<PAGE>
As filed with the Securities and Exchange Commission on April 6, 2000
Registration No. 333-95695
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT No. 4
TO
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
NUMERICAL TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
California 7371 94-3232104
(prior to
reincorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)
Delaware
(after
reincorporation)
(State or other
jurisdiction of
incorporation or
organization)
</TABLE>
70 West Plumeria Drive, San Jose, CA 95134, (408) 919-1910
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------
Yagyensh C. Pati
President and Chief Executive Officer
70 West Plumeria Drive, San Jose, CA 95134, (408) 919-1910
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
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<S> <C>
Kathleen B. Bloch Stephen J. Schrader
Julie A. Bell Justin L. Bastian
Anthony Kikuta Stephanie J. Millet
Lynn Hashimoto Amie Peters
Wilson Sonsini Goodrich &
Rosati Morrison & Foerster, LLP
Professional Corporation 755 Page Mill Road, Palo Alto, CA 94304-1018
650 Page Mill Road, Palo
Alto, CA 94304 (650) 813-5600
(650) 493-9300
</TABLE>
----------------
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 statement 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 statement 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. [_]
----------------
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 said
Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 6, 2000
5,534,000 Shares
[LOGO OF NUMERICAL APPEARS HERE]
Numerical Technologies, Inc.
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of our common stock is expected to be between
$11.00 and $13.00 per share. We have applied to list our common stock on The
Nasdaq Stock Market's National Market under the symbol "NMTC."
The underwriters have an option to purchase a maximum of 830,100 additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 7.
<TABLE>
<CAPTION>
Underwriting
Discounts and Proceeds to
Price to Public Commissions Numerical
--------------- ------------- -------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Chase H&Q
SG Cowen
The date of this prospectus is , 2000.
<PAGE>
----------------
TABLE OF CONTENTS
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<CAPTION>
Page
----
<S> <C>
Prospectus Summary................... 4
Risk Factors......................... 7
Special Note Regarding Forward-
Looking Statements.................. 16
Use of Proceeds...................... 17
Dividend Policy...................... 17
Capitalization....................... 18
Dilution............................. 19
Selected Financial Data.............. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business............................. 27
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management..........................42
Related Party Transactions..........51
Principal Stockholders..............58
Description of Capital Stock........60
Shares Eligible for Future Sale.....63
Underwriting........................65
Notice to Canadian Residents........67
Legal Matters.......................68
Experts.............................68
Where You Can Find More
Information........................68
Index to Financial Statements......F-1.
</TABLE>
----------------
You should only rely on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may be used only where it is legal
to sell these securities. The information in this document may only be accurate
on the date on this document.
Dealer Prospectus Delivery Obligation
Until , 2000, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as an underwriter and with respect to unsold
allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and notes thereto appearing elsewhere in
this prospectus.
Numerical Technologies, Inc.
We are a leading commercial provider of proprietary technologies and
software products used to produce semiconductors with subwavelength feature
sizes of 0.18 micron and below that enable the design and manufacture of
faster, smaller and more power efficient electronic products. A semiconductor's
"feature size" relates to the size of the integrated circuit, or IC, components
on the semiconductor and is measured in microns, or millionths of a meter. In
semiconductors with "subwavelength" feature sizes, the wavelength of light used
to create the IC features on the semiconductor is larger than the feature sizes
themselves. Our subwavelength solution exceeds the predictions of industry
roadmaps by producing semiconductors with feature sizes of 0.09 micron and
below using existing semiconductor equipment. We believe our patented
technologies and software products are critical to key markets of the
semiconductor industry as they strive to design and manufacture subwavelength
semiconductors.
Our industry partners and customers demonstrate the success of our
proprietary technologies and software products. Motorola used our proprietary
technologies in its 0.18 micron fabrication facilities to produce 0.10 micron
microprocessor features. One of our industry partners announced that it
developed the world's fastest one volt digital signal processor, or DSP, by
reducing feature sizes from 0.25 micron to 0.12 micron using our proprietary
technologies. DSPs manipulate large volumes of video or sound in products such
as cell phones or video cameras. MIT Lincoln Laboratory, a research laboratory,
used our proprietary technologies to achieve the first successful creation of
0.05 micron features. We have industry partner and customer relationships with
leading companies in all key markets of the semiconductor industry, including
vendors of tools used to design semiconductors, such as Cadence Design Systems;
manufacturers of photomasks, or templates used in creating ICs, such as Dupont
Photomask and Photronics; manufacturers of sophisticated equipment used to
manufacture semiconductors, such as Applied Materials and KLA-Tencor; and
semiconductor manufacturers, or foundries, such as TSMC and UMC. Through our
industry partner relationships, our industry partners resell, market, either
jointly with us or unilaterally, and promote our technologies and products to
their own customers. Our customers are the actual users of our technologies and
products.
Our Market and the Subwavelength Challenge
The proliferation of semiconductors in a broad range of electronic products,
including personal computers, mobile phones, Internet appliances, video game
consoles, and high-speed networking and communications products that serve as
the backbone of the Internet, is driving the growth in the worldwide market for
semiconductors. To capitalize on this growing market, electronics manufacturers
must continuously introduce higher-performance products that are cheaper and
more portable. These advanced products must incorporate semiconductors that are
faster and smaller, consume less power and can be manufactured at a lower cost.
As a result, the growth in manufacturing of semiconductors with feature sizes
of less than 0.25 micron is expected to be significantly greater than the
growth for semiconductors with larger feature sizes.
The ability to produce advanced ICs depends on developing technologies that
enable the design and manufacture of devices with increasingly smaller feature
sizes. As a result of advances in semiconductor design and manufacturing
processes, feature sizes decreased from 3.0 micron in 1980 to 0.18 micron in
today's
4
<PAGE>
advanced fabrication facilities. This progression requires large research and
development investments in sophisticated semiconductor design tools, photomask
manufacturing and semiconductor equipment. In addition, each incremental
reduction in feature size requires significant capital expenditures. The
purchase and installation of new equipment and the construction of new
fabrication facilities can require billions of dollars and several years before
becoming operational.
