ $
Total(4) $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) An affiliate of one of the Underwriters also will receive consideration
in connection with a forward sale and stock borrowing arrangement related
to this Offering. See "Principal and Selling Stockholders" and
"Underwriting."
(3) Before deducting expenses estimated at $450,000, payable by the Company.
(4) The Company has granted the Underwriters a 30-day option to purchase up
to 495,000 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. 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
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN
RAUSCHER INCORPORATED
The date of this Prospectus is , 1998.
<PAGE>
ARTISAN LOGO
A leading provider of intellectual property components for the world's
semiconductor suppliers.
[SCHEMATIC DEPICTING CONCEPTUAL FRAMEWORK FOR COMPLEX SYSTEM-ON-A-CHIP ICS IN
COMPARISON TO A PRINTED CIRCUIT BOARD SYSTEM]
Artisan enables the design of complex System-on-a-Chip ICs that combine all
of the functionality of PCB systems onto a single IC. These ICs are optimal
for use in complex, high-volume applications such as:
-- Portable Computing Devices
-- Mobile Phones
-- Consumer Multimedia Products
-- Automotive Electronics
-- Personal Computers & Workstations
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."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS, IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
Except as otherwise noted herein, information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option.
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, GEC Plessey, Hitachi, NEC, Newport, OKI
Electric, SGS-THOMSON, Siemens, TSMC, Toshiba and VLSI Technology.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company............... 968,870 shares
Common Stock offered by the Selling Stockholders.. 2,331,130 shares
Common Stock outstanding after the Offering....... 13,266,411 shares(1)
Use of proceeds................................... General corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol..................... ARTI
</TABLE>
SUMMARY FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED SEPTEMBER ENDED
30, MARCH 31,
--------------------- -------------
1995 1996 1997 1997 1998
STATEMENT OF OPERATIONS DATA: ------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue..................................... $2,718 $4,147 $8,912 $3,155 $7,089
Total cost and expenses..................... 2,715 3,574 8,169 2,972 6,509
Operating income............................ 3 573 743 183 580
Net income (loss)........................... (33) 532 684 206 598
Diluted earnings per share (historical)..... $ 0.07 $ 0.02 $ 0.05
Pro forma net income (unaudited)(2)......... $ 21 $ 409
Diluted earnings per share (unaudited)(2)... $ 0.00 $ 0.06
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------
ACTUAL AS ADJUSTED(3)
BALANCE SHEET DATA: ----------- --------------
(UNAUDITED)
<S> <C> <C>
Cash, cash equivalents and marketable securities..... $30,720 $50,527
Working capital...................................... 31,862 51,669
Total assets......................................... 40,385 60,192
Long term liabilities, net of current portion(4)..... 232 232
Total stockholders' equity........................... 37,280 57,087
</TABLE>
- -------
(1) Based on the number of shares outstanding as of March 31, 1998. Excludes
(i) 2,211,708 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 $4.4828 per share and
1,153,496 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)
50,000 shares of Common Stock issuable upon the exercise of outstanding
options under the Company's 1997 Director Option Plan (the "Director Plan")
with a weighted average exercise price of $10.00 per share and 150,000
shares of Common Stock reserved for future issuance thereunder. See
"Management--Stock Plans," "Description of Capital Stock" and Notes 9 and
15 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 968,870 shares of
Common Stock offered by the Company hereby, at an assumed public offering
price of $22.125 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 and deferred revenue. 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 $760 million in 1997 to
approximately $2.6 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"), Hitachi, Ltd. ("Hitachi"), NEC Electronics, Inc. ("NEC"), Newport
Wafer Fab, Ltd. ("Newport"), OKI Electric Industry Co., Ltd. ("OKI"), SGS-
THOMSON MICROELECTRONICS S.r.l. ("SGS-THOMSON"), Siemens AG ("Siemens"),
Taiwan Semiconductor Manufacturing Corporation ("TSMC"), 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 reincorporated in Delaware in January 1998. 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 within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). 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 the completion period ranges from three to six
months, the revenue in any quarter is dependent
5
<PAGE>
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. From
time to time, the Company experiences 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!"), Duet
Corporation ("Duet"), 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. For
example, the Company believes that Synopsys is developing and will shortly
introduce a product in the standard cell library area that is intended to
compete with the standard cell products of 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. The Company believes the introduction, as
opposed to the operation, of the royalty based business model has been a
limited success in that the majority of the Company's licensees, including all
new licensees with whom the Company has contracted since August 1996, have
agreed to a royalty based model. However, certain licensees, which have
previously contracted with the Company based on the older model, have resisted
conversion to a royalty based model. As a result, the Company believes that
until all of its customers have adopted the royalty based model, the
introduction of such model can only be described as a limited success. 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 due to the typical length of
time required for the Company to design a component for a customer and for
such customer to manufacture and bring to market a product incorporating such
component. 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. In the six month period ended
March 31, 1998, TSMC, OKI, SGS-THOMSON, NEC and Newport accounted for 13%,
13%, 12%, 12% and 11% 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
8
<PAGE>
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 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%, 94% and 98% of revenue in fiscal 1995, 1996 and 1997 and the six
month period ended March 31, 1998, respectively. The Company expects that
memory products, in combination with standard cell products, will continue to
account for a substantial 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 and
9
<PAGE>
the six month period ended March 31, 1998, revenue derived from customers
outside the United States, primarily in Asia and Europe, represented
approximately 55%, 47%, 67% and 74%, 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 experience fewer orders from international customers whose business is
based primarily on the less expensive currency. To date, the Company has not
experienced any negative impact as a result of the financial and stock market
dislocations that occurred in the Asian financial markets during 1997 and to
date in 1998; however, there can be no assurance that present or future
dislocations will not have a material adverse effect on the Company's
business, operating results and financial condition. 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
10
<PAGE>
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."
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 March 31, 1998, the Company grew from 28 to 74 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.
11
<PAGE>
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, 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."
POTENTIAL VOLATILITY OF STOCK PRICE. The trading price of the Company's
Common Stock has in the past been and could in the future be subject to
significant fluctuations in response to quarterly variations in the Company's
results of operations, announcements regarding the
12
<PAGE>
Company's product developments, announcements of technological innovations or
new products by the Company, its customers or competitors, release of reports
by securities analysts, changes in security analysts' recommendations,
developments or disputes concerning patents or proprietary rights or other
events. Also, at some future time, the Company's revenues and results of
operations may be below the expectations of public market securities analysts
or investors, resulting in significant fluctuations in the market price of the
Company's Common Stock. In addition, the securities markets have from time to
time experienced significant price and volume fluctuations which have
particularly affected the market prices for high technology companies and
which often are unrelated and disproportionate to the operating performance of
particular companies. These broad market fluctuations as well as general
economic, political and market conditions, may adversely affect the market
price of the Company's Common Stock. In the past, following periods of
volatility in the market price of a company's stock, securities class action
litigation has occurred against that company. Such litigation could result in
substantial costs and would at a minimum divert management's attention and
resources, which could have a material adverse effect on the Company's
business, financial condition and results of operations. Any adverse
determination in such litigation could also subject the company to significant
liabilities. See "Price Range of Common Stock."
CONCENTRATION OF OWNERSHIP. The Company's founders, officers, directors and
their affiliates will, in the aggregate, beneficially own approximately 46.2%
of the Company's outstanding Common Stock following the completion of this
Offering (44.6% 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 and Selling Stockholders."
CERTAIN ANTI-TAKEOVER PROVISIONS. The Board of Directors of the Company has
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 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."
13
<PAGE>
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 (i) restrictions under the Securities Act, (ii) lock-up agreements
executed by optionholders and substantially all stockholders of the Company in
connection with the Company's initial public offering in February 1998, which
agreements expire on August 1, 1998, (iii) lock-up agreements entered into by
Selling Stockholders who are current officers or founders in connection with
this Offering under which such Selling Stockholders have agreed not to sell or
otherwise dispose of any of their shares for a period of 180 days from the
date of this Prospectus and (iv) lock-up agreements entered into by officers
(who are not Selling Stockholders), directors and Selling Stockholders (other
than current founders and officers) in connection with this Offering under
which such persons have agreed not to sell or otherwise dispose of any of
their shares for a period of 90 days from the date of this Prospectus.
Assuming no exercise of the Underwriters' over-allotment option and no
exercise of outstanding options, there will be 13,266,411 shares of Common
Stock outstanding as of the date of this Prospectus, of which 6,631,411 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, (ii) approximately 621,429 shares will become
eligible for sale upon expiration of lock-up agreements on August 1, 1998,
(iii) approximately 2,457,321 shares will become eligible for sale 90 days
from the date of this Prospectus and (iv) approximately 3,552,661 shares will
become eligible for sale 180 days after the date of this Prospectus. After
this Offering, the holders of approximately 2,935,736 shares of Common Stock
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 majority of the net
proceeds has not been allocated to any specific purpose and the Company
reserves the right to reallocate that portion of the net proceeds of this
Offering that has specifically been allocated 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.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 968,870 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$19.8 million (approximately $30.2 million if the Underwriters' over-allotment
option is exercised in full) at an assumed public offering price of $22.125
per share and after deducting the estimated underwriting discount and offering
expenses. The Company will not receive any proceeds from the sale of shares by
the Selling Stockholders.
The Company ultimately expects to use the net proceeds from this Offering
for general corporate purposes. As of the date of this Prospectus, the Company
has no specific plans regarding the use 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.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been quoted on the Nasdaq National Market
under the symbol ARTI since the Company's initial public offering on February
2, 1998. Prior to such time, there was no public market for the Common Stock
of the Company. The following table sets forth for the periods indicated the
high and low sale prices per share of the Common Stock as reported on the
Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal year 1998
Second Quarter (from February 2, 1998)................. $20.250 $15.250
Third Quarter (through April 15, 1998)................. $23.375 $17.875
</TABLE>
On April 15, 1998, the reported last sale price of the Common Stock on the
Nasdaq National Market was $22.125 per share. As of March 31, 1998, there were
approximately 108 stockholders of record of the Common Stock.
15
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1998 (i) the actual
capitalization of the Company and (ii) the capitalization of the Company as
adjusted to give effect to the sale of the 968,870 shares of Common Stock
offered by the Company hereby at an assumed public offering price of $22.125
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>
MARCH 31, 1998
-------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long term obligations, net of current portion(1)........... $ 23 $ 23
Stockholders' equity:
Preferred Stock, $0.001 par value; 5,000,000 shares
authorized, none issued and outstanding................. -- --
Common Stock, $0.001 par value; 50,000,000 shares
authorized, 12,297,541 shares issued and outstanding
actual and 13,266,411 shares issued and outstanding as
adjusted(2)............................................. 12 13
Additional paid in capital............................... 35,705 55,511
Retained earnings........................................ 1,563 1,563
------- -------
Total stockholders' equity............................. 37,280 57,087
------- -------
Total capitalization................................. $37,303 $57,110
======= =======
</TABLE>
- --------
(1) Long term obligations consist of deferred rent. See Note 8 of Notes to
Financial Statements.
(2) Excludes as of March 31, 1998 (i) 2,211,708 shares of Common Stock issuable
upon the exercise of outstanding options under the 1993 Plan with a
weighted average exercise price of $4.4828 per share and 1,153,496 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) 50,000 shares of Common Stock issuable upon the exercise of
outstanding options under the Director Plan with a weighted average
exercise price of $10.00 per share and 150,000 shares of Common Stock
reserved for future issuance thereunder. See "Management--Stock Plans,"
"Description of Capital Stock" and Notes 9 and 15 of Notes to Financial
Statements.
16
<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 March 31, 1998 and the statement
of operations data for the six month periods ended March 31, 1997 and 1998 are
derived from unaudited financial statements included elsewhere 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. All unaudited financial statements 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>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------------ -------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------ ------ ------ ------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue..................... $1,262 $2,768 $2,718 $4,147 $8,912 $3,155 $7,089
Cost and expenses:
Cost of revenue........... 388 910 984 1,280 2,855 926 2,100
Product development....... 434 847 1,044 1,080 1,955 841 1,714
Sales and marketing....... 93 314 272 603 2,019 704 1,802
General and
administrative........... 98 304 415 611 1,340 501 893
------ ------ ------ ------ ------ ------ ------
Total cost and expenses. 1,013 2,375 2,715 3,574 8,169 2,972 6,509
------ ------ ------ ------ ------ ------ ------
Operating income............ 249 393 3 573 743 183 580
Other income (expense) net.. 1 (3) -- 96 297 132 307
------ ------ ------ ------ ------ ------ ------
Income before provision for
income taxes............... 250 390 3 669 1,040 315 887
Provision for income taxes.. -- -- 36 137 356 109 289
------ ------ ------ ------ ------ ------ ------
Net income (loss)........... $ 250 $ 390 $ (33) $ 532 $ 684 $ 206 $ 598
====== ====== ====== ====== ====== ====== ======
Diluted earnings per share
(historical)............... $ 0.07 $ 0.02 $ 0.05
====== ====== ======
Pro forma net income data
(unaudited)(1):
Pro forma net income...... $ 175 $ 274 $ 21 $ 409
====== ====== ====== ======
Diluted earnings per share
(pro forma).............. $ 0.03 $ 0.05 $ 0.00 $ 0.06
====== ====== ====== ======
Weighted average shares
outstanding (diluted)(2)... 5,827 5,832 5,018 7,010 9,613 9,382 11,261
====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF
--------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
---- ------ ------ ------ ------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
marketable securities........... $ 1 $ 80 $ 6 $2,958 $ 4,554 $30,720
Working capital.................. 276 450 141 2,268 4,352 31,862
Total assets..................... 669 2,524 1,261 5,172 12,011 40,385
Long term liabilities, net of
current portion(3).............. -- -- -- 15 49 232
Total stockholders' equity....... 264 586 410 4,292 9,348 37,280
</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 14 of Notes to Financial Statements included
elsewhere in this Prospectus.
(3) Long term liabilities consist of deferred rent and deferred revenue. See
Note 8 of Notes to Financial Statements.
17
<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 received under the terms of license
agreements with customers to provide 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 due to the typical length of
time required for the Company to design a component for a customer and for
such customer to manufacture and bring to market a product incorporating such
component. 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
18
<PAGE>
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."
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. In the six month period ended March 31, 1998, TSMC,
OKI, SGS-THOMSON, NEC and Newport accounted for 13%, 13%, 12%, 12% and 11% 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 and the six month
period ended March 31, 1998, revenue from customers outside the United States,
primarily in Asia and Europe, represented approximately 55%, 47%, 67% and 74%,
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%, 94%
and 98% of revenue in fiscal 1995, 1996 and 1997 and the six month period
ended March 31, 1998, respectively. The Company expects that memory products,
in combination with standard cell products, will continue to account for a
substantial 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
19
<PAGE>
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."
In connection with the grant of options for the purchase 96,200 shares of
Common Stock to employees during the period from December 1996 through March
1997, the Company recorded aggregate deferred compensation of approximately
$198,000, representing the difference between the deemed fair value of the
Common Stock and the option exercise price at the date of grant. Such deferred
compensation will be amortized over the vesting period relating to the
options, of which approximately $41,000 and approximately $24,000 have been
amortized during the year ended September 30, 1997 and the six month period
ended March 31, 1998, respectively, all of such amounts were recorded in
product development expenses. In addition, the amortization will result in
charges over the next 12 quarters aggregating approximately $12,000 per
quarter, all of which will be recorded in product development expenses.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected statements
of operations data as a percentage of revenue:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------- ------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost and expenses:
Cost of revenue........... 36.2 30.9 32.0 29.4 29.6
Product development....... 38.4 26.0 22.0 26.6 24.2
Sales and marketing....... 10.0 14.6 22.7 22.3 25.4
General and
administrative........... 15.3 14.7 15.0 15.9 12.6
-------- -------- -------- -------- --------
Total cost and expenses. 99.9 86.2 91.7 94.2 91.8
-------- -------- -------- -------- --------
Operating income............ 0.1 13.8 8.3 5.8 8.2
Other income, net........... -- 2.3 3.3 4.1 4.3
-------- -------- -------- -------- --------
Income before provision for
income taxes............... 0.1 16.1 11.6 9.9 12.5
Provision for income taxes.. 1.3 3.3 4.0 3.4 4.1
-------- -------- -------- -------- --------
Net income (loss)........... (1.2)% 12.8% 7.6% 6.5% 8.4%
======== ======== ======== ======== ========
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>
SIX MONTHS ENDED MARCH 31, 1997 AND 1998
Revenue
Revenue increased by 124.7 % from $3.2 million in the six month period ended
March 31, 1997 to $7.1 million in the six month period ended March 31, 1998.
The growth in revenue in the first two quarters of fiscal 1998 as compared
with the same period in fiscal 1997 was primarily attributable to increased
licensing of the Company's memory and standard cell products, which more than
offset a decline in the sale of I/O products.
20
<PAGE>
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 115.8% from $1.8 million in
the six month period ended March 31, 1997 to $3.8 million in the six month
period ended March 31, 1998. Engineering costs as a percentage of revenue
declined from 56.0% in the six month period ended March 31, 1997 to 53.8% for
the six month period ended March 31, 1998. The absolute dollar increase in
engineering costs in the first two quarters of fiscal 1998, as compared with
the same period in fiscal 1997, was due primarily to an increase in
engineering personnel and, to a lesser extent, purchases of computer
equipment, software tools and networking infrastructure and equipment and
legal costs associated with the Company's patent program.
Cost of Revenue. Cost of revenue increased by 126.8% from $926,000 in the
six month period ended March 31, 1997 to $2.1 million in the six month
period ended March 31, 1998. Cost of revenue as a percentage of revenue was
29.4% and 29.6% for the six month periods ended March 31, 1997 and 1998,
respectively. The absolute dollar increase in cost of revenue in the first
two quarters of fiscal 1998, as compared with the same period of fiscal
1997, was due to increases in headcount and costs associated with
delivering product to, and supporting, a growing customer base.
Product Development Expenses. Product development expenses increased by
103.8% from $841,000 in the six month period ended March 31, 1997 to $1.7
million in the six month period ended March 31, 1998. Product development
expenses as a percentage of revenue declined from 26.7% to 24.2% for the
six month periods ended March 31, 1997 and 1998, respectively. The absolute
dollar increase in product development expenses in the first two quarters
of fiscal 1998, as compared with the same period in fiscal 1997, was
attributable to an increase in engineering personnel and, to a lesser
extent, purchases of computer equipment, software tools and networking
infrastructure and equipment and legal costs associated with the Company's
patent program.
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 156% from $704,000 in the six month period ended
March 31, 1997 to $1.8 million in the six month period ended March 31,
1998. Sales and marketing expense as a percentage of revenue increased from
22.3% for the six month period ended March 31, 1997 to 25.4% for the six
month period ended March 31, 1998. The increase in absolute dollars in
sales and marketing expenses in the first two quarters of fiscal 1998, as
compared with the same period in fiscal 1997, was primarily attributable to
increases in sales headcount and commissions expense to support an expanded
customer coverage model and increases in marketing headcount and
promotional activity.
General and Administrative Expenses. General and administrative expenses
increased by 78.2% from $501,000 in the six month period ended March 31,
1997 to $893,000 in the six month period ended March 31, 1998. As a
percentage of revenue, general and administrative expenses decreased from
15.9% to 12.6% in the six month period ended March 31, 1997 and 1998,
respectively. The absolute dollar increases in general and administrative
expenses in the first two quarters of fiscal 1998, as compared with the
same period in fiscal 1997, was primarily due to increases in general and
administrative personnel and increases in professional services fees.
21
<PAGE>
Other Income
Other income increased by 132.6% from $132,000 in the six month period ended
March 31, 1997 to $307,000 in the six month period ended March 31, 1998. Other
income as a percentage of revenue remained relatively constant at 4.2% and
4.3% for the six month periods ended March 31, 1997 and 1998, respectively.
The growth in other income in the first two quarters of fiscal 1998, as
compared with the same period in fiscal 1997, primarily reflects interest
income earned on the proceeds from the Company's initial public offering which
was completed in February 1998.
Income Taxes
The provision for income taxes was $109,000 and $289,000 in the six month
periods ended March 31, 1997 and 1998, respectively. The effective tax rate
decreased to 32.6% in the first two quarters of fiscal 1998, as compared with
34.6% in the first two quarters of fiscal 1997. The change in effective tax
rate for the respective periods was primarily due to the Company investing the
proceeds from its initial public offering in securities that are exempt from
federal taxation.
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
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 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 54.0% 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 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 and
the decrease as a percentage of revenue was the result of revenue growth in
excess of the growth in cost of revenue.
Product Development Expenses. Product development expenses increased by
3.4% from $1.0 million in fiscal 1995 to $1.1 million 1996 and by 81.0% to
$2.0 million in fiscal 1997. Product development expenses as a percentage
of revenue were 38.4%, 26.0% and 21.9% 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
22
<PAGE>
standard cell product. 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 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 in absolute
dollars 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 increases in sales and marketing
expenses as a percentage of revenues was due to expense growth in this
category which exceeded the growth of revenue. 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. Absolute dollar increases in general and
administrative expenses during these periods are the result of increases in
headcount and in legal, accounting and other professional expenses. Changes
in the percentage of revenues represented by general and administrative
expenses were due to changes in the growth of revenues for the respective
periods. 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.
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 34.2%
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 and the
first two quarters of fiscal 1998. 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, DEC. 31, MAR. 31,
1996 1997 1997 1997 1997 1998
-------- -------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $1,385 $1,770 $2,738 $3,019 $3,329 $ 3,760
Cost and expenses:
Cost of revenue....... 425 501 937 992 1,024 1,076
Product development... 356 485 489 625 843 871
Sales and marketing... 353 351 620 695 785 1,017
General and
administrative....... 185 316 415 424 455 438
------ ------ ------ ------ ------ -------
Total cost and
expenses........... 1,319 1,653 2,461 2,736 3,107 3,402
------ ------ ------ ------ ------ -------
Operating income........ 66 117 277 283 222 358
Other income............ 42 90 87 78 115 192
------ ------ ------ ------ ------ -------
Income before provision
for income taxes....... 108 207 364 361 337 550
Provision for income
taxes.................. 37 72 124 123 130 159
------ ------ ------ ------ ------ -------
Net income.............. $ 71 $ 135 $ 240 $ 238 $ 207 $ 391
------ ------ ------ ------ ------ -------
Diluted earnings per
share.................. $ 0.01 $ 0.01 $ 0.02 $ 0.02 $ 0.02 $ 0.03
====== ====== ====== ====== ====== =======
Shares used in per share
calculation............ 9,231 9,532 9,671 9,680 9,705 12,520
====== ====== ====== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUE
------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1997 1997 1997 1997 1998
-------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost and expenses:
Cost of revenue....... 30.7 28.3 34.2 32.9 30.7 28.6
Product development... 25.7 27.4 17.9 20.7 25.3 23.2
Sales and marketing... 25.5 19.8 22.6 23.0 23.6 27.1
General and
administrative....... 13.3 17.9 15.2 14.0 13.7 11.6
----- ----- ----- ----- ----- -----
Total cost and
expenses........... 95.2 93.4 89.9 90.6 93.3 90.5
----- ----- ----- ----- ----- -----
Operating income........ 4.8 6.6 10.1 9.4 6.7 9.5
Other income............ 3.0 5.1 3.2 2.6 3.5 5.1
----- ----- ----- ----- ----- -----
Income before provision
for income taxes....... 7.8 11.7 13.3 12.0 10.2 14.6
Provision for income
taxes.................. 2.7 4.1 4.5 4.1 3.9 4.2
----- ----- ----- ----- ----- -----
Net income.............. 5.1% 7.6% 8.8% 7.9% 6.3% 10.4%
===== ===== ===== ===== ===== =====
</TABLE>
The Company's revenue increased in each quarter of fiscal 1997 and the first
two quarters of fiscal 1998. 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 and in the first two quarters of fiscal 1998. 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 and in the first quarter of fiscal 1998 as a result of
increased administrative efforts necessary to manage the Company's growth.
General and administrative expenses declined sequentially in the second
quarter of fiscal 1998 as the Company experienced a reduction in the costs
associated with professional services. 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 and in the first and second
quarters of fiscal 1998. 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 percentage of revenue represented by general and administrative
expenses in the future will depend largely 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. Other income increased in the first
quarter of fiscal 1998 primarily as a result of the generation of cash from
operations and the investment of such cash. The growth in other income in the
second quarter of fiscal 1998 primarily reflects interest income earned on the
proceeds from the Company's initial public offering which was completed in
February 1998.
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, if any,
recognized in a given period.
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<PAGE>
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 license revenue
received from inception to March 31, 1998, the net proceeds of $27.1 million
from its initial public offering of Common Stock in February 1998 and, to a
lesser extent, the proceeds of approximately $7.7 million from the sale of
Preferred Stock and a warrant.
The Company's operating activities were essentially cash neutral in fiscal
1995, provided net cash of $566,000 in fiscal 1996, provided net cash of
$757,000 in fiscal 1997 and provided net cash of $1.0 million in the six month
period ended March 31, 1998. 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, $4.6
million and $27.8 million in fiscal 1995, 1996 and 1997 and the six month
period ended March 31, 1998, 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, $4.2
million and $27.3 million in fiscal 1995, 1996 and 1997 and the six month
period ended March 31, 1998, respectively. In fiscal 1996 and 1997, financing
activities consisted primarily of sales of Convertible Preferred Stock
partially offset, in 1996, by payments on the Company's line of credit. In the
six month period ended March 31, 1998, financing activities consisted
primarily of sales of the Company's Common Stock in its initial public
offering. See Notes 7 and 9 of Notes to Financial Statements.
At March 31, 1998, the Company had cash, cash equivalents and current
marketable securities of $30.7 million. As of March 31, 1998, the Company had
retained earnings of $1.6 million and working capital of $31.9 million, net of
a short term component comprised of deferred revenue of $1.2 million. The
Company anticipates spending at least $765,000 for office lease payments and
approximately $2.5 million for capital expenditures over the next 12 months.
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 and investment 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 has
no current plans, and is not currently negotiating, to obtain additional
financing following the completion of this Offering. 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.
26
<PAGE>
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."
27
<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 $760 million in 1997 to
approximately $2.6 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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<PAGE>
[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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<PAGE>
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
over 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
provides semiconductor manufacturers with reliable building blocks for future
generations of their complex IC designs. Artisan's ability to adapt and
customize 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 standardize 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 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,
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<PAGE>
the Company has licensed its products to many leading semiconductor
manufacturers including Chartered, Fujitsu, GEC Plessey, Hitachi, NEC,
Newport, OKI, SGS-THOMSON, Siemens, Toshiba, TSMC 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. All
of the new licensees with whom the Company has contracted since August 1996
have agreed to the Company's royalty based model. However, since certain
licensees which have previously contracted with the Company based on the older
model have resisted conversion to a royalty based model, the Company believes
that the introduction of such model can only be described as a limited
success. The Company currently generates revenue solely from license fees, but
the Company expects to recognize royalty revenue beginning in fiscal 1999 when
the Company's customers which have entered royalty based licenses are expected
to begin the manufacture and sale of products incorporating the Company's
components. 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 for use 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.
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<PAGE>
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 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 0.25Mu 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 0.25Mu 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
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<PAGE>
value of its IC offerings to customers. SGS-THOMSON has used Artisan's
embedded memory products in more than 200 of its IC designs. SGS-THOMSON has
licensed Artisan's embedded memory products for seven different manufacturing
processes, including its 0.5Mu, 0.35Mu, 0.25Mu and 0.18Mu 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 0.5Mu, 0.35Mu and 0.25Mu 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 its advanced 3D graphics ICs. By
utilizing the Company's products, Fujitsu can accelerate its product
development and meet the needs of its graphics architecture. The ICs will be
built using Fujitsu's 0.25Mu 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 March 31, 1998, Artisan had 46 employees in the engineering
department. In fiscal 1995, 1996 and 1997 and the six month period ended March
31, 1998, total engineering costs were approximately $2.0 million, $2.4
million, $4.8 million and $3.8 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 requirements and that keep pace with new product introductions,
emerging manufacturing processes and other technological developments in the
semiconductor industry. The
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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 over twenty 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)* 1.0Mu 0.8Mu 0.6Mu 0.5Mu 0.35Mu 0.25Mu 0.18Mu
- -------- ------------ ----------- ----- ----- ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Analog Devices.......... 3/94 SC X
ATI**................... 8/95 SC, I/O X 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
Hitachi................. 1/98 M X+
ITT Electronics......... 1/97 SC X
LSI Logic............... 1/95 M X X X
NEC..................... 6/94 M X X X
Newport................. 3/98 M, SC, I/O 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 X
Siemens................. 1/98 M, SC X+
Toshiba................. 8/96 M X
TSMC.................... 12/97 M, SC 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 0.6Mu process was licensed in November 1993 by Tseng Labs, the graphics
business of which was acquired by ATI in 1997.
+The Company is currently in the process of completing delivery of an initial
product for this manufacturing process.
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
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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. In the six month period ended March 31, 1998, TSMC, OKI, SGS-
THOMSON, NEC and Newport accounted for 13%, 13%, 12%, 12% and 11% 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 in 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 March 31, 1998, the Company's sales and
marketing organization was comprised of 13 sales and five 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 and the six month
period ended March 31, 1998, revenue derived from customers outside the United
States, primarily in Asia and Europe, represented approximately 55%, 47%, 67%
and 74%, 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 competitors
denominate their sales in currencies that become relatively inexpensive in
comparison to the U.S. dollar, the
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<PAGE>
Company may experience fewer orders from international customers whose
business is based primarily on the less expensive currencies. To date, the
Company has not experienced any negative impact as a result of the financial
and stock market dislocations that occurred in the Asian financial markets
during 1997 and to date in 1998; however, there can be no assurance that
present or future dislocations will not have a material adverse effect on the
Company's business, operating results and financial condition. 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!, Duet,
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. For example, the
Company believes that Synopsys is developing and will shortly introduce a
product in the standard cell library area that is intended to compete with the
standard cell products of 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
36
<PAGE>
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 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 March 31, 1998, the Company had applications for 14 patents on file with
the USPTO. To date, the USPTO has issued a notice of allowance with respect to
a patent relating to reducing power consumption of the Company's memory
products and a second patent relating to increasing the speed of the Company's
memory products. The Company expects that the USPTO will issue patents
relating to the notices of allowance within the next six months. There can be
no assurance, however, that such patents will actually be issued. As of March
31, 1998, the Company had no filings for foreign patents, but the Company
intends to file such foreign patent applications as appropriate in the future.
The Company has filed two applications under the Patent Cooperation Treaty
relating to two patents previously filed with the USPTO. 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
37
<PAGE>
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 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 March 31, 1998, the Company had 74 fulltime employees. Of this total,
46 were in engineering, 18 were in sales and marketing and 10 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.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, their positions and
their ages (as of March 31, 1998) 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............ 38 Vice President, Marketing
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.
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 doctorate degree 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 is currently comprised of directors Lanza and
Harari. The Audit Committee's functions include: (i) recommending annually to
the Board of Directors the appointment of the independent public accountants
of the Company, (ii) reviewing the scope of the prospective annual audit and
reviewing the results thereof with the independent public accountants, (iii)
reviewing non-audit services of the independent public accountants, (iv)
reviewing compliance with the accounting and financial policies of the
Company, (v) reviewing the adequacy of the financial organization of the
Company, (vi) reviewing the adequacy of the Company's internal accounting
control system and its compliance with federal and state laws relating to
accounting practices and (vii) reviewing transactions with affiliated parties.
The Compensation Committee is currently comprised of directors Lanza and
Harari. The functions of the Compensation Committee include the review and
recommendation to the Board of Directors of the compensation and benefits of
all officers, directors and consultants of the Company and the review of
general policies relating to compensation and benefits of the Company's
employees. In addition, the charter of the Compensation Committee provides
that
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<PAGE>
upon the request of the Board of Directors, the Compensation Committee may
administer the Company's 1993 Plan and recommend and approve the grant of
options thereunder. The 1993 Plan is currently administered by the
Compensation Committee. The Company has no formal procedures in place to
review a transaction between a member of the Compensation Committee and the
Company. Given that the Compensation Committee is currently comprised of only
two directors, the Company anticipates that, in accordance with general
principles of corporate governance and Delaware corporation law, a transaction
with a member of the Compensation Committee or such member's affiliates would
be reviewed and approved by the Board of Directors with the interested
director abstaining from such review and approval.
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 nonemployee directors receive stock options
pursuant to the automatic option grant program in effect under the Director
Plan. See "--Stock Plans." Pursuant to such automatic option grant program, on
February 6, 1998, each of Lucio L. Lanza and Dr. Eli Harari received an option
to purchase 25,000 shares of the Company's Common Stock at an exercise price
of $10.00. In March 1998, Dr. Harari received an option to purchase
10,000 shares of the Company's Common Stock at an exercise price of $16.4375
pursuant to the 1993 Plan in connection with Dr. Harari's agreement to provide
consulting services to the Company. The Company will pay Dr. Harari a nominal
fee with respect to such consulting services.
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'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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted for directors, officers and controlling persons of the
Company pursuant to the provisions described herein, or otherwise, the Company
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.
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<PAGE>
The Company's 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 Bylaws covers negligence and may cover gross
negligence on the part of indemnified parties. The Company's 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 Bylaws would permit indemnification.
The Company has entered into agreements to indemnify its directors and
officers, in addition to indemnification provided for in the Company's Bylaws.
These agreements, among other things, provide for indemnification of the
Company's 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.
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<PAGE>
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(4).......... 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. On
January 12, 1998, the Company granted options to purchase Common Stock at
an exercise price of $7.70 per share, with the exception of Messrs. Gandhi
and Lewis for whom the exercise price is $7.00 per share, to the following
Named Executive Officers in the following amounts: 100,000 shares to Mark
R. Templeton, 50,000 shares to each of Scott T. Becker and Dhrumil Gandhi,
35,000 shares to Jeffrey A. Lewis and 20,000 shares to Daniel I. Rubin.