At 0.18 micron and smaller, traditional technology approaches are no longer
adequate. The wavelength of light used in production semiconductor equipment to
manufacture these features is significantly larger than the features
themselves. This is like trying to paint a one-inch wide line with a four-inch
wide paint brush. This growing disparity between feature sizes and the
wavelength of light is referred to as the "subwavelength gap." We do not expect
alternative manufacturing processes that can bridge the subwavelength gap will
be commercially viable for many years. We believe advances in manufacturing
equipment technology alone can no longer enable the progression to smaller
feature sizes.
Our Solution
We provide patented phase shifting and proprietary optical proximity
correction and process modeling technologies that are integral to our
subwavelength solution. Phase-shifting technologies manipulate light wave
patterns to create high-resolution images of IC features. Optical proximity
correction technologies, or OPC, help to reduce distortions in IC features.
Process modeling technologies allow semiconductor designers and manufacturers
to accurately translate IC designs to photomasks and then to the actual
semiconductor. These technologies enable the progression to subwavelength
feature sizes.
Our comprehensive subwavelength solution allows our industry partners and
customers to produce smaller, faster and more power efficient semiconductors
with existing semiconductor equipment. This saves them the time and cost
necessary to establish a more advanced fabrication facility. As a result, our
industry partners and customers can earn revenues more quickly and increase
their return on invested capital.
We license our proprietary technology and software products to semiconductor
designers, design tool vendors, photomask manufacturers, semiconductor
equipment manufacturers and foundries. By providing a subwavelength solution
employable in every key stage of the semiconductor design and manufacturing
process, our technologies and products integrate the entire subwavelength
"design-to-silicon flow." We believe that we can capitalize on the pressing
need for proven subwavelength solutions by leveraging our technology leadership
and our relationships with leading companies within the semiconductor industry
to drive the adoption of our solution as the industry standard.
Our company incorporated in California in October 1995 and will
reincorporate in Delaware prior to the closing of this offering. Our principal
executive office is located at 70 West Plumeria Drive, San Jose, CA 95134. Our
telephone number is (408) 919-1910.
Unless otherwise indicated, information in this prospectus assumes the
following:
. a three-for-two forward stock split of preferred stock and common stock
prior to the closing of this offering;
. the automatic conversion of all outstanding shares of preferred stock
into shares of common stock immediately prior to the completion of this
offering;
. our reincorporation in Delaware prior to the closing of this offering;
and
. no exercise of the underwriters' over-allotment option.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by us.................. 5,534,000 shares
Common stock to be outstanding after the
offering................................... 29,082,005 shares
Use of proceeds............................. For the repayment of outstanding promissory
notes issued pursuant to our acquisition of
Transcription Enterprise Limited and for
general corporate purposes.
Nasdaq National Market Symbol............... NMTC
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of February 15, 2000 and
excludes:
. 1,238,155 shares outstanding under our stock option plans with a
weighted average exercise price of $1.40 per share and 2,412,911
additional shares that we could issue under our stock option plans; and
. 300,000 shares issuable under our employee stock purchase plan.
Summary Financial Information
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------------
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Statement of Operations Data:
Revenue.............................................. $ 620 $ 736 $ 5,492
Total costs and expenses............................. 1,239 7,469 14,693
Loss from operations................................. (619) (6,733) (9,201)
Net loss............................................. (584) (6,551) (8,828)
Pro forma net loss per common share, basic and
diluted (unaudited)................................. $ (0.64)
Pro forma weighted average common shares, basic and
diluted (unaudited)................................. 13,885
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................ $13,486 $ 8,236 $ 33,063
Working capital.................................. 10,499 (3,469) 21,358
Total assets..................................... 17,605 99,119 123,946
Notes payable, including short-term portion...... -- 35,000 --
Total stockholders' equity....................... 12,405 57,825 117,652
</TABLE>
- --------
See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.
The pro forma balance sheet data reflects our acquisition of Transcription
Enterprises Limited effected in January 2000 and the conversion of
approximately 11,913,000 shares of preferred stock into shares of common stock.
The pro forma as adjusted amounts give effect to the sale of 5,534,000 shares
of common stock in this offering at an assumed initial public offering price of
$12.00 per share after deducting estimated underwriting discounts and
commissions and estimated offering expenses and the application of the net
proceeds from this offering. See Note 9 of Notes to Financial Statements.
6
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
If the key markets within the semiconductor industry, especially semiconductor
manufacturers, do not adopt our proprietary technologies and software products,
we may be unable to generate sales of our products.
The four key markets within the semiconductor industry are semiconductor
designers and design tool vendors, photomask manufacturers, semiconductor
equipment manufacturers and semiconductor manufacturers. If these key markets
do not adopt our proprietary technologies and software products, our product
sales could decline. We design our technologies and products so that each key
market within the semiconductor industry can work efficiently with the other
markets. For example, if designers do not adopt our technologies and products,
it will be more difficult for them to design semiconductors which are
understood and processed efficiently by mask manufacturers that do adopt our
technologies and products. In addition, we believe semiconductor manufacturers
need to adopt our proprietary technologies and software products first in order
to drive adoption by the other three markets. Semiconductor manufacturers
define and develop the manufacturing process. While designers, mask
manufacturers and equipment manufacturers are not required to adopt our
technologies and products in order to work with semiconductor manufacturers
that do adopt them, the efficiency of the entire manufacturing process is
greatly diminished if they do not. If each key market of the semiconductor
industry does not perceive our proprietary technologies and software products
as the industry standard, our technologies and products could become less
valuable and more difficult to license. Factors that may limit adoption of our
subwavelength solution within the markets include:
. our current and potential industry partners and customers may fail to
adopt our technologies and products;
. semiconductor designers may not need subwavelength processes if there is
a slowdown in semiconductor manufacturing or a decrease in the demand for
smaller semiconductor feature sizes; and
. the industry may develop alternative methods to produce subwavelength
features with existing capital equipment due to a rapidly evolving market
and the likely emergence of new technologies.