(3) Represents matching contributions under the Company's 401(k) plan. See "--
401(k) Plan."
(4) Mr. Rubin resigned effective April 15, 1998. See "Certain Transactions."
43
<PAGE>
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:
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------
POTENTIAL REALIZABLE
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(4)...... -- -- -- -- -- --
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. On January 12, 1998, the Company granted options to purchase Common
Stock at an exercise price of $7.70 per share, with the exception of
Messrs. Gandhi and Lewis for whom the exercise price is $7.00 per share,
to the following Named Executive Officers in the following amounts:
100,000 shares to Mark R. Templeton, 50,000 shares to each of Scott T.
Becker and Dhrumil Gandhi, 35,000 shares to Jeffrey A. Lewis and 20,000
shares to Daniel I. Rubin. See "--Stock Plans."
(3) Options were granted at an exercise price equal to the fair market value
of the Company's Common Stock on the date of grant, as determined by the
Board of Directors. The Company's Common Stock was not traded publicly at
the time of the foregoing grant to Mr. Lewis.
(4) Mr. Rubin resigned effective April 15, 1998. See "Certain Transactions."
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<PAGE>
The following table sets forth certain information with respect to the
number and value of the stock options held by each Named Executive Officer as
of September 30, 1997.
AGGREGATED OPTION EXERCISES IN FISCAL 1997
AND OPTION VALUES AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE SEPTEMBER 30, 1997 SEPTEMBER 30, 1997(2)
ON REALIZED ------------------------- -------------------------
NAME EXERCISE ($)(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(4)...... -- -- -- -- -- --
Jeffrey A. Lewis........ -- -- 63,426 190,279 $307,616 $922,853
</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.
(4) Mr. Rubin resigned effective April 15, 1998. See "Certain Transactions."
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 1993 Plan is currently being administered by the
Compensation Committee of the Board of Directors.
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
45
<PAGE>
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 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 March 31, 1998, 926,192 shares of Common Stock had been issued upon
the exercise of options granted under the 1993 Plan, options to purchase
2,211,708 shares of Common Stock at a weighted average exercise price of
$4.4828 per share were outstanding and 1,153,496 shares remained 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, is 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 is implemented in a series of
overlapping offering periods, each to be approximately 24 months in duration.
The initial offering period under the Purchase Plan began on February 2, 1998
and will continue until July 31, 2000. Following the initial offering period,
the offering periods under the Purchase Plan 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
46
<PAGE>
than such fair market value on the start date of that offering period, then
all participants in that offering period will be automatically withdrawn 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 became effective upon
the effective date of the Company's initial public 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 provided for the grant of an initial option to purchase
25,000 shares to each nonemployee director of the Company upon the effective
date of the Company's initial public offering at a per share exercise price
equal to the initial public offering price. Each new nonemployee director
joining the Board of Directors 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 in February
2008, unless sooner terminated by the Board of Directors.
As of March 31, 1998, no shares of Common Stock had been issued upon the
exercise of options granted under the Director Plan, options to purchase
50,000 shares of Common Stock
47
<PAGE>
at a weighted average exercise price of $10.00 per share were outstanding and
150,000 shares remained available for future option grants under the Director
Plan.
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 $10,000 in calendar year 1998) 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 the sale or merger of
the Company with another entity, 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 ($86,400 based on Mr.
Selvi's current salary) 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. For purposes of Mr. Selvi's severance agreement, a
change in control is defined as (i) any person becoming the beneficial owner
of 50% or more of the total voting power of the Company's then outstanding
voting securities, (ii) a change in the composition of the Board of Directors
within a two year period such that a majority of the then current directors
are not directors as of the date of Mr. Selvi's agreement or nominated or
elected by a majority of such directors at the time of such nomination or
(iii) 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 at least 50% of the total voting power represented by the voting
securities of the Company or such
48
<PAGE>
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.
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.
49
<PAGE>
CERTAIN TRANSACTIONS
PRIVATE PLACEMENT OF SECURITIES
Between March and December 1996, the Company sold 2,263,802 shares of Series
A Preferred Stock at a price of approximately $1.55 per share and 1,121,934
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 (the "'Warrant"), subject to certain contingencies, at a price
to be determined at the time of issuance.
The purchasers of Preferred Stock and the Warrant were the following
stockholders 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 .................... 2,257,010 279,644 $4,543,810
OTHER STOCKHOLDERS
Synopsys(2)................................ -- 891,448 3,360,759
2180 Associates Fund....................... 6,792 842 13,670
</TABLE>
- --------
(1) The purchasers of these securities are entitled to registration rights.
See "Description of Capital Stock--Registration Rights."
(2) Includes the exercise of the Warrant prior to the closing of the Company's
initial public offering on February 6, 1998 for 50,000 shares of Common
Stock at $3.77 per share.
TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND GREATER THAN 5%
STOCKHOLDERS
In September 1997, the Company issued an aggregate of 20,602 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>
50
<PAGE>
On January 12, 1998, the Company granted options to purchase its Common
Stock to the following individuals at the exercise price per share shown:
<TABLE>
<CAPTION>
NUMBER
OF EXERCISE
STOCKHOLDER SHARES PRICE(1)
----------- ------- --------
<S> <C> <C>
Scott T. Becker........................................... 50,000 $7.70
Dhrumil Gandhi............................................ 50,000 $7.00
Duane R. Hook............................................. 35,000 $7.70
Jeffrey A. Lewis.......................................... 35,000 $7.00
John G. Malecki........................................... 35,000 $7.70
Daniel I. Rubin(2)........................................ 20,000 $7.70
Mark R. Templeton......................................... 100,000 $7.70
</TABLE>
- --------
(1) Options granted to holders of 10% or more of the Company's Common Stock
have exercise prices of 110% of the fair market value of the Common Stock
on the date of grant.
(2) Mr. Rubin resigned from the Company effective April 15, 1998 and the above
noted option terminated at that time as none of the shares were vested.
The foregoing option grants become 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.
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 the 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 the time of issuance of such shares.
Synopsys exercised the Warrant on February 6, 1998 for 50,000 shares of Common
Stock at $3.77 per share. The Warrant terminated with respect to such variable
amount of shares upon the closing of the Company's initial public offering.
As of March 31, 1998, Synopsys beneficially owned 891,448 shares of Common
Stock (the "Synopsys Shares"). Synopsys has informed the Company that it has
entered into a forward sale arrangement, effective upon the closing of this
Offering, with respect to the Synopsys Shares with Deutsche Bank AG, London
Branch ("Deutsche Bank"), an affiliate of Deutsche Morgan Grenfell Inc. (the
lead Underwriter for this Offering, see "Underwriting"), under which Synopsys
will sell to Deutsche Bank all of the Synopsys Shares. See "Principal and
Selling Stockholders" and "Underwriting."
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
51
<PAGE>
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.
TRANSACTIONS WITH DANIEL I. RUBIN
In connection with the termination of Daniel I. Rubin's employment with the
Company, the Company and Mr. Rubin, who was Vice President, Business
Development until April 15, 1998, entered into a separation agreement pursuant
to which Mr. Rubin will receive $86,400 to be paid over a period of six months
plus a lump sum of approximately $8,200 representing the approximate cost to
the Company of six months of the benefits received by Mr. Rubin and amounts
due to Mr. Rubin for benefits to which he was previously entitled.
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.
52
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Stock as of March 31, 1998, 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, (iii) by
all directors and executive officers as a group and (iv) by each Selling
Stockholder. 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.
<TABLE>
<CAPTION>
SHARES
SHARES BENEFICIALLY BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING(1) OFFERING(1)
----------------------- SHARES ------------------
NAME AND ADDRESS OF BEING
BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------- ------------ ---------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Entities affiliated with
U.S. Venture Partners(2)... 2,536,654 20.6% 500,000 2,036,654 15.4%
2180 Sand Hill Road, Suite
300
Menlo Park, CA 94025
Amerindo Investment 1,786,000 14.5 -- 1,786,000 13.5
Advisors, Inc.(3)..........
One Embarcadero Center,
Suite 2300
San Francisco, CA 94111
John G. Malecki............. 1,000,500 8.1 100,050 900,450 6.8
1195 Bordeaux Drive
Sunnyvale, CA 94089
Duane R. Hook............... 900,500 7.3 90,050 810,450 6.1
1195 Bordeaux Drive
Sunnyvale, CA 94089
Daniel I. Rubin(4).......... 895,500 7.3 475,000 420,500 3.2
212 Selby Lane
Atherton, CA 94027
Synopsys, Inc............... 891,448 7.2 (5) (5) (5)
700 East Middlefield Road
Mountain View, CA 94043
Lucio L. Lanza(2)........... 2,536,654 20.6 500,000 2,036,654 15.4
Mark R. Templeton........... 961,503 7.8 96,150 865,353 6.5
Scott T. Becker(6).......... 889,400 7.2 88,940 800,460 6.0
Dhrumil Gandhi(7)........... 344,248 2.8 34,978 309,270 2.3
Jeffrey A. Lewis(8)......... 95,639 * 9,514 86,125 *
Dr. Eli Harari.............. -- * -- -- *
All directors and executive
officers as a group (8
persons)(9)................ 4,827,611 38.6 729,582 4,098,029 30.4
All other Selling
Stockholders, each of whom
owns less than 1% of the
outstanding Common Stock... 45,000
</TABLE>
- --------
* Less than 1%.
(1) Number of shares beneficially owned and the percentage of shares
beneficially owned are based on: (i) 12,297,541 shares outstanding as of
March 31, 1998, (ii) 13,266,411 shares outstanding after this Offering
and (iii) assumes no exercise of the Underwriters' over-allotment option.
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 March
31, 1998 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.
53
<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. and 76,328 shares held by USVP
Entrepreneur Partners II, L.P. 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. and USVP Entrepreneur Partners II, L.P. are William K.
Bowes, Jr., Irwin B. Federman, Steven M. Krausz, Dale J. Vogel and Philip
M. Young.
(3) Reflects information filed with the Securities and Exchange Commission on
Schedule 13D/A on March 13, 1998 by Amerindo Investment Advisors Inc.
("Amerindo") a registered investment advisor. Amerindo filed on behalf of
itself, Amerindo Investment Advisors Inc., a Panama corporation
("Panama"), Alberto W. Vilar and Gary A. Tanaka. Messrs. Vilar and Tanaka
are the only directors and executive officers of Panama and are each
directors and executive officers of Amerindo. Although the Schedule 13D/A
was filed jointly, each of Messrs. Vilar and Tanaka, Amerindo and Panama
expressly disclaim direct membership in any group. Amerindo has shared
voting and dispositive power over 1,345,000 shares of the Company's
Common Stock. Panama has shared voting and dispositive power over 441,000
shares of the Company's Common Stock. Messrs. Vilar and Tanaka have
shared voting and dispositive power over 1,786,000 shares of the
Company's Common Stock.
(4) Includes 18,900 shares held in trust for Mr. Rubin's children over which
Mr. Rubin may be deemed to share voting and investment power.
(5) Pursuant to an arrangement between Synopsys and Deutsche Bank, Synopsys
will sell all of its shares to Deutsche Bank over an 18 month period
following the date of this Prospectus. See "--Synopsys Shares" below.
(6) Includes 20,400 shares held in trust for Mr. Becker's children over which
Mr. Becker may be deemed to share voting and investment power.
(7) Includes 12,300 shares held in trust for Mr. Gandhi's children and
180,827 shares held in trust for the Gandhi Family Trust. Mr. Gandhi may
be deemed to share voting and investment power over each of these trusts.
Also includes 138,308 shares subject to outstanding options held by Mr.
Gandhi and exercisable within 60 days after March 31, 1998.
(8) Includes 81,139 shares subject to outstanding options held by Mr. Lewis
and exercisable within 60 days after March 31, 1998.
(9) Includes 219,447 shares subject to outstanding options exercisable within
60 days after March 31, 1998 held by all executive officers and directors
as a group.
SYNOPSYS SHARES
Synopsys is the beneficial owner of the Synopsys Shares (891,448 shares of
Common Stock) representing approximately 7.2% of the outstanding Common Stock
of the Company as of March 31, 1998. Synopsys is also one of the Company's
primary competitors. See "Risk Factors--Competition."
Synopsys has informed the Company that it has entered into a forward sale,
effective upon the closing of this Offering, of the Synopsys Shares with
Deutsche Bank. The forward sale involves the sale by Synopsys to Deutsche Bank
of the Synopsys Shares at a per share price equal to the price to the public
set forth on the cover page of this Prospectus less the underwriting discount.
The Synopsys Shares subject to the forward sale arrangement will be delivered
to Deutsche Bank and payment made therefor in approximately equal installments
on six quarterly settlement dates beginning June 15, 1998 and ending September
15, 1999. The forward sale arrangement provides for acceleration under certain
circumstances, including termination of the borrowing arrangement described
below.
Deutsche Bank has informed the Company that it will hedge its forward
purchase of the Synopsys Shares by selling short through Deutsche Morgan
Grenfell Inc. an equivalent number of shares of Common Stock as part of this
Offering. Synopsys has agreed to lend to Deutsche Bank the Synopsys Shares
prior to the closing of this Offering so that Deutsche Bank can use the
borrowed shares to effect its short sale. Deutsche Bank's short sale, and the
accompanying borrowing arrangement with Synopsys, are being effected pursuant
to the Registration Statement, and Deutsche Morgan Grenfell Inc. will deliver
this Prospectus in connection with any sales of Shares effected on Deutsche
Bank's behalf.
Assuming that all the shares of Common Stock intended to be sold by Synopsys
pursuant to its forward sale arrangement with Deutsche Bank are sold, and
assuming no other acquisition of the Company's Common Stock by Synopsys,
Synopsys will no longer own any shares of the Company's Common Stock as of the
final settlement date under the forward sale arrangement.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is 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 March 31, 1998, there were 12,297,541 shares of Common Stock
outstanding held of record by approximately 108 stockholders. As of March 31,
1998, options to purchase an aggregate of 2,261,708 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, 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.
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.
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<PAGE>
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 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.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), a provision that, in general, 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
56
<PAGE>
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 2,935,736 shares of Common Stock 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 the
Company's initial public 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
than 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 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
the Company's initial public offering or more than the earlier of five years
after the closing of the Company's initial public 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 BankBoston, N.A. Its address is
150 Royall Street, Canton, Massachusetts 02021, and its telephone number is
(617) 575-3120.
57
<PAGE>
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 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 13,266,411 shares of Common Stock (based upon shares outstanding
at March 31, 1998), assuming no exercise of the Underwriters' over-allotment
option and no exercise of outstanding options. Of these shares, the 3,300,000
shares sold in this Offering and the 3,335,000 shares sold in the Company's
initial public 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 6,631,411 shares of Common Stock held by officers,
directors, employees, consultants and other stockholders of the Company are
"restricted shares" as that term is defined in Rule 144 (the "Restricted
Shares") and were sold by the Company in reliance upon exemptions from the
registration requirements of the Securities Act. 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 621,429 shares will become eligible for sale upon
expiration of lock-up agreements on August 1, 1998 (iii) approximately
2,457,321 shares will become eligible for sale 90 days after the date of this
Prospectus and (iv) approximately 3,552,661 shares will become eligible 180
days after the date of this Prospectus.
In addition to the restrictions under the Securities Act set forth above,
the number of shares of Common Stock available for sale in the public market
is limited by (i) lock-up agreements executed by optionholders and
substantially all stockholders of the Company in connection with the Company's
initial public offering in February 1998, which agreements expire on August 1,
1998, (ii) lock-up agreements entered into by Selling Stockholders who are
current officers or founders in connection with this Offering under which such
Selling Stockholders have agreed not to sell or otherwise dispose of any of
their shares for a period of 180 days from the date of this Prospectus and
(iii) lock-up agreements entered into by officers (who are not Selling
Stockholders), directors and Selling Stockholders (other than current founders
and officers) in connection with this Offering under which such persons have
agreed not to sell or otherwise dispose of any of their shares for a period of
90 days from the date of this Prospectus. 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 such 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 on or about May
3, 1998, 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 132,664 shares immediately after
this Offering); or (ii) the average weekly trading volume of the Common Stock
on the Nasdaq National Market during the four
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<PAGE>
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 limitation or notice provisions of Rule 144; therefore,
unless otherwise restricted, "144(k) shares" become saleable upon the
completion of the Company's initial public 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 the
Company's initial public 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 2,935,736 shares of Common
Stock, 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
and Director Plan. See "Management--Stock Plans." Such registration statement
is expected to be filed and become effective on or prior to July 31, 1998.
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 March 31, 1998, options to purchase 2,261,708
shares of Common Stock were outstanding, of which options to purchase
approximately 263,646 shares were then vested and exercisable. At March 31,
1998, no shares had been issued under the Purchase Plan. Beginning upon the
expiration of the lock-up agreements described above, approximately 432,695
shares issuable upon the exercise of vested stock options will become eligible
for sale in the public market, if such options are exercised.
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<PAGE>
UNDERWRITING
The Underwriters named below, for whom Deutsche Morgan Grenfell Inc.,
Hambrecht & Quist LLC and Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated ("Dain Rauscher Wessels"), are acting as Representatives (the
"Representatives"), have severally agreed, subject to the terms and subject to
the conditions in the Underwriting Agreement, to purchase from the Company and
the Selling Stockholders the respective numbers of shares of Common Stock
indicated below 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.................................... (1)
Hambrecht & Quist LLC...........................................
Dain Rauscher Wessels...........................................
---------
Total....................................................... 3,300,000
=========
</TABLE>
- --------
(1) Includes 891,488 shares being sold short by Deutsche Bank in connection
with the forward sale arrangement with Synopsys. See "Principal and
Selling Stockholders--Synopsys Shares" and the discussion below.
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 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 has granted to the
Underwriters an option to purchase up to 495,000 additional shares of Common
Stock, to cover over-allotments, if any, at the 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 Company 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 until August 1, 1998,
without the prior consent of Deutsche Morgan Grenfell Inc. In addition, in
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<PAGE>
connection with this Offering, Selling Stockholders who are founders or
executive officers 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.
In connection with this Offering, the directors, all other Selling
Stockholders and the executive officers who are not Selling Stockholders 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 90 days after the date of this Prospectus. 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., 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 effective date of this Offering, without the consent of Deutsche
Morgan Grenfell Inc., except with respect to the issuance of shares of Common
Stock issued pursuant to any employee benefit plans, qualified stock option
plans or other employee compensation plans which are discussed herein.
The Underwriting Agreement provides that the Company and the Selling
Stockholders 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.
Synopsys has informed the Company that it has entered into a forward sale,
effective upon the closing of this Offering, of the Synopsys Shares with
Deutsche Bank. See "Principal and Selling Stockholders--Synopsys Shares."
Deutsche Bank has informed the Company that it will hedge its forward purchase
of the Synopsys Shares by selling short through Deutsche Morgan Grenfell Inc.
an equivalent number of shares of Common Stock as part of this Offering.
Synopsys has agreed to lend to Deutsche Bank all of the Synopsys Shares prior
to the closing date of this Offering so that Deutsche Bank can use the
borrowed shares to effect its short sale. In return for use of the borrowed
shares, Deutsche Bank will provide to Synopsys cash collateral equal to 102%
of the market value of the borrowed shares and will receive interest thereon
from Synopsys. Deutsche Bank's short sale, and the accompanying borrowing
arrangement with Synopsys, are being effected pursuant to the Registration
Statement, and Deutsche Morgan Grenfell Inc. will deliver this Prospectus in
connection with any sales effected on Deutsche Bank's behalf. Deutsche Morgan
Grenfell Inc. will act as agent to Deutsche Bank and Synopsys in connection
with the forward sale and borrowing arrangements. In connection with such
arrangements, Synopsys 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. Deutsche Morgan Grenfell Inc. has also provided investment banking
services to Synopsys in the past, and Synopsys is one of the Company's primary
competitors. See "Risk Factors--Competition."
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
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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.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for, or purchase, the Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive
market maker generally may not exceed 30% of its average daily trading volume
in the Common Stock during a specified two month prior period, or 200 shares,
whichever is greater. A passive market maker must identify passive market
making bids as such on the Nasdaq electronic interdealer reporting system.
Passive market making may stabilize or maintain the market price of the Common
Stock above independent market levels. Underwriters and dealers are not
required to engage in passive market making and may end passive market making
activities 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. A member of
Wilson Sonsini Goodrich & Rosati is the owner of 1,000 shares of the Company's
Common Stock.
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 No. 333- (the
"Registration Statement") 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.
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The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission's Internet address is http://www.sec.gov. The Commission
web site contains reports, proxy and information statements, and other
information regarding registrants that file electronically with the
Commission. The Common Stock of the Company is quoted on the Nasdaq National
Market. Reports, proxy and information statements and other information
concerning the Company may be inspected at the National Association of
Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
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.
63
<PAGE>
ARTISAN COMPONENTS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................................... F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Stockholders' Equity ......................................... F-5
Statements of Cash Flows.................................................... 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, except for Notes 14 and 15,
for which the date is April 14, 1998
F-2
<PAGE>
ARTISAN COMPONENTS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
-------------- -----------
1996 1997 1998
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 709 $ 1,069 $ 1,579
Contract receivables (net of allowance of zero,
$275 and $275 at September 30, 1996 and 1997 and
March 31, 1998, respectively).................... 832 2,834 3,068
Marketable securities............................. 1,249 2,499 29,141
Prepaid expenses and other current assets......... 343 564 947
------ ------- -------
Total current assets............................ 3,133 6,966 34,735
Marketable securities............................... 1,000 986 --
Property and equipment, net......................... 973 3,969 5,330
Deferred tax asset.................................. 28 6 6
Other assets........................................ 38 84 314
------ ------- -------
Total assets.................................... $5,172 $12,011 $40,385
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............. $ 375 $ 631 $ 1,198
Accrued warranty.................................. -- 165 138
Deferred tax liability............................ 163 384 384
Deferred revenue.................................. 327 1,434 1,153
------ ------- -------
Total current liabilities....................... 865 2,614 2,873
Deferred rent....................................... 15 49 23
Deferred revenue.................................... -- -- 209
------ ------- -------
Total liabilities............................... 880 2,663 3,105
------ ------- -------
Commitments (Note 8).
Stockholders' Equity:
Convertible Preferred Stock, $0.001 par value:
Authorized: 2,264, 3,436, and 5,000 shares at
September 30, 1996 and 1997 and March 31, 1998,
respectively;
Issued and outstanding: 2,264, 3,386, and none at
September 30, 1996 and 1997, and March 31, 1998.. 3,478 7,564
(Liquidation value: $9,995 at September 30, 1997)
Common Stock, $0.001 par value:
Authorized: 50,000 shares;
Issued and outstanding: 5,114, 5,644, and 12,298
shares at September 30, 1996 and 1997, and March
31, 1998, respectively........................... 5 6 12
Warrant ........................................... -- 125 --
Additional paid in capital......................... 528 688 35,705
Retained earnings.................................. 281 965 1,563
------ ------- -------
Total stockholders' equity...................... 4,292 9,348 37,280
------ ------- -------
Total liabilities and stockholders' equity...... $5,172 $12,011 $40,385
====== ======= =======
</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>
SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
---------------------------- ---------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.......................... $ 2,718 $ 4,147 $ 8,912 $ 3,155 $ 7,089
Cost and expenses:
Cost of revenue................ 984 1,280 2,855 926 2,100
Product development............ 1,044 1,080 1,955 841 1,714
Sales and marketing............ 272 603 2,019 704 1,802
General and administrative..... 415 611 1,340 501 893
-------- -------- -------- ------- -------
Total cost and expenses...... 2,715 3,574 8,169 2,972 6,509
-------- -------- -------- ------- -------
Operating income................. 3 573 743 183 580
Other income..................... -- 98 297 132 307
Interest expense................. -- 2 -- -- --
-------- -------- -------- ------- -------
Income before provision for
income taxes.................... 3 669 1,040 315 887
Provision for income taxes....... 36 137 356 109 289
-------- -------- -------- ------- -------
Net income (loss)................ $ (33) $ 532 $ 684 $ 206 $ 598
======== ======== ======== ======= =======
Basic earnings per share
(historical).................... $ 0.13 $ 0.04 $ 0.08
======== ======= =======
Diluted earnings per share
(historical).................... $ 0.07 $ 0.02 $ 0.05
======== ======= =======
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
======== ========
Basic earnings per share (pro
forma).......................... $ 0.00 $ 0.08
======== ========
Diluted earnings per share (pro
forma).......................... $ 0.00 $ 0.06
======== ========
</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
AND FOR THE SIX MONTHS ENDED MARCH 31, 1998
(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
Compensation expense for
options granted............ -- -- -- -- -- 41 -- 41
Issuance of Warrant......... -- -- -- -- $ 125 -- -- 125
Net income.................. -- -- -- -- -- -- 684 684
------- -------- ------ --- ----- ------- ------ ------
Balance at September 30, 1997. 3,386 $ 7,564 5,644 $ 6 $ 125 $ 688 $ 965 $9,348
Common stock issued upon
conversion of Series A and
Series B Preferred Stock... (3,386) (7,564) 3,386 3 -- 7,561 -- --
Common stock issued upon
exercise of warrant........ -- -- 50 -- (125) 313 -- 188
Common stock issued upon
initial public offering.... -- -- 3,015 3 -- 27,091 -- 27,094
Options exercised........... -- -- 203 -- -- 17 -- 17
Compensation expense for
options granted............ -- -- -- -- -- 35 -- 35
Net income.................. -- -- -- -- -- -- 598 598
------- -------- ------ --- ----- ------- ------ ------
Balance at March 31, 1998
(unaudited).................. -- $ -- 12,298 $12 $ -- 35,705 $1,563 37,280
======= ======== ====== === ===== ======= ====== ======
</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>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
--------------------------- ---------------
1995 1996 1997 1997 1998
-------- -------- -------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss).............. $ (33) $ 532 $ 684 $ 206 $ 598
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization................ 167 250 777 244 829
(Gain) Loss on sale of fixed
assets...................... 2 -- -- -- (38)
Provision for doubtful
accounts.................... -- -- 275 75 --
Issuance of Common Stock to
employees as a stock bonus.. -- -- 103 51 --
Compensation expense for
options granted............. -- -- 41 16 35
Changes in assets and
liabilities:
Contract receivables....... (1,308) 86 (2,277) (1,597) (533)
Deferred revenue........... 1,007 (250) 1,107 1,095 227
Prepaid expenses and other
assets.................... 99 (297) (267) 89 (613)
Deferred rent.............. -- 15 34 33 (26)
Deferred taxes............. -- 135 243 164 --
Accounts payable and
accrued expenses.......... 21 95 37 (81) 517
------- -------- -------- ------ -------
Net cash provided by
(used in) operating
activities.............. (45) 566 757 295 996
------- -------- -------- ------ -------
Cash flows from investing
activities:
Acquisition of property and
equipment..................... (90) (777) (3,389) (929) (2,179)
Proceeds from sale of property
and equipment................. 4 12 -- -- 50
Purchase of marketable
securities.................... -- (4,255) (5,692) (3,697) (25,656)
Proceeds from sales of
marketable securities......... -- 2,007 4,456 -- --
------- -------- -------- ------ -------
Net cash used in
investing activities.... (86) (3,013) (4,625) (4,626) (27,785)
------- -------- -------- ------ -------
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 4,211 --
Proceeds from issuance of
Common Stock.................. -- 1 17 15 27,299
Distributions to stockholders.. (143) (129) -- -- --
------- -------- -------- ------ -------
Net cash provided by
financing activities.... 57 3,150 4,228 4,226 27,299
------- -------- -------- ------ -------
Net increase (decrease) in cash
and cash equivalents............ (74) 703 360 (105) 510
Cash and cash equivalents,
beginning of period............. 80 6 709 709 1,069
------- -------- -------- ------ -------
Cash and cash equivalents, end of
period.......................... $ 6 $ 709 $ 1,069 $ 604 $ 1,579
======= ======== ======== ====== =======
CASH PAID FOR:
Income taxes................... $ 1 $ 2 $ 2 $ 2 $ 23
======= ======== ======== ====== =======
Interest paid.................. $ -- $ 2 $ -- $ -- $ --
======= ======== ======== ====== =======
SUPPLEMENTAL DISCLOSURE OF
NONCASH ACTIVITIES:
Fixed asset acquisitions in
exchange for accounts payable. $ -- $ 208 $ 384 $ 34 $ 23
======= ======== ======== ====== =======
Issuance of Common Stock to em-
ployees as a stock bonus...... $ -- $ -- $ 103 $ 51 $ --
======= ======== ======== ====== =======
Compensation expense for op-
tions granted................. $ -- $ -- $ 41 $ 16 $ 35
======= ======== ======== ====== =======
</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 ICs 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 received under the terms of license
agreements with customers to provide the Company's IP component products which
are customized to each customer's manufacturing process. IP component products
consist of data and/or software and related documentation which enables a
customer to design and manufacture complex integrated circuits. The software,
if any, included in the Company's IP component products is incidental. The
purpose of the license is to permit the customer to use the Company's IP in
connection with the design and manufacture of the customers' products. The
customization of the IP component products generally takes up to six months to
complete and the customer obtains ownership rights to the in-process
customization as well as the completed customization. The license period is
typically twenty years. Under the terms of a typical license agreement, a
portion of the fees are paid on signing of the agreement with the final
payment due within 30 days of completion of customization. The Company
warrants that the licensed products shall be free from defects and conform to
customer's specifications. The warranty period is typically 90 days but can
extend to a maximum of one year. Some licenses provide for ongoing product
support, which is insignificant, that consists of an identified customer
contact at the Company and telephonic or e-mail product support. No upgrades
or modifications to the licensed product are provided. The product support
period is generally three years. Other than warranty and ongoing product
support, the Company has no further obligations subsequent to completion of
the customization. Revenue from license fees is recognized based on the
percentage of completion method over the period that the Company completes
customization for the majority of the Company's contracts. Under certain
contracts where the costs cannot be estimated, the completed contract method
is utilized whereby revenue and costs are recognized when the Company
completes customization. Under the percentage of completion and completed
contract methods, provisions for estimated losses on uncompleted contracts are
recognized in the period in which the likelihood of such losses is determined.
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 and
product support costs and is recognized on the percentage of completion
method.
F-7
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Product Development
Product development expenses are charged to operations as incurred.
Earnings Per Share (EPS)--See Note 14
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 using 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.
Unaudited Interim Financial Information
The accompanying interim balance sheet as of March 31, 1998 and the
statements of operations and cash flows for the six months ended March 31,
1997 and 1998 together with the related notes are unaudited but include all
adjustments, consisting of only normal recurring adjustments, which the
Company considers necessary to present fairly, in all material respects, the
financial position, the results of operations and cash flows for the six
months ended March 31, 1997 and 1998. Results for the six months ended March
31, 1997 and 1998 are not necessarily indicative of results for an entire
year.
Recent Pronouncements
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
F-8
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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.
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 that 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. At March 31, 1998,
five customers accounted for 20%, 19%, 14%, 14% and 12%, respectively, of
contract receivables.
As of March 31, 1998, 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 one
year.
4. CONTRACT RECEIVABLES:
Contract receivables were comprised of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
------------- ---------------
1996 1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Accounts receivable......................... $ 269 $ 1,092 $1,175
Unbilled contract receivables............... 563 2,017 2,168
----- ------- ------
832 3,109 3,343
Allowance for doubtful accounts............. -- (275) (275)
----- ------- ------
$ 832 $ 2,834 $3,068
===== ======= ======
</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, MARCH 31,
--------------- -----------
1996 1997 1998
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software............... $1,339 $ 3,969 $4,527
Office furniture.............................. 197 288 715
Leasehold improvements........................ 44 1,096 2,227
------ ------- ------
1,580 5,353 7,469
Accumulated depreciation and amortization..... (607) (1,384) (2,139)
------ ------- ------
$ 973 $ 3,969 $5,330
====== ======= ======
</TABLE>
Depreciation and amortization expense was $167,000, $250,000, $777,000,
$246,000 and $829,000 for the years ended September 30, 1995, 1996 and 1997
and the six months ended March 31, 1997 and 1998, respectively.
6. MARKETABLE SECURITIES:
Marketable securities, classified as available-for-sale securities, included
the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
------------- -----------
1996 1997 1998
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Short term investments:
U.S. Government Securities..................... $1,249 $2,499 $ --
====== ====== =======
Municipal government obligations............... -- -- $29,141
====== ====== =======
Long term investments:
U.S. Government Securities..................... $1,000 $ 986 $ --
====== ====== =======
</TABLE>
All short term investments have maturities of less than one year from the
respective balance sheet date. 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 expired on February 28, 1998.
There were no borrowings under this line as of September 30, 1996 and 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 in Sunnyvale 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 $201,000, $324,000, $442,000, $213,000 and $252,000 for the
fiscal years ended September 30, 1995, 1996 and 1997, and for the six months
ended March 31, 1997 and 1998, 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 an aggregate of 50,000 shares of Series B
Preferred Stock at an exercise price of $3.77 and an additional, variable
amount of Series B Preferred Stock, at a price to be determined at the time of
issuance of such shares. The variable number of shares purchasable upon any
exercise of the warrant (the "Additional Shares") is limited to such number of
shares of Series B Preferred Stock that, when combined with (x) the number of
shares of Series B Preferred Stock originally purchased by Synopsys, and (y)
any additional shares of Preferred Stock of the Company purchased by Synopsys
after the date of issuance of the warrant in
F-12
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY, CONTINUED:
connection with such warrant or otherwise, will increase Synopsys' aggregate
percentage ownership to 9.9% of the Company's issued and outstanding capital
stock at the time of such exercise. The exercise price for the Additional
Shares would vary depending on the event that triggered the exercisability of
the warrant and on an issuance of Additional Shares in conjunction with an
initial public offering, the exercise price will be the public offering price
per share less any underwriting discounts and commissions. The Company has
reserved 50,000 shares of Common Stock for issuance upon exercise of the
warrant.