In order for potential industry partners and customers to adopt, and expend
their own resources to implement, our technologies and products, we must expend
significant marketing resources, with no guarantee of success.
Our proprietary technologies and software products involve a new approach to
the subwavelength gap problem. As a result, we must employ intensive and
sophisticated marketing and sales efforts to educate prospective industry
partners and customers about the benefits of our technologies and products,
with no guarantee of success. Our sales and marketing expenses increased from
$1.4 million in 1998 to $4.3 million in 1999. In addition, even if our industry
partners and customers adopt our proprietary technologies and software
products, they must devote the resources necessary to fully integrate our
technologies and products into their operations. This is especially true for
our industry partners so that they can begin to resell and market our solution
to their customers. If they do not make these expenditures, establishing our
technologies and products as the industry standard to the subwavelength gap
problem will be difficult.
Our limited operating history and dependence on new technologies make it
difficult to evaluate our future prospects.
We only have a limited operating history on which you can base your
evaluation of our business. We face a number of risks as an emerging company in
a new market. For example, the key markets within the
7
<PAGE>
semiconductor industry may fail to adopt our proprietary technologies and
software products, or we may not be able to establish distribution channels.
Our company incorporated in October 1995. In February 1997, we shipped our
initial software product, IC Workbench. We have only recently begun to expand
our operations significantly. For example, we grew from 47 employees as of
January 1, 1999 to 105 employees as of January 1, 2000.
We have a history of losses, we expect to incur losses in the future and we may
be unable to achieve profitability.
We may not achieve profitability if our revenue increases more slowly than
we expect or not at all. In addition, our operating expenses are largely fixed,
and any shortfall in anticipated revenue in any given period could cause our
operating results to decrease. We have not been profitable in any quarter, and
our accumulated deficit was approximately $16.2 million as of December 31,
1999. We expect to continue to incur significant operating expenses in
connection with increased funding for research and development and expansion of
our sales and marketing efforts. In addition, we expect to incur additional
noncash charges relating to amortization of intangibles and deferred stock
compensation. As a result, we will need to generate significant revenue to
achieve and maintain profitability. If we do achieve profitability, we may be
unable to sustain or increase profitability on a quarterly or annual basis. Any
of the factors discussed above could cause our stock price to decline.
We recently acquired Transcription Enterprises Limited and if we are not
successful in integrating Transcription's products and operations with ours,
our revenue and operating results could decline.
Our recent acquisition of Transcription Enterprises Limited will only be
successful if we are able to integrate its operations with ours, which could
substantially divert management's attention from the day-to-day operations of
the combined company. If we encounter any difficulties in the transition
process, the revenue and operating results of the combined company could
decline. We must successfully integrate Transcription's products with ours. We
must also coordinate our research and development and sales and marketing
efforts to realize the technological benefits of this combination.
We may find it difficult to integrate personnel with disparate business
backgrounds and combine two different corporate cultures. In addition, the
process of combining our company with Transcription could interrupt the
activities of either or both of the companies' businesses. It is possible that
we will not be able to retain key Transcription management, technical and sales
personnel.
In addition, the acquisition of Transcription could cause our industry
partners and customers to be uncertain about our ability to support the
combined companies' products and the direction of the combined companies'
product development efforts. As a result, they may delay or cancel product
orders, which could significantly decrease our revenue and limit our ability to
implement our combined business strategy.
Our acquisition of Transcription may increase the focus of the semiconductor
industry on the manufacturing data preparation market, which could lead to a
rapid and substantial increase in competition.
Our recent acquisition of Transcription may increase the semiconductor
industry's awareness of the market for manufacturing data preparation software,
which could lead to a substantial increase in the number of start-up companies
that focus on software solutions for data preparation. Manufacturing data
preparation software translates semiconductor designs into instructions that
control manufacturing equipment. Potential competitors could pursue and execute
partnership agreements with key industry partners we intend to pursue, which
could make it difficult or impossible for us to develop relationships with
these potential industry partners. In addition, some of our current competitors
may increase their own research and development budgets relating to data
preparation, or may more aggressively market competing solutions.
8
<PAGE>
If we do not continue to introduce new technologies and software products or
product enhancements ahead of rapid technological change in the market for
subwavelength solutions, our operating results could decline and we could lose
our competitive position.
We must continually devote significant engineering resources to enable us to
introduce new technologies and software products or product enhancements to
address the evolving needs of key markets within the semiconductor industry in
solving the subwavelength gap problem. We must introduce these innovations and
the key markets within the semiconductor industry must adopt them before
changes in the semiconductor industry, such as the introduction by our current
and potential competitors of more advanced products or the emergence of
alternative technologies, render the innovations obsolete, which could cause us
to lose our competitive position. These innovations are inherently complex,
require long development cycles and a substantial investment before we can
determine their commercial viability. Moreover, designers, mask manufacturers
and equipment manufacturers must each respond to the demand of the market to
design and manufacture masks and equipment for increasingly smaller and complex
semiconductors. Our innovations must be viable and meet the needs of these key
markets within the semicondutor industry before the consumer market demands
even smaller semiconductors, rendering the innovations obsolete. We may not
have the financial resources necessary to fund any future innovations. In
addition, any revenue that we receive from enhancements or new generations of
our proprietary technologies and software products may be less than the costs
of development.
Fluctuations in our quarterly operating results may cause our stock price to
decline.
It is likely that our future quarterly operating results may fluctuate from
time to time and may not meet the expectations of securities analysts and
investors in some future period. As a result, the price of our common stock
could decline. Historically, our quarterly operating results have fluctuated.
We may experience significant fluctuations in future quarterly operating
results. The following factors may cause these fluctuations:
. the timing and structure of our product license agreements;
. changes in our pricing policies or those of our competitors; and
. changes in the level of our operating expenses to support our projected
growth.
We intend to pursue new, and maintain our current, industry partner
relationships, which could substantially divert management attention and
resources, with no guarantee of success.