Stock Option Plan
The Company had reserved 4,491,396 shares of its Common Stock under its 1993
Stock Option Plan, as amended (the "1993 Plan") and the 1997 Director Option
Plan for issuance upon the exercise of nonstatutory and incentive stock
options to employees and consultants as of September 30, 1997. In November
1997, the Board of Directors also authorized and the stockholders approved,
the reservation of an additional two million shares for issuance under the
1993 Plan. The 1993 Plan expires in 2003 and the 1997 Director Option Plan
expires in 2008. 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 1993 Stock Option Plans and the 1997 Director Option 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 $0.01
Additional shares re-
served 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 $0.0477
Additional shares re-
served 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 $1.5634
Additional shares
reserved for issuance... 2,200 -- -- -- --
Granted.................. (1,105) 1,105 $5.00-$17.12 8,330 $7.2604
Exercised................ -- (203) $0.01-$ 2.00 (18) $0.0855
Canceled................. 47 (47) $0.15-$ 7.00 (97) $2.0137
------ ----- -------
Balance at March 31, 1998
(unaudited)............... 1,303 2,262 $10,415 $4.6047
====== ===== ======= =======
</TABLE>
F-13
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY, CONTINUED:
At September 30, 1995, 1996 and 1997, and March 31, 1998, options to
purchase 225,917, 303,235, 291,011 and 263,646 shares of Common Stock,
respectively, were exercisable.
In connection with the grant of options for the purchase of 96,200 shares of
Common Stock to employees during the period from December 1996 through March
1997, the Company recorded aggregate deferred compensation of approximately
$198,000 representing the difference between the deemed fair value of the
Common Stock and the option exercise price at date of grant. Such deferred
compensation will be amortized over the vesting period relating to these
options, of which $41,000 and $24,000 has been amortized during the year ended
September 30, 1997 and the six month period ended March 31, 1998,
respectively.
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. Had compensation expense been determined at the
fair value on the grant dates for awards under the Plan consistent with the
method of SFAS No. 123, the Company's net income in 1996 and 1997 would have
been reduced to the pro forma amounts indicated below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------
1996 1997
------ ------
<S> <C> <C>
Net income
As reported, pro forma in 1996 and historical in 1997....... $ 409 $ 684
Pro forma................................................... $ 405 $ 658
Net income per share
As reported, pro forma in 1996 and historical in 1997
Basic earnings per share................................... $ 0.08 $ 0.13
Diluted earnings per share................................. $ 0.06 $ 0.07
Pro forma
Basic earnings per share................................... $ 0.08 $ 0.12
Diluted earnings per share................................. $ 0.06 $ 0.07
</TABLE>
Such difference may not be representative of future compensation cost because
options vest over several years and additional grants are made each year.
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.
F-14
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY, CONTINUED:
The options outstanding and currently exercisable by exercise price at March
31, 1998 are as follows (in thousands, except per share data):
<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>
$0.01-$ 1.00 704 8.10 $0.15 257 $0.15
$2.00-$ 3.50 46 9.01 $2.51 7 $1.88
$4.50-$ 5.00 467 9.30 $4.70 -- --
$6.00-$17.12 1,045 9.78 $7.59 -- --
----- ---
2,262 $4.60 264 $0.19
===== ===
</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>
1996 1997
---- ----
<S> <C> <C>
Federal:
Current........................................................ $ -- $ --
Deferred....................................................... 114 181
---- ----
114 181
State:
Current........................................................ 3 --
Deferred....................................................... 20 49
---- ----
23 49
Foreign:
Current........................................................ -- 126
---- ----
Total........................................................ $137 $356
==== ====
</TABLE>
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) (4.0)
Foreign taxes........................................ 1,167.7 -- --
------- ----- ----
1,200.0% 20.5% 34.2%
======= ===== ====
</TABLE>
F-15
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES, CONTINUED:
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>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------- -------------
1995 1996 1997 1997 1998
-------- -------- -------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE FROM UNAFFILIATED CUSTOMERS:
North America......................... $ 1,222 $ 2,180 $ 2,923 $ 920 $1,853
Europe................................ 737 944 2,873 1,644 1,795
Asia.................................. 759 1,023 3,116 591 3,441
-------- -------- -------- ------ ------
$ 2,718 $ 4,147 $ 8,912 $3,155 $7,089
======== ======== ======== ====== ======
</TABLE>
F-16
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. SEGMENT REPORTING, CONTINUED:
Revenue from individual customers equal to 10% or more of revenue was as
follows (in thousands, except percent data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------------------------- -----------------------------
1995 1996 1997 1997 1998
-------------- -------------- -------------- -------------- --------------
PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A. 20% $552 20% $ 836 27% $2,362 39% $1,228 12% $836
B. 17% 466 -- -- 13% 1,145 -- -- 12% 842
C. 17% 456 10% 395 -- -- -- -- -- --
D. 11% 292 -- -- -- -- -- -- -- --
E. 10% 274 -- -- -- -- -- -- -- --
F. -- -- 15% 627 16% 1,388 -- -- 13% 900
G. -- -- 37% 1,533 -- -- 16% 509 -- --
H. -- -- -- -- 24% 2,167 13% 403 -- --
I. -- -- -- -- -- -- -- -- 11% 756
J. -- -- -- -- -- -- -- -- 13% 907
</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>
F-17
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
14. EARNINGS PER SHARE (EPS) DISCLOSURES:
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128") effective December 31,
1997. SFAS 128 requires the presentation of basic and diluted earnings per
share. Basic EPS is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for
the period. Diluted EPS is computed giving effect to all dilutive potential
common shares that were outstanding during the period. Dilutive potential
common shares consist of the incremental common shares issuable upon the
conversion of convertible preferred stock (using the "if converted" method)
and exercise of stock options and warrants for all periods. All prior period
earnings per share amounts have been restated to comply with the SFAS 128.
In accordance with the disclosure requirements of SFAS 128, a reconciliation
of the numerator and denominator of basic and diluted EPS is provided as
follows (in thousands, except per share amounts).
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------- --------------
1995 1996 1997 1997 1998
-------- -------- -------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator--Basic and Diluted EPS
Net income (historical)............. $ 684 $ 206 $ 598
======== ====== =======
Pro forma net income (unaudited).... $ 21 $ 409
======== ========
Denominator--Basic EPS
Common stock outstanding............ 5,018 5,040 5,456 5,314 7,771
-------- -------- -------- ------ -------
Basic earnings per share.............. $ 0.00 $ 0.08 $ 0.13 $ 0.04 $ 0.08
======== ======== ======== ====== =======
Denominator--Diluted EPS
Denominator--Basic EPS.............. 5,018 5,040 5,456 5,314 7,771
Effect of Dilutive Securities:
Common stock options.............. -- 773 1,052 1,150 1,158
Convertible preferred stock....... -- 1,197 3,105 2,918 2,332
-------- -------- -------- ------ -------
5,018 7,010 9,613 9,382 11,261
-------- -------- -------- ------ -------
Diluted earnings per share............ $ 0.00 $ 0.06 $ 0.07 $ 0.02 $ 0.05
======== ======== ======== ====== =======
</TABLE>
F-18
<PAGE>
ARTISAN COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
15. 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. The reincorporation occurred on January 9, 1998.
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. The Board of Directors also authorized, and the
stockholders approved, the reservation of an additional two million shares for
issuance under the 1993 Plan.
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.
On February 6, 1998, the Company completed the public offering of 3,015,000
shares of Common Stock through a Registration Statement declared effective by
the Securities and Exchange Commission on February 2, 1998. In connection with
such public offering, certain stockholders of the Company sold 320,000 shares
of the Company's Common Stock.
On April 14, 1998, the Board of Directors 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,
including the sale of shares by certain Selling Stockholders.
F-19
<PAGE>
[LOGO OF ARTISAN COMPONENTS]
Customers Include Many Of The World's Leading Semiconductor Manufacturers
PROCESS TECHNOLOGIES
---------------------------------
<TABLE>
<CAPTION>
CUSTOMERS 0.6Mu 0.5Mu 0.35Mu 0.25Mu
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Analog Devices X
----------------------------------------------------------------------------
ATI Technologies X X X X
----------------------------------------------------------------------------
Chartered X
----------------------------------------------------------------------------
Fujitsu X X
----------------------------------------------------------------------------
GEC Plessey X X
----------------------------------------------------------------------------
LSI Logic X X
----------------------------------------------------------------------------
NEC X X
----------------------------------------------------------------------------
Newport Wafer Fab X X
----------------------------------------------------------------------------
OKI Electric X X X
----------------------------------------------------------------------------
SGS-THOMSON X X X
----------------------------------------------------------------------------
Toshiba X
----------------------------------------------------------------------------
TSMC X
----------------------------------------------------------------------------
VLSI Technology X
</TABLE>
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION 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
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE 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
Price Range of Common Stock............................................ 15
Capitalization ........................................................ 16
Selected Financial Data ............................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations ........................................................ 18
Business .............................................................. 28
Management............................................................. 39
Certain Transactions .................................................. 50
Principal and Selling Stockholders .................................... 53
Description of Capital Stock .......................................... 55
Shares Eligible for Future Sale ....................................... 58
Underwriting .......................................................... 60
Legal Matters ......................................................... 62
Experts ............................................................... 62
Additional Information ................................................ 62
Index to Financial Statements.......................................... F-1
</TABLE>
- --------------------------------------------------------------------------------
ARTISAN LOGO
3,300,000 SHARES
COMMON STOCK
DEUTSCHE MORGAN GRENFELL
HAMBRECHT & QUIST
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
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...................................................... $ 22,530
NASD Filing Fee....................................................... 8,137
Nasdaq National Market Listing Fee.................................... 17,500
Blue Sky Fees and Expenses............................................ 10,000
Printing and Engraving Expenses....................................... 125,000
Legal Fees and Expenses............................................... 175,000
Accounting Fees and Expenses.......................................... 70,000
Transfer Agent and Registrar Fees..................................... 2,500
Miscellaneous expenses................................................ 19,333
--------
Total............................................................... $450,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is 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
II-1
<PAGE>
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 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.
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 and 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 December 31, 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 March 1997 and
the one-for-two reverse stock split effected in November 1997):
1. From December 31, 1994 to March 31, 1998, the Registrant issued and sold
817,192 shares of Common Stock to employees and consultants at prices
ranging from $0.01 to $2.00 per share, upon exercise of stock options,
pursuant to the Registrant's 1993 Stock Option Plan.
2. On September 30, 1997, the Registrant issued 20,602 shares of Common Stock
to employees as a stock bonus.
3. On March 21, 1996, the Registrant issued and sold 2,263,802 shares of
Series A Preferred Stock to a total of four investors for an aggregate
purchase price of $3,500,059.64.
II-2
<PAGE>
4. On December 17, 1996, the Registrant issued and sold 1,121,934 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. Such warrant was exercised prior to the
closing of the Registrant's initial public offering on February 6, 1998 for
50,000 shares at $3.77 per share. The warrant terminated with respect to
any additional shares upon the closing of the Registrant's initial public
offering.
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 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.
1.2.1 Form of International Swap Dealers Association, Inc. Master Agreement.
1.2.2 Letter of Confirmation by and among Deutsche Bank AG, London Branch,
Deutsche Morgan Grenfell Inc. and Synopsys, Inc. dated as of April 15,
1998.
1.2.3 Memorandum of Understanding with respect to Master Securities Lending
Agreement by and among Deutsche Bank AG, London Branch, Deutsche
Morgan Grenfell Inc. and Synopsys, Inc. dated as of April 15, 1998.
3.1* Amended and Restated Certificate of Incorporation of the Registrant.
3.3* Bylaws of the 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.
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.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
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, 1996
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 6, 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.
10.17 Confidential Mutual Release and Settlement Agreement effective as of
April 15, 1998 between the Registrant and Daniel I. Rubin.
10.18 Form of License Agreement.
10.19+ License Agreement dated as of November 30, 1997 between the
Registrant and Taiwan Semiconductor Manufacturing Corporation, as
amended.
21.1 Subsidiaries of the Registrant.
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-6).
27.1 Financial Data Schedule.
</TABLE>
- --------
* Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 333-41219) which was declared
effective on February 2, 1998.
+ 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.
II-4
<PAGE>
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.
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-5
<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 16th day of April, 1998.
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 April 16, 1998
____________________________________ Officer and Director
Mark R. Templeton (Principal Executive
Officer)
/s/ Robert D. Selvi Vice President, Finance, April 16, 1998
____________________________________ and Chief Financial
Robert D. Selvi Officer (Principal
Financial and Accounting
Officer)
/s/ Lucio L. Lanza Chairman of the Board of April 16, 1998
____________________________________ Directors
Lucio L. Lanza
/s/ Scott T. Becker Director April 16, 1998
____________________________________
Scott T. Becker
/s/ Dr. Eli Harari Director April 16, 1998
____________________________________
Dr. Eli Harari
</TABLE>
II-6
<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>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
1.2.1 Form of International Swap Dealers Association, Inc. Master
Agreement.
1.2.2 Letter of Confirmation by and among Deutsche Bank AG, London Branch,
Deutsche Morgan Grenfell Inc. and Synopsys, Inc. dated as of April
15, 1998.
1.2.3 Memorandum of Understanding with respect to Master Securities Lending
Agreement by and among Deutsche Bank AG, London Branch, Deutsche
Morgan Grenfell Inc. and Synopsys, Inc. dated as of April 15, 1998.
3.1* Amended and Restated Certificate of Incorporation of the Registrant.
3.3* Bylaws of the 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.
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, 1996
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 6, 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.
</TABLE>
1
<PAGE>
<TABLE>
<C> <S>
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.
10.17 Confidential Mutual Release and Settlement Agreement effective as of
April 15, 1998 between the Registrant and Daniel I. Rubin.
10.18 Form of License Agreement.
10.19+ License Agreement dated November 30, 1997 between the Registrant and
Taiwan Semiconductor Manufacturing Corporation, as amended.
21.1 Subsidiaries of the Registrant.
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-6).
27.1 Financial Data Schedule.
</TABLE>
- --------
* Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (No. 333-41219) which was declared
effective on February 2, 1998.
+ 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.
2
<PAGE>
EXHIBIT 1.1
ARTISAN COMPONENTS, INC.
_________ SHARES
PLUS AN OPTION TO PURCHASE UP TO
______ ADDITIONAL SHARES TO COVER OVER-ALLOTMENTS
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
April __, 1998
DEUTSCHE MORGAN GRENFELL INC.
HAMBRECHT & QUIST L.L.C.
DAIN RAUSCHER WESSELS
(A division of Dain Rauscher Incorporated)
As Representatives of the several Underwriters
c/o Deutsche Morgan Grenfell Inc.
31 West 52nd Street
New York, New York 10019
Dear Sirs:
Artisan Components, Inc., a Delaware corporation (the "Company"), and
the persons named in Schedule 2 hereto (the "Selling Stockholders") hereby
confirm their agreement with the several underwriters named in Schedule 1 hereto
(the "Underwriters"), for whom you have been duly authorized to act as
representatives (the firms acting in such capacities, the "Representatives"), as
set forth below. If you are the only Underwriters, all references herein to the
Representatives shall be deemed to be references to the Underwriters.
Section 1. Underwriting. Subject to the terms and conditions contained herein:
------------
(a) The Company proposes to issue and sell ______ shares of common
stock, par value $.001 per share (the "Common Stock"), of the Company, and the
Selling Stockholders propose to sell ________ shares of Common Stock (said
shares to be issued and sold by the Company and shares to be sold by the
Selling Stockholders, the "Firm Shares") to the several Underwriters. The
Company also proposes to issue and sell not more than ______ additional
shares of Common Stock (the "Option Shares" and, together with the Firm
Shares, the "Shares") to the several Underwriters if requested by the
Representatives as provided in Section 2(b) hereof.
<PAGE>
(b) Upon your authorization of the release of the Firm Shares, the
Underwriters propose to make a public offering (the "Offering") of the Firm
Shares upon the terms set forth in the Prospectus (as defined below) as soon
after the Registration Statement (as defined below) and this Agreement have
become effective as in the Representatives' sole judgment is advisable. As used
in this Agreement, the term "Original Registration Statement" means the
registration statement (File No. 333-_____) initially filed with the Securities
and Exchange Commission (the "Commission") relating to the Shares, as amended at
the time when it was or is declared effective, including all financial schedules
and exhibits thereto and including any information omitted therefrom pursuant to
Rule 430A under the Securities Act of 1933, as amended (the "Securities Act"),
and included in the Prospectus; the term "Rule 462(b) Registration Statement"
means any registration statement filed with the Commission pursuant to Rule
462(b) under the Securities Act (including the Registration Statement and any
Preliminary Prospectus (as defined below) or Prospectus incorporated therein at
the time such Registration Statement becomes effective); the term "Registration
Statement" includes both the Original Registration Statement and any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with the Original Registration Statement or any
amendment thereto (including the prospectus subject to completion, if any,
included in the Original Registration Statement or any amendment thereto at the
time it was or is declared effective); the term "Prospectus" means:
(i) if the Company relies on Rule 434 under the Securities Act,
the Term Sheet (as defined below) relating to the Shares that is
first filed pursuant to Rule 424(b)(7) under the Securities Act,
together with the Preliminary Prospectus identified therein that
such Term Sheet supplements;
(ii) if the Company does not rely on Rule 434 under the
Securities Act, the prospectus first filed with the Commission
pursuant to Rule 424(b) under the Securities Act;
(iii) if the Company does not rely on Rule 434 under the
Securities Act and if no prospectus is required to be filed
pursuant to Rule 424(b) under the Securities Act, the prospectus
included in the Registration Statement; or
(iv) for purposes of the representations and warranties contained
in Section 5 hereof, if the prospectus is not in existence, the
most recent Preliminary Prospectus;
and the term "Term Sheet" means any term sheet that satisfies the
requirements of Rule 434 under the Securities Act. Any reference herein to
the "date" of a Prospectus that includes a Term Sheet shall mean the date
of such Term Sheet.
Section 2. Purchase and Closing.
--------------------
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell, and the Selling Stockholders
propose to sell, to each of the Underwriters, and each of the Underwriters,
severally and not jointly, agrees to purchase from the Company and the Selling
Stockholders, at a purchase price of $____ per Share (the "Purchase Price"), the
respective number
2
<PAGE>
of Firm Shares set forth opposite the name of such Underwriter in Schedule 1
hereto. Firm Shares shall be registered by BankBoston, N.A. in the name of the
nominee of the Depository Trust Company ("DTC"), Cede & Co. ("Cede & Co."), and
credited to the accounts of such of its participants as the Representatives
shall request, upon notice to the Company and the Selling Stockholders at least
48 hours prior to the First Closing Date (as defined below), with any transfer
taxes payable in connection with the transfer of the Firm Shares to the
Underwriters duly paid, against payment by or on behalf of the Underwriters to
the account of the Company and the Selling Stockholders of the aggregate
Purchase Price therefor by wire transfer in immediately available funds.
Delivery or registry of and payment for the Firm Shares shall be made at the
offices of Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo
Alto, California 94304 at 9:30 A.M., New York City time, on the fourth full
business day following the date of this Agreement, or at such other place, time
or date as the Representatives, the Company and the Selling Stockholders may
agree upon. Such time and date of delivery against payment are herein referred
to as the "First Closing Date", and the implementation of all the actions
described in this Section 2(a) is herein referred to as the "First Closing".
(b) For the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Shares as contemplated by the
Prospectus, the Company hereby grants to the several Underwriters an option to
purchase, severally and not jointly, the Option Shares. The purchase price to
be paid for any Option Shares shall be the same as the Purchase Price for the
Firm Shares set forth above in paragraph (a) of this Section 2. The option
granted hereby may be exercised as to all or any part of the Option Shares
from time to time within thirty days after the date of the Prospectus (or, if
such 30th day shall be a Saturday or Sunday or a holiday, on the next business
day thereafter when the New York Stock Exchange and the Nasdaq Stock Market's
National Market (the "Nasdaq National Market") are open for trading). The
Underwriters shall not be under any obligation to purchase any of the Option
Shares prior to the exercise of such option. The Representatives may from time
to time exercise the option granted hereby by giving notice in writing or by
telephone (confirmed in writing) to the Company setting forth the aggregate
number of Option Shares as to which the several Underwriters are then
exercising the option and the date and time for delivery or registry of and
payment for such Option Shares. Any such date of delivery or registry shall be
determined by the Representatives but shall not be earlier than two business
days or later than five business days after such exercise of the option and,
in any event, shall not be earlier than the First Closing Date. The time and
date set forth in such notice, or such other time or date as the
Representatives and the Company may agree upon or as the Representatives may
determine pursuant to Section 2(a) hereof, is herein called an "Option Closing
Date" with respect to such Option Shares, and the implementation of all the
actions described in this Section 2(b) is herein referred to as the "Option
Closing". As used in this Agreement, the term "Closing Date" means either the
First Closing Date or any Option Closing Date, as applicable, and the term
"Closing" means either the First Closing or any Option Closing, as applicable.
If the option is exercised as to all or any portion of the Option Shares, then
either one or more certificates in definitive form for such Option Shares
shall be delivered or, if such Option Shares are to be held through DTC, such
Option Shares shall be registered and credited, on the related Option Closing
Date in the same manner, and upon the same terms and conditions, set forth in
paragraph (a) of this Section 2, except that reference therein to the Firm
Shares and the First Closing Date shall be deemed, for purposes of this
paragraph (b), to refer to such Option Shares and Option Closing Date,
respectively. Upon
3
<PAGE>
exercise of the option as provided herein, the Company shall become obligated
to sell to each of the several Underwriters, and, on the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, each of the Underwriters
(severally and not jointly) shall become obligated to purchase from the
Company, the same percentage of the total number of the Option Shares as to
which the several Underwriters are then exercising the option as such
Underwriter is obligated to purchase of the aggregate number of Firm Shares,
as adjusted by the Representatives in such manner as they deem advisable to
avoid fractional shares.
(c) The Company and the Selling Stockholders hereby acknowledge that
the payment of monies pursuant to Section 2(a) hereof (a "Payment") by or on
behalf of the Underwriters of the aggregate Purchase Price for any Shares does
not constitute closing of a purchase and sale of the Shares. Only execution and
delivery, by facsimile or otherwise, of a receipt for Shares by the Underwriters
indicates completion of the closing of a purchase of the Shares from the Company
and the Selling Stockholders. Furthermore, in the event that the Underwriters
make a Payment to the Company and the Selling Stockholders prior to the
completion of the closing of a purchase of Shares, the Company and the Selling
Stockholders hereby acknowledge that until the Underwriters execute and deliver
such receipt for the Shares, the Company and the Selling Stockholders will not
be entitled to the Payment and shall return the Payment to the Underwriters as
soon as practicable (by wire transfer of same-day funds) upon demand. In the
event that the closing of a purchase of Shares is not completed and the Payment
is not returned by the Company and the Selling Stockholders to the Underwriters
on the same day the Payment was received by the Company and the Selling
Stockholders, the Company and the Selling Stockholders agree to pay to the
Underwriters in respect of each day the Payment is not returned by them, in
same-day funds, interest on the amount of such Payment in an amount representing
the Underwriters' cost of financing as reasonably determined by the
Representatives, pro rata in proportion to the percentage of such Payment
--------
received by each.
(d) It is understood that any of you, individually and not as one of
the Representatives, may (but shall not be obligated to) make Payment on behalf
of any Underwriter or Underwriters for any of the Shares to be purchased by such
Underwriter or Underwriters. No such Payment shall relieve such Underwriter or
Underwriters from any of its or their obligations hereunder.
Section 3. Covenants.
---------
(a) The Company covenants and agrees with the several Underwriters
that:
(i) The Company will:
(x) use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto to become effective as
promptly as possible. If
4
<PAGE>
required, the Company will file the Prospectus or any Term
Sheet that constitutes a part thereof and any amendment or
supplement thereto with the Commission in the manner and
within the time period required by Rules 434 and 424(b)
under the Securities Act. During any time when a prospectus
relating to the Shares is required to be delivered under the
Securities Act, the Company (I) will comply with all
requirements imposed upon it by the Securities Act and the
rules and regulations of the Commission thereunder to the
extent necessary to permit the continuance of sales of or
dealings in the Shares in accordance with the provisions
hereof and of the Prospectus, as then amended or
supplemented, and (II) will not file with the Commission the
Prospectus, Term Sheet, any amendment or supplement to such
Prospectus or Term Sheet, any amendment to the Registration
Statement (including the amendment referred to in the second
sentence of Section 5(a)(i) hereof) or any Rule 462(b)
Registration Statement unless the Representatives previously
have been advised of, and furnished with a copy within a
reasonable period of time prior to, the proposed filing and
the Representatives shall have given their consent to such
filing. The Company will prepare and file with the
Commission, in accordance with the rules and regulations of
the Commission, promptly upon request by the Representatives
or counsel for the Underwriters, any amendments to the
Registration Statement or amendments or supplements to the
Prospectus that may be necessary or advisable in connection
with the distribution of the Shares by the several
Underwriters. The Company will advise the Representatives,
promptly after receiving notice thereof, of the time when
the Registration Statement or any amendment thereto has been
filed or declared effective or the Prospectus or Term Sheet
or any amendment or supplement thereto has been filed and
will provide evidence satisfactory to the Representatives of
each such filing or effectiveness.
(y) without charge, provide (I) to each of the
Representatives and to counsel for the Underwriters, an
executed and a conformed copy of the Original Registration
Statement and each amendment thereto or any Rule 462(b)
Registration Statement (in each case including exhibits
thereto), (II) to each other Underwriter, a conformed copy
of the Original Registration Statement and each amendment
thereto or any Rule 462(b) Registration Statement (in each
case without exhibits thereto), and (III) so long as a
prospectus relating to the Shares is required to be
delivered under the Securities Act, as many copies of each
Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto as the Representatives may reasonably
request. Without limiting the application of clause (III)
of the preceding sentence, the Company, not later than (A)
9:00 A.M., New York City time, on the second business day
following the date of determination
5
<PAGE>
of the public offering price, if such determination occurred
at or prior to 12:00 noon, New York City time, on such date
or (B) 6:00 P.M., New York City time, on the second business
day following the date of determination of the public
offering price, if such determination occurred after 12:00
noon, New York City time, on such date, will deliver to the
Underwriters, without charge, as many copies of the
Prospectus and any amendment or supplement thereto as the
Representatives may reasonably request for purposes of
confirming orders that are expected to settle on the First
Closing Date.
(z) advise the Representatives, promptly after receiving
notice or obtaining knowledge thereof, of (I) the issuance
by the Commission of any stop order suspending the
effectiveness of the Original Registration Statement or any
amendment thereto or any Rule 462(b) Registration Statement
or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, (II) the suspension of the qualification
of the Shares for offering or sale in any jurisdiction,
(III) the institution, threatening or contemplation of any
proceeding for any purpose identified in the preceding
clause (I) or (II), or (IV) any request made by the
Commission for amending the Original Registration Statement
or any Rule 462(b) Registration Statement, for amending or
supplementing the Prospectus or for additional information.
The Company will use all reasonable efforts to prevent the
issuance of any such stop order and, if any such stop order
is issued, to obtain the withdrawal thereof as promptly as
possible.
(ii) The Company will arrange for the qualification of the Shares
for offering and sale in each jurisdiction as the Representatives
shall reasonably designate including, but not limited to,
pursuant to applicable state securities ("Blue Sky") laws of
certain states of the United States of America or other U.S.
jurisdictions, and the Company shall maintain such qualifications
in effect for so long as may be necessary in order to complete
the placement of the Shares; provided, however, that the Company
shall not be obliged to file any general consent to service of
process or to qualify as a foreign corporation or as a securities
dealer in any jurisdiction or to subject itself to taxation in
respect of doing business in any jurisdiction in which it is not
otherwise so subject.
(iii) If, at any time prior to the final date when a prospectus
relating to the Shares is required to be delivered under the
Securities Act, any event occurs as a result of which the
Prospectus, as then amended or supplemented, would include any
untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading, or if for any other reason it shall be necessary at
any time to amend the Registration
6
<PAGE>
Statement or amend or supplement the Prospectus to comply with
the Securities Act or the rules or regulations of the Commission
thereunder or applicable law, the Company will promptly notify
the Representatives thereof and will promptly, at its own
expense, but subject to the second sentence of Section 3(a)(i)(x)
hereof: (x) prepare and file with the Commission an amendment to
the Registration Statement or amendment or supplement to the
Prospectus which will correct such statement or omission or
effect such compliance; and (y) supply any amended Registration
Statement or amended or supplemented Prospectus to the
Underwriters in such quantities as the Underwriters may
reasonably request.
(iv) The Company will make generally available to its
securityholders and to the Representatives as soon as practicable
an earnings statement that satisfies the provisions of Section
11(a) of the Securities Act, including Rule 158 thereunder.
(v) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under "Use of
Proceeds" in the Prospectus.
(vi) The Company will not, and will not allow any subsidiary to,
publicly announce any intention to, and will not itself, and will
not allow any subsidiary to, without the prior written consent of
the Representatives, on behalf of the Underwriters, (x) offer,
pledge, sell, offer to sell, contract to sell, sell any option or
contract to purchase, purchase any option to sell, grant any
option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into, or exercisable or exchangeable
for, Common Stock, or (y) enter into any swap or other agreement
that transfers, in whole or in part, any of the economic
consequences of ownership of the shares of Common Stock or
securities convertible into, or exercisable or exchangeable for,
shares of Common Stock (whether any such transaction described in
clause (x) or (y) above is to be settled by delivery of shares of
Common Stock or such other securities, in cash or otherwise), for
a period beginning from the date hereof and continuing to and
including the date 180 days after the date hereof, except
pursuant to this Agreement and other than with respect to shares
of Common Stock (or any securities convertible into, exercisable
for or exchangeable for shares of Common Stock) issued or
issuable pursuant to any employee benefit plans, qualified stock
option plans or other employee compensation plans which are
disclosed in the Prospectus.
(vii) Neither the Company nor any of its affiliates, nor any
person acting on behalf of any of them will, directly or
indirectly, (x) take any action designed to cause or to result
in, or that has constituted or which might reasonably be expected
to constitute, the stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of
the
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Shares or (y) (I) sell, bid for, purchase, or pay anyone any
compensation for soliciting purchases of, the Shares or (II) pay
or agree to pay to any person any compensation for soliciting
another to purchase any other securities of the Company.
(viii) The Company will obtain the agreements described in
Section 7(h) hereof prior to the First Closing Date.
(ix) If at any time during the period prior to any Closing Date,
any rumor, publication or event relating to or affecting the
Company shall occur as a result of which in the Representatives'
sole judgment the market price of the Shares has been or is
likely to be materially affected (regardless of whether such
rumor, publication or event necessitates a supplement to or
amendment of the Prospectus), the Company will, after notice from
the Representatives advising the Company to the effect set forth
above, forthwith prepare, consult with the Representatives
concerning the substance of, and disseminate a press release or
other public statement reasonably satisfactory to the
Representatives, responding to or commenting on such rumor,
publication or event.
(x) If the Company elects to rely on Rule 462(b), the Company
shall both file the Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) and pay the applicable
fees in accordance with Rule 111 promulgated under the Securities
Act by the earlier of (x) 10:00 P.M. New York City time on the
date of this Agreement and (y) the time confirmations are sent or
given, as specified by Rule 462(b)(2) under the Securities Act.
(xi) The Company will cause the Shares to be duly included for
quotation on the Nasdaq National Market prior to the First
Closing Date. The Company will use all reasonable efforts to
ensure that the Shares remain included for quotation on the
Nasdaq National Market following the First Closing Date.
(b) Each Selling Stockholder agrees that:
(i) It will not, and no person acting on behalf of such Selling
Stockholder will, directly or indirectly, (x) take any action
designed to cause or to result in, or that has constituted or
which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares or (y) (I)
sell, bid for, purchase, or pay anyone any compensation for
soliciting purchases of, the Shares or (II) pay or agree to pay
to any person any compensation for soliciting another to purchase
any other securities of the Company (except for the sale of
Shares by the Selling Stockholders under this Agreement).
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(ii) It will not, and will not allow any subsidiary to, publicly
announce any intention to, and will not itself, and will not
allow any subsidiary to, without the prior written consent of the
Representatives on behalf of the Underwriters, (x) offer, pledge,
sell, offer to sell, contract to sell, sell any option or
contract to purchase, purchase any option to sell, grant any
option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any of the shares of Common
Stock or any securities convertible into, or exercisable or
exchangeable for, Common Stock, or (y) enter into any swap or
other agreement that transfers, in whole or in part, any of the
economic consequences of ownership of the shares of Common Stock
or any securities convertible into, or exercisable or
exchangeable for, shares of Common Stock (whether any such
transaction described in clause (x) or (y) above is to be settled
by delivery of shares of Common Stock or such other securities,
in cash or otherwise), in each case, beneficially owned (within
the meaning of Rule 13d-3 under the Exchange Act) or otherwise
controlled by such person on the date hereof or hereafter
acquired, for a period beginning from the date hereof and
continuing to and including the date 180 days after the date
hereof in the case of executive officers and remaining founders
("Principal Selling Stockholders") and 90 days after the date
hereof in the case of all other Selling Stockholders; provided,
however, that such Selling Stockholder may, without the prior
written consent of the Representatives on behalf of the
Underwriters, transfer shares of Common Stock or such other
securities to members of such Selling Stockholder's immediate
family or to trusts for the benefit of members of such Selling
Stockholder's immediate family or in connection with bona fide
gifts, provided that any transferee agrees to the transfer
restrictions described above.
Section 4. Expenses.