We expect to derive significant benefits, including increased revenue and
customer awareness, from our current and potential industry partner
relationships. In our pursuit to maintain and establish partner relationships
within each of the key markets in the semiconductor industry, we could expend
significant management attention, resources and sales personnel efforts, with
no guarantee of success. To establish and maintain our partner relationships,
we expend our limited financial resources on increasing our sales and business
development personnel, trade shows and marketing within trade publications. If
we did not have to pursue potential industry partners, we could focus these
resources exclusively on direct sales to our customers. In addition, through
our partner relationships, our partners resell, market, either jointly with us
or unilaterally, and promote our technologies and products. If these
relationships terminate, such as due to our material breach of the contracts or
the partners' election to cancel the contract, which generally is permissible
with prior notice to us, we would have to increase our own limited marketing
and sales resources for these activities. Further, we may be unable to enter
into new industry partner relationships if any of the following occur:
. current or potential industry partners develop their own solutions to
the subwavelength gap problem; or
. our current or potential competitors establish relationships with
industry partners with which we seek to establish a relationship.
9
<PAGE>
We have only recently entered into many of our current partner
relationships. These relationships may not continue or they may not be
successful. We also may be unable to find suitable additional industry
partners. To date, we have entered into agreements with industry partners,
including:
. Cadence in the design market;
. DuPont Photomask and Photronics in the mask manufacturing market; and
. Applied Materials, KLA-Tencor and Zygo Corporation in the semiconductor
equipment market.
Many of our current competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources than
we do and as a result, they may acquire a significant market share before we
do.
Our current competitors, or alliances among these competitors, may rapidly
acquire significant market share. These competitors may have greater name
recognition and more customers which they could use to gain market share to our
detriment. We encounter direct competition from other direct providers of phase
shifting, OPC and manufacturing data technologies. These competitors include
such companies as Avant! and Mentor Graphics. We also compete with companies
that have developed or have the ability to develop their own proprietary phase
shifting and OPC solutions, such as IBM. These companies may wish to promote
their internally developed products and may be reluctant to purchase products
from us or other independent vendors. Our competitors may offer a wider range
of products than we do and thus may be able to respond more quickly to new or
changing opportunities, technologies and customer requirements. These
competitors may also be able to undertake more extensive promotional
activities, offer more attractive terms to customers than we do and adopt more
aggressive pricing policies. Moreover, our competitors may establish
relationships among themselves or with industry partners to enhance their
services, including industry partners with which we may desire to establish a
relationship.
The market for software solutions that address the subwavelength gap problem is
new and rapidly evolving. We expect competition to intensify in the future,
which could slow our ability to grow or execute our strategy.
We believe that the demand for solutions to the subwavelength gap problem
may encourage many competitors to enter into our market. As the market for
software solutions to the subwavelength gap problem proliferates, if our
competitors are able to attract industry partners or customers on a more
accelerated pace than we can and retain them more effectively, we would not be
able to grow and execute our strategy as quickly. In addition, if customer
preferences shift away from our technologies and software products as a result
of the increase in competition, we must develop new proprietary technologies
and software products to address these new customer demands. This could result
in the diversion of management attention or our development of new technologies
and products may be blocked by other companies' patents. We must offer better
products, customer support, prices and response time, or a combination of these
factors, than those of our potential competitors.
We are growing rapidly and must effectively manage and support our growth in
order for our business strategy to succeed.
We have grown rapidly and will need to continue to grow in all areas of
operation. If we are unable to successfully integrate and support our existing
and new employees into our operations, we may be unable to implement our
business strategy in the time frame we anticipate, or at all. Due to our rapid
growth in headcount, we outgrew our principal office facilities earlier than we
expected. As a result, we recently relocated to San Jose, California and may
need to relocate to a larger facility in the future, which could be difficult
in the very competitive Silicon Valley office leasing market. In addition,
building and managing the support necessary for our growth places significant
demands on our management as well as our limited revenue. These demands have,
and may continue to, divert these resources away from the continued growth of
our business and
10
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implementation of our business strategy. Further, we must adequately train our
new personnel, especially our technical support personnel, to adequately, and
accurately, respond to and support our industry partners and customers. If we
fail to do this, it could lead to dissatisfaction among our partners or
customers, which could slow our growth.
We must continually attract and retain engineering personnel or we will be
unable to execute our business strategy.
We have experienced, and we expect to continue to experience, difficulty in
hiring and retaining highly skilled engineers with appropriate qualifications
to support our rapid growth and expansion. We must continually enhance and
introduce new generations of our phase shifting and OPC technologies. As a
result, our future success depends in part on our ability to identify, attract,
retain and motivate qualified engineering personnel with the requisite
educational background and industry experience. If we lose the services of a
significant number of our engineers, it could disrupt our ability to implement
our business strategy. Competition for qualified engineers is intense,
especially in the Silicon Valley where we are located.
Our chief executive officer and chief technology officer, as well as the co-
founders of Transcription, are critical to our business and they may not remain
with us in the future.
Our future success will depend to a significant extent on the continued
services of Y. C. (Buno) Pati, our President and Chief Executive Officer, Yao-
Ting Wang, our Chief Technology Officer, Roger Sturgeon, one of our directors
and a senior executive of Transcription and Kevin MacLean, Vice President and
General Manager of Transcription. If we lose the services of any of these key
executives, it could slow our product development processes and searching for
their replacements could divert our other senior management's time and increase
our operating expenses. In addition, our industry partners and customers could
become concerned about our future operations, which could injure our
reputation. We do not have long-term employment agreements with these
executives and we do not maintain any key person life insurance policies on
their lives.
If we fail to protect our intellectual property rights, competitors may be able
to use our technologies which could weaken our competitive position, reduce our
revenue or increase our costs.
Our success depends heavily upon proprietary technologies, specifically our
patent portfolio. The rights granted under our patents and patent applications
may not provide competitive advantages to us. In addition, litigation may be
necessary to enforce our intellectual property rights or to determine the
validity and scope of the proprietary rights of others. As a result of any such
litigation, we could lose our proprietary rights and incur substantial
unexpected operating costs. Litigation could also divert our resources,
including our managerial and engineering resources. We rely primarily on a
combination of patents, copyrights, trademarks and trade secrets to protect our
proprietary rights and prevent competitors from using our proprietary
technologies in their products. These laws and procedures provide only limited
protection. We have been issued two U.S. patents, have five U.S. patent
applications currently pending in the U.S. and nine foreign patent applications
currently pending in selected foreign countries. Our pending patent
applications may not result in issued patents, and our existing and future
patents may not be sufficiently broad to protect our proprietary technologies.