--------
(a) The Company shall bear and pay all costs and expenses incurred
incident to the performance of its obligations under this Agreement, whether or
not the transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 9 hereof, including: (i) the fees and expenses of
its counsel, accountants and any other experts or advisors retained by the
Company; (ii) the costs of delivering and distributing the Powers of Attorney
(as defined below) and the Custody Agreements (as defined below) and the fees
and expenses of the Custodian (as defined below) (and any other Attorney-in-Fact
(as defined below)); (iii) fees and expenses incurred in connection with the
registration of the Shares under the Securities Act and the preparation and
filing of the Registration Statement, the Prospectus and all amendments and
supplements thereto; (iv) the printing and distribution of the Prospectus and
any Preliminary Prospectus and the printing and production of all other
documents connected with the Offering (including this Agreement and any other
related agreements); (v) expenses related to the qualification of the Shares
under the state securities or Blue Sky laws and the securities laws of Canada
and Japan, including filing fees and the fees and disbursements of counsel for
the Underwriters in connection therewith and in connection with the preparation
of any Blue Sky memoranda; (vi) the filing fees and expenses, if any, incurred
with respect to any filing with the National Association of Securities Dealers,
Inc., including the fees and disbursements of counsel for
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<PAGE>
the Underwriters in connection therewith; (vii) all expenses arising from the
quoting of the Shares on the Nasdaq National Market; (viii) all arrangements
relating to the preparation, issuance and delivery to the Underwriters of any
certificates evidencing the Shares, including transfer agent's and registrar's
fees; (ix) the costs and expenses of travel, lodging and meals of the Company's
employees in connection with the "roadshow" and any other meetings with
prospective investors in the Shares (other than as shall have been specifically
approved by the Representatives to be paid for by the Underwriters) and one-half
of the cost of any aircraft chartered in connection with the roadshow; and (x)
the costs and expenses of advertising relating to the Offering (other than as
shall have been specifically approved by the Representatives to be paid for by
the Underwriters). Subject to the provisions of Section 10, the Underwriters
agree to pay all costs and expenses incident to the performance of their
obligations under this Agreement not payable by the Company pursuant to the
preceding sentence, including, without limitation, the fees and disbursements of
counsel to the Underwriters (other than as set forth in clauses (v) and (vi)
above).
(b) The Selling Stockholders shall bear and pay all costs and expenses
incurred incident to the performance of their respective obligations under this
Agreement, whether or not the transactions contemplated herein are consummated
or this Agreement is terminated pursuant to Section 9 hereof, including: (i) any
stamp duties, capital duties and stock transfer taxes, if any, payable upon the
sale of the Shares of such Selling Stockholders to the Underwriters and (ii) the
fees and disbursements of their respective counsel, accountants and other
advisors.
Section 5. Representations and Warranties.
------------------------------
(a) As a condition of the obligation of the Underwriters to underwrite
and purchase the Shares, the Company and, to the best of their knowledge after
careful review of this Agreement, the Registration Statement and the Prospectus,
the Principal Selling Stockholders, Daniel I. Rubin and the Selling Stockholders
affiliated with U.S. Venture Partners represent and warrant to, and agree with,
each of the several Underwriters as follows:
Registration Statement and Prospectus
(i) The Original Registration Statement, including the
Preliminary Prospectus, has been filed by the Company with the
Commission under the Securities Act, and one or more amendments to
such Registration Statement may have been so filed. After the
execution of this Agreement, the Company will file with the Commission
either (x) if such Registration Statement, as it may have been
amended, has been declared by the Commission to be effective under the
Securities Act, either (I) if the Company relies on Rule 434 under the
Securities Act, a Term Sheet relating to the Shares that shall
identify the Preliminary Prospectus that it supplements containing
such information as is required or permitted by Rules 434, 430A and
424(b) under the Securities Act or (II) if the Company does not rely
on Rule 434 under the Securities Act, a prospectus in the form most
recently included in an amendment to such Registration Statement (or,
if no such amendment shall have been filed, in such Registration
Statement), with such changes or insertions as are required by Rule
430A under the Securities Act or permitted by Rule 424(b) under the
Securities Act, and in the case of either clause (I) or (II) of this
sentence, as have
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<PAGE>
been provided to and approved by the Representatives prior to the
execution of this Agreement, or (y) if such Registration Statement, as
it may have been amended, has not been declared by the Commission to
be effective under the Securities Act, an amendment to such
Registration Statement, including a form of prospectus, a copy of
which amendment has been furnished to and approved by the
Representatives prior to the execution of this Agreement. The Company
may also file a Rule 462(b) Registration Statement with the Commission
for the purpose of registering certain additional Shares, which
registration shall be effective upon filing with the Commission.
(ii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. When any
Preliminary Prospectus was filed with the Commission, it (x) contained
all statements required to be stated therein in accordance with, and
complied in all material respects with the requirements of, the
Securities Act and the rules and regulations of the Commission
thereunder and (y) did not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. When the Registration Statement or any
amendment thereto was or is declared effective, it (I) contained or
will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects
with the requirements of, the Securities Act and the rules and
regulations of the Commission thereunder and (II) did not or will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. When the Prospectus or any Term
Sheet that is a part thereof or any amendment or supplement to the
Prospectus is filed with the Commission pursuant to Rule 424(b) (or,
if the Prospectus or such amendment or supplement is not required to
be so filed, when the Registration Statement or the amendment thereto
containing the Prospectus or such amendment or supplement to the
Prospectus was or is declared effective) and on the Closing Date, the
Prospectus, as amended or supplemented at any such time, (A) contained
or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects
with the requirements of, the Securities Act and the rules and
regulations of the Commission thereunder and (B) did not or will not
include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading. The foregoing provisions of this paragraph (ii) do not
apply to statements or omissions made in any Preliminary Prospectus,
the Registration Statement or any amendment thereto or the Prospectus
or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein.
(iii) If the Company has elected to rely on Rule 462(b) and the
Rule 462(b) Registration Statement is not effective, (x) the Company
will file a Rule 462(b) Registration Statement in compliance with, and
that is effective upon filing
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pursuant to, Rule 462(b) and (y) the Company has given irrevocable
instructions for transmission of the applicable filing fee in
connection with the filing of the Rule 462(b) Registration Statement,
in compliance with Rule 111 under the Securities Act, or the
Commission has received payment of such filing fee.
(iv) If the Company has elected to rely on Rule 434 under the
Securities Act, the Prospectus is not "materially different", as such
term is used in Rule 434, from the prospectus included in the
Registration Statement at the time of its effectiveness or an
effective post-effective amendment thereto (including such information
that is permitted to be omitted pursuant to Rule 430A under the
Securities Act).
(v) The Company has not distributed and, prior to the later of
(x) any Closing Date and (y) the completion of the distribution of the
Shares, will not distribute any offering material in connection with
the Offering other than the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto.
(vi) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, (x) the
Company and its subsidiary, taken as a whole, have not incurred any
material liability or obligation, direct or contingent, nor entered
into any material transaction not in the ordinary course of business;
(y) the Company has not purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock; and (z) there has not
been any material change in the capital stock, short-term or long-term
debt of the Company and its subsidiary, taken as a whole, except in
each case as described in or contemplated by the Prospectus.
The Shares
(vii) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus. All of the issued
shares of capital stock of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, have been issued
in compliance with all applicable federal and state securities laws
and were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase such securities.
The Shares have been duly authorized by all necessary corporate action
of the Company and, after payment therefor in accordance herewith,
will be validly issued, fully paid and nonassessable at the Closing
Date. No holders of outstanding shares of capital stock of the
Company are entitled as such to any preemptive or other rights to
subscribe for any of the Shares, and no holder of securities of the
Company has any right which has not been fully exercised or waived to
require the Company to register the offer or sale of any securities
owned by such holder under the Securities Act in the Offering
contemplated by this Agreement.
(viii) Except as disclosed in the Prospectus, there are no
outstanding (x) securities or obligations of the Company or its
subsidiary convertible into or
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exchangeable for any capital stock of the Company or its subsidiary,
(y) warrants, rights or options to subscribe for or purchase from the
Company or its subsidiary any such capital stock or any such
convertible or exchangeable securities or obligations, or (z)
obligations of the Company or its subsidiary to issue any shares of
capital stock, any such convertible or exchangeable securities or
obligations, or any such warrants, rights or options.
(ix) Except for the shares of its subsidiary owned by the
Company, neither the Company nor its subsidiary owns any shares of
stock or any other equity securities of any corporation or has any
equity interest in any firm, partnership, association or other entity,
except as described in or contemplated by the Registration Statement.
Listing
(x) All of the Shares have been duly authorized and accepted for
quotation on the Nasdaq National Market, subject to official notice of
issuance.
Market manipulation
(xi) Neither the Company nor any of its affiliates, nor any
person acting on behalf of any of them has, directly or indirectly,
(x) taken any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares, or (y) since
the filing of the Original Registration Statement (I) sold, bid for,
purchased, or paid anyone any compensation for soliciting purchases
of, the Shares or (II) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities
of the Company.
Corporate power and authority
(xii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the law of its
jurisdiction of incorporation with full power and authority to own,
lease and operate its properties and assets and conduct its business
as described in the Prospectus, is duly qualified to transact business
and is in good standing in each jurisdiction in which its ownership,
leasing or operation of its properties or assets or the conduct of its
business requires such qualification, except where the failure to be
so qualified does not amount to a material liability or disability to
the Company and its subsidiary, taken as a whole, and has full power
and authority to execute and perform its obligations under this
Agreement; the subsidiary of the Company is a corporation duly
incorporated and validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the ownership, leasing or operation of its
properties or assets or the conduct of its business requires such
qualification, except where the failure to be so qualified does not
amount to a material liability or disability to the
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Company and its subsidiary, taken as a whole, and the subsidiary has
full power and authority to own, lease and operate its properties and
assets and conduct its business as described in the Registration
Statement and the Prospectus; all of the issued and outstanding shares
of capital stock of the subsidiary have been duly authorized and are
fully paid and nonassessable and, except for directors' qualifying
shares and as otherwise set forth in the Prospectus, are owned
beneficially by the Company free and clear of any security interests,
liens, encumbrances, equities or claims.
(xiii) The execution and delivery of this Agreement and the
issuance and sale of the Shares have been duly authorized by all
necessary corporate action of the Company, and this Agreement has been
duly executed and delivered by the Company and is the valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as its enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally.
(xiv) The issuance, offering and sale of the Shares to the
Underwriters by the Company pursuant to this Agreement, the compliance
by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (x)
require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except (I) if the
Company has elected to rely on Rule 462(b) and the Rule 462(b)
Registration Statement is not effective, the registration of certain
Shares pursuant to the Rule 462(b) Registration Statement that will be
effective upon filing in compliance with Rule 462(b) and (II) such as
have been obtained or made or such as may be required by the state
securities or Blue Sky laws of the various states of the United States
of America or other U.S. jurisdictions or by the National Association
of Securities Dealers, Inc. ("NASD") in connection with the offer and
sale of the Shares by the Underwriters, or (y) conflict with or result
in a breach or violation of any of the terms and provisions of, or
constitute a default under, any material indenture, mortgage, deed of
trust, lease or other agreement or instrument to which the Company or
its subsidiary is a party or by which the Company or its subsidiary or
any of their respective properties are bound, or the charter documents
or by-laws of the Company or its subsidiary, or any statute or any
judgment, decree, order, rule or regulation of any court or other
governmental authority or any arbitrator applicable to the Company or
its subsidiary.
(xv) The Company is not, and will conduct its operations in a
manner so that it continues not to be, an "investment company" and,
after giving effect to the Offering and the application of the
proceeds therefrom, will not be an "investment company", as such term
is defined in the Investment Company Act of 1940, as amended (the
"1940 Act").
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Title, licenses and consents
(xvi) The Company and its subsidiary have good and marketable
title in fee simple to all items of real property and marketable title
to all personal property owned by each of them, in each case free and
clear of any security interests, liens, encumbrances, equities, claims
and other defects, except such as do not materially and adversely
affect the value of such property and do not interfere with the use
made or proposed to be made of such property by the Company or its
subsidiary, and any real property and buildings held under lease by
the Company or its subsidiary are held under valid, subsisting and
enforceable leases, with such exceptions as are not material and do
not interfere with the use made or proposed to be made of such
property and buildings by the Company or its subsidiary, in each case
except as described in or contemplated by the Prospectus.
(xvii) The Company and its subsidiary own or possess, or can
acquire on reasonable terms, all material patents, patent
applications, trademarks, service marks, trade names, licenses, know-
how, copyrights, trade secrets and proprietary or other confidential
information necessary to operate their respective businesses as
described in the Prospectus, and neither the Company nor its
subsidiary has received any notice of infringement of or conflict with
asserted rights of any third party with respect to any of the
foregoing which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a materially
adverse effect on or constitute a materially adverse change in, or
constitute a development involving a prospective materially adverse
effect on or change in, the condition (financial or otherwise),
earnings, properties, business affairs or business prospects,
stockholders' equity, net worth or results of operations of the
Company and its subsidiary, taken as a whole, except as described in
or contemplated by the Prospectus.
(xviii) The Company and its subsidiary possess all consents,
licenses, certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary
to conduct their respective businesses as described in the Prospectus,
and neither the Company nor its subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a materially adverse effect on or constitute a
materially adverse change in, or constitute a development involving a
prospective materially adverse effect on or change in, the condition
(financial or otherwise), earnings, properties, business affairs or
business prospects, net worth or results of operations of the Company
and its subsidiary, taken as a whole, except as described in or
contemplated by the Prospectus.
Financial statements
(xix) Coopers & Lybrand L.L.P., who have certified certain
financial statements of the Company and delivered their report with
respect to the audited financial statements and schedule included in
the Registration Statement and the
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Prospectus, are independent public accountants as required by the
Securities Act and the applicable rules and regulations thereunder.
(xx) The consolidated financial statements and schedule of the
Company and its subsidiary included in the Registration Statement and
the Prospectus were prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied throughout the
periods involved (except as otherwise noted therein) and they present
fairly the financial condition of the Company as at the dates at which
they were prepared and the results of operations of the Company in
respect of the periods for which they were prepared.
Internal Accounting Controls
(xxi) The Company and its subsidiary maintain a system of
internal accounting controls sufficient to provide reasonable
assurance that (w) transactions are executed in accordance with
management's general or specific authorizations; (x) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability; (y) access
to assets is permitted only in accordance with management's general or
specific authorization; and (z) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
Litigation
(xxii) No legal or governmental proceedings are pending or
threatened to which the Company or its subsidiary is a party or to
which the property of the Company or its subsidiary is subject that
are required to be described in the Registration Statement or the
Prospectus and are not described therein; and no statutes,
regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not described
therein or filed as required.
Dividends and Distributions
(xxiii) The subsidiary of the Company is not currently
prohibited, directly or indirectly, from paying any dividends to the
Company, making any other distribution on its capital stock, repaying
to the Company any loans or advances to it from the Company or
transferring any of its property or assets to the Company or any other
subsidiary of the Company, and the Company is not currently
prohibited, directly or indirectly, from paying any dividends or
making any other distribution on its capital stock, in each case
except as described in or contemplated by the Prospectus.
Taxes
(xxiv) The Company has filed all foreign, federal, state and
local tax returns that are required to be filed or has requested
extensions of the time for filing thereof (except in any case in which
the failure so to file would not have a materially
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adverse effect on the Company and its subsidiary, taken as a whole)
and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any
of the foregoing is due and payable, except for any such assessment,
fine or penalty that is currently being contested in good faith or as
described in or contemplated by the Prospectus.
Insurance
(xxv) The Company and its subsidiary are insured by insurers of
recognized financial responsibility against such losses and risks and
in such amounts as are prudent and customary in their businesses as
described in the Prospectus; neither the Company nor its subsidiary
has been refused any insurance coverage sought or applied for; and
neither the Company nor its subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or
otherwise), earnings, properties, business affairs or business
prospects, net worth or results of operations of the Company and its
subsidiary, taken as a whole, except as described in or contemplated
by the Prospectus.
Pension and Labor
(xxvi) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (x) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (y) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each
"pension plan" for which the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether
by action or by failure to act, which would cause the loss of such
qualification.
(xxvii) No labor dispute with the employees of the Company or
its subsidiary exists or is threatened or imminent that could have a
materially adverse effect on or constitute a materially adverse change
in, or constitute a development involving a prospective materially
adverse effect on or change in, the condition (financial or
otherwise), properties, management, earnings, business affairs or
business prospects, net worth or results of operations of the Company
and its subsidiary, taken as a whole, except as described in or
contemplated by the Prospectus.
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Environmental
(xxviii) Neither the Company nor its subsidiary is in violation
of any federal or state law or regulation relating to occupational
safety and health or to the storage, handling or transportation of
hazardous or toxic materials and the Company and its subsidiary have
received all permits, licenses or other approvals required of them
under applicable federal and state occupational safety and health and
environmental laws and regulations to conduct their respective
businesses as described in the Prospectus, and the Company and its
subsidiary are in compliance with all terms and conditions of any such
permit, license or approval, except any such violation of law or
regulation, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals which would not, singly or in the
aggregate, have a materially adverse effect on or constitute a
materially adverse change in, or constitute a development involving a
prospective materially adverse effect on or change in, the condition
(financial or otherwise), earnings, properties, business affairs or
business prospects, net worth or results of operations of the Company
and its subsidiary, taken as a whole, except as described in or
contemplated by the Prospectus.
Other Agreements
(xxix) No default by the Company or its subsidiary, or to their
knowledge, by another party, exists, and no event has occurred which,
with notice or lapse of time or both, would constitute a default by
the Company or its subsidiary, or to their knowledge, by another
party, in the due performance and observance of any term, covenant or
condition of any material indenture, mortgage, deed of trust, lease or
other material agreement or instrument to which the Company or its
subsidiary is a party or by which the Company or its subsidiary or any
of their respective properties is bound.
Absence of Materially Adverse Change
(xxx) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, neither the
Company nor its subsidiary has sustained any material loss or
interference with its business as described in the Prospectus or
properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding, and there has been no materially
adverse change (including, without limitation, a change in management
or control), or development involving a prospective materially adverse
change, in the condition (financial or otherwise), management,
earnings, property, business affairs or business prospects,
stockholders' equity, net worth or results of operations of the
Company or its subsidiary, taken as a whole, other than as described
in or contemplated by the Prospectus (exclusive of any amendments or
supplements thereto).
(xxxi) No receiver or liquidator (or similar person) has been
appointed in respect of the Company or its subsidiary or in respect of
any part of the assets of the
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<PAGE>
Company or its subsidiary; no resolution, order of any court,
regulatory body, governmental body or otherwise, or petition or
application for an order, has been passed, made or presented for the
winding up of the Company or its subsidiary or for the protection of
the Company or its subsidiary from its creditors; and neither the
Company nor its subsidiary has stopped or suspended payments of its
debts, become unable to pay its debts or otherwise become insolvent.
(b) As a further condition of the obligation of the Underwriters to
underwrite and pay for the Shares, each Selling Stockholder (including each
Principal Selling Stockholder), severally and not jointly, represents and
warrants to, and agrees with, each of the several Underwriters that:
(i) Such Selling Stockholder has full power (corporate and other)
to enter into this Agreement and to sell, assign, transfer and deliver
to the Underwriters the Shares to be sold by such Selling Stockholder
hereunder in accordance with the terms of this Agreement; the
execution and delivery of this Agreement have been duly authorized by
all necessary corporate action of such Selling Stockholder; and this
Agreement has been duly executed and delivered by such Selling
Stockholder.
(ii) Such Selling Stockholder has duly executed and delivered a
power of attorney and custody agreement (with respect to such Selling
Stockholder, the "Power-of-Attorney" and the "Custody Agreement",
respectively), each in the form heretofore delivered to the
Representatives, appointing Mark R. Templeton and Robert D. Selvi as
such Selling Stockholder's attorneys-in-fact (the "Attorney-in-Fact")
with authority to execute, deliver and perform this Agreement on
behalf of such Selling Stockholder and appointing First National Bank
of Boston, as custodian thereunder (the "Custodian"). Certificates in
negotiable form, endorsed in blank or accompanied by blank stock
powers duly executed, with signatures appropriately guaranteed,
representing the Shares to be sold by such Selling Stockholder
hereunder have been deposited with the Custodian pursuant to the
Custody Agreement for the purpose of delivery pursuant to this
Agreement. Such Selling Stockholder has full power (corporate and
other) to enter into the Custody Agreement and the Power-of-Attorney
and to perform its obligations under the Custody Agreement. The
execution and delivery of the Custody Agreement and the Power of
Attorney have been duly authorized by all necessary corporate action
of such Selling Stockholder; the Custody Agreement and the Power-of-
Attorney have been duly executed and delivered by such Selling
Stockholder and, assuming due authorization, execution and delivery by
the Custodian, are the legal, valid, binding and enforceable
instruments of such Selling Stockholder. Such Selling Stockholder
agrees that each of the Shares represented by the certificates on
deposit with the Custodian is subject to the interests of the
Underwriters hereunder, that the arrangements made for such custody,
the appointment of the Attorney-in-Fact and the right, power and
authority of the Attorney-in-Fact to execute and deliver this
Agreement, to agree on the price at which the Shares (including such
Selling Stockholder's Shares) are to be sold to the Underwriters, and
to carry out the terms of this Agreement, are to that extent
irrevocable and that the obligations of such Selling Stockholder
hereunder shall not
19
<PAGE>
be terminated, except as provided in this Agreement or the Custody
Agreement, by any act of such Selling Stockholder, by operation of law
or otherwise, whether in the case of any individual Selling
Stockholder by the death or incapacity of such Selling Stockholder, in
the case of a trust or estate by the death of the trustee or trustees
or the executor or executors or the termination of such trust or
estate, or in the case of a corporate or partnership Selling
Stockholder by its liquidation or dissolution or by the occurrence of
any other event. If any individual Selling Stockholder, trustee or
executor should die or become incapacitated or any such trust should
be terminated, or if any corporate or partnership Selling Stockholder
shall liquidate or dissolve, or if any other event should occur,
before the delivery of such Shares hereunder, the certificates for
such Shares deposited with the Custodian shall be delivered by the
Custodian in accordance with the respective terms and conditions of
this Agreement as if such death, incapacity, termination, liquidation
or dissolution or other event had not occurred, regardless of whether
or not the Custodian or the Attorney-in-Fact shall have received
notice thereof.
(iii) Such Selling Stockholder is the lawful owner of the Shares
to be sold by such Selling Stockholder hereunder and upon sale and
delivery of, and payment for, such Shares, as provided herein, such
Selling Stockholder will convey good and marketable title to such
Shares, free and clear of any security interests, liens, encumbrances,
equities, claims or other defects.
(iv) Neither such Selling Stockholder nor any person acting on
behalf of it has, directly or indirectly, (x) taken any action
designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Shares or (y) since the filing of the
Original Registration Statement (I) sold, bid for, purchased, or paid
anyone any compensation for soliciting purchases of, the Shares or
(II) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company
(except for the sale of Shares by the Selling Stockholders under this
Agreement).
(v) Such Selling Stockholder has carefully reviewed this
Agreement, the Prospectus and the Registration Statement, and the
information regarding such Selling Stockholder set forth therein under
the caption "Principal and Selling Stockholders" is complete and
accurate. All information furnished by or on behalf of such Selling
Stockholder for use in the Registration Statement is, and on each
Closing Date will be, true, correct, and complete, and does not, and
on such Closing Date will not, contain any untrue statement of a
material fact or omit to state any material fact necessary to make
such information not misleading, and all information furnished in
writing by or on behalf of such Selling Stockholder for use in the
Prospectus is, and on such Closing Date will be, true, correct, and
complete, and does not, and on such Closing Date will not, contain any
untrue statement of a material fact or omit to state any material fact
necessary to make such information not misleading in the light of the
circumstances under which they were made.
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<PAGE>
(vi) The sale by such Selling Stockholder of Shares pursuant
hereto is not prompted by any adverse information concerning the
Company or its subsidiary that is not set forth in the Registration
Statement or the Prospectus.
(vii) The sale of the Shares to the Underwriters by such Selling
Stockholder pursuant to this Agreement, the compliance by such Selling
Stockholder with the other provisions of this Agreement, the Custody
Agreement and the consummation of the other transactions herein
contemplated do not (i) require the consent, approval, authorization,
registration or qualification of or with any governmental authority,
except such as have been obtained or made or such as may be required
by state securities or Blue Sky laws of the various states of the
United States of America or such other U.S. jurisdictions or by the
NASD and, if the Registration Statement is not effective under the
Securities Act as of the time of execution hereof, such as may be
required (and shall be obtained as provided in this Agreement) under
the Securities Act, or (ii) conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a
default under any indenture, mortgage, deed of trust, lease or other
agreement or instrument to which such Selling Stockholder or any of
its subsidiaries is a party or by which such Selling Stockholder or
any of its subsidiaries or any of their respective properties are
bound, or any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any
arbitrator applicable to such Selling Stockholder or any of its
subsidiaries.
(viii) Such Selling Stockholder has not distributed and, prior
to the later of (x) any Closing Date and (y) the completion of the
distribution of the Shares, will not distribute any offering material
in connection with the offering other than the Registration Statement
or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto.
(c) The above representations and warranties shall be deemed to be
repeated at each Closing, and all references therein to the Shares and the
Closing Date shall be deemed to refer to the Firm Shares or the Option Shares
and the First Closing Date or the applicable Option Closing Date, each as
applicable.
Section 6. Indemnity.
---------
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), against any and all losses, claims,
damages or liabilities, joint or several, to which such Underwriter or such
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made by the
Company in Section 5 hereof,
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<PAGE>
(ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or
(iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement
thereto a material fact required to be stated therein or
necessary to make the statements therein not misleading,
and will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other costs or expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in the
Registration Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through the Representatives specifically for use therein; and provided, further,
that the Company will not be liable to any Underwriter or any person controlling
such Underwriter with respect to any such untrue statement, alleged untrue
statement, omission or alleged omission made in any Preliminary Prospectus that
is corrected in the Prospectus or any amendment or supplement thereto if the
person asserting any such loss, claim, damage or liability purchased Shares from
such Underwriter but was not sent or given a copy of the Prospectus, as amended
or supplemented, in any case where such delivery of the Prospectus, as amended
or supplemented, was required by the Securities Act, unless such failure to
deliver the Prospectus, as amended or supplemented, was a result of
noncompliance by the Company with Section 3 hereof. The indemnity provided for
in this Section 6 shall be in addition to any liability which the Company may
otherwise have. The Company will not, without the prior written consent of the
Representatives, settle or compromise or consent to the entry of any judgment in
any pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not any such Representatives
or any person who controls any such Representatives is a party to such claim,
action, suit or proceeding), unless such settlement, compromise or consent
includes an unconditional release of all of the Underwriters and such
controlling persons from all liability arising out of such claim, action, suit
or proceeding.
(b) Each of the Principal Selling Stockholders, Daniel I. Rubin and
the Selling Stockholders affiliated with U.S. Venture Partners severally and not
jointly agrees to indemnify and hold harmless each Underwriter and each person,
if any, who controls any Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, against any and all losses,
claims, damages or liabilities, joint or several, to which such Underwriter or
such controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement made by such Selling Stockholder in Section 5 hereof, and will
reimburse, as incurred, each Underwriter and each such controlling person for
any legal or other
22
<PAGE>
costs or expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending against or appearing as a
third-party witness in connection with any such loss, claim, damage, liability
or action; provided, however, that such Selling Stockholder will not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through the
Representatives specifically for use therein. Notwithstanding any other
provision of this paragraph (b), no Selling Stockholder shall be liable for
indemnification hereunder in an aggregate amount exceeding the net proceeds
(before deducting expenses) received by such Selling Stockholder in respect of
the Shares sold by such Selling Stockholder to the Underwriters pursuant to this
Agreement. The indemnity provided for in this Section 6 shall be in addition to
any liability which the Selling Stockholders may otherwise have. The Selling
Stockholders will not, without the prior written consent of the Representatives,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder (whether or not any such Representatives or any person
who controls any such Representatives is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of all of the Underwriters and such controlling persons
from all liability arising out of such claim, action, suit or proceeding.
(c) Each of the Selling Stockholders other than the Principal Selling
Stockholders, Daniel I. Rubin and the Selling Stockholders affiliated with U.S.
Venture Partners severally and not jointly agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, against any and all losses, claims, damages or liabilities, joint or
several, to which such Underwriter or such controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement made by such Selling
Stockholder in Section 5 hereof, and will reimburse, as incurred, each
Underwriter and each such controlling person for any legal or other costs or
expenses reasonably incurred by such Underwriter or such controlling person in
connection with investigating, defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action;
provided, however, that to the extent that such loss, claim, damage, liability
or action arises out of or is based upon Section 5(b)(v), such Selling
Stockholder will be liable in any such case only to the extent that any such
loss, claim, damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement or any amendment thereto, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information relating to such Selling Stockholder
furnished to the Company by or on behalf of such Selling Stockholder
specifically for use therein. Notwithstanding any other provision of this
paragraph (b), no Selling Stockholder shall be liable for indemnification
hereunder in an aggregate amount exceeding the net proceeds (before deducting
expenses) received by such Selling Stockholder in respect of the Shares sold by
such Selling Stockholder to the Underwriters pursuant to this Agreement. The
indemnity provided for in this Section 6 shall be in addition to any liability
which the Selling Stockholders may otherwise have. The Selling Stockholders
will not, without the prior
23
<PAGE>
written consent of the Representatives, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not any such Representatives or any person who controls any such
Representatives is a party to such claim, action, suit or proceeding), unless
such settlement, compromise or consent includes an unconditional release of all
of the Underwriters and such controlling persons from all liability arising out
of such claim, action, suit or proceeding.
(d) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, each Selling Stockholder and each person, if
any, who controls the Company or such Selling Stockholder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act against any
losses, claims, damages or liabilities to which the Company or any such director
or officer of the Company, such Selling Stockholder or any such controlling
person of the Company or such Selling Stockholder may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto or (ii) the
omission or the alleged omission to state in the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto a material fact required to be stated therein or necessary
to make the statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through the
Representatives specifically for use therein, and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses reasonably incurred by the Company or any such director,
officer or controlling person or such Selling Stockholder or controlling person
of such Selling Stockholder in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss, claim,
damage, liability or any action in respect thereof. The indemnity provided in
this Section 6 will be in addition to any liability which any Underwriter may
otherwise have. The Underwriters will not, without the prior written consent of
the Company, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not the Company or any
person who controls the Company is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Company and such controlling persons from all
liability arising out of such claim, action, suit or proceeding. The remedies
provided for in this Section 6 are not exclusive and shall not limit any rights
or remedies which may otherwise be available to any indemnified party at law or
in equity.
(e) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to paragraph (a), (b), (c) or (d) of this Section 6, such person
(for purposes of this paragraph (e), the "indemnified party") shall, promptly
after receipt by such party of notice of the commencement of such action, notify
the person against whom such indemnity may be sought (for purposes of this
paragraph (d), the "indemnifying party"), but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 6.
24
<PAGE>
In case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense of any such action and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 6 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) in any one action or separate
but substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, designated in writing by the
Representatives in the case of paragraph (a), (b) or (c) of this Section 6,
representing the indemnified parties under such paragraph (a), (b) or (c) who
are parties to such action or actions), or (ii) the indemnifying party does not
promptly retain counsel satisfactory to the indemnified party, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. All fees and expenses reimbursed
pursuant to this paragraph (e) shall be reimbursed as they are incurred. After
such notice from the indemnifying party to such indemnified party, the
indemnifying party will not be liable for the costs and expenses of any
settlement of such action effected by such indemnified party without the consent
of the indemnifying party.
(f) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 6 is unavailable or insufficient, for
any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the Offering or (ii) if the allocation
provided by the foregoing clause (i) is not permitted by applicable law, not
only such relative benefits but also the relative fault of the indemnifying
party or parties on the one hand and the indemnified party on the other in
connection with the statements or omissions or alleged statements or omissions
that resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total proceeds from the Offering (before deducting expenses)
received by the Company and the Selling Stockholders bear to the total
underwriting discounts and commissions
25
<PAGE>
received by the Underwriters. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, the Selling
Stockholders or the Underwriters, the parties' relative intents, knowledge,
access to information and opportunity to correct or prevent such statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company, the Selling Stockholders and the Underwriters agree
that it would not be equitable if the amount of such contribution were
determined by pro rata or per capita allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take into account the equitable considerations referred to above
in this paragraph (f). Notwithstanding any other provision of this paragraph
(f), no Underwriter shall be obligated to make contributions hereunder that in
the aggregate exceed the total public offering price of the Shares purchased by
such Underwriter under this Agreement, less the aggregate amount of any damages
that such Underwriter has otherwise been required to pay in respect of the same
or any substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
hereunder are several in proportion to their respective underwriting obligations
and not joint, and contributions among Underwriters shall be governed by the
provisions of the Deutsche Morgan Grenfell Inc. Master Agreement Among
Underwriters. For purposes of this paragraph (f), each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act shall have the same rights to contribution as
such Underwriter, and each director of the Company, each officer of the Company
who signed the Registration Statement and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company or such Selling Stockholder, as the case may be.
Section 7. Conditions Precedent. The obligations of the several Underwriters
--------------------
to purchase and pay for the Shares shall be subject, in the Representatives'
sole discretion, to the accuracy of the representations and warranties of the
Company and the Selling Stockholders contained herein as of the date hereof and
as of each Closing Date, as if made on and as of each Closing Date, to the
accuracy of the statements of the Company's officers and the officers of the
Selling Stockholders made pursuant to the provisions hereof, to the performance
by the Company and the Selling Stockholders of their respective covenants and
agreements hereunder and to the following additional conditions:
(a) (i) If the Original Registration Statement or any amendment
thereto filed prior to the First Closing Date has not been declared effective as
of the time of execution hereof, the Original Registration Statement or such
amendment shall have been declared effective not later than 6:00 P.M. New York
City time on the date of determination of the public offering price, if such
determination occurred at or prior to 4:30 P.M. New York City time on such date,
or 12:00 Noon New York City time on the business day following the day on which
the public offering price was determined, if such determination occurred after
4:30 P.M. New York City time on such date, and (ii) if the Company has elected
to rely upon Rule 462(b), the Rule 462(b) Registration Statement shall have been
declared effective not later than the time confirmations are sent or given as
specified by Rule 462(b)(2), or such later time and date as shall have been
consented to by the
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<PAGE>
Representatives; if required, the Prospectus or any Term Sheet that constitutes
a part thereof and any amendment or supplement thereto shall have been filed
with the Commission in the manner and within the time period required by Rules
434 and 424(b) under the Securities Act; no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto shall have
been issued, and no proceedings for that purpose shall have been instituted or
threatened or, to the knowledge of the Company or the Representatives, shall be
contemplated by the Commission; and the Company shall have complied with any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise).
(b) The Representatives shall have received a legal opinion from
Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
Company, dated the Closing Date, to the effect that:
(i) the Registration Statement is effective under the Securities
Act; any required filing of the Prospectus, or any Term Sheet
that constitutes a part thereof, pursuant to Rules 434 and 424(b)
has been made in the manner and within the time period required
by Rules 434 and 424(b); and no stop order suspending the
effectiveness of the Registration Statement or any amendment
thereto has been issued and, to the best knowledge of such
counsel, no proceedings for that purpose are pending or
threatened by the Commission;
(ii) the Original Registration Statement and each amendment
thereto, any Rule 462(b) Registration Statement and the
Prospectus (in each case, other than the financial statements,
including the notes thereto, schedule and other financial
information contained therein, as to which such counsel need
express no opinion) comply as to form in all material respects
with the applicable requirements of the Securities Act and the
rules and regulations of the Commission thereunder;
(iii) such counsel has no reason to believe that (in each case,
other than the financial statements, including the notes thereto,
schedule and other financial information contained therein, as to
which such counsel need express no opinion) (x) the Registration
Statement, as of its effective date, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or (y) the Prospectus, as of its date or
the date of such opinion, included or includes any untrue
statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.
(iv) if the Company elects to rely on Rule 434 under the
Securities Act, the Prospectus is not "materially different", as
such term is used in Rule 434, from the prospectus included in
the Registration Statement at the time of its effectiveness or an
effective post-effective amendment thereto (including
27
<PAGE>
such information that is permitted to be omitted pursuant to Rule
430A under the Securities Act);
(v) the Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus as of the dates
stated therein; all of the issued shares of capital stock of the
Company have been duly authorized and validly issued and are
fully paid and nonassessable, have been issued in compliance with
all applicable federal and state securities laws and were not
issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase securities; the Shares
have been duly authorized by all necessary corporate action of
the Company and, when issued and delivered to and paid for by the
Underwriters pursuant to this Agreement, will be validly issued,
fully paid and nonassessable; no holders of outstanding shares of
capital stock of the Company are entitled as such to any
preemptive or other rights to subscribe for any of the Shares;
and no holder of securities of the Company has any right which
has not been fully exercised or waived to require the Company to
register the offer or sale of any securities owned by such holder
under the Securities Act in the Offering contemplated by this
Agreement;
(vi) all of the Shares have been duly authorized and accepted for
quotation on the Nasdaq National Market, subject to official
notice of issuance;
(vii) the Company and its subsidiary have been duly organized
and are validly existing as corporations in good standing under
the laws of their respective jurisdictions of incorporation and
are duly qualified to transact business as foreign corporations
and are in good standing under the laws of all other
jurisdictions where the ownership, leasing or operation of their
respective properties or assets or the conduct of their
respective businesses requires such qualification, except where
the failure to be so qualified does not amount to a material
liability or disability to the Company and its subsidiary, taken
as a whole; the Company and its subsidiary have full power and
authority to own, lease and operate their respective properties
and assets and conduct their respective businesses as described
in the Registration Statement and the Prospectus, and the Company
has corporate power to enter into this Agreement and to carry out
all the terms and provisions hereof to be carried out by it; all
of the issued and outstanding shares of capital stock of the
Company's subsidiary have been duly authorized and validly
issued, are fully paid and nonassessable and are owned
beneficially by the Company free and clear of any perfected
security interests or, to the best knowledge of such counsel, any
other security interests, liens, encumbrances, equities or
claims;
(viii) the statements set forth under the heading "Description
of Capital Stock" in the Prospectus, insofar as such statements
purport to summarize certain provisions of the capital stock of
the Company, provide a fair summary of such provisions; and the
statements set forth under the headings
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<PAGE>
"Risk Factors--Dependence on Key Personnel," "-Certain Anti-
Takeover Provisions," and "-Shares Eligible for Future Sale,"
"Management--Limitation on Liability and Indemnification
Matters," "--Stock Plans," "--401(k) Plan," and "--Employment
Agreements and Change in Control Arrangements," "Certain
Transactions," "Principal and Selling Stockholders," and "Shares
Eligible for Future Sale" in the Prospectus, insofar as such
statements constitute a summary of the legal matters, documents
or proceedings referred to therein, have been reviewed by such
counsel and fairly present the information called for with
respect to such legal matters, documents and proceedings in all
material respects as required by the Securities Act and the rules
and regulations thereunder;
(ix) the execution and delivery of this Agreement have been duly
authorized by all necessary corporate action of the Company and
this Agreement has been duly executed and delivered by the
Company;
(x) the issuance, offering and sale of the Shares to the
Underwriters by the Company pursuant to this Agreement, the
compliance by the Company with the other provisions of this
Agreement and the consummation of the other transactions herein
contemplated do not (x) require the consent, approval,
authorization, registration or qualification of or with any
governmental authority, except such as have been obtained or made
(and specified in such opinion) or such as may be required by the
securities or Blue Sky laws of the various states of the United
States of America and other U.S. jurisdictions in connection with
the offer and sale of the Shares by the Underwriters, or (y)
conflict with or result in a breach or violation of any of the
terms and provisions of, or constitute a default under (I) any
indenture, mortgage, deed of trust, lease or other agreement or
instrument, known to such counsel, to which the Company or its
subsidiary is a party or by which the Company or its subsidiary
or any of their properties is bound, and which is either required
to be filed as an exhibit to the Registration Statement or is an
agreement with a customer of the Company identified in the
Prospectus, or (II) the charter documents or by-laws of the
Company or its subsidiary, or any statute or any judgment,
decree, order, rule or regulation of any court or other
governmental authority or any arbitrator known to such counsel
and applicable to the Company or its subsidiary;
(xi) the Company is not an "investment company" and, after giving
effect to the Offering and the application of the proceeds
therefrom, will not be an "investment company", as such term is
defined in the 1940 Act; and
(xii) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company or its
subsidiary is a party or to which the property of the Company or
its subsidiary is subject that are required to be described in
the Registration Statement or the Prospectus and are not
described therein or any statutes, regulations, contracts
29
<PAGE>
or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described
therein or filed as required.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws of any jurisdiction other than the States of Delaware and
California or the United States, to the extent satisfactory in form and scope to
counsel for the Underwriters, upon the opinion of local counsel. The foregoing
opinion shall also state that the Underwriters are justified in relying upon
such opinion of such local counsel, and copies of such opinion shall be
delivered to the Representatives and counsel for the Underwriters.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion. The opinions of issuer's counsel described herein shall be
rendered to the Underwriters at the request of the Company and shall so state
therein.
(c) The Representatives shall have received a legal opinion from
Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
Selling Stockholders, dated the Closing Date, to the effect that:
(i) such Selling Stockholder has full power (corporate and other)
to enter into this Agreement, the Custody Agreement and the
Power-of-Attorney and to sell, assign, transfer and deliver the
Shares being sold by such Selling Stockholder hereunder in the
manner provided in this Agreement and to perform its obligations
under the Custody Agreement; the execution and delivery of this
Agreement, the Custody Agreement and the Power of Attorney have
been duly authorized by all necessary action of each Selling
Stockholder; this Agreement, the Custody Agreement and the Power-
of-Attorney have been duly executed and delivered by each Selling
Stockholder; assuming due authorization, execution and delivery
by the Custodian, the Custody Agreement and the Power-of-Attorney
are the legal, valid, binding and enforceable instruments of such
Selling Stockholder, subject to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally and
subject, as to enforceability, to general principles of equity
(regardless of whether enforcement is sought in a proceeding in
equity or at law);
(ii) the delivery by each Selling Stockholder to the several
Underwriters of certificates for the Shares being sold hereunder
by such Selling Stockholder against payment therefor as provided
herein, will convey good and marketable title to such Shares to
the several Underwriters, free and clear of all security
interests, liens, encumbrances, equities, claims or other
defects;
(iii) the sale of the Shares to the Underwriters by such Selling
Stockholder pursuant to this Agreement, the compliance by such
Selling Stockholder with the other provisions of this Agreement
and the Custody
30
<PAGE>
Agreement and the consummation of the other transactions herein
contemplated do not (x) require the consent, approval,
authorization, registration or qualification of or with any
governmental authority, except such as have been obtained and
such as may be required under state securities or Blue Sky laws,
or (y) conflict with or result in a breach or violation of any of
the terms and provisions of, or constitute a default under any
indenture, mortgage, deed of trust, lease or other agreement or
instrument to which, to the best of such counsel's knowledge,
such Selling Stockholder or any of its subsidiaries is a party or
by which such Selling Stockholder or any of its subsidiaries or
any of their respective properties are bound, or the charter
documents or bylaws of such Selling Stockholder or any of its
subsidiaries or any statute, rule or regulation or, to the best
of such counsel's knowledge, any judgment, decree, order of any
court or other governmental authority or any arbitrator
applicable to such Selling Stockholder or any of its
subsidiaries.
In rendering such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of the Selling
Stockholders and public officials and, as to matters involving the application
of laws of any jurisdiction other than the State of California or the United
States, to the extent satisfactory in form and scope to counsel for the
Underwriters, upon the opinion of local counsel. The foregoing opinion shall
also state that the Underwriters are justified in relying upon such opinion of
such local counsel, and copies of such opinion shall be delivered to the
Representatives and counsel for the Underwriters.
References to the Registration Statement and the Prospectus in this
paragraph (c) shall include any amendment or supplement thereto at the date of
such opinion.
(d) The Representatives shall have received a legal opinion from
Fenwick & West LLP, counsel for the Underwriters, dated the Closing Date,
covering the issuance and sale of the Shares, the Registration Statement and the
Prospectus, and such other related matters as the Representatives may reasonably
require, and the Company shall have furnished to such counsel such documents as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
(e) The Representatives shall have received from Coopers & Lybrand
L.L.P. a letter or letters dated, respectively, the date hereof and the Closing
Date, in form and substance satisfactory to the Representatives, to the effect
that:
(i) they are independent accountants with respect to the Company
and its subsidiary within the meaning of the Securities Act and
the applicable rules and regulations thereunder;
(ii) in their opinion, the audited financial statements and
schedule examined by them and included in the Registration
Statement and the Prospectus comply in form in all material
respects with the applicable accounting requirements of the
Securities Act and the related published rules and regulations;
31
<PAGE>
(iii) on the basis of a reading of the latest available interim
unaudited consolidated financial statements of the Company,
carrying out certain specified procedures (which do not
constitute an examination made in accordance with generally
accepted auditing standards) that would not necessarily reveal
matters of significance with respect to the comments set forth in
this paragraph (iii), a reading of the minute books of the
stockholders, the board of directors and any committees thereof
of the Company and its subsidiary, and inquiries of certain
officials of the Company and its subsidiary who have
responsibility for financial and accounting matters, nothing came
to their attention that caused them to believe that:
(x) the unaudited consolidated financial statements of the
Company and its subsidiary included in the Registration
Statement and the Prospectus do not comply in form in all
material respects with the applicable accounting
requirements of the Securities Act and the related published
rules and regulations thereunder or are not in conformity
with GAAP applied on a basis substantially consistent with
that of the audited financial statements included in the
Registration Statement and the Prospectus;
(y) at a specific date not more than five business days
prior to the date of such letter, there were any changes in
the capital stock or long-term debt of the Company or any
decreases in net current assets or stockholders' equity of
the Company, in each case compared with amounts shown on the
March 31, 1998 balance sheet included in the Registration
Statement and the Prospectus, or for the period from April
1, 1998 to such specified date there were any decreases, as
compared with a period of comparable length commencing on
April 1, 1997, in revenue, net income before provision for
income taxes or total or per share amounts of net income of
the Company, except in all instances for changes, decreases
or increases set forth in such letter.
(iv) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts,
percentages and financial information that are derived from the
general accounting records of the Company and are included in the
Registration Statement and the Prospectus under the captions
"Prospectus Summary," "Risk Factors," "Use of Proceeds,"
"Capitalization," "Dilution," "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," "Management," "Certain
Transactions," "Principal and Selling Stockholders," "Description
of Capital Stock," "Shares Eligible for Future Sales" and "Item
15. Recent Sales of Unregistered Securities" and in Exhibit
11.01 to the Registration Statement, and have compared such
amounts, percentages and financial information with such records
of the Company and with information derived from such records and
have found them to be in agreement, excluding any questions of
legal interpretation.
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<PAGE>
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (I) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (II) such changes,
decreases or increases do not, in the sole judgment of the Representatives, make
it impractical or inadvisable to proceed with the purchase and delivery of the
Shares as contemplated by the Registration Statement, as amended as of the date
hereof. References to the Registration Statement and the Prospectus in this
paragraph (e) with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
(f) The Company shall have furnished or caused to be furnished to the
Underwriters at the Closing a certificate of its President and Chief Executive
Officer and its Vice President, Finance and Chief Financial Officer satisfactory
to the Underwriters to the effect that:
(i) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the
Closing Date; the Registration Statement, as amended as of the
Closing Date, does not include any untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein not misleading, and the Prospectus, as amended
or supplemented as of the Closing Date, does not include any
untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; and the Company has performed all covenants and
agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued,
and no proceedings for that purpose have been instituted or
threatened or, to the best of the Company's knowledge, are
contemplated by the Commission; and
(iii) subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus,
neither the Company nor its subsidiary has sustained any material
loss or interference with its business as described in the
Prospectus or properties from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance, or from any
labor dispute or any legal or governmental proceeding, and there
has not been any materially adverse change (including, without
limitation, a change in management or control), or development
involving a prospective materially adverse change, in the
condition (financial or otherwise), management, earnings,
properties, business affairs or business prospects, stockholders'
equity, net worth or results of operations of the Company or its
subsidiary, except in each case as described in or contemplated
by the Prospectus (exclusive of any amendment or supplement
thereto).
33
<PAGE>
(g) The Representatives shall have received from each Selling
Stockholder a certificate, signed by such Selling Stockholder, dated the Closing
Date, to the effect that:
(i) the representations and warranties of such Selling
Stockholder in this Agreement are true and correct as if made on
and as of the Closing Date;
(ii) the Registration Statement, as amended as of the Closing
Date, does not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein not misleading, and the Prospectus, as amended or
supplemented as of the Closing Date, does not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
and
(iii) such Selling Stockholder has performed all covenants and
agreements on its part to be performed or satisfied at or prior
to the Closing Date.
(h) The Representatives shall have received from each officer,
director and Selling Stockholder an agreement dated on or before the date of
this Agreement to the effect that such person will not publicly announce any
intention to and will not, without the prior written consent of the
Representatives on behalf of the Underwriters, (i) offer, pledge, sell, offer to
sell, contract to sell, sell any option or contract to purchase, purchase any
option to sell, grant any option, right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, any of the shares of Common
Stock or any securities convertible into, or exercisable or exchangeable for,
Common Stock, or (ii) enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences of ownership of the shares of
Common Stock or any securities convertible into, or exercisable or exchangeable
for, shares of Common Stock (whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of shares of Common Stock or such
other securities, in cash or otherwise), in each case, beneficially owned
(within the meaning of Rule 13d-3 under the Exchange Act) or otherwise
controlled by such person on the date hereof or hereafter acquired, for a period
beginning from the date hereof and continuing to and including the date 180 days
after the date hereof in the case of the Principal Selling Stockholders and 90
days after the date hereof in the case of all other executive officers,
directors and Selling Stockholders; provided, however, that such person may,
without the prior written consent of the Representatives on behalf of the
Underwriters, transfer shares of Common Stock or such other securities to
members of such person's immediate family or to trusts for the benefit of
members of such person's immediate family or in connection with bona fide gifts,
provided that any transferee agrees to the transfer restrictions described
above.
(i) Prior to the commencement of the Offering, the Company shall have
made an application for the quotation of the Shares on the Nasdaq National
Market and the Shares shall have been included for trading on the Nasdaq
National Market, subject to official notice of issuance.
(j) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential downgrading or of
any review for a possible change that does not
34
<PAGE>
indicate the direction of the possible change, in the rating accorded any of the
Company's securities by any "nationally recognized statistical rating
organization", as such term is defined for purposes of Rule 436(g)(2) under the
Securities Act.
(k) On or before the Closing Date, the Representatives and counsel for
the Underwriters shall have received such further certificates, documents or
other information as they may have reasonably requested from the Company and the
Selling Stockholders.
(l) Each of (i) the ISDA Master Agreement by and among Deutsche Bank
AG, London Branch ("Deutsche Bank"), Deutsche Morgan Grenfell Inc. ("DMG") and
Synopsys, Inc. ("Synopsys") regarding the forward sale of 891,448 shares of
Common Stock of the Company by Synopsys, and the related Confirmation dated
April 15, 1998, and (ii) the [Master Securities Loan Agreement] by and among
Deutsche Bank and Synopsys regarding the loan of 891,448 shares of Common Stock
of the Company, shall be in full force and effect and the parties thereto shall
have performed all of their obligations to be performed at or prior to the
Closing Date.
All opinions, certificates, letters and documents delivered pursuant
to this Agreement will comply with the provisions hereof only if they are
satisfactory in all material respects to the Representatives and counsel for the
Underwriters. The Company and the Selling Stockholders shall furnish to the
Representatives such conformed copies of such opinions, certificates, letters
and documents in such quantities as the Representatives and counsel for the
Underwriters shall reasonably request.
The respective obligations of the several Underwriters to purchase and
pay for any Shares shall be subject, in their discretion, to each of the
foregoing conditions to purchase the Shares, except that all references therein
to the Shares and the Closing Date shall be deemed to refer to the Firm Shares
or the Option Shares and the First Closing Date or the related Option Closing
Date, each as applicable.
Section 8. Default of Underwriters. If, at any Closing, any one or more of the
-----------------------
Underwriters shall fail or refuse to purchase Shares that it has or they have
agreed to purchase hereunder on such date, and the aggregate number of Shares
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase is ten percent or less of the aggregate number of the Shares to be
purchased on such date, the other Underwriters may make arrangements
satisfactory to the Representatives for the purchase of such Shares by other
persons (who may include one or more of the non-defaulting Underwriters,
including the Representatives), but if no such arrangements are made by the
First Closing Date or the related Option Closing Date, as the case may be, the
other Underwriters shall be obligated severally in the proportions that the
number of Firm Shares set forth opposite their respective names in Schedule 1
hereto bears to the aggregate number of Firm Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as the
Representatives may specify, to purchase the Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date. If, at the First Closing, any Underwriter or Underwriters shall fail or
refuse to purchase Firm Shares and the aggregate number of Firm Shares with
respect to which such default occurs is more than ten per cent of the aggregate
number of Firm Shares to be purchased, and arrangements satisfactory to the
Representatives, the Company and the Selling Stockholders for the purchase of
such Firm Shares are not made within 36 hours after such default, this Agreement
shall terminate without liability on the part of any non-defaulting Underwriter,
the Company or any Selling Stockholder. In any such case either the
Representatives or the Company shall have the right to postpone the Closing, but
in no event for longer than seven days, in order that the required changes, if
any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. If, at any Option Closing, any
Underwriter or Underwriters shall fail or refuse to purchase Option Shares, the
non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase Option Shares or (ii) purchase not less than
the number of Option Shares that such non-defaulting
35
<PAGE>
Underwriters would have been obligated to purchase in the absence of such
default. As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 8. Any action taken under this
Section 8 shall not relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
Section 9. Termination. This Agreement shall be subject to termination in the
-----------
sole discretion of the Representatives by notice to the Company and the Selling
Stockholders given prior to any Closing Date in the event that the Company or
any Selling Stockholder shall have failed, refused or been unable to perform all
obligations and satisfy all conditions on its part to be performed or satisfied
hereunder at or prior thereto or, if at or prior to any Closing Date, (a)
trading in securities generally on the New York Stock Exchange or the Nasdaq
National Market shall have been suspended or materially limited or minimum or
maximum prices shall have been established by or on, as the case may be, the
Commission or the New York Stock Exchange or the Nasdaq National Market; (b)
trading of any securities of the Company shall have been suspended on any
exchange or in any over-the-counter market; (c) a general moratorium on
commercial banking activities shall have been declared by Federal, New York
State or California authorities; (d) there shall have occurred (i) an outbreak
or escalation of hostilities between the United States and any foreign power,
(ii) an outbreak or escalation of any other insurrection or armed conflict
involving the United States, or (iii) any other calamity or crisis or materially
adverse change in general economic, political or financial conditions having an
effect on the U.S. financial markets that, in the sole judgment of the
Representatives, makes it impractical or inadvisable to proceed with the public
offering or the delivery of the Shares as contemplated by the Registration
Statement, as amended as of the date hereof; or (e) the Company or its
subsidiary shall have, in the sole judgment of the Representatives, sustained
any material loss or interference with their respective businesses as described
in the Prospectus or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding, or there shall have been any materially
adverse change (including, without limitation, a change in management or
control), or constitute a development involving a prospective materially adverse
change, in the condition (financial or otherwise), management, earnings,
properties, business affairs or business prospects, stockholders' equity, net
worth or results of operations of the Company or its subsidiary, except in each
case as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto). Termination of this Agreement pursuant to
this Section 9 shall be without liability of any party to any other party except
for the liability of the Company in relation to expenses as provided in Sections
4 and 10 hereof, the liability of the Selling Stockholders in relation to
expenses as provided in Sections 4 and 10 hereof, the indemnity provided in
Section 6 hereof and any liability arising before or in relation to such
termination.
Section 10. Reimbursement of Expenses. If the sale of the Shares provided for
-------------------------
herein is not consummated because any condition to the obligations of the
Underwriters set forth in Section 7 hereof is not satisfied or because of any
termination pursuant to Section 9 hereof (other than by reason of a default by
any of the Underwriters), the Company shall reimburse the Underwriters,
severally upon demand, for all out-of-pocket expenses (including fees and
disbursements of counsel) that shall have been incurred by them in connection
with the proposed purchase and sale of the Shares. If the Company is required
to make any payments to the Underwriters under this Section 10 because of any
Selling Stockholder's refusal, inability or failure to satisfy any condition to
the obligations of the Underwriters set forth in Section 7 hereof, such
defaulting Selling
36
<PAGE>
Stockholder, pro rata in proportion to the percentage of Shares to be sold by
--- ----
each, shall reimburse the Company on demand for all amounts so paid.
Section 11. Information Supplied by Underwriters. The statements set forth in
------------------------------------
the last paragraph on the front cover page and under the heading "Underwriting"
in any Preliminary Prospectus or the Prospectus (to the extent such statements
relate to the Underwriters) constitute the only information furnished by any
Underwriter through the Representatives to the Company for the purposes of
Section 5(a)(ii) and Section 6 hereof. The Underwriters confirm that such
statements (to such extent) are correct.
Section 12. Notices. In all dealings hereunder, you shall act on behalf of
-------
each of the Underwriters, and the parties hereto shall be entitled to act and
rely upon any statement, request, notice or agreement on behalf of any
Underwriter made or given by the Representatives. Any notice or notification in
any form to be given under this Agreement may be delivered in person or sent by
facsimile or telephone (subject in the case of a communication by telephone to
confirmation by facsimile) addressed to:
in the case of the Company:
Artisan Components, Inc.
1195 Bordeaux Drive
Sunnyvale, California 94089
Telephone: (408) 734-5600
Facsimile: (408) 734-5050
Attention: Mark R. Templeton
in the case of the Underwriters:
Deutsche Morgan Grenfell Inc.
31 West 52nd Street
New York, New York 10019
Facsimile: (212) 469-8173
Attention: Thomas Curtis, Esq.
In the case of the Selling Stockholders, any such notice shall be addressed to
the Selling Stockholders at the addresses set forth in Schedule 2 hereto. Any
notice under this Section 12 shall take effect, in the case of delivery, at the
time of delivery and, in the case of facsimile, at the time of dispatch with
confirmed receipt.
Section 13. Miscellaneous.
-------------
(a) Time shall be of the essence of this Agreement.
(b) The headings herein are inserted for convenience of reference only
and are not intended to be part of, or to affect, the meaning or interpretation
of this Agreement.
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<PAGE>
(c) For purposes of this Agreement, (a) "business day" means any day
on which the New York Stock Exchange is open for trading, and (b) "subsidiary"
has the meaning set forth in Rule 405 under the Securities Act.
(d) This Agreement may be executed in any number of counterparts, all
of which, taken together, shall constitute one and the same Agreement and any
party may enter into this Agreement by executing a counterpart.
(e) This Agreement shall inure to the benefit of and shall be binding
upon the several Underwriters, the Company, the Selling Stockholders and their
respective successors and legal representatives, and nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained, this Agreement and all conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person, except that (i)
the indemnities of the Company and the Selling Stockholders contained in Section
6 hereof shall also be for the benefit of any person or persons who control any
Underwriter within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act and (ii) the indemnities of the Underwriters contained in
Section 6 hereof shall also be for the benefit of the directors of the Company,
the officers of the Company who have signed the Registration Statement, each
Selling Stockholder and any person or persons who control the Company or such
Selling Stockholder within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act. No purchaser of Shares from any Underwriter
shall be deemed a successor because of such purchase.
(f) The respective representations, warranties, agreements, covenants,
indemnities and other statements of the Company, its officers, the Selling
Stockholders and the several Underwriters set forth in this Agreement or made by
or on behalf of them, respectively, pursuant to this Agreement shall remain in
full force and effect, regardless of (i) any investigation made by or on behalf
of the Company, any of its officers or directors, the Selling Stockholders, any
Underwriter or any controlling person referred to in Section 6 hereof and (ii)
delivery of and payment for the Shares. The respective agreements, covenants,
indemnities and other statements set forth in Sections 4, 6 and 10 hereof shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement.
Section 14. Severability. It is the desire and intent of the parties that the
------------
provisions of this Agreement be enforced to the fullest extent permissible under
the law and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, in the event that any provision of this Agreement would be
held in any jurisdiction to be invalid, prohibited or unenforceable for any
reason, such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Section 15. Governing Law. The validity and interpretation of this Agreement,
-------------
and the terms and conditions set forth herein, shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to any provisions relating to conflicts of laws.
38
<PAGE>
If the foregoing is in accordance with your understanding, please sign
and return to us six counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement among each of the Underwriters, the Company
and the Selling Stockholders. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in the Deutsche Morgan Grenfell Inc. Master Agreement Among Underwriters,
the form of which shall be submitted to the Company for examination upon
request, but without warranty on your part as to the authority of the signers
thereof.
Very truly yours,
Artisan Components, Inc.
By
-----------------------------
Chief Executive Officer
The Selling Stockholders identified in Schedule 2
By
-----------------------------------------------
Attorney-in-Fact
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
DEUTSCHE MORGAN GRENFELL
HAMBRECHT & QUIST L.L.C.
DAIN RAUSCHER WESSELS
(A division of Dain Rauscher Incorporated)
By: DEUTSCHE MORGAN GRENFELL
By
-----------------------
Tony Trousset
By
-----------------------
Tony Trousset
For itself and on behalf of the Representatives.
39
<PAGE>
SCHEDULE 1
The Underwriters
<TABLE>
<CAPTION>
Underwriter Underwriting commitment
- ----------- -----------------------
<S> <C>
Deutsche Morgan Grenfell Inc.
Hambrecht & Quist LLC
Dain Rauscher Wessels
---------
Total...................................... 3,000,000
=========
</TABLE>
<PAGE>
SCHEDULE 2
The Selling Stockholders
<TABLE>
<CAPTION>
Number of Firm
Selling Stockholders Shares to be Sold
- -------------------- -----------------
<S> <C>
[Entities affiliated with U.S. Venture
Partners]................................. 500,000
Daniel I. Rubin............................. 475,000
John G. Malecki............................. 100,050
Mark. R. Templeton.......................... 96,150
Duane R. Hook............................... 90,050
Scott T. Becker............................. 88,940
Dhrumil Ghandi.............................. 34,978
Jeffrey A. Lewis............................ 9,514
[Other Selling Stockholders]................ 45,000
---------
Total.......................................
=========
</TABLE>
<PAGE>
EXHIBIT 1.2.1
(Multicurrency-Cross Border)
ISDA (R)
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of ___________
__________________________________ and______________________________________
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows:-
1. INTERPRETATION
(a) DEFINITIONS. The terms defined in Section 14 and in the Schedule will
have the meanings therein specified for the purpose of this Master Agreement.
(b) INCONSISTENCY. In the event of any inconsistency between the provisions
of the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the fact
that this Master Agreement and all Confirmations form a single agreement between
the parties (collectively referred to as this "Agreement"), and the parties
would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) GENERAL CONDITIONS.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for value
on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the required
currency. Where settlement is by delivery (that is, other than by payment),
such delivery will be made for receipt on the due date in the manner
customary for the relevant obligation unless otherwise specified in the
relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to (1)
the condition precedent that no Event of Default or Potential Event of
Default with respect to the other party has occurred and is continuing, (2)
the condition precedent that no Early Termination Date in respect of the
relevant Transaction has occurred or been effectively designated and (3)
each other applicable condition precedent specified in this Agreement.
Copyright (C) 1992 by International Swap Dealers Association, Inc.
<PAGE>
(b) CHANGE OF ACCOUNT. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) NETTING. If on any date amounts would otherwise be payable:-
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above will not,
or will cease to, apply to such Transactions from such date). This election may
be made separately for different groups of Transactions and will apply
separately to each pairing of Offices through which the parties make and receive
payments or deliveries.
(d) DEDUCTION OR WITHHOLDING FOR TAX.
(i) Gross-Up. All payments under this Agreement will be made without any
deduction or withholding for or on account of any Tax unless such deduction
or withholding is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, then in effect.
If a party is so required to deduct or withhold, then that party ("X")
will:-
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to be
deducted or withheld (including the full amount required to be
deducted or withheld from any additional amount paid by X to Y under
this Section 2(d)) promptly upon the earlier of determining that such
deduction or withholding is required or receiving notice that such
amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified copy),
or other documentation reasonably acceptable to Y, evidencing such
payment to such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the
payment to which Y is otherwise entitled under this Agreement, such
additional amount as is necessary to ensure that the net amount
actually received by Y (free and clear of Indemnifiable Taxes, whether
assessed against X or Y) will equal the full amount Y would have
received had no such deduction or withholding been required. However,
X will not be required to pay any additional amount to Y to the extent
that it would not be required to be paid but for:-
(A) the failure by Y to comply with or perform any agreement contained
in Section 4(a)(i), 4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y pursuant to Section 3(f)
to be accurate and true unless such failure would not have occurred
but for (I) any action taken by a taxing authority, or brought in a
court of competent jurisdiction, on or after the date on which a
Transaction is entered into (regardless of whether such action is
taken or brought with respect to a party to this Agreement) or (II) a
Change in Tax Law.
2
<PAGE>
(ii) LIABILITY. If:-
(1) X is required by any applicable law, as modified by the practice
of any relevant governmental revenue authority, to make any deduction
or withholding in respect of which X would not be required to pay an
additional amount to Y under Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly
against X,
then, except to the extent Y has satisfied or then satisfies the liability
resulting from such Tax, Y will promptly pay to X the amount of such
liability (including any related liability for interest, but including any
related liability for penalties only if Y has failed to comply with or
perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant
Transaction, a party that defaults in the performance of any payment
obligation will, to the extent permitted by law and subject to Section
6(c), be required to pay interest (before as well as after judgment) on the
overdue amount to the other party on demand in the same currency as such
overdue amount, for the period from (and including) the original due date
for payment to (but excluding) the date of actual payment, at the Default
Rate. Such interest will be calculated on the basis of daily compounding
and the actual number of days elapsed. If, prior to the occurrence or
effective designation of an Early Termination Date in respect of the
relevant Transaction, a party defaults in the performance of any obligation
required to be settled by delivery, it will compensate the other party on
demand if and to the extent provided for in the relevant Confirmation or
elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the representations in Section 3(f), at all times until the
termination of this Agreement) that:-
(a) BASIC REPRESENTATIONS.
(i) STATUS. It is duly organised and validly existing under the laws of the
jurisdiction of its organisation or incorporation and, if relevant under
such laws, in good standing;
(ii) POWERS. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to deliver
this Agreement and any other documentation relating to this Agreement that
it is required by this Agreement to deliver and to perform its obligations
under this Agreement and any obligations it has under any Credit Support
Document to which it is a party and has taken all necessary action to
authorise such execution, delivery and performance;
(iii) NO VIOLATION OR CONFLICT. Such execution, delivery and performance do
not violate or conflict with any law applicable to it, any provision of its
constitutional documents, any order or judgment of any court or other
agency of government applicable to it or any of its assets or any
contractual restriction binding on or affecting it or any of its assets;
(iv) CONSENTS. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in full
force and effect and all conditions of any such consents have been complied
with; and
(v) OBLIGATIONS BINDING. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal, valid
and binding obligations, enforceable in accordance with their respective
terms (subject to applicable bankruptcy, reorganisation, insolvency,
moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in
equity or at law)).
3
<PAGE>
(b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of Default
or, to its knowledge, Termination Event with respect to it has occurred and is
continuing and no such event or circumstance would occur as a result of its
entering into or performing its obligations under this Agreement or any Credit
Support Document to which it is a party.