Also, patent protection in foreign countries may be limited or unavailable
where we have filed for and need such protection. Furthermore, if we fail to
adequately protect our trademark rights, this could impair our brand identity
and ability to compete effectively. If we do not successfully protect our
trademark rights, this could force us to incur costs to re-establish our name
or our product names, including significant marketing activities.
If third parties assert that our proprietary technologies and software products
infringe their intellectual property rights, this could injure our reputation
and limit our ability to license or sell our proprietary technologies or
software products.
Third parties, for competitive or other reasons, could assert that our
proprietary technologies and software products infringe their intellectual
property rights. These claims could injure our reputation and decrease or
11
<PAGE>
block our ability to license or sell our software products. For example, on
March 14, 2000, ASML MaskTools, Inc. filed a complaint alleging we infringe two
U.S. patents and have committed unfair or fraudulent business practice under
the California Business and Professions Code. We are currently investigating
the patents and allegations. The defense of these claims could divert
management's attention from the day to day operations of our company, as well
as divert resources from current planned uses, such as hiring and supporting
additional engineering personnel. Litigation is inherently uncertain, and an
adverse decision could limit our ability to offer some features in our OPC
product. Third parties have advised us of literature which they believe to be
relevant to our patents. We have not reviewed all of the information contained
in this literature. It is possible that this literature or literature we may be
advised of in the future could negatively affect the scope or enforceability of
our present or future patents, and/or result in costly litigation. In addition,
we are aware of and are evaluating certain patents with which our products,
patents or patent applications may conflict. If any of these patents are found
to be valid, and we are unable to license such patents on reasonable terms, or
if our products, patents, or patent applications are found to conflict with
these patents, we could be prevented from selling our products, our patents may
be declared invalid or our patent applications may not result in issued
patents. In addition, a company could invite us to take a patent license. If we
do not take the license, the requesting company could contact our industry
partners or customers and suggest that they not use our software products
because we are not licensed under their patents. This action by the requesting
company could affect our relationships with these industry partners and
customers and may prevent future industry partners and customers from licensing
our software products. The intensely competitive nature of our industry and the
important nature of our technologies to our competitors' businesses may
contribute to the likelihood of being subject to third party claims of this
nature. Please see "Business--Intellectual Property."
Any potential dispute involving our patents or other intellectual property
could include our industry partners and customers, which could trigger our
indemnification obligations with them and result in substantial expense to us.
In any potential dispute involving our patents or other intellectual
property, our licensees could also become the target of litigation. This could
trigger our technical support and indemnification obligations in some of our
license agreements which could result in substantial expense to us. In addition
to the time and expense required for us to supply such support or
indemnification to our licensees, any such litigation could severely disrupt or
shut down the business of our licensees, which in turn could hurt our relations
with our customers and cause the sale of our proprietary technologies and
software products to decrease.
Defects in our proprietary technologies and software products could decrease
our revenue and our competitive market share.
If our industry partners and customers discover any defects after they
implement our proprietary technologies and software products, these defects
could significantly decrease the market acceptance and sales of our software
products, which could decrease our competitive market share. Any actual or
perceived defects with our proprietary technologies and software products may
also hinder our ability to attract or retain industry partners or customers,
leading to a decrease in our revenue. These defects are frequently found during
the period following introduction of new products or enhancements to existing
products. Despite testing prior to introduction, our software products may
contain software errors not discovered until after customer implementation. If
our software products contain errors or defects, it could require us to expend
significant resources to alleviate these problems, which could result in the
diversion of technical and other resources from our other development efforts.
We face operational and financial risks associated with international
operations.
We derive a significant portion of our revenue from international sales. We
have only limited experience in developing, marketing, selling and supporting
our proprietary technologies and software products
12
<PAGE>
internationally and may not succeed in maintaining or expanding our
international operations, which could slow our revenue growth. We are subject
to risks inherent in doing business in international markets. These risks
include:
. fluctuations in exchange rates which may negatively affect our operating
results;
. greater difficulty in collecting accounts receivable resulting in longer
collection periods;
. compliance with and unexpected changes in a wide variety of foreign laws
and regulatory environments with which we are not familiar;
. export controls which could prevent us from shipping our software
products into and from some markets;
. changes in import/export duties and quotas could affect the competitive
pricing of our software products and reduce our market share in some
countries; and
. economic or political instability.
We may be unable to continue to market our proprietary technologies and
software products successfully in international markets.
We may need to raise additional funds to support our growth or execute our
strategy and if we are unable to do so, we may be unable to develop or enhance
our proprietary technologies and software products, respond to competitive
pressures or acquire desired businesses or technologies.
We currently anticipate that our available cash resources, combined with the
net proceeds from this offering, will be sufficient to meet our presently
anticipated working capital and capital expenditure requirements for at least
the next 12 months. However, we may need to raise additional funds in order to:
. support more rapid expansion;
. develop new or enhanced products;
. respond to competitive pressures; or
. acquire complementary businesses or technologies.
These factors will impact our future capital requirements and the adequacy
of our available funds. We may need to raise additional funds through public or
private financings, strategic relationships or other arrangements.
We may be unable to consummate other potential acquisitions or investments or
successfully integrate them with our business, which may slow our ability to
expand the range of our proprietary technologies and software products.
To expand the range of our proprietary technologies and software products,
we may acquire or make investments in additional complementary businesses,
technologies or products if appropriate opportunities arise. We may be unable
to identify suitable acquisition or investment candidates at reasonable prices
or on reasonable terms, or consummate future acquisitions or investments, each
of which could slow our growth strategy. If we do acquire additional companies
or make other types of acquisitions, we may have difficulty integrating the
acquired products, personnel or technologies. These difficulties could disrupt
our ongoing business, distract our management and employees and increase our
expenses.