(c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge, threatened
against it or any of its Affiliates any action, suit or proceeding at law or in
equity or before any court, tribunal, governmental body, agency or official or
any arbitrator that is likely to affect the legality, validity or enforceability
against it of this Agreement or any Credit Support Document to which it is a
party or its ability to perform its obligations under this Agreement or such
Credit Support Document.
(d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
(e) PAYER TAX REPRESENTATION. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(e) is accurate and true.
(f) PAYEE TAX REPRESENTATIONS. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(f) is accurate and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:-
(a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party or, in
certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:-
(i) any forms, documents or certificates relating to taxation specified in
the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any Confirmation; and
(iii) upon reasonable demand by such other party, any form or document
that may be required or reasonably requested in writing in order to allow
such other party or its Credit Support Provider to make a payment under
this Agreement or any applicable Credit Support Document without any
deduction or withholding for or on account of any Tax or with such
deduction or withholding at a reduced rate (so long as the completion,
execution or submission of such form or document would not materially
prejudice the legal or commercial position of the party in receipt of such
demand), with any such form or document to be accurate and completed in a
manner reasonably satisfactory to such other party and to be executed and
to be delivered with any reasonably required certification,
in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.
(b) MAINTAIN AUTHORISATIONS. It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority that
are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to
obtain any that may become necessary in the future.
(c) COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) TAX AGREEMENT. It will give notice of any failure of a representation made
by it under Section 3(f) to be accurate and true promptly upon learning of such
failure.
(e) PAYMENT OF STAMP TAX. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated,
4
<PAGE>
organised, managed and controlled, or considered to have its seat, or in which a
branch or office through which it is acting for the purpose of this Agreement is
located ("Stamp Tax Jurisdiction") and will indemnify the other party against
any Stamp Tax levied or imposed upon the other party or in respect of the other
party's execution or performance of this Agreement by any such Stamp Tax
Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the
other party.
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party or, if
applicable, any Credit Support Provider of such party or any Specified Entity of
such party of any of the following events constitutes an event of default (an
"Event of Default") with respect to such party:-
(i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when due, any
payment under this Agreement or delivery under Section 2(a)(i) or 2(e)
required to be made by it if such failure is not remedied on or before the
third Local Business Day after notice of such failure is given to the
party;
(ii) BREACH OF AGREEMENT. Failure by the party to comply with or perform
any agreement or obligation (other than an obligation to make any payment
under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give
notice of a Termination Event or any agreement or obligation under Section
4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party
in accordance with this Agreement if such failure is not remedied on or
before the thirtieth day after notice of such failure is given to the
party;
(iii) CREDIT SUPPORT DEFAULT.
(1) Failure by the party or any Credit Support Provider of such party
to comply with or perform any agreement or obligation to be complied
with or performed by it in accordance with any Credit Support Document
if such failure is continuing after any applicable grace period has
elapsed;
(2) the expiration or termination of such Credit Support Document or
the failing or ceasing of such Credit Support Document to be in full
force and effect for the purpose of this Agreement (in either case
other than in accordance with its terms) prior to the satisfaction of
all obligations of such party under each Transaction to which such
Credit Support Document relates without the written consent of the
other party; or
(3) the party or such Credit Support Provider disaffirms, disclaims,
repudiates or rejects, in whole or in part, or challenges the validity
of, such Credit Support Document;
(iv) MISREPRESENTATION. A representation (other than a representation
under Section 3(e) or (f)) made or repeated or deemed to have been made or
repeated by the party or any Credit Support Provider of such party in this
Agreement or any Credit Support Document proves to have been incorrect or
misleading in any material respect when made or repeated or deemed to have
been made or repeated;
(v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party (1)
defaults under a Specified Transaction and, after giving effect to any
applicable notice requirement or grace period, there occurs a liquidation
of, an acceleration of obligations under, or an early termination of, that
Specified Transaction, (2) defaults, after giving effect to any applicable
notice requirement or grace period, in making any payment or delivery due
on the last payment, delivery or exchange date of, or any payment on early
termination of, a Specified Transaction (or such default continues for at
least three Local Business Days if there is no applicable notice
requirement or grace period) or (3) disaffirms, disclaims, repudiates or
rejects, in whole or in part, a Specified Transaction (or such action is
taken by any person or entity appointed or empowered to operate it or act
on its behalf;
(vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default, event
of default or other similar condition or event (however
5
<PAGE>
described) in respect of such party, any Credit Support Provider of such
party or any applicable Specified Entity of such party under one or more
agreements or instruments relating to Specified Indebtedness of any of them
(individually or collectively) in an aggregate amount of not less than the
applicable Threshold Amount (as specified in the Schedule) which has
resulted in such Specified Indebtedness becoming, or becoming capable at
such time of being declared, due and payable under such agreements or
instruments, before it would otherwise have been due and payable or (2) a
default by such party, such Credit Support Provider or such Specified
Entity (individually or collectively) in making one or more payments on the
due date thereof in an aggregate amount of not less than the applicable
Threshold Amount under such agreements or instruments (after giving effect
to any applicable notice requirement or grace period);
(vii) BANKRUPTCY. The party, any Credit Support Provider of such party or
any applicable Specified Entity of such party:-
(1) is dissolved (other than pursuant to a consolidation, amalgamation or
merger); (2) becomes insolvent or is unable to pay its debts or fails or
admits in writing its inability generally to pay its debts as they become
due; (3) makes a general assignment, arrangement or composition with or
for the benefit of its creditors; (4) institutes or has instituted
against it a proceeding seeking a judgment of insolvency or bankruptcy or
any other relief under any bankruptcy or insolvency law or other similar
law affecting creditors' rights, or a petition is presented for its
winding-up or liquidation, and, in the case of any such proceeding or
petition instituted or presented against it, such proceeding or petition
(A) results in a judgment of insolvency or bankruptcy or the entry of an
order for relief or the making of an order for its winding-up or
liquidation or (B) is not dismissed, discharged, stayed or restrained in
each case within 30 days of the institution or presentation thereof; (5)
has a resolution passed for its winding-up, official management or
liquidation (other than pursuant to a consolidation, amalgamation or
merger); (6) seeks or becomes subject to the appointment of an
administrator, provisional liquidator, conservator, receiver, trustee,
custodian or other similar official for it or for all or substantially
all its assets; (7) has a secured party take possession of all or
substantially all its assets or has a distress, execution, attachment,
sequestration or other legal process levied, enforced or sued on or
against all or substantially all its assets and such secured party
maintains possession, or any such process is not dismissed, discharged,
stayed or restrained, in each case within 30 days thereafter; (8) causes
or is subject to any event with respect to it which, under the applicable
laws of any jurisdiction, has an analogous effect to any of the events
specified in clauses (1) to (7) (inclusive); or (9) takes any action in
furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the foregoing acts; or
(viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or merges with or
into, or transfers all or substantially all its assets to, another entity
and, at the time of such consolidation, amalgamation, merger or transfer:-
(1) the resulting, surviving or transferee entity fails to assume all the
obligations of such party or such Credit Support Provider under this
Agreement or any Credit Support Document to which it or its predecessor
was a party by operation of law or pursuant to an agreement reasonably
satisfactory to the other party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend (without
the consent of the other party) to the performance by such resulting,
surviving or transferee entity of its obligations under this Agreement.
(b) TERMINATION EVENTS. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes an Illegality if the
event is specified in (i) below, a Tax Event if the event is specified in (ii)
below or a Tax Event Upon Merger if the event is specified in (iii) below, and,
if specified to be applicable, a Credit Event
6
<PAGE>
Upon Merger if the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v) below:-
(i) ILLEGALITY. Due to the adoption of, or any change in, any applicable
law after the date on which a Transaction is entered into, or due to the
promulgation of, or any change in, the interpretation by any court,
tribunal or regulatory authority with competent jurisdiction of any
applicable law after such date, it becomes unlawful (other than as a result
of a breach by the party of Section 4(b)) for such party (which will be the
Affected Party):-
(1) to perform any absolute or contingent obligation to make a payment
or delivery or to receive a payment or delivery in respect of such
Transaction or to comply with any other material provision of this
Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party to
perform, any contingent or other obligation which the party (or such
Credit Support Provider) has under any Credit Support Document
relating to such Transaction;
(ii) TAX EVENT. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on which
a Transaction is entered into (regardless of whether such action is taken
or brought with respect to a party to this Agreement) or (y) a Change in
Tax Law, the party (which will be the Affected Party) will, or there is a
substantial likelihood that it will, on the next succeeding Scheduled
Payment Date (1) be required to pay to the other party an additional amount
in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in
respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a
payment from which an amount is required to be deducted or withheld for or
on account of a Tax (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) and no additional amount is required to be paid in
respect of such Tax under Section 2(d)(i)(4) (other than by reason of
Section 2(d)(i)(4)(A) or (B));
(iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on the next
succeeding Scheduled Payment Date will either (1) be required to pay an
additional amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or
6(e)) or (2) receive a payment from which an amount has been deducted or
withheld for or on account of any Indemnifiable Tax in respect of which the
other party is not required to pay an additional amount (other than by
reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a
party consolidating or amalgamating with, or merging with or into, or
transferring all or substantially all its assets to, another entity (which
will be the Affected Party) where such action does not constitute an event
described in Section 5(a)(viii);
(iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is specified
in the Schedule as applying to the party, such party ("X"), any Credit
Support Provider of X or any applicable Specified Entity of X consolidates
or amalgamates with, or merges with or into, or transfers all or
substantially all its assets to, another entity and such action does not
constitute an event described in Section 5(a)(viii) but the
creditworthiness of the resulting, surviving or transferee entity is
materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case may be, immediately prior to such action
(and, in such event, X or its successor or transferee, as appropriate, will
be the Affected Party); or
(v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination Event is
specified in the Schedule or any Confirmation as applying, the occurrence
of such event (and, in such event, the Affected Party or Affected Parties
shall be as specified for such Additional Termination Event in the Schedule
or such Confirmation).
(c) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.
7
<PAGE>
6. EARLY TERMINATION
(a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.
(i) NOTICE. If a Termination Event occurs, an Affected Party will, promptly
upon becoming aware of it, notify the other party, specifying the nature of
that Termination Event and each Affected Transaction and will also give such
other information about that Termination Event as the other party may
reasonably require.
(ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality under
Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected
Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the
Affected Party, the Affected Party will, as a condition to its right to
designate an Early Termination Date under Section 6(b)(iv), use all
reasonable efforts (which will not require such party to incur a loss,
excluding immaterial, incidental expenses) to transfer within 20 days after
it gives notice under Section 6(b)(i) all its rights and obligations under
this Agreement in respect of the Affected Transactions to another of its
Offices or Affiliates so that such Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days after
the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to
and conditional upon the prior written consent of the other party, which
consent will not be withheld if such other party's policies in effect at
such time would permit it to enter into transactions with the transferee on
the terms proposed.
(iii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)(1) or a
Tax Event occurs and there are two Affected Parties, each party will use all
reasonable efforts to reach agreement within 30 days after notice thereof is
given under Section 6(b)(i) on action to avoid that Termination Event.
(iv) RIGHT TO TERMINATE. If:-
(1) a transfer under Section 6(b)(ii) or an agreement under Section
6(b)(iii), as the case may be, has not been effected with respect to all
Affected Transactions within 30 days after an Affected Party gives
notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger
or an Additional Termination Event occurs, or a Tax Event Upon Merger
occurs and the Burdened Party is not the Affected Party,
either party in the case of an Illegality, the Burdened Party in the case of
a Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an
Additional Termination Event if there is more than one Affected Party, or
the party which is not the Affected Party in the case of a Credit Event Upon
Merger or an Additional Termination Event if there is only one Affected
Party may, by not more than 20 days notice to the other party and provided
that the relevant Termination Event is then
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continuing, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all Affected
Transactions.
(c) EFFECT OF DESIGNATION.
(i) If notice designating an Early Termination Date is given under Section
6(a) or (b), the Early Termination Date will occur on the date so
designated, whether or not the relevant Event of Default or Termination
Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early Termination
Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in
respect of the Terminated Transactions will be required to be made, but
without prejudice to the other provisions of this Agreement. The amount, if
any, payable in respect of an Early Termination Date shall be determined
pursuant to Section 6(e).
(d) CALCULATIONS.
(i) STATEMENT. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable detail,
such calculations (including all relevant quotations and specifying any
amount payable under Section 6(e)) and (2) giving details of the relevant
account to which any amount payable to it is to be paid. In the absence of
written confirmation from the source of a quotation obtained in determining
a Market Quotation, the records of the party obtaining such quotation will
be conclusive evidence of the existence and accuracy of such quotation.
(ii) PAYMENT DATE. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day that
notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event of
Default) and on the day which is two Local Business Days after the day on
which notice of the amount payable is effective (in the case of an Early
Termination Date which is designated as a result of a Termination Event).
Such amount will be paid together with (to the extent permitted under
applicable law) interest thereon (before as well as after judgment) in the
Termination Currency, from (and including) the relevant Early Termination
Date to (but excluding) the date such amount is paid, at the Applicable
Rate. Such interest will be calculated on the basis of daily compounding
and the actual number of days elapsed.
(e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the
Schedule of a payment measure, either "Market Quotation" or "Loss", and a
payment method, either the "First Method" or the "Second Method". If the
parties fail to designate a payment measure or payment method in the
Schedule, it will be deemed that "Market Quotation" or the "Second Method",
as the case may be, shall apply. The amount, if any, payable in respect of
an Early Termination Date and determined pursuant to this Section will be
subject to any Set-off.
(i) EVENTS OF DEFAULT. If the Early Termination Date results from an
Event of Default:-
(1) First Method and Market Quotation. If the First Method and Market
Quotation apply, the Defaulting Party will pay to the Non-defaulting
Party the excess, if a positive number, of (A) the sum of the
Settlement Amount (determined by the Non-defaulting Party) in respect
of the Terminated Transactions and the Termination Currency Equivalent
of the Unpaid Amounts owing to the Non-defaulting Party over (B) the
Termination Currency Equivalent of the Unpaid Amounts owing to the
Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply, the
Defaulting Party will pay to the Non-defaulting Party, if a positive
number, the Non-defaulting Party's Loss in respect of this Agreement.
(3) Second Method and Market Quotation. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A) the sum
of the Settlement Amount (determined by the
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Non-defaulting Party) in respect of the Terminated Transactions and
the Termination Currency Equivalent of the Unpaid Amounts owing to the
Non-defaulting Party less (B) the Termination Currency Equivalent of
the Unpaid Amounts owing to the Defaulting Party. If that amount is a
positive number, the Defaulting Party will pay it to the Non-
defaulting Party; if it is a negative number, the Non-defaulting Party
will pay the absolute value of that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply,an
amount will be payable equal to the Non-defaulting Party's Loss in
respect of this Agreement. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if it is a
negative number, the Non-defaulting Party will pay the absolute value
of that amount to the Defaulting Party.
(ii) TERMINATION EVENTS. If the Early Termination Date results from a
Termination Event:-
(1) One Affected Party. If there is one Affected Party, the amount
payable will be determined in accordance with Section 6(e)(i)(3), if
Market Quotation applies, or Section 6(e)(i)(4), if Loss applies,
except that, in either case, references to the Defaulting Party and to
the Non-defaulting Party will be deemed to be references to the
Affected Party and the party which is not the Affected Party,
respectively, and, if Loss applies and fewer than all the Transactions
are being terminated, Loss shall be calculated in respect of all
Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:-
(A) if Market Quotation applies, each party will determine a
Settlement Amount in respect of the Terminated Transactions, and
an amount will be payable equal to (I) the sum of (a) one-half of
the difference between the Settlement Amount of the party with the
higher Settlement Amount ("X") and the Settlement Amount of the
party with the lower Settlement Amount ("Y") and (b) the
Termination Currency Equivalent of the Unpaid Amounts owing to X
less (II) the Termination Currency Equivalent of the Unpaid
Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in respect
of this Agreement (or, if fewer than all the Transactions are
being terminated, in respect of all Terminated Transactions) and
an amount will be payable equal to one-half of the difference
between the Loss of the party with the higher Loss ("X") and the
Loss of the party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if it
is a negative number, X will pay the absolute value of that amount to
Y.
(iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early Termination
Date occurs because "Automatic Early Termination" applies in respect of a
party, the amount determined under this Section 6(e) will be subject to such
adjustments as are appropriate and permitted by law to reflect any payments
or deliveries made by one party to the other under this Agreement (and
retained by such other party) during the period from the relevant Early
Termination Date to the date for payment determined under Section 6(d)(ii).
(iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies an
amount recoverable under this Section 6(e) is a reasonable pre-estimate of
loss and not a penalty. Such amount is payable for the loss of bargain and
the loss of protection against future risks and except as otherwise provided
in this Agreement neither party will be entitled to recover any additional
damages as a consequence of such losses.
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7. TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:-
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of
all or substantially all its assets to, another entity (but without
prejudice to any other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. CONTRACTUAL CURRENCY
(a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement
will be made in the relevant currency specified in this Agreement for that
payment (the "Contractual Currency"). To the extent permitted by applicable law,
any obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.
(b) JUDGMENTS. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency if such shortfall or such excess arises or results from any variation
between the rate of exchange at which the Contractual Currency is converted into
the currency of the judgment or order for the purposes of such judgment or order
and the rate of exchange at which such party is able, acting in a reasonable
manner and in good faith in converting the currency received into the
Contractual Currency, to purchase the Contractual Currency with the amount of
the currency of the judgment or order actually received by such party. The term
"rate of exchange" includes, without limitation, any premiums and costs of
exchange payable in connection with the purchase of or conversion into the
Contractual Currency.
(c) SEPARATE INDEMNITIES. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof being made for any other sums payable in respect of this
Agreement.
(d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be sufficient
for a party to demonstrate that it would have suffered a loss had an actual
exchange or purchase been made.
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9. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) COUNTERPARTS AND CONFIRMATIONS.
(i) This Agreement (and each amendment, modification and waiver in respect
of it) may be executed and delivered in counterparts (including by
facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether orally or
otherwise). A Confirmation shall be entered into as soon as practicable and
may be executed and delivered in counterparts (including by facsimile
transmission) or be created by an exchange of telexes or by an exchange of
electronic messages on an electronic messaging system, which in each case
will be sufficient for all purposes to evidence a binding supplement to
this Agreement. The parties will specify therein or through another
effective means that any such counterpart, telex or electronic message
constitutes a Confirmation.
(f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. OFFICES; MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each party that
enters into a Transaction through an Office other than its head or home office
represents to the other party that, notwithstanding the place of booking office
or jurisdiction of incorporation or organisation of such party, the obligations
of such party are the same as if it had entered into the Transaction through its
head or home office. This representation will be deemed to be repeated by such
party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.
11. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document
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to which the Defaulting Party is a party or by reason of the early termination
of any Transaction, including, but not limited to, costs of collection.
12. NOTICES
(a) EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:-
(i) if in writing and delivered in person or by courier, on the date it is
delivered;
(ii) if sent by telex, on the date the recipient's answerback is received;
(iii) if sent by facsimile transmission, on the date that transmission is
received by a responsible employee of the recipient in legible form (it
being agreed that the burden of proving receipt will be on the sender and
will not be met by a transmission report generated by the sender's
facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or the
equivalent (return receipt requested), on the date that mail is delivered
or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic
message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) CHANGE OF ADDRESSES. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
13. GOVERNING LAW AND JURISDICTION
(a) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) JURISDICTION. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:-
(i) submits to the jurisdiction of the English courts, if this Agreement is
expressed to be governed by English law, or to the non-exclusive
jurisdiction of the courts of the State of New York and the United States
District Court located in the Borough of Manhattan in New York City, if
this Agreement is expressed to be governed by the laws of the State of New
York; and
(ii) waives any objection which it may have at any time to the laying of
venue of any Proceedings brought in any such court, waives any claim that
such Proceedings have been brought in an inconvenient forum and further
waives the right to object, with respect to such Proceedings, that such
court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section I(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or re-
enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent (if
any) specified opposite its name in the Schedule to receive, for it and on its
behalf, service of process in any Proceedings. If for any
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reason any party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute process
agent acceptable to the other party. The parties irrevocably consent to
service of process given in the manner provided for notices in Section 12.
Nothing in this Agreement will affect the right of either party to serve process
in any other manner permitted by law.
(d) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
14. DEFINITIONS
As used in this Agreement:-
"ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b).
"AFFECTED PARTY" has the meaning specified in Section 5(b).
"AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"AFFILIATE" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"APPLICABLE RATE" means:-
(a) in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section 6(d)(ii))
on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default
Rate; and
(d) in all other cases, the Termination Rate.
"BURDENED PARTY" has the meaning specified in Section 5(b).
"CHANGE IN TAX LAW" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
interpretation of any law) that occurs on or after the date on which the
relevant Transaction is entered into.
"consent" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b).
"CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified as
such in this Agreement.
"CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule.
"DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
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"DEFAULTING PARTY" has the meaning specified in Section 6(a).
"EARLY TERMINATION DATE" means the date determined -in accordance with Section
6(a) or 6(b)(iv).
"EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
"ILLEGALITY" has the meaning specified in Section 5(b).
"INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such jurisdiction,
or being or having been organised, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or fixed
place of business in such jurisdiction, but excluding a connection arising
solely from such recipient or related person having executed, delivered,
performed its obligations or received a payment under, or enforced, this
Agreement or a Credit Support Document).
"law" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority) and
"lawful" and "unlawful" will be construed accordingly.
"LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.
"LOSS" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be its
total losses and costs (or gain, in which case expressed as a negative number)
in connection with this Agreement or that Terminated Transaction or group of
Terminated Transactions, as the case may be, including any loss of bargain, cost
of funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain resulting from
any of them). Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming satisfaction of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3)
or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and out-
of-pocket expenses referred to under Section 11. A party will determine its
Loss as of the relevant Early Termination Date, or, if that is not reasonably
practicable, as of the earliest date thereafter as is reasonably practicable. A
party may (but need not) determine its Loss by reference to quotations of
relevant rates or prices from one or more leading dealers in the relevant
markets.
"MARKET QUOTATION" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference Market-
maker to enter into a transaction (the "Replacement Transaction") that would
have the effect of preserving for such party the economic equivalent of any
payment or delivery (whether the underlying obligation was, absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have
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been required after that date. For this purpose, Unpaid Amounts in respect of
the Terminated Transaction or group of Terminated Transactions are to be
excluded but, without limitation, any payment or delivery that would, but for
the relevant Early Termination Date, have been required (assuming satisfaction
of each applicable condition precedent) after that Early Termination Date is to
be included. The Replacement Transaction would be subject to such documentation
as such party and the Reference Market-maker may, in good faith, agree. The
party making the determination (or its agent) will request each Reference
Market-maker to provide its quotation to the extent reasonably practicable as
of the same day and time (without regard to different time zones) on or as soon
as reasonably practicable after the relevant Early Termination Date. The day
and time as of which those quotations are to be obtained will be selected in
good faith by the party obliged to make a determination under Section 6(e), and,
if each party is so obliged, after consultation with the other. If more than
three quotations are provided, the Market Quotation will be the arithmetic mean
of the quotations, without regard to the quotations having the highest and
lowest values. If exactly three such quotations are provided, the Market
Quotation will be the quotation remaining after disregarding the highest and
lowest quotations. For this purpose, if more than one quotation has the same
highest value or lowest value, then one of such quotations shall be disregarded.
If fewer than three quotations are provided, it will be deemed that the Market
Quotation in respect of such Terminated Transaction or group of Terminated
Transactions cannot be determined.
"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.
"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).
"OFFICE" means a branch or office of a party, which may be such party's head or
home office.
"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria
that such party applies generally at the time in deciding whether to offer or to
make an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organised, managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.
"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"SET-OFF" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination
Date, the sum of:-
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference to
any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"SPECIFIED ENTITY" has the meaning specified in the Schedule.
16
<PAGE>
"SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"STAMP TAX" means any stamp, registration, documentation or similar tax.
"TAX" means any present or future tax, levy, impost, duty, charge, assessment or
fee of any nature (including interest, penalties and additions thereto) that is
imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.
"TAX EVENT" has the meaning specified in Section 5(b).
"TAX EVENT UPON MERGER" has the meaning specified in Section 5(b).
"TERMINATED TRANSACTIONS" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"TERMINATION CURRENCY" has the meaning specified in the Schedule.
"TERMINATION CURRENCY EQUIVALENT" means, in respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange agent (selected as provided
below) for the purchase of such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a rate
for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.
"TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.
"TERMINATION RATE" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"UNPAID AMOUNTS" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market
17
<PAGE>
value of that which was (or would have been) required to be delivered as of the
originally scheduled date for delivery, in each case together with (to the
extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or would
have been required to have been paid or performed to (but excluding) such Early
Termination Date, at the Applicable Rate. Such amounts of interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed. The fair market value of any obligation referred to in clause (b)
above shall be reasonably determined by the party obliged to make the
determination under Section 6(e) or, if each party is so obliged, it shall be
the average of the Termination Currency Equivalents of the fair market values
reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
.................................... .....................................
(Name of Party) (Name of Party)
By:................................. By:..................................
Name: Name:
Title: Title:
Date: Date:
18
<PAGE>
Exhibit 1.2.2
[LOGO OF DEUTSCHE MORGAN GRENFELL APPEARS HERE]
Deutsche Morgan Grenfell Inc.
600 Steamboat Road
Greenwich, CT 06830
Telephone: 1-203-862-9174
Fax: 1-203-622-8395
April 15, 1998
Synopsys, Inc.
700 East Middlefield Road
Mountain View, CA 94043
Attn: DAVID M. SUGISHITA
Tel: 650-694-4257
Fax: 650-694-4396
SHARE FORWARD TRANSACTION -DMG REFERENCE NO.: TO BE ADVISED
Dear Sir / Madam,
The purpose of this facsimile agreement (this "Confirmation") is to confirm the
terms and conditions of the Transaction entered into between DEUTSCHE BANK AG
ACTING THROUGH ITS LONDON BRANCH ("PARTY A") and SYNOPSYS, INC. ("PARTY B") on
the Trade Date specified below (the "Transaction"). This Confirmation
constitutes a "Confirmation" as referred to in the ISDA Master Agreement
specified below. This Confirmation constitutes the entire agreement and
understanding of the parties with respect to the subject matter and terms of the
Transaction and supersedes all prior or contemporaneous written and oral
communications with respect thereto.
DEUTSCHE BANK AG IS NOT REGISTERED AS A BROKER OR DEALER UNDER THE U.S.
SECURITIES EXCHANGE ACT OF 1934. DEUTSCHE MORGAN GRENFELL INC. ("DMG"), AN
AFFILIATE OF DEUTSCHE BANK AG, HAS ACTED AS AGENT IN CONNECTION WITH THIS
TRANSACTION. DMG HAS ACTED SOLELY AS AGENT AND HAS NO OBLIGATION, BY WAY OF
ISSUANCE, ENDORSEMENT, GUARANTEE OR OTHERWISE WITH RESPECT TO THE PERFORMANCE OF
EITHER PARTY UNDER THE TRANSACTION.
The definitions and provisions contained in the 1996 ISDA Equity Derivatives
Definitions (the "Definitions"), as published by the International Swaps and
Derivatives Association, Inc. are incorporated into this Confirmation. In the
event of any inconsistency between the Definitions and this Confirmation, this
Confirmation will govern.
1. This Confirmation evidences a complete and binding agreement between Party
A and Party B as to the terms of the Transaction to which this Confirmation
relates. In addition, Party A and Party B agree to use all reasonable
efforts promptly to negotiate, execute and deliver an agreement in the form
of the ISDA Master Agreement (Multicurrency-Cross Border) (the "ISDA Form")
(as may be amended, modified or supplemented from time to time, the
"Agreement") with such modifications as Party A and Party B will in good
faith agree. Upon execution by Party A and Party B of such Agreement, this
Confirmation will supplement, form a part of and be subject to the
Agreement. All provisions contained or incorporated by reference in such
Agreement upon its execution shall govern this Confirmation except as
expressly modified below. Until Party A and Party B execute and deliver
the Agreement, this Confirmation, together with all other documents
referring to the ISDA Form (each a "Confirmation") confirming Transactions
(each a "Transaction") entered into between us (notwithstanding anything to
the contrary in a Confirmation) shall supplement, form a part of, and be
subject to an agreement in the form of the ISDA Form as if Party A and
Party B had executed an agreement on the Trade Date of the first such
Transaction between Party A and Party B in such form, with the Schedule
thereto (i) specifying only that (a) the governing law is the law of the
State of New York, without reference to choice of law doctrine, provided,
that such choice of law shall be superseded by any choice of law provision
specified in the Agreement upon its execution, and (b) the Termination
Currency is U.S. Dollars, (ii) incorporating the addition to the definition
of "Indemnifiable Tax" contained in (page 48 of) the ISDA
1
<PAGE>
"User's Guide to the 1992 ISDA Master Agreements" and (iii) incorporating
any other modifications to the ISDA Form specified below. In the event of
any inconsistency between the terms of this Confirmation, and the terms of
the Agreement, this Confirmation will prevail for the purpose of this
Transaction.
"Loss" payment measure and "Second Method" payment method shall apply to
this Transaction.
2. The terms of the particular Transaction to which this Confirmation relates
are as follows:
GENERAL TERMS:
Trade Date: April 15, 1998.
Effective Date: The date on which the closing, if any, occurs under the
Underwriting Agreement anticipated to be entered into
between, among others, the Issuer (as defined below)
and DMG in connection with the sale of Shares at a
price to the public not less than $15.88 per Share (the
"Offering") by, among others, the Issuer under the
Registration Statement to be filed with the Securities
and Exchange Commission on or about April 16, 1998 (the
"Registration Statement"), which Registration Statement
shall also cover Party A's short sales effected through
DMG in connection with this Transaction; provided,
--------
however, that the Effective Date shall not occur unless
-------
Party B enters into a side agreement on or prior to
such closing date with DMG and the other underwriters
in form reasonably satisfactory to DMG relating to
various representations, warranties and indemnities.
Shares: Common Stock, par value $0.001 per share, of
Artisan Components, Inc. (the "Issuer").
Number of Shares: 891,448.
Exchange: Nasdaq National Market, or any successor to such
exchange or quotation system.
Calculation Agent: DMG.
SETTLEMENT OBLIGATIONS:
Settlement Obligations: Subject to Netting below, on each Settlement Date,
Party B shall deliver to Party A the Number of Shares
to be Delivered for such Settlement Date against Party
A's payment to Party B of the Settlement Price for such
Settlement Date multiplied by the Number of Shares to
---------- --
be Delivered for such Settlement Date.
Settlement Dates: Subject to Hedging Disruption Events and Extraordinary
Events below, the 15th day prior to the end of the
calendar quarter in which the Effective Date occurs and
each of the five successive three-month anniversaries
thereof, or if such day is not an Exchange Business
Day, the next following Exchange Business Day unless
that day falls in the next calendar month, in which
case the Settlement Date shall be the first preceding
day that is an Exchange Business Day; provided that
--------
with 5 Business Days' prior written notice to Party A,
Party B shall, subject to payment of the Advanced
Settlement Fee (as defined below), be entitled to
specify any Exchange Business Day as a Settlement Date
(such date is also referred to herein as an "Advanced
Settlement Date") in lieu of one or more future
Settlement Dates and in such notice shall specify which
Settlement Dates are being advanced to the Advanced
Settlement Date.
2
<PAGE>
Number of Shares to
be Delivered: For any Settlement Date, (x) the Number of Shares
divided by six (rounded to the nearest whole share)
------- --
multiplied by (y) in the case where more than one
---------- --
Settlement Date is being advanced to an Advanced
Settlement Date, the number of Settlement Dates that
are being so advanced; provided that on the final
--------
Settlement Date, the Number of Shares to be Delivered
shall be the Number of Shares minus the aggregate
-----
of the Number of Shares to be Delivered for each prior
Settlement Date.
Settlement Price: For any Settlement Date, the per Share "price to
public" minus the per Share "underwriting discount", in
-----
each case as specified on the cover to the prospectus
for the Offering minus the aggregate of the cash
-----
dividends (other than dividends resulting in an
adjustment pursuant to Adjustments below) paid on one
Share with an ex-dividend date on or after the
Effective Date and on or prior to such Settlement Date.
Netting: Delivery and payment obligations under this Transaction
shall be netted with obligations under the Master
Securities Loan Agreement, dated as of April 15, 1998,
between Party A and Party B (the "Securities Loan
Agreement").
Hedging Disruption
Events: If due to a request by Party B that Party A return
Shares or otherwise, Party A is unable to borrow Shares
from Party B on terms reasonably acceptable to Party A
pursuant to the Securities Loan Agreement of a number
that Party A determines is appropriate to maintain any
hedging transaction(s) in the normal course of its
business of hedging the price and market risk of
entering into and performing under this Transaction
(not to exceed the Number of Shares), Party A shall be
entitled to designate any Exchange Business Day as the
"Accelerated Settlement Date."
On the Accelerated Settlement Date, in lieu of the
parties' obligations in respect of future Settlement
Dates and subject to Netting above, Party B shall
deliver to Party A (x) the Number of Shares minus the
-----
aggregate of the Number of Shares to be Delivered for
each prior Settlement Date (clause (x) is referred to
herein as the "Number of Accelerated Settlement
Shares") against Party A's payment to Party B of the
Settlement Price multiplied by the Number of
---------- --
Accelerated Settlement Shares.
Advanced Settlement Fee: Subject to Netting above, on any Advanced Settlement
Date and on any Accelerated Settlement Date, Party B
shall pay to Party A the Advanced Settlement Fee for
such date.
WHERE:
"Advanced Settlement Fee" means (x)(i) in the case of
an Advanced Settlement Date, the number of Settlement
Dates that are being advanced to such Advanced
Settlement Date and (ii) in the case of an Accelerated
Settlement Date, the number of future Settlement Dates
multiplied by (y) (i) where such date occurs on or
---------- --
before the 6-month anniversary of the Effective Date,
$100,000, (ii) where such Settlement Date occurs after
the 6-month anniversary and on or before the 12-month
anniversary of the Effective Date, $75,000 and (iii)
where such Settlement Date occurs after the 12-month
anniversary of the Effective Date, $50,000.
3
<PAGE>
ADJUSTMENTS:
Method of Adjustment: Calculation Agent Adjustment.
EXTRAORDINARY EVENTS:
Consequences of Merger Events:
(a) Share-for-Share: Alternative Obligation (assuming for this purpose that
this Transaction is a Share Swap Transaction and that
the final Settlement Date is the final Valuation Date).
(b) Share-for-Other: Alternative Obligation (assuming for this purpose that
this Transaction is a Share Swap Transaction and that
the final Settlement Date is the final Valuation Date);
provided that if the Other Consideration consists
--------
partly of cash, the Consequence of such Merger Event
shall be Calculation Agent Adjustment (as defined
below); provided further that if the Other
-------- -------
Consideration consists solely of cash, Party A shall be
entitled to designate any Exchange Business Day as the
"Early Settlement Date."
(c) Share-for-Combined: Alternative Obligation (assuming for this purpose that
this Transaction is a Share Swap Transaction and that
the final Settlement Date is the final Valuation Date);
provided that if the Calculation Agent's reasonable
--------
judgment such Consequence cannot or would not provide a
commercially reasonable result, then the Consequence of
such Merger Event shall be Calculation Agent Adjustment
(as defined below).
Calculation Agent
Adjustment: For purposes of any specified Consequence of Merger
Event for which Calculation Agent Adjustment applies,
the Calculation Agent will make such adjustments,
effective as of the Merger Date, in respect of the
Settlement Price, Number of Shares (and Issuer), Number
of Shares to be Delivered and any other variable
relevant to the settlement or payment terms of this
Transaction, as the Calculation Agent determines
appropriate in its good faith commercially reasonable
judgment.
Early Settlement Date: On the Early Settlement Date, in lieu of the parties'
obligations in respect of future Settlement Dates and
subject to Netting above, the parties shall perform
their obligations as if the Early Settlement Date were
the Accelerated Settlement Date, except that Party B
shall not be obligated to pay the Advanced Settlement
Fee.
Nationalization or
Insolvency: A Nationalization or an Insolvency will constitute an
Additional Termination Event with this Transaction as
the sole Affected Transaction and Party B as the sole
Affected Party.
MISCELLANEOUS:
Early Termination
Events: A default under the Securities Loan Agreement that
entitles Party A to terminate such agreement shall
constitute an Additional Termination Event with this
Transaction as the sole Affected Transaction and Party
B as the sole Affected Party.
Default Interest: If, prior to the occurrence or effective designation of
an Early Termination Date in respect of this
Transaction, a party fails to perform any obligation
required to be settled by delivery, it will indemnify
the other party on demand for any costs, losses or
expenses (including the costs of borrowing Shares, if
applicable) resulting from such failure. A
4
<PAGE>
certificate signed by the deliveree setting out such
costs, losses or expenses in reasonable detail shall be
conclusive evidence that they have been incurred.
Representation and
Agreement: The party required to deliver Shares agrees that it
will convey and, on each date that it delivers Shares,
represents that it has conveyed, good title to the
Shares it is required to deliver, free and clear of any
lien, charge, claim or other encumbrance and on each
such date represents that any Shares it is required to
deliver do not constitute "restricted securities" and
are not subject to restrictions on transfer (including
so-called "control securities") under the Securities
Act (as defined below) or otherwise.
Method of Delivery: Whenever delivery of funds or Shares is required
hereunder by or to Party B, such delivery shall be
effected through DMG. In addition, all notices, demands
and communications of any kind relating to this
Transaction between Party A and Party B shall be
transmitted exclusively through DMG.
3. REPRESENTATIONS:
(a) Each party represents to the other party as of the date that it enters into
this Transaction that (absent a written agreement between the parties that
expressly imposes affirmative obligations to the contrary for this
Transaction):
(i) NON-RELIANCE. It is acting for its own account, and it has made its
own independent decisions to enter into this Transaction and as to
whether the Transaction is appropriate or proper for it based upon
its own judgement and upon advice from such advisers as it has deemed
necessary. It is not relying on any communication (written or oral)
of the other party (or of DMG as agent in connection with the
Transaction) as investment advice or as a recommendation to enter
into this Transaction, it being understood that information and
explanations related to the terms and conditions of this Transaction
shall not be considered to be investment advice or a recommendation
to enter into the Transaction. No communication (written or oral)
received from the other party shall be deemed to be an assurance or
guarantee as to the expected results of this Transaction.
(ii) ASSESSMENT AND UNDERSTANDING. It is capable of assessing the merits
of and understanding (on its own behalf or through independent
professional advice), and understands and accepts, the terms and
conditions and risks of this Transaction. It is also capable of
assuming, and assumes, the risks of the Transaction.
(iii) STATUS OF PARTIES. The other party is not acting as a fiduciary for
or adviser to it in respect of this Transaction.
(iv) U.S. FEDERAL SECURITIES LAWS. It understands that the offer and sale
of this Transaction has not been registered under the U.S. Securities
Act of 1933, as amended (the "Securities Act") and is being effected
pursuant to an exemption from the registration requirements thereof.
In furtherance thereof, it represents and warrants that (a) it is
experienced in investing in or otherwise entering into financial
instruments similar to the Transaction and has determined that the
Transaction is suitable investment for it, and (b) it is an
institution which qualifies as an "accredited investor" or "qualified
institutional buyer" as such terms are defined under relevant
regulations promulgated under the Securities Act.
(b) Party B represents to Party A as of the date that it enters into this
Transaction that:
(i) It is not, and prior to the final Settlement Date will not become, an
"affiliate" (as defined in Rule 144 under the Securities Act) of the
Issuer.
5
<PAGE>
(ii) This Transaction and any related transaction, including without
limitation, any transaction involving the Shares under the Securities
Loan Agreement, is not for the purpose, whether immediate,
incidental, or ultimate, of buying or carrying margin stock within
the meaning of Regulation U of the Board of Governors of the Federal
Reserve System.
4. MODIFICATIONS TO ISDA FORM:
(a) The "CROSS DEFAULT" provisions of Section 5(a)(vi) will apply to both
parties subject to amendment by adding at the end thereof the following
words:
"and in either case, the other party determines in good faith
that it has reasonable grounds to conclude that the performance by the
Defaulting Party of its financial obligations hereunder is endangered."
With regard to Party A, "Threshold Amount" means 3% of Deutsche Bank AG's
shareholders' equity (i.e., the sum of capital and disclosed reserves).
With regard to Party B, "Threshold Amount" means USD5,000,000.
(b) The "CREDIT EVENT UPON MERGER" provision in Section 5(b)(iv), which applies
to both parties, is hereby amended to read as follows:
"(iv) CREDIT EVENT UPON MERGER. "Credit Event Upon Merger" means that a
Designated Event (as defined below) occurs with respect to a party, any
Credit Support Provider of such party or any applicable Specified Entity of
such party (in each case, "X") and such Designated Event does not
constitute a Merger Without Assumption under Section 5(a)(viii) hereof but
that, in the reasonable opinion of the other party, the creditworthiness of
X or, if applicable, the successor, surviving or transferee entity of X,
after taking into account any applicable Credit Support Document, is
materially weaker than X immediately prior to such action, (and, in such
event, such party or its successor, surviving or transferee entity, as
appropriate, will be the Affected Party). For purposes hereof, a Designated
Event with respect to X means that, after the date of this Agreement:
(1) X consolidates or amalgamates with, or merges into, or transfers
all or substantially all of its assets (or any substantial part of the
assets comprising the business conducted by X as of the date of this
Agreement) to, or receives all or substantially all the assets or
obligations of, another entity;
(2) any person or entity acquires directly or indirectly the
beneficial ownership of equity securities having the power to elect a
majority of the board of directors of X or otherwise acquires directly or
indirectly the power to control the policy-making decisions of X;
(3) X effects any substantial change in its capital structure by
means of the issuance, incurrence or guarantee of debt or the issuance of
preferred stock or other securities convertible into, or exchangeable for,
debt or preferred stock; or
(4) X enters into any agreement providing for any of the foregoing."
(c) SET OFF. Section 6 of this Agreement is amended by the addition of the
following Section 6(f):
"(f) Any amount (the "Early Termination Amount") payable to one party (the
"Payee") by the other party (the "Payer") under Section 6(e), in
circumstances where there is a Defaulting Party or one Affected Party in
the case where a Termination Event under Section 5(b)(iv) has occurred,
will, at the option of the party ("X") other than the Defaulting Party or
the Affected Party (and without prior notice to the Defaulting Party or the
Affected Party), be reduced by its set-off against any amount(s) (the
"Other Agreement Amount") payable (whether at such time or in the future or
upon the occurrence of a contingency) by the Payee to the Payer
(irrespective of the currency, place of payment or booking office of the
obligation) under any other agreement(s) between the Payee and the Payer or
instrument(s) or undertaking(s) issued or
6
<PAGE>
executed by one party to, or in favor of, the other party (and the Other
Agreement Amount will be discharged promptly and in all respects to the
extent it is so set-off). X will give notice to the other party of any set-
off effected under this Section 6(f).
For this purpose, either the Early Termination Amount or the Other
Agreement Amount (or the relevant portion of such amounts) may be converted
by X into the currency in which the other is denominated at the rate of
exchange at which such party would be able, acting in a reasonable manner
and in good faith, to purchase the relevant amount of such currency.
If an obligation is unascertained, X may in good faith estimate that
obligation and set-off in respect of the estimate, subject to the relevant
party accounting to the other when the obligation is ascertained.
Nothing in this Section 6(f) shall be effective to create a charge or other
security interest. This Section 6(f) shall be without prejudice and in
addition to any right of set-off, combination of accounts, lien or other
rights to which any party is at any time otherwise entitled (whether by
operation of law, contract or otherwise)."
5. CONTACT NAMES FOR DMG:
Confirmations: Adam Metter
Telephone: (203) 862-9174
Fax No.: (203) 622-8395
Payments/Fixings: Michael Zobel
Telephone: (203) 862-5588
Fax No.: (203) 862-5549
6. CONTACT NAMES AND ACCOUNT DETAILS FOR PARTY A:
Contact Names:
- --------------
Deutsche Bank AG, London Branch
6, Bishopsgate
London EC2P 2AT
UNITED KINGDOM
Attention: Swap Group
Tel: (44)(171) 971 7000
Fax: (44)(171) 971 7466
Telex: 94015555
Answerback: DBLN G
Account Details:
- ----------------
To be advised.
7. CONTACT NAMES AND ACCOUNT DETAILS FOR PARTY B:
Contact Names:
- --------------
Synopsys, Inc.
700 East Middlefield Road
Mountain View, CA 94043
Attn: David M. Sugishita
Tel: 650-694-4257
Fax: 650-694-4396
7
<PAGE>
Account Details:
----------------
To be advised.
Each Party has agreed to make payments and/or deliveries to the other in
accordance with this Confirmation. Please confirm that the foregoing correctly
sets forth the terms of our agreement by sending a return executed
acknowledgment hereof to such effect to the contact person named above who is
responsible for the administration of this Transaction. The time of execution of
this Transaction will be made available by Party A upon written request.
Party A is regulated by The Securities and Futures Authority
Regards,
DEUTSCHE MORGAN GRENFELL INC.,
SOLELY IN ITS CAPACITY AS AGENT
IN CONNECTION WITH THIS TRANSACTION
By: ______________________________
Authorized Signatory
By:_______________________________
Authorized Signatory
Agreed as of the date first above written:
DEUTSCHE BANK AG, LONDON BRANCH
By: ______________________________
Authorized Signatory
By:_______________________________
Authorized Signatory
SYNOPSYS, INC.
By: ______________________________
Authorized Signatory
Name:
Title:
8
<PAGE>
Exhibit 1.2.3
DEUTSCHE MORGAN GRENFELL [LOGO]
Deutsche Morgan Grenfell Inc.
600 Steamboat Road
Greenwich, CT 06830
Telephone: 203-622-8585
Fax: 203-622-8877
April 15, 1998
Synopsys, Inc.
700 East Middlefield Road
Mountain View, CA 94043
Attn: David M. Sugishita
Dear Sir:
This term sheet sets forth the terms under which you agree to lend to Deutsche
Bank AG acting through its London Branch securities against a pledge of
collateral on the date specified below, subject to the parties entering into a
Master Securities Loan Agreement to be dated as of April 15, 1998 in form and
substance reasonably satisfactory to the parties (the "Agreement").
Borrower: Deutsche Bank AG, London Branch
Lender: Synopsys, Inc.
Agent: Deutsche Morgan Grenfell Inc. ("DMG")
Loaned Securities: Common stock, par value $0.001 per
share, of Artisan Components, Inc.
(NASDAQ symbol "ARTI"),
CUSIP No. 042923102
Quantity of Loaned Securities: 891,448
Collateral: Cash
Margin Requirement: 102% of the daily market value of all
outstanding Loaned Securities
Cash Collateral Fee: Actual earnings on cash collateral
(to be invested in eligible short
term investments typical for
segregated customer funds)
Loan Fee: Zero
Commencement Date: The date on which the closing, if
any, occurs under the Underwriting
Agreement anticipated to be entered
into between, among others, Artisan
Components, Inc. and DMG
Dividends: As provided in the Agreement
Custody of Loaned Securities: To be deposited in custody with the
transfer agent for Artisan
Components, Inc. promptly after the
date hereof but
<PAGE>
in no event later than the fifth
business day prior to the
Commencement Date pursuant to a
mutually agreed custody arrangement
among the transfer agent, Lender and
Borrower.
Netting: Lender and Borrower agree that
payments, deliveries and other
transfers in respect of this loan
shall be netted with obligations
under the agreement confirming the
terms and conditions of the share
forward transaction entered into
between Lender and Borrower relating
to Loaned Securities with a trade
date of April 15, 1998.
Regards,
DEUTSCHE MORGAN GRENFELL INC.,
solely in its capacity as agent in connection with this transaction
/s/ John Hodge
By: ________________________________
Name:
/s/ Tony Trousset
By: ________________________________
Name:
Agreed as of the date first above written:
SYNOPSYS, INC.
/s/ Dan Miranda
By: ________________________________
Name: Dan Miranda
Manager
Business Development
<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
April 16, 1998
Artisan Components, Inc.
1195 Bordeaux Drive
Sunnyvale, CA 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 April 16, 1998 (as such may
be further amended or supplemented, the "Registration Statement"), in connection
with the registration under the Securities Act of 1933, as amended, of up to
3,795,000 shares (including an over-allotment option granted to the
Underwriters to purchase 495,000 shares) of your Common Stock, $.001 par value
per share (the "Shares"). Of the Shares, 1,463,870 shares (including all
shares subject to the above-referenced over-allotment option) are authorized but
heretofore unissued, and 2,331,130 shares are or will be issued and outstanding
and held by the selling stockholders referred to in the Registration Statement.
We understand that the Shares are to be sold to the Underwriters for resale to
the public as described in the Registration Statement. As your legal counsel, we
have examined the proceedings taken, and are familiar with the proceedings
proposed to be taken, by you in connection with the issuance and sale of the
Shares.
It is our opinion that the Shares, when issued and sold in the manner
described 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 amendments thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
<PAGE>
EXHIBIT 10.17
CONFIDENTIAL MUTUAL RELEASE AND SETTLEMENT AGREEMENT
Daniel I. Rubin ("Employee") and Artisan Components, Inc. ("Artisan
Components") have mutually agreed that Employee's employment with Artisan
Components will terminate effective April 15, 1998 ("Termination Effective
Date"). To assist in a reasonable transition in connection with Employee's
termination of employment, Employee and Artisan Components agree as follows:
1. Artisan Components has no policy obligating it to pay severance
benefits to terminated executive employees. However, in return for Employee's
execution of and adherence to this Agreement, and in particular for the release
that forms a material part of this Agreement, Artisan Components shall provide
Employee with certain severance benefits to which he would not otherwise be
entitled. Said severance benefits are set forth in the attached Exhibit A which
is incorporated herein by reference. Artisan Components will make all
deductions from such compensation as required by law and Artisan Components'
policy and practice.
2. In further consideration of the mutual promises herein, Employee
on behalf of himself, his heirs and assignees hereby irrevocably and
unconditionally releases and forever discharges, individually and collectively,
Artisan Components, and its officers, directors, employees, shareholders,
representatives, subsidiaries, predecessors, successors, assigns, and all
persons acting by, through or in concert with them (hereinafter "Company"), of
and from any and all charges, claims, complaints, demands, liabilities, causes
of action, losses, costs or expenses of any kind whatsoever (including related
attorneys' fees and costs), known or unknown, suspected or unsuspected, that
Employee may now have or has ever had against Company by reason of any act,
omission, transaction, or event occurring up to the later of (i) the date of
signing this Agreement, or (ii) the Termination Effective Date. This includes
without limitation, any wrongful or unlawful discharge claim, any claims
relating to any contracts of employment whether express or implied, any claims
related to compensation, including any stock or any other claims related to
Employee's employment with Artisan Components and the termination thereof. The
foregoing shall not discharge Artisan Components' obligations under this
Agreement.
3. In further consideration of the mutual promises herein, Artisan
Components on behalf of itself, and its officers, directors, employees,
representatives, subsidiaries, predecessors, successors, assigns, and all
persons acting by, through or in concert with them hereby irrevocably and
unconditionally releases and forever discharges, Employee, his spouse, heirs,
assigns, agents and representatives, of and from any and all charges, claims,
complaints, demands, liabilities, causes of action, losses, costs or expenses of
any kind whatsoever (including related attorneys' fees and costs), known or
unknown, suspected or unsuspected, that Artisan Components may now have or has
ever had against Employee by reason of any act, omission, transaction, or event
occurring up to the later of (i) the date of signing this Agreement, or (ii) the
Termination Effective Date. The foregoing shall not discharge Employee's
obligations under this Agreement.
4. Employee and Artisan Components each expressly waives all rights
and benefits afforded by Section 1542 of the California Civil Code and
acknowledges the significance and consequence of this waiver. Section 1542
provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
5. Employee agrees that he will keep the fact and terms of this
Agreement and the negotiations leading to it completely confidential and that he
will not hereafter disclose or publish any information concerning such matters
to anyone other than his family, his attorney and his accountant. Employee may
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make such disclosures as are finally compelled by law provided Employee gives
Artisan Components prompt notice of such legal process in order that Artisan
Components shall have the opportunity to object to the disclosure of such
information.
6. Employee shall not publish or disclose to any third party any
confidential or proprietary information concerning Artisan Components which was
acquired or learned during the course of Employee's employment with Artisan
Components. By way of example and not limitation, such information includes
management organization, salary structures, financial results and conditions,
product quality, product pricing, business model, distribution strategy,
customer lists and preferences, marketing plans, product development, and other
business activities, strategies and plans, to the extent such matters have been
maintained as confidential by Artisan Components, or constitute proprietary
information under the law. Confidential Information shall not include
information already known to third parties without an obligation of non-
disclosure and rightfully acquired by them. The provisions of this section
shall not restrict Employee's obligation to disclose such information when
finally compelled by law provided Employee gives Artisan Components prompt
notice of such legal process in order that Artisan Components shall have the
opportunity to object to the disclosure of such information.
7. Any controversy or any claim of any kind arising out of or
relating to this Agreement, its breach, or Employee's termination of employment,
including but not limited to, any claim relating to its validity or
enforceability which is not settled by agreement between the parties, shall be
submitted to binding arbitration in accordance with the commercial arbitration
rules of the American Arbitration Association or any successor thereto. A
neutral arbitrator shall be jointly chosen by the parties from a list of
arbitrators provided by the American Arbitration Association office closest to
Sunnyvale, California, and any hearings shall be held at such office. The award
issued by the arbitrator shall be final and binding upon the parties, and
judgment on the award may be entered in any court having jurisdiction. The fees
and costs of the arbitrator and administrative fees shall be borne equally by
the parties. The arbitrator shall have the power to award attorney's fees to the
prevailing party. In consideration of each party's agreement to submit to
arbitration all disputes with regard to this Agreement, each party agrees that
the arbitration provisions hereof shall provide their exclusive remedy, and each
party expressly waives any right they may otherwise have to seek redress in any
other forum. The parties further agree that the arbitrator acting hereunder
shall not be empowered to add to, subtract from or in any other manner modify,
alter or amend the terms of this Agreement.
8. Employee shall not solicit any employee of Artisan Components to
terminate their employment with Artisan Components prior to the date twelve (12)
months after the Termination Effective Date.
9. Employee agrees not to disparage Artisan Components, its products,
services and employees. Artisan Components agrees not to disparage Employee.
10. This Agreement shall be governed by the laws of California, and
shall inure to the benefit of Artisan Components and its successors and assigns.
In the event any provision of this Agreement is determined by an arbitrator or a
court or other tribunal to be unenforceable for any reason, the remaining
provisions hereof shall remain in full force and effect and the unenforceable
provision(s) shall be interpreted and rewritten to give effect to the parties'
economic intentions. This is the entire Agreement between the parties and
supersedes all previous negotiations, agreements and understandings. No
promise, inducement or agreement not herein expressed has been made by either
party hereto. No
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<PAGE>
modifications of this Agreement can be made except in writing signed by Employee
and the President of Artisan Components.
11. Employee and Artisan Components each agrees not to issue a press
release relating to this Confidential Mutual Release and Settlement Agreement or
Employee's termination without the other party's prior consent. Notwithstanding
the foregoing, Employee acknowledges that Artisan Components may be required
under certain securities laws or other applicable laws or regulations to publish
some or certain elements of this Agreement and/or the fact of Employee's
termination.
12. Employee will be entitled to COBRA benefits as provided by law.
AGREED AND UNDERSTOOD:
EMPLOYEE: DANIEL I. RUBIN ARTISAN COMPONENTS, INC.
By: /s/ Daniel I. Rubin By: /s/ Robert D. Selvi
-------------------------- -------------------------
Daniel I. Rubin
Date: April 13, 1998 Name: Robert D. Selvi
------------------------ -----------------------
Date: April 13, 1998
-----------------------
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<PAGE>
EXHIBIT A
SEVERANCE BENEFITS
Artisan Components agrees to provide Employee, as his complete severance
benefits, the following:
1. Artisan Components will pay Employee $86,400, subject to applicable
withholding, in accordance with the following payment schedule.
$7,200.00, subject to applicable withholding, will be paid bi-monthly for six
(6) months, with a payment due on or about the 15/th/ of each of the 6 months
and a payment due on or about the last day of each of the 6 months. The first
$7,200.00 bi-monthly payment will be paid on or about April 30, 1998, and the
last (the twelfth $7,200.00 payment) will be paid on or about October 15, 1998.
2. Artisan Components will pay Employee, subject to applicable withholding,
the following within five (5) days after the Termination Effective Date:
- $6,226.70 (the approximate cost to Artisan Components of six (6) months
of the Employee's benefits); and
- $2,000.00 (the approximate remainder of a pool of $3,500 that Employee
was previously eligible to utilize for estate planning).
3. Employee may keep the Macintosh (Powerpc) and laser printer and IBM Aptiva
personal computer owned by Artisan Components and used by Employee at his home
while an employee. Artisan Components assigns to Employee Artisan Components'
title in and to such computer equipment in "AS IS" condition. Employee agrees to
remove/destroy any and all Confidential Information of Artisan Components (and
any of its customers) on the computers on or before the Termination Effective
Date. If any of the software on such computers is licensed to Artisan Components
under a license that prohibits Artisan Components from allowing Employee to
retain such software, Artisan Components will notify Employee and Employee will
promptly return or destroy such software as may be requested by Artisan
Components.
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<PAGE>
EXHIBIT 10.18
FORM OF LICENSE AGREEMENT
This License Agreement Number _____ (this "Agreement"), with an "Effective Date"
of _______________, is made by and between Artisan Components, Inc., a
California corporation, with its principal place of business at 1195 Bordeaux
Drive, Sunnyvale, California 94089 (hereinafter referred to as "Artisan
Components"), and _____________________________, a __________________
corporation with its principal place of business at _________________
___________________________________________ (hereinafter referred to as
"Licensee").
1. DEFINITIONS
1.1 "COMPETITOR OF ARTISAN COMPONENTS" means any company or entity that
develops and/or markets for commercial purposes standard cells, I/O cells and/or
embedded memories, including but not limited to the companies listed in Appendix
C.
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 "GOOD DIE" means the number of yielded Licensed Integrated Circuits
manufactured by or for Licensee, whether such Licensed Integrated Circuits are
bare die, fully packaged, or otherwise.
1.4 "INTERNAL USE DOCUMENTATION" means the Internal Use Documentation listed
in Appendix A.
1.5 "LICENSED INTEGRATED CIRCUIT" shall mean a single die in whole or in part
manufactured Using all or any portion of the Licensed Products and/or a single
die in whole or in part made up of, incorporating or based upon any portion of a
Design.
1.6 "LICENSED PRODUCTS" means the data and/or software and related
documentation set forth in Appendix A and any Updates thereto, whether in object
code, reconfigurable binary, ASCII data, binary data or any other form.
Licensed Products includes Physical Views, Models and User Documentation and
Internal Use Documentation. Appendix A defines the Licensed Products.
1.7 "LICENSED SITE(S)." Appendix A defines the site(s) where Licensee is
authorised to Use the Licensed Products.
1.8 "LICENSEE"S MANUFACTURING SITE(S)" means manufacturing facilities for
integrated circuits owned or controlled by Licensee, and third party owned
manufacturing facilities for integrated circuits to the extent they are under
contract to Licensee for manufacturing integrated circuits.
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1.9 "MODELS AND USER DOCUMENTATION" means the library element timing,
simulation models, logical symbols, floor planning abstracts and related
documentation as identified in Appendix A.
1.10 "PHYSICAL VIEWS" means the library element physical design and related
documentation, whether in object code, reconfigurable binary, ASCII data, binary
data, or any other form as identified in Appendix A. If any of the Licensed
Products consist of standard cells and/or I/O cells, then as identified in
Appendix A, Physical Views will include any such schematics and netlists for
such standard cells and I/O cells as identified in Appendix A.
1.11 "SQUARE MILLIMETERS" means the square millimeters occupied on each Good
Die by (a) the placed and routed standard cells within the Licensed Products (b)
other portions of the Licensed Products or (c) any other portions of the Good
Die developed by Using 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.
1.12 "UPDATE(S)" means any error correction or revision to a Licensed
Product made by or for Artisan Components, which Artisan Components provides to
Licensee under the maintenance as described in Appendix D. 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.
1.13 "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 other utilization of any portion
of the Licensed Products, in each case solely for the purpose of designing
Licensed Integrated Circuits and manufacturing Licensed Integrated Circuits at
Licensee"s Manufacturing Site(s). "Usage, Using, Use or Used" does not include
the modifying of any Licensed Product of portion thereof, and no rights or
licenses to modify any Licensed Product or portion thereof are granted
hereunder.
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) and to reproduce
the Licensed Products for internal distribution at the Licensed Sites(s) and for
distribution of the Models and User Documentation and Physical Views as set
forth in Section 2.2.
2.2 None of the Licensed Products or portion thereof may be distributed except
as follows:
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(a) Licensee may distribute the Models and User Documentation to third
party entities as needed to support Licensee's IC design and manufacture
business; provided, that any such entity is not a Competitor of Artisan
Components.
(b) Upon prior notice to Artisan Components identifying the recipient
entity and Physical Views to be disclosed, Licensee may distribute the
Physical Views to third party entities only as needed to support
Licensee's IC design and manufacture business; provided, that any such
entity is not a Competitor of Artisan Components and provided such
disclosure and distribution of the Physical Views is made only to entities
who are under an NDA/agreement with Licensee which provides at a minimum
for the following protection: a confidentiality provision sufficient to
protect the Physical Views from further disclosure/distribution and (ii) a
restricted use provision that is sufficient to limit use of the Physical
Views for the design of Licensed Integrated Circuits to be manufactured at
Licensee's Manufacturing Site(s).
Except as specifically set forth above, none of the Licensed Products, including
but not limited to the Internal Use Documentation, may be disclosed to third
parties or distributed outside of Licensed Site(s).
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 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 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.
2.5 Licensee shall indemnify, defend and hold harmless Artisan Components from
and against any and all claims, 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.
3. SUPPORT CONDITION, SILICON DEBUGGING AND PRODUCT ENGINEERING
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3.1 In consideration for the technical support and maintenance fees described
in Appendix B, Artisan Components will provide Licensee with the technical
support and maintenance described in Appendix D for the Licensed Product. Such
technical support and maintenance is available on an annual basis only, and
Artisan Components reserves the right to change the technical support and
maintenance fees upon prior notice for any subsequent annual period.
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 technical support and maintenance set forth in
Section 3.1 above. To the extent Artisan Components provides any silicon
debugging or product engineering, or otherwise provides Licensee with any
revisions and/or enhancements to the Licensed Products, except as otherwise
agreed upon, such revisions and/or enhancements shall be Licensed Products and
subject to the terms and conditions of this Agreement.
4. TERM
This Agreement is effective as of the Effective Date and shall remain in full
force and effect for a period of five (5) years, unless earlier terminated as
provided in this Agreement. Unless earlier terminated as provided in this
Agreement, this Agreement will automatically renew at the end of each term for
consecutive one (1) year renewal periods, unless either party notifies the other
at least forty-five days prior to the end of the then current term that it does
not desire the Agreement to renew for another year.
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
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<PAGE>
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.
5.3 Artisan Components shall deliver the Licensed Product(s) to a common
carrier specified by Licensee, F.C.A. Origin, freight prepaid and billed or as
otherwise mutually agreed in writing.
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 payments submitted by Licensee to Artisan Components hereunder 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 thirty-
five percent (35%) of the license fee(s) set forth in Appendix B ("License
Fees") upon the Effective Date or upon submission of the purchase order,
respectively, and the remaining sixty-five percent (65%) of the License Fees net
thirty (30) days after Licensee's receipt of the Licensed Products. The
foregoing provisions of this Section 7.2 shall not limit the provisions of
Section 2.3 above. 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).
7.3 Within thirty (30) days after the execution of this Agreement, Licensee
further shall pay to Artisan Components the technical support and maintenance
fees set forth in Appendix B to cover the initial twelve (12) month period of
this Agreement. The technical support and maintenance fees for subsequent
twelve (12) month periods under this Agreement shall be due within thirty (30)
days after the beginning of each such twelve (12) month period.
7.4 Within thirty (30) days 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 Good Die manufactured 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 Good Die
manufactured during such calendar quarter, (d) royalties payable hereunder for
such calendar quarter; and (e) all data and
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supporting calculations used by Licensee to compute the royalties payable by
Licensee to Artisan Components with respect to such calendar quarter.
7.5 All invoices will be mailed to Licensee's address specified in the opening
paragraph of this Agreement, unless specified otherwise 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. If any applicable law
requires Licensee to withhold amounts from any payments to Artisan Components
hereunder, (i) Licensee shall effect such withholding, remit such amounts to the
appropriate taxing authorities and promptly furnish Artisan Components with tax
receipts evidencing the payments of such amounts, and (ii) the sum payable by
Licensee upon which the deduction or withholding is based shall be increased to
the extent necessary to ensure that, after such deduction or withholding,
Artisan Components receives and retains, free from liability for such deduction
or withholding, a net amount equal to the amount Artisan Components would have
received and retained in the absence of such required deduction or withholding.
7.8 With respect to Licensed Integrated Circuits and License Fees, royalties
and other amounts which are payable to Artisan Components under this Agreement
and as a material condition to this Agreement, Licensee shall keep complete and
accurate books and records. These records shall be retained for a period of
three (3) years from the date of payment, notwithstanding the expiration or
termination of this Agreement. As a material condition to this Agreement
Licensee agrees to permit its books and records to be examined by Artisan
Components or its designee, subject to the confidentiality provisions set forth
in this Agreement, 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 five percent (5%), then Licensee shall promptly
reimburse Artisan Components for the cost of such examination.
7.9 All payment amounts stated hereunder, and all payments to be made
hereunder, shall be in U.S. Dollars. 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
conversion of the foreign currency into U.S. Dollars, quoted for current
transactions reported in
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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, 2.2 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 2.5, 6, 7, 8, 9, 10, 12, 13, 14, 15, 16, 17,
18, 19, 20, 21 and 22 shall survive the expiration and 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.
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.
10. RIGHT TO DESIGN AND METHODS
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10.1 Licensee and Artisan Components agree that, subject to Artisan
Component's ownership of the Licensed Products, Licensee shall retain all of its
ownership rights to Designs created through the Use of the Licensed Product(s).
10.2 Licensee and Artisan Components agree that Artisan Components shall
retain all rights to the Licensed Products. Licensee agrees that Artisan
Components will have the irrevocable royalty-free right to use in the Licensed
Product(s), and any other products offered or distributed by Artisan Components,
any Licensee contribution or voluntarily disclosed information provided to
Artisan Components in the course of Licensee (i) requesting changes or
modifications to the Licensed Product(s), (ii) making suggestions for
improvements to the Licensed Products, or (iii) suggesting how to correct any
identified deficiencies in the Licensed Products.
11. WARRANTIES
11.1 PERFORMANCE WARRANTIES. Artisan Components warrants for a period of
ninety (90) days from the date of delivery that the Licensed Product as
delivered by Artisan Components shall be free from defects in media and shall
substantially conform to the material specifications described in Appendix A.
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 and provide the corrections to Licensee. 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, modifications by Licensee 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 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 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 copyright or United States
patent of such third party, by virtue of Licensee's authorized Use
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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. Furthermore, Artisan Components will have no
obligation hereunder for any claim of infringement based on the combination or
use of the Licensed Products with software, hardware, data or other materials
not furnished by Artisan Components if such infringement would have been avoided
by the use of Licensed Products alone.