Management will have broad discretion as to the use of proceeds from this
offering and, as a result, we may not use the proceeds to the satisfaction of
our stockholders.
Our board of directors and management will have broad discretion in
allocating the net proceeds of this offering. They may choose to allocate such
proceeds in ways that do not yield a favorable return or are not
13
<PAGE>
supported by our stockholders. We have designated only limited specific uses
for the net proceeds from this offering. Please see "Use of Proceeds."
The concentration of our capital stock ownership with insiders upon the
completion of this offering will likely limit your ability to influence
corporate matters.
The concentration of ownership of our outstanding capital stock with our
directors and executive officers after this offering may limit your ability to
influence corporate matters. Prior to the completion of this offering, our
directors and executive officers, and their affiliates, beneficially own 67.0%
of our outstanding capital stock, and we expect them to remain significant
stockholders upon the completion of this offering. As a result, these
stockholders, if acting together, will have the ability to control all matters
submitted to our stockholders for approval, including the election and removal
of directors and the approval of any corporate transactions.
We have anti-takeover defenses that could delay or prevent an acquisition of
our company.
Provisions of our certificate of incorporation and bylaws in effect after
completion of this offering and Delaware law could make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
stockholders. Please see "Description of Capital Stock."
Negotiations between the underwriters and us determined the initial public
offering price, but the market price may be less or may be volatile, and you
may not be able to resell your shares at or above the initial public offering
price.
This initial public offering price may vary from the market price of our
common stock after the offering. The market price of our common stock may
fluctuate significantly in response to factors, some of which are beyond our
control, including:
. actual or anticipated fluctuations in our operating results;
. changes in market valuations of other technology companies;
. conditions or trends in the semiconductor industry;
. announcements by us or our competitors of significant technical
innovations, contracts, acquisitions or partnerships;
. additions or departures of key personnel;
. any deviations in net revenue or in losses from levels expected by
securities analysts;
. volume fluctuations, which are particularly common among highly volatile
securities of technology related companies; and
. sales of substantial amounts of our common stock or other securities in
the open market.
General political or economic conditions, such as recession or interest rate
or currency rate fluctuations in the United States or abroad, also could cause
the market price of our common stock to decline. Please see "Underwriting."
Our stock price is likely to be extremely volatile as the market for technology
companies' stock has recently experienced extreme price and volume
fluctuations.
Volatility in the market price of our common stock could result in
securities class action litigation. Any litigation would likely result in
substantial costs and a diversion of management's attention and resources.
Despite the strong pattern of operating losses of technology companies, the
market demand, valuation and trading prices of these companies have been high.
At the same time, the share prices of these companies' stocks have been highly
volatile and have recorded lows well below their historical highs. As a result,
investors
14
<PAGE>
in these companies often buy the stock at very high prices only to see the
price drop substantially a short time later, resulting in an extreme drop in
value in the stock holdings of these investors. Our stock may not trade at the
same levels as other technology stocks. In addition, technology stocks in
general may not sustain current market prices.
An active public market for our common stock may not develop.
An active public market for our common stock may not develop or be sustained
after this offering. The initial public offering price for the shares has been
determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market.
A large number of shares becoming eligible for sale after this offering could
cause our stock price to decline.
Sales of a substantial number of shares of our common stock after this
offering could cause our stock price to fall. Our current stockholders hold a
substantial number of shares, which they will be able to sell in the public
market in the near future. Please see "Shares Eligible for Future Sale."
You will incur immediate and substantial dilution in the book value of the
stock you purchase.
The initial public offering price is substantially higher than the book
value per share of our outstanding common stock immediately after the offering.
This is referred to as dilution. Accordingly, if you purchase common stock in
the offering, you will incur immediate dilution of approximately $10.81, at an
initial public offering price of $12.00 per share, in the book value per share
of our common stock from the price you pay for our common stock. Please see
"Dilution."
If we raise additional capital through the issuance of new securities at a
price lower than the initial public offering price, you will incur additional
dilution.
If we raise additional capital through the issuance of new securities at a
lower price than the initial public offering price of $ per share, you will
be subject to additional dilution. If we are unable to access the public
markets in the future, or if our performance or prospects decreases, we may
need to consummate a private placement or public offering of our capital stock
at a lower price than the initial public offering price. In addition, any new
securities may have rights, preferences or privileges senior to those
securities held by you.
Exercise of registration rights after this offering could adversely affect our
stock price.
If holders of registration rights exercise those rights after this offering,
a large number of securities could be registered and sold in the public market,
which could result in a decline in the price of our common stock. If we were to
include in a company-initiated registration shares held by these holders
pursuant to the exercise of their registration rights, our ability to raise
needed capital could suffer. After this offering, the holders of 17,476,825
shares of our common stock, which will represent a total of approximately 60.1%
of our outstanding stock after completion of this offering, are entitled to
rights with respect to registration under the Securities Act of 1933.
15
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements in "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business" and elsewhere. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks
outlined under "Risk Factors," that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels or activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.
16
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of 5,534,000 shares of common stock in this
offering at an estimated initial public offering price of $12.00 per share,
after deducting estimated underwriting discounts and commissions and estimated
offering expenses, will be approximately $59.8 million. If the underwriters'
over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $69.0 million.
In connection of our acquisition of Transcription Enterprises Limited, we
issued promissory notes in the aggregate principal amount of $40 million, $35
million of which is outstanding. Interest on the notes accrues at 8.0% per
annum. These notes are payable in 16 equal quarterly payments of $2.2 million,
plus interest, commencing on April 1, 2000. We expect to pay the balance of
principal and accrued interest under the notes with a portion of the net
proceeds from this offering. The remaining proceeds will be used for working
capital and general corporate purposes. We may use a portion of the net
proceeds to acquire businesses, products and technologies that are
complementary to our business. However, we have no present plans or
committments and are not engaged in any negotiations with respect to any
transactions of this type. Pending these uses, we will invest the net proceeds
from this offering in short-term, interest-bearing, investment grade
securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock or
other securities. We currently anticipate that we will retain all of our future
earnings for use in the expansion and operation of our business and do not
anticipate paying any cash dividends for the foreseeable future.