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 straight-line sixty (60) month basis.
12.4 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.
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
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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 fees 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; CONFIDENTIALITY
15.1 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.
15.2 The parties acknowledge that by reason of their relationship to each
other hereunder, each may have access to certain information and materials
concerning the other's business, plans, customers, technology and products that
is confidential to that other party. Such information and materials will be
marked as "Confidential" or "Proprietary" or otherwise clearly identified as
confidential or proprietary ("Confidential Information"). In the event such
disclosure is initially oral or visual and not reduced to writing, it shall be
summarized or identified in a written document, which shall be marked with an
appropriate legend such as "Confidential" or "Proprietary" and provided to the
other party within twenty (20) days following such disclosure. Notwithstanding
the foregoing, the Licensed Products are Confidential Information of Artisan
Components regardless of whether they are marked confidential or proprietary
and/or summarized in a writing. Each party agrees that except as may otherwise
be stated herein, it shall not use, except to perform its obligations and/or to
exercise its rights and licenses specified under this Agreement, nor disclose to
any third party (except to independent contractors and affiliates who are under
an obligation of confidentiality, and subject to the other terms and conditions
of this Agreement), any such Confidential Information revealed to it by the
other party. Each party shall take reasonable precautions to protect the
confidentiality of such
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information, which in any event will be no less than what it takes with respect
to its own similar confidential information.
15.3 Information shall not be deemed Confidential Information hereunder if
such information:
(i) is known to the recipient at the time of disclosure;
(ii) hereafter becomes known (independently of disclosure by the
providing party) to the recipient directly or indirectly from a source
other than one having an obligation of confidentiality to the
providing party;
(iii) becomes publicly available or otherwise ceases to be secret or
confidential, except through a breach of this Agreement by the
recipient;
(iv) was independently developed by the recipient without use of the
disclosing party's confidential information;
(v) is required to be disclosed pursuant to any statutory or
regulatory authority, provided the disclosing party is given prompt
notice of such requirement and the scope of such disclosure is limited
to the extent possible; or
(vi) is required to be disclosed by a court order, provided the
disclosing party is given prompt notice of such order and provided the
opportunity to contest it, and/or is reasonably necessary to disclose
in order to enforce this Agreement.
Notwithstanding any of the foregoing, Licensee agrees not to disclose any
Confidential Information of Licensee to Artisan Components unless Artisan
Components requests such information in writing.
15.4 As to each item of Confidential Information, the provisions of this
Section will continue for three (3) years following first receipt of such
information, except for the Licensed Products, for which the provisions of this
Section will continue for five (5) years following any termination or expiration
of this Agreement.
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.
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. 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, this Agreement will be binding upon and inure to
the benefits of the parties hereto, their successors and assigns.
18. NOTICE
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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:
Artisan Components, Inc.
1195 Bordeaux Drive
Sunnyvale, CA 94089
Attn: Manager, Contracts
Telephone: (408) 734-5600
Facsimile: (408) 734-1801
If to Licensee:
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
Attn:______________________________________________
Telephone:_________________________________________
Facsimile:_________________________________________
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
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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. MISCELLANEOUS TERMS
22.1 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.
22.2 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.
22.3 If Licensee distributes the Models and User Documentation and/or
Physical Views, as authorized herein, to an agency, department, or other entity
of the United States Government ("Government"), the Government"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 before delivery to the Government of each of the Models and User
Documentation and/or Physical Views to be delivered to the Government:
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.,
1195 Bordeaux Drive, Sunnyvale, California 94089.
BOTH PARTIES ACKNOWLEDGE THAT THIS AGREEMENT INCLUDING THE EXHIBITS AND
APPENDICES ATTACHED HERETO IS THE COMPLETE AND EXCLUSIVE STATE-
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MENT 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 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.
ARTISAN COMPONENTS, INC. LICENSEE
By: By:
--------------------------- ---------------------------------
Signature of an Officer of Signature of an Authorized
the Corporation Representative
By: By:
---------------------------------- -------------------------------
Printed Name of the Signing Officer Printed Name of the Signing
Authorized Representative
Title: Title:
------------------------------- ----------------------------
Date: Date:
-------------------------------- --------------------------
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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:
--------------------- -------------------
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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:
------------------------------- -----------------------
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LICENSE AGREEMENT
APPENDIX A
Licensed Product(s) and Deliverable(s)
[TO BE COMPLETED]
17
<PAGE>
LICENSE AGREEMENT
APPENDIX B
LICENSE FEES, ROYALTIES AND TECHNICAL SUPPORT AND MAINTENANCE FEES
I. License Fee
[to be completed]
II. Royalties
Licensee further shall pay to Artisan Components the following running
royalties with respect to Good Die:
Licensed Product U.S. Dollars per Square Millimeter
[to be completed]
III. Technical Support and Maintenance Fees
[to be completed]
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LICENSE AGREEMENT
APPENDIX C
COMPETITOR LIST
19
<PAGE>
LICENSE AGREEMENT
APPENDIX D
TECHNICAL SUPPORT AND MAINTENANCE
20
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EXHIBIT 10.19
LICENSE AGREEMENT
This License Agreement, the "Agreement," Number PL2028, with an "Effective Date"
of November 30, 1997, is made by and between Artisan Components, Inc., a
California corporation, with its principal place of business at 1195 Bordeaux
Drive, Sunnyvale, California 94089 (hereinafter referred to as "Artisan
Components") and Taiwan Semiconductor Manufacturing Company Ltd., duly
incorporated under the laws of the Republic of China and having its registered
office at N. 121, Park Ave. 3, Science-Based Industrial Park, Hsin-Chu, Taiwan,
R.O.C. (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 "COMPETITOR OF ARTISAN COMPONENTS" means any company or entity that
develops and/or markets for commercial purposes standard cells, I/O cells and/or
embedded memories.
1.3 "DESIGN" means any integrated circuit, integrated circuit mask, silicon
wafer, 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.
1.4 "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.
1.5 "INTERNAL USE DOCUMENTATION" means the Internal Use Documentation listed
in Appendix A.
1.6 "LIC/WAFER" shall mean any single integrated circuit die and/or piece of
silicon wafer manufactured Using all or any portion of the Licensed Products
and/or any derivative work extension, enhancement or modification of Licensed
Products made by or for Licensee. Without limiting the foregoing, LIC/Wafer
includes all silicon wafer manufactured by or for Licensee which wafer includes
(a) any placed and routed standard cells from the Licensed Products or (b) any
other portions or representations of any 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
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data, binary data or any other form. Licensed Products includes Physical Views,
Models and User Documentation and Internal Use Documentation. Appendix A defines
the specifications, deliverables, and the delivery schedule of the Licensed
Products.
1.8 "LICENSED SITE(S)." Appendix A defines the site(s) that will be licensed
to Use the Licensed Products.
1.9 "LICENSEE"S MANUFACTURING SITE(S)" means manufacturing facilities for
integrated circuits/silicon wafer owned or controlled by Licensee, and third
party owned manufacturing facilities for integrated circuits/silicon wafer to
the extent they are under contract to Licensee for manufacturing integrated
circuits/silicon wafer.
1.10 "MODELS AND USER DOCUMENTATION" means the library element timing,
simulation models, logical symbols, floor planning abstracts and related
documentation.
1.11 "PHYSICAL VIEWS" means the library element physical design and related
documentation, whether in object code, reconfigurable binary, ASCII data, binary
data, or any other form as identified in Appendix A. If any of the Licensed
Products consist of standard cells and/or I/O cells, then as identified in
Appendix A, Physical Views will include any such schematics and netlists for
such standard cells and I/O cells as identified in Appendix A.
1.12 "REVENUE" means all [***Redacted] received by Licensee for all
[***Redacted] Licensee. Revenue shall accrue to Licensee for purposes of this
Agreement [***Redacted] upon the earlier of (i) receival of payments from
Licensee's customers of [***Redacted], or (ii) the date Licensee invoices its
customers for [***Redacted]. (If [***Redacted] are manufactured in
[***Redacted], the Revenue shall accrue for any such [***Redacted] upon the date
of receiving the [***Redacted] for the [***Redacted].
1.13 "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.
1.14 "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 LIC/Wafers and
manufacturing LIC/Wafers at Licensee"s Manufacturing Site(s). "Usage, Using, Use
or Used" also includes the [***Redacted] delivered as part of the Licensed
Product(s), solely for the purpose of [***Redacted] and [***Redacted] at
[***Redacted]; provided, however, that although Licensee shall have a license to
[***Redacted] in accordance with this Agreement, Licensee acknowledges that the
Licensed Products being licensed hereunder are [***Redacted] in a [***Redacted]
to [***Redacted]. Except as set forth above, "Usage, Using, Use or Used"
[***Redacted] include the
- -------------
*** 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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[***Redacted] of [***Redacted] of the [***Redacted] and [***Redacted] the
Licensed Products are granted to Licensee under this Agreement.
2. LICENSE GRANT, RESTRICTED USE, DEVELOPMENT AND DELIVERY OF THE LICENSED
PRODUCTS, AND ADDITIONAL COPIES
2.1 Subject to the terms and conditions stated herein, Artisan Components
grants to Licensee a non-transferable (except as specifically set forth herein),
non-sublicenseable (except as specifically set forth herein), non-exclusive,
royalty-bearing, worldwide (subject to applicable export laws), unlimited (in
accordance with all the terms and conditions herein) license to Use the Licensed
Product(s) and to reproduce the Licensed Products for internal distribution at
the Licensed Sites(s) and for distribution of the Models and User Documentation
and Physical Views as set forth in Section 2.2.
2.2 Subject to the terms and conditions stated herein, Artisan Components
grants to Licensee a non-transferable (except as specifically set forth herein),
non-exclusive, royalty-bearing, worldwide (subject to applicable export laws),
unlimited (in accordance with all the terms and conditions herein) license to
distribute the Models and User Documentation and Physical Views as follows:
(a) Licensee may [***Redacted] to [***Redacted] as needed to
[***Redacted]; provided, that any such entity [***Redacted].
(b) Licensee may distribute the [***Redacted] to [***Redacted] as needed
to [***Redacted]; provided, that (i) Licensee identifies such recipient
entities as per Section 7.3, (ii) any such entity is [***Redacted] and
(iii) such disclosure and distribution of the [***Redacted] is made only
to entities who are under an NDA/agreement with Licensee which provides at
a minimum for the following protection: (A) a confidentiality provision
sufficient to protect the [***Redacted] from [***Redacted]; and (B) a
restricted use provision that is sufficient to limit use of the
[***Redacted] for the [***Redacted].
Except as specifically set forth above, none of the Licensed Products,
including but not limited to the Internal Use Documentation, may be disclosed to
third parties or distributed outside of Licensed Site(s).
2.3 Artisan Components shall use reasonable efforts to complete the delivery
of the Licensed Products according to the schedule as provided in the Appendix
A. Licensee may proceed with a mutually agreed upon Quality Assurance Procedure
to the Licensed Products delivered by Artisan Components in order to ascertain
that the Licensed Products are in material conformance with the specifications
as provided in the Appendix A. If the Licensed Products delivered by Artisan
Components fail to conform with such Quality Assurance Procedure conducted by
Licensee and Licensee identifies any such deficiencies during the [***Redacted]
day period following delivery of the Licensed Products, Artisan Components shall
be responsible for necessary revisions to meet the specifications as provided in
the Appendix A.
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treatment filed with the Securities and Exchange Commission. Omitted portions
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2.4 Licensee acknowledges and agrees that: (a) unauthorized reproduction,
modification, 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 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,
[***Redacted] days following discovery by Artisan Components of such
unauthorized use.
2.5 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.
2.6 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.
2.7 If Licensee distributes the Models and User Documentation and/or Physical
Views, as authorized herein, to an agency, department, or other entity of the
United States Government ("Government"), the Government'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
before delivery to the Government of each of the Models and User Documentation
and/or Physical Views to be delivered to the Government:
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 claims, losses, damages and liabilities arising out of
or in connection with (i) Licensee's use of the Licensed Products which is not
strictly in accordance with this Agreement;
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treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
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the manufacture, use or sale of LIC/Wafers which is not strictly in accordance
with this Agreement; (ii) Licensee's negligence or willful misconduct; or (iii)
any derivative work extension, enhancement or modification of Licensed Products
made by Licensee.
2.9 During the term of this Agreement, Artisan Components will not distribute
the Licensed Products in the exact form as [***Redacted] to any third parties
unless (i) the third parties are under an NDA with Licensee; (ii) Licensee gives
its consent to such disclosure, or (iii) such third parties are an independent
contractor or agent of Artisan Components, under an obligation of
confidentiality and the distribution to such third party is to help/assist
Artisan Components in performing under this Agreement. Notwithstanding the
foregoing, nothing herein shall be construed as prohibiting or constraining
Artisan Components from developing or distributing the Licensed Products
[***Redacted] to and for any other party, even if such Licensed Products are the
same as the Licensed Products hereunder but for [***Redacted].
3. SUPPORT CONDITION, SILICON DEBUGGING AND PRODUCT ENGINEERING
3.1 Artisan Components will provide Licensed Product support via email and
facsimile to one Licensed Site, as is deemed reasonable by Artisan Components at
[***Redacted] for a period of [***Redacted] after delivery of the Licensed
Products to a common carrier as provided in Section 5.3. Such support is
conditioned upon Licensee identifying no more than [***Redacted] technical
support contacts at any one time for purposes of receiving and seeking technical
support from Artisan Components hereunder. Except as set forth in Section 3.3,
Licensee acknowledges and agrees that [***Redacted] for or relating to any
[***Redacted], to the Licensed Products [***Redacted], including [***Redacted].
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 [***Redacted]
plus applicable expenses. Silicon debugging and product engineering do not fall
under the support provisions set forth in Section 3.1 above.
3.3 Artisan Components will provide Licensee with technical information
relating to the development of the [***Redacted] as Artisan Components
[***Redacted] to [***Redacted] [***Redacted] as authorized hereunder, and
[***Redacted] of [***Redacted] provides to [***Redacted]. Any such technical
information shall be considered part of the Licensed Products and subject to the
terms and conditions hereunder.
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treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
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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 Artisan Component's 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 [***Redacted] 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.
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.
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 Except to the provisions of Section 12.3 below, all deposits submitted by
Licensee to Artisan Components shall be non-refundable and noncreditable.
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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 the
license fee(s) set forth in Appendix B ("License Fees") in accordance with the
payment schedule set forth in Exhibit B. The foregoing provisions of this
Section 7.2 shall not limit the provisions of Section 2.3 above. Except to the
provisions of Section 12.3 below, License Fees are nonrefundable and
noncreditable. Licensee also shall pay to Artisan Components all amounts set
forth in Section 2.4(b) with respect to unauthorized Use of Licensed Product(s)
and/or Section 2.7 with respect to additional copies of the Licensed Products,
if any, licensed by Licensee under Section 2.7 above.
7.3 Within [***Redacted] days after the end of each calendar quarter, Licensee
further shall compute and, if any, pay to Artisan Components the running
royalties set forth in Appendix B with respect to Revenue [***Redacted] that
accrued in such calendar quarter, and shall submit to Artisan Components with
such royalty payment a report stating royalties payable hereunder for such
calendar quarter and the [***Redacted] in such quarter. The provision of the
foregoing royalty report (including the name and address of any [***Redacted]
that receive any of the [***Redacted]) is a material condition of this Agreement
and must be provided each quarter, even if royalties are not payable for such
quarter. Artisan Components agrees to keep confidential the list of
[***Redacted] provided above. Artisan Components agrees to give Licensee notice
prior to [***Redacted] for purposes of investigating or questioning the
[***Redacted] improper use of any Licensed Product [***Redacted].
7.4 All invoices will be mailed to the address in the applicable Licensee
purchase order, or if not so specified in the purchase order or otherwise
provided by Licensee, to the address for notice set forth in this Agreement.
7.5 Any and all amounts payable hereunder shall be made in United States
Dollars, and 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.
7.6 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. If any applicable law
requires Licensee to withhold amounts from any payments to Artisan Components
hereunder, (i) Licensee shall effect such withholding, remit such amounts to the
appropriate taxing authorities and promptly furnish Artisan Components with tax
receipts evidencing the payments of such amounts, and (ii) the sum payable by
Licensee upon which the deduction or withholding is based shall be increased to
the extent necessary to ensure that, after
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treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
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such deduction or withholding, Artisan Components receives and retains, free
from liability for such deduction or withholding, a net amount equal to the
amount Artisan Components would have received and retained in the absence of
such required deduction or withholding.
7.7 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. Without limiting the generality of the
foregoing, such books and records will include (a) the [***Redacted] for
[***Redacted], (b) the number of [***Redacted] by calendar quarter, and the
[***Redacted] for [*** Redacted], and (c) all data and supporting calculations
used by Licensee to compute the royalties payable by Licensee to Artisan
Components for each calendar quarter. These records shall be retained for a
period of [***Redacted] from the date of payment, notwithstanding the expiration
or termination of this Agreement. Licensee agrees to permit its books, records
to be examined by an independent CPA firm selected by Artisan Components,
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. The independent CPA to be selected by Artisan Components will be
either:
(i) any one or more of the following CPA firms or any of their successor
entities: Arthur Anderson; Ernst & Young/KPMG Peat Marwick; Coopers &
Lybrand/Price Waterhouse; or Deloitte Touche; and/or
(ii) any other mutually agreed upon CPA firm.
7.8 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 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), LIC/Wafers, 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
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treatment filed with the Securities and Exchange Commission. Omitted portions
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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, 2.2 or 2.4 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 Licensee shall have the right, in its sole discretion, to terminate this
Agreement upon the occurrence of any of the following events: (a) Artisan
Components' material breach of this Agreement and failure to cure such breach
within 60 days after receipt of notice from Licensee; or (b) the filing of a
petition for Artisan Components' bankruptcy which is not discharged within sixty
(60) days, whether voluntary or involuntary, or an assignment of Artisan
Components' assets made for the benefit of creditors, or the appointment of a
trustee or receiver to take charge of Artisan Components' business for any
reason, or Artisan Components becoming insolvent or ceasing to conduct business
in the normal course.
9.3 The provisions of Articles 2.9, 6, 7, 8, 10, 11,12, 13, 14, 15, 16, 17,
18, 19, 20, 21 and 22 and Sections 9.2, 9.4 and 9.5 shall survive the expiration
or any termination of this Agreement.
9.4 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, LIC/Wafers 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),
LIC/Wafers 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.
9.5 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 either
party arising from the other party's breach of this Agreement.
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.
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treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
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11. WARRANTIES
11.1 Artisan Components warrants and represents that the Licensed Products
are and will be developed by Artisan Components and that to the best of its
knowledge it has the right and authority to convey the Licensed Products as set
forth herein. As Licensee's sole and exclusive remedy for any breach of this
warranty, Artisan Components will indemnify Licensee in accordance with Section
12.
11.2 PERFORMANCE WARRANTIES. Artisan Components also warrants for a period
of [***Redacted] from the date of initial delivery that the Licensed Products in
the form as delivered by Artisan Components shall be free from defects in media
and shall substantially conform to the specifications set forth in the
Documentation. Artisan Components does not warrant that the use of the Licensed
Products will be uninterrupted or error free. Artisan Components' warranty
obligations are void for any modified Licensed Products, but remain subject to
this Section for the unmodified versions of Licensed Products (i.e., the
versions of the Licensed Products as delivered by Artisan Components). Artisan
Components does not warrant that the Licensed Products are intended or designed
---
for modification, including migration to other design rules, and Licensee agrees
that any modifications to the Licensed Products shall be made by Licensee solely
at its own risk and that Artisan Components' warranty obligations are void for
any modified Licensed Products. 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 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, modifications by other than
Artisan Components 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.
11.3 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 THE WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, OR ARISING FROM A COURSE
OF DEALING, TRADE USAGE OR TRADE PRACTICE.
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treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
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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 third party's valid trade secret
or copyright, or any third party's valid patent issued in the U.S., Taiwan,
Japan or the European Economic Community, 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
of any License Fees and/or royalties relating to the infringing Licensed Product
as depreciated on a [***Redacted].
12.4 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.
12.5 LICENSEE'S MODIFICATIONS. Notwithstanding any of the foregoing, Artisan
Components shall have no liability for any claim, suit or proceeding of
infringement to the extent it is based on any extensions, enhancements or
modifications to the Licensed Product made by Licensee or
optimizations/modifications made by Artisan Components to comply with Licensee's
instructions and/or [***Redacted], and for which Licensee will indemnify Artisan
Components as set forth in Section 2.9.
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treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
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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, SILICON WAFER 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 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; DISCLOSURE 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 LIC/Wafer, (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 17,
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
international 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.
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If to Artisan Components: If to Licensee:
Artisan Components, Inc. Taiwan Semiconductor Manufacturing Company Ltd.
1195 Bordeaux Drive
Sunnyvale, CA 94089 N. 121, Park Ave. 3, Science-Based Industrial Park
Attn: Manager, Contracts
Telephone: (408) 734-5600 Hsin-Chu, Taiwan, R.O.C.
Facsimile: (408) 734-1801
---------------------------------------------
Attn:
----------------------------------------
Telephone:
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Facsimile:
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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.
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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 LIC/Wafers. 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 LIC/Wafers 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. MISCELLANEOUS TERMS
22.1 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.
22.2 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.
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 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.
14
<PAGE>
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. TAIWAN SEMICONDUCTOR
MANUFACTURING COMPANY LTD.
By: /s/ Robert D. Selvi By: [/s/ unreadable]
------------------------ -----------------------
Signature of an Officer of Signature of an Authorized
the Corporation Representative
By: Robert D. Selvi By: [***Redacted]
------------------------ ---------------------
Printed Name of the Signing Officer Printed Name of the Signing
Authorized Representative
Title: Vice President & CFO Title: [***Redacted]
---------------------
Date: 11/25/97 Date: 12/10/97
---------------------- --------------------
- -------------
*** 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.
15
<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:
-------------- ------------------------
16
<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
additional charges
of your project of $____________
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:
------------------------------ ------------------------
17
<PAGE>
LICENSE AGREEMENT
APPENDIX A
LICENSED PRODUCTS, DELIVERABLES, DELIVERY SCHEDULE AND LICENSEE SITES
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.
18
<PAGE>
APPENDIX A
(CONTINUED)
DELIVERABLES:
- -------------
[***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.
19
<PAGE>
DELIVERABLES:
- -------------
(continued)
[***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.
20
<PAGE>
LICENSE AGREEMENT
APPENDIX A
(CONTINUED)
Delivery Schedule
- -----------------
Data Required From Licensee
- ---------------------------
The following data is required from Licensee in order for Artisan Components to
prepare the Licensed Products for delivery to Licensee:
<TABLE>
<CAPTION>
Data Format Date Required
- ---- ------ -------------
<S> <C> <C>
[***Redacted]
</TABLE>
Target Delivery Dates for Licensed Products
- -------------------------------------------
Below are the target delivery dates for the Licensed Products, based on the
above Data being provided to Artisan Components in a timely manner and provided
that the Agreement is signed, and the applicable purchase order and
[***Redacted] is received by Artisan Components on or before [***Redacted]:
<TABLE>
<CAPTION>
Item Targeted Delivery Date(s)
- ---- -------------------------
<S> <C>
[***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.
21
<PAGE>
APPENDIX A
(CONTINUED)
LICENSEE SITES
- --------------
[***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.
22
<PAGE>
LICENSE AGREEMENT
APPENDIX B
LICENSE FEES
I. LICENSE FEE
-----------
The Licensee agrees to pay a total of [***Redacted] for the [***Redacted]
for the [***Redacted], based on the below schedule of payment, as
License Fees to Artisan Components.
Payment Amount Due Date
-------------- --------
[***Redacted}
The License Fee(s) and payment schedule for additional Licensed Products are
subject to the parties mutual written agreement.
- -------------
*** 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.
23
<PAGE>
LICENSE AGREEMENT
APPENDIX C
ROYALTIES
ROYALTIES
- ---------
Licensee shall pay to Artisan Components the following running royalties with
respect to all Revenue received from [***Redacted] for Licensee:
<TABLE>
<CAPTION>
Licensed Product(s) Used To Royalty Rate Applied To
Make [***Redacted] [***Redacted]
------------------ -------------
<S> <C>
[***Redacted]
</TABLE>
Step Down Formula: Licensee will pay royalties equal to [***Redacted], at which
point the [***Redacted] will [***Redacted] and Licensee will pay royalties equal
[***Redacted], at which point the [***Redacted] will [***Redacted]. Licensee
will then [***Redacted], at which point the [***Redacted] will [***Redacted].
For each [***Redacted] attributable for [***Redacted], the [***Redacted], which
[***Redacted] will remain until [***Redacted] royalties for [***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.
24
<PAGE>
LICENSE AGREEMENT
APPENDIX C
ROYALTIES
ROYALTIES
- ---------
(Continued)
CHART REPRESENTING STEP DOWN FORMULA
<TABLE>
<CAPTION>
<S> <C>
[***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.
25
<PAGE>
[***Redacted]
[***Redacted]
Except as the parties may otherwise agree, [***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.
26
<PAGE>
CONFIDENTIAL
ADDENDUM
TO LICENSE AGREEMENT
DATED MARCH 27, 1998
This Addendum to License Agreement, dated March 27, 1998 (this "Addendum"),
serves to amend that certain License Agreement, Number PL2028, dated November
30, 1997 (the "License Agreement"), by and between Artisan Components, Inc., a
Delaware corporation, with its principal place of business at 1195 Bordeaux
Drive, Sunnyvale, California 94089-1210 (hereinafter referred to as "Artisan
Components"), and Taiwan Semiconductor Manufacturing Company Ltd., duly
incorporated under the laws of the Republic of China and having its registered
office at N. 121, Park Ave. 3, Science-Based Industrial Park, Hsin-Chu, Taiwan,
R.O.C. (hereinafter referred to as "Licensee").
RECITALS
The parties desire to amend the License Agreement to provide for the following
obligations and responsibilities of the parties relating to the addition of some
new Licensed Products and the preparation of modified forms of Licensed Products
previously licensed to Licensee under the License Agreement.
The parties agree the below terms and conditions are added to and made a part of
the License Agreement:
ADDENDUM
1. ADDITIONAL LICENSED PRODUCTS.
(a) [***Redacted] Licensed Products. The parties agree to add to the License
-----------------
Agreement the Licensed Products described in Appendix A-1 to this Addendum
(the "[***Redacted] Licensed Products"). Appendix A-1 is added to and made
a part of Appendix A of the License Agreement, and the [***Redacted]
Licensed Products are Licensed Products for purposes of the License
Agreement.
(b) Payment for [***Redacted] Licensed Products. Licensee agrees to pay the
-------------------------------------------
License Fees and Royalties for the [***Redacted] Licensed Products as set
forth in Appendices B-1 and C-2 to this Addendum. Appendix B-1 is added to
and made a part of Appendix B of the License Agreement and Appendix C-1 is
added to and made a part of Appendix C of the License Agreement.
2. MODIFICATIONS TO INITIAL LICENSED PRODUCTS TO CREATE [***Redacted] VERSIONS
(a) Modifications. Artisan Components will make the following modifications to
-------------
the Initial Licensed Products to create [***Redacted] versions of the
Initial Licensed Products ("[***Redacted] Versions"). The [***Redacted]
Versions will be considered Initial Licensed Products for purposes of the
License Agreement.
[***Redacted] Version for [***Redacted]
---------------------------------------
[***Redacted]
[***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.
1
<PAGE>
CONFIDENTIAL
[***Redacted]
[***Redacted] Version for [***Redacted]
---------------------------------------
[***Redacted]
[***Redacted] Version for [***Redacted]
---------------------------------------
[***Redacted]
(b) Payment. In addition to the License Fees set forth in Appendix A and the
-------
Royalties set forth in Appendix B (which Royalties will continue to apply
to the Initial Licensed Products, including the [***Redacted] Versions to
be developed hereunder), Licensee will pay Artisan Components [***Redacted]
for the [***Redacted] Versions in accordance with the following payment
schedule:
<TABLE>
<CAPTION>
Payment Amount Due Date
-------------- --------
<C> <S>
[***Redacted] [***Redacted]
[***Redacted] [***Redacted]
[***Redacted] [***Redacted]
[***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.
2
<PAGE>
CONFIDENTIAL
[***Redacted]
Delivery Dates.
- --------------
Licensee will be required to provide Artisan Components the necessary data for
the [***Redacted] Versions consistent with the type of data Licensee provided
for the Initial Licensed Products prior to this Addendum [***Redacted]. The
"[***Redacted] Begin Date" means the date upon which Licensee has provided all
such necessary information and the appropriate purchase order for the
[***Redacted] Versions. Below are the target delivery dates for the
[***Redacted] Versions, based on the above data being provided to Artisan
Components in a timely manner and provided that the Agreement is signed, and the
applicable purchase order is received by Artisan Components on or before
[***Redacted].
<TABLE>
<CAPTION>
Deliverable Item Targeted Delivery Date(s)
- ---------------- -------------------------
<S> <C>
[***Redacted] [***Redacted]
</TABLE>
3. GENERAL.
Except as set forth herein, all terms and conditions of the License Agreement
shall remain in full force and effect. Unless otherwise defined in this
Addendum, capitalized terms used in this Addendum shall have the same meaning as
set forth in the License Agreement.
Accepted and Agreed To:
ARTISAN COMPONENTS, INC. TAIWAN SEMICONDUCTOR
MANUFACTURING COMPANY LTD.
(Licensee)
By: /s/ Larry J. Fagg By:
------------------------- ---------------------------
Name: Larry J. Fagg Name: /s/ unreadable
----------------------- -------------------------
Title: VP of Worldwide Sales Title:
---------------------- ------------------------
Date: 3-23-98 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.
3
<PAGE>
CONFIDENTIAL
LICENSE AGREEMENT
APPENDIX A-1
[***Redacted] LICENSED PRODUCTS, DELIVERABLES AND DELIVERY SCHEDULE
I. [***Redacted] LICENSED PRODUCTS (LICENSED PRODUCTS):
--------------------------------------------------
[***Redacted]
[***Redacted]
[***Redacted]
II. DELIVERABLES:
-------------
[***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.
4
<PAGE>
CONFIDENTIAL
[***Redacted]
III. DELIVERY SCHEDULE:
------------------
a) Data Required From Licensee
---------------------------
The following data is required from Licensee in order for Artisan Components to
prepare the Licensed Products for delivery to Licensee:
<TABLE>
<CAPTION>
Data Format Date Required
- ---- ------ -------------
<S> <C> <C>
[***Redacted] [***Redacted] [***Redacted]
</TABLE>
b) Target Delivery Dates for Licensed Products
-------------------------------------------
Below are the target delivery dates for the [***Redacted] Licensed Products,
based on the above Data being provided to Artisan Components in a timely manner
and provided that the Agreement is signed, and the applicable purchase order is
received by Artisan Components on or before [***Redacted]. The "Begin Date"
means the date upon which Licensee has provided all of the above data to be
provided by Licensee as well as the applicable purchase order.
- -------
*** 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.
5
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
Deliverable Item Targeted Delivery Date(s)
- ---------------- ------------------------
<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.
6
<PAGE>
CONFIDENTIAL
LICENSE AGREEMENT
APPENDIX B-1
LICENSE FEES
I. LICENSE FEE (FOR [***Redacted] LICENSED PRODUCTS)
------------------------------------------------
The Licensee agrees to pay a total of [***Redacted] for the [***Redacted]
Licensed Products, based on the below schedule of payment, as License Fees to
Artisan Components.
<TABLE>
<CAPTION>
Payment Amount Due Date
- -------------- --------
<C> <S>
[***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.
7
<PAGE>
CONFIDENTIAL
LICENSE AGREEMENT
APPENDIX C-1
ROYALTIES
ROYALTIES (FOR [***Redacted] LICENSED PRODUCTS)
- ----------------------------------------------
Licensee shall pay to Artisan Components the following running royalties with
respect to all Revenue received from [***Redacted] [***Redacted] Licensee (the
[***Redacted] designed/manufactured with the [***Redacted] Licensed Products
("[***Redacted]") as compared to the [***Redacted] designed/manufactured with
the Initial Licensed Products):
<TABLE>
<CAPTION>
[***Redacted] Licensed Product(s) Royalty Rate Applied
Used To Make [***Redacted] To [***Redacted]
-------------------------- ----------------
<S> <C>
[***Redacted] [***Redacted]
</TABLE>
Step Down Formula: Licensee will pay royalties equal to [***Redacted] will
[***Redacted] Licensee will then pay [***Redacted] at which point the
[***Redacted] will [***Redacted]. For each [***Redacted] attributable for
[***Redacted], the [***Redacted], which [***Redacted] rate will remain
[***Redacted] royalties for [***Redacted].
CHART REPRESENTING STEP DOWN FORMULA
<TABLE>
<CAPTION>
<C> <S>
[***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.
8
<PAGE>
CONFIDENTIAL
<TABLE>
<C> <S>
[***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.
9
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF
THE REGISTRANT
1. Artisan (Barbados) Ltd., a corporation organized under the laws
of Barbados.
<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, except for Notes 14 and
15, for which the date is April 14, 1998 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
April 15, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 1,579
<SECURITIES> 29,141
<RECEIVABLES> 3,343
<ALLOWANCES> (275)
<INVENTORY> 0
<CURRENT-ASSETS> 34,735
<PP&E> 7,469
<DEPRECIATION> (2,139)
<TOTAL-ASSETS> 40,385
<CURRENT-LIABILITIES> 2,873
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 37,268
<TOTAL-LIABILITY-AND-EQUITY> 40,385
<SALES> 7,089
<TOTAL-REVENUES> 7,089
<CGS> 2,100
<TOTAL-COSTS> 6,509
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (307)
<INCOME-PRETAX> 887
<INCOME-TAX> 289
<INCOME-CONTINUING> 598
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 598
<EPS-PRIMARY> .08
<EPS-DILUTED> .05
</TABLE>