17
<PAGE>
CAPITALIZATION
The following table sets forth our total capitalization as of December 31,
1999:
. on an actual basis after giving effect to the three-for-two forward stock
split of our preferred stock and common stock;
. on a pro forma basis to reflect our acquisition of Transcription
Enterprises Limited effected in January 2000 and the automatic conversion
of all outstanding shares of preferred stock into common stock upon the
closing of this offering; and
. on a pro forma as adjusted basis to reflect the sale of the 5,534,000
shares of common stock at an assumed initial public offering price of
$12.00 per share in this offering, after deducting estimated underwriting
discounts and commissions and estimated offering expenses to be paid by
us and the repayment of the remaining $35.0 million of notes issued in
connection with the acquisition of Transcription Enterprises Limited.
You should read this information together with the consolidated financial
statements and the notes to these statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ------------ --------------
(in thousands, except per share data)
<S> <C> <C> <C>
Notes payable, including current
portion............................ $ -- $ 35,000 $ --
------------ ------------ ------------
Stockholders' equity:
Convertible preferred stock,
$0.0001 par value: 12,253 shares
authorized, 8,103 issued and
outstanding, actual; no shares
issued or outstanding, pro forma
and pro forma as adjusted........ 1 -- --
Common stock, $0.0001 par value:
30,000 shares authorized, actual,
pro forma and pro forma as
adjusted; 9,570 shares issued and
outstanding, actual; 21,483
shares issued and outstanding,
pro forma; 27,017 shares issued
and outstanding, pro forma as
adjusted......................... 1 2 3
Additional paid in capital......... 50,100 95,820 155,646
Receivable from stockholders....... (315) (315) (315)
Deferred stock compensation........ (21,220) (21,220) (21,220)
Accumulated deficit................ (16,162) (16,462) (16,462)
------------ ------------ ------------
Total stockholders' equity ....... 12,405 57,825 117,652
------------ ------------ ------------
Total capitalization............ $ 12,405 $ 92,825 $ 117,652
============ ============ ============
</TABLE>
18
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999, after giving
effect to our acquisition of Transcription Enterprises Limited effected in
January 2000 and the conversion of our outstanding preferred stock into common
stock, was $(27.6) million or $(1.29) per share of common stock. Pro forma net
tangible book value per share represents total tangible assets less total
liabilities, divided by the number of outstanding shares of common stock.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of our common stock in this
offering and the net tangible book value per share of our common stock
immediately afterwards. After giving effect to our sale of the 5,534,000 shares
of common stock offered by this prospectus and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us, our net tangible book value at December 31, 1999 would have been
$32.2 million or $1.19 per share. This represents an immediate increase in net
tangible book value to existing stockholders of $2.48 per share and an
immediate dilution to new public investors of $10.81 per share. The following
table illustrates the per share dilution:
<TABLE>
<S> <C> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share as of December
31, 1999................................................. $(1.29)
Increase per share attributable to new public investors... 2.48
------ ---
Pro forma net tangible book value per share after offering.. 1.19
------ ---
Dilution per share to new public investors.................. $10.81
======
</TABLE>
The following table sets forth on a pro forma basis as of December 31, 1999,
after giving effect to the conversion of our preferred stock and the
acquisition of Transcription Enterprises Limited, and assuming a three-for-two
forward stock split of all the outstanding common stock, the differences
between the number of shares of common stock purchased from us, the total price
paid, and the average price per share paid by the existing stockholders and new
public investors, deducting estimated underwriting discounts and commissions
and offering expenses to be paid by us, using an assumed initial public
offering price of $12.00 per share:
<TABLE>
<CAPTION>
Total Cash
Shares Purchased Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 21,483,450 79.5% $23,688,000 28.4% $ 1.10
New public investors....... 5,534,000 20.5 59,828,000 71.6 10.81
---------- ----- ----------- -----
Total.................... 27,017,450 100.0% $83,516,000 100.0%
========== ===== =========== =====
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors increase to 6,364,100, or 22.9%, of the total
shares of common stock outstanding after this offering.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data are qualified by reference to, and
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 and other information contained in this prospectus. The selected
balance sheet data as of December 31, 1998 and 1999 and selected statements of
operations data for the years ended December 31, 1997, 1998 and 1999 have been
derived from our audited financial statements and the notes thereto included
elsewhere in this prospectus. The selected balance sheet data as of December
31, 1996 and 1997 and the selected statement of operations data for the year
ended December 31, 1996 were derived from financial statements not included in
this prospectus.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1996 1997 1998 1999
------- ------ ------- -------
(in thousands, except per
share data)
<S> <C> <C> <C> <C>
Statement of Operations Data
Revenue.................................... $ 51 $ 620 $ 736 $ 5,492
------- ------ ------- -------
Costs and expenses:
Cost of revenue.......................... 9 57 127 307
Research and development................. 202 993 2,721 4,816
Sales and marketing...................... 2 58 1,404 4,277
General and administrative............... 43 131 2,355 1,303
Amortization of deferred stock
compensation(*)......................... -- -- 862 3,990
------- ------ ------- -------
Total costs and expenses............... 256 1,239 7,469 14,693
------- ------ ------- -------
Loss from operations....................... (205) (619) (6,733) (9,201)
Interest income, net....................... 6 35 182 373
------- ------ ------- -------
Net loss................................... $ (199) $ (584) $(6,551) $(8,828)
======= ====== ======= =======
Net loss per common share, basic and
diluted................................... $ (0.04) $(0.08) $ (0.89) $ (1.26)
======= ====== ======= =======
Weighted-average common shares, basic and
diluted................................... 4,722 7,397 7,373 7,019
======= ====== ======= =======
Pro forma net loss per common share, basic
and diluted (unaudited)................... $ (0.64)
=======
Pro forma weighted-average common share,
basic and diluted (unaudited)............. 13,885
=======
<CAPTION>
As of December 31,
---------------------------------
1996 1997 1998 1999
------- ------ ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data
Cash and cash equivalents.................. $ 615 $ 656 $ 4,973 $13,486
Working capital............................ 309 377 2,320 10,499
Total assets............................... 647 1,081 6,611 17,605
Total stockholders' equity................. 340 474 2,815 12,405
<CAPTION>
Years ended December 31,
---------------------------------
1996 1997 1998 1999
------- ------ ------- -------
(in thousands)
<S> <C> <C> <C> <C>
(*) Amortization of Deferred Stock
Compensation:
Cost of revenue.......................... -- -- $ 22 $ 117
Research and development................. -- -- 465 1,836
Sales and marketing...................... -- -- 361 1,444
General and administrative............... -- -- 14 593
------- ------ ------- -------
-- $ -- $ 862 $ 3,990
======= ====== ======= =======
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our actual results could differ materially from those discussed in the
forward-looking statements contained in this section. The following discussion
and analysis of our financial condition and results of operations should be
read in conjunction with "Selected Financial Data" and our financial statements
and notes thereto appearing elsewhere in this prospectus.
Overview
We design and develop proprietary technologies and software products that
enable the design and manufacture of semiconductors with subwavelength feature
sizes. From our incorporation in October 1995 through February 1997, we
primarily focused our activities on conducting research and development and
establishing markets and distribution channels for our proprietary technologies
and software products. In February 1997, we shipped our first software product,
IC Workbench.
In January 2000, we acquired Transcription Enterprises Limited for
approximately $45.7 million in Series E preferred stock and $40.0 million in
notes payable, resulting in goodwill and other intangible assets of $85.4
million which will be amortized on a straight-line basis over two to five
years. We will account for the acquisition under the purchase method of
accounting and, as a result, our historical results of operations do not
include the results of operations of Transcription.
Had the acquisition taken place on January 1, 1999, we would have had
combined revenues of $16.6 million in 1999 after giving effect to reduction of
pro forma combined revenues related to deferred revenues on Transcription
contracts. Our pro forma combined costs and expenses for the year ended
December 31, 1999 would have been $37.0 million, including $4.4 million of
costs and expenses from Transcription and amortization of intangible assets
associated with the acquisition of $18 million. Pro forma net interest expense
for the year would have been $2.8 million, and the pro forma net loss would
have been $20.7 million, or $(2.95) per share.
Because of the significance of the acquisition, we do not believe the
discussion and analysis of our historical financial condition and results of
operations set forth below are indicative, nor should they be relied upon as an
indicator, of our future performance.
We derive revenue from intellectual property and software licenses,
maintenance and related technical services. To date, we have derived a
significant portion of our revenue from research and development licenses to
integrated device manufacturers, or IDMs, and foundries of our phase shifting
technologies and software and OPC software licenses, as well as licenses of
photomask verification software to semiconductor resellers. An IDM is a
traditional semiconductor company that designs and manufactures its own ICs.
Our research and development licenses limit the use of our proprietary
technologies for pre-production purposes.
We expect to enter into production licenses with semiconductor manufacturers
as they adopt our proprietary technologies for production. Production licenses
grant licensees the right to use our phase shifting intellectual property and
software to design and manufacture subwavelength ICs. We entered into our first
production license with Motorola, an IDM, in March 2000. We expect production
licenses to account for a significant portion of our revenue in the future and
that fees for production licenses will be time-based, and structured on a per
fabrication facility or per device basis.
We license our intellectual property and software products through our
direct sales force and to resellers. To date, our direct sales force has
primarily focused on selling research and development licenses to semiconductor
manufacturers. We anticipate an increase in direct sales efforts related to
converting these manufacturers to production licensees. Our reseller licensees
are primarily leading semiconductor equipment manufacturers that integrate our
software products with their equipment.
21
<PAGE>
In October 1999 and March 2000, we entered into agreements with Cadence, a
major design tool vendor, that provide Cadence with limited exclusivity to
distribution rights of our OPC and phase shifting technologies, and under which
Cadence has agreed to integrate portions of our OPC and phase shifting software
products with its physical design and verification tools. Under the terms of
the agreements, we granted Cadence a non-exclusive license to our phase
shifting products for the purpose of performing the joint development work, and
to our phase shifting and OPC products for marketing, distributing and
sublicensing the products. Under the phase shifting agreement, we will jointly
develop phase shifting design products in accordance with the specifications
and milestones included in the agreement. Generally, the agreements can be
terminated for breach of performance obligations by either party. Under the OPC
agreement, in the event Cadence does not meet its production release milestones
on the dates of June 30, 2000 and July 31, 2000, as described in the agreement,
we will either continue to receive all fees under the agreement or have the
ability to enter into similar agreements with other companies. In addition,
under the OPC agreement, in the event of our material breach, Cadence has the
ability to reduce the amount of license fees paid to us. Under the phase
shifting agreement, in the event we breach certain of the exclusivity
provisions of the agreement, Cadence has the ability to reduce the amount of
license fees paid to us. Under the agreements, we will receive fees totaling
$26 million over the initial terms of three years. The term of each agreement
may be extended by Cadence for an additional two-year period for additional
fees totaling $24 million. As stated above, these amounts could decrease if we
materially breach or breach certain of the exclusivity provisions under the OPC
agreement or phase shifting agreement, respectively.
In January 1998, we entered into an agreement with KLA-Tencor under which we
granted licenses to our photomask inspection and measurements products, and
provided certain development services, training services, maintenance and
support. Through 1999, KLA-Tencor paid approximately $1.3 million under the
agreement, of which $720,000 represented royalty payments. KLA-Tencor will pay
additional amounts to the extent that additional units, if any, are ordered
under the contract. The contract has an initial term of two years after
acceptance of the product, which occurred in March 1999, and is automatically
renewed for one-year terms thereafter, unless either party provides written
notice of its intent to terminate 60 days prior to the expiration of the
existing term.
In October 1991, Transcription entered into an agreement with KLA
Instruments, the predecessor to KLA-Tencor, which granted KLA the exclusive
right to distribute certain mask data preparation software products. Under the
agreement, Transcription provides standard maintenance to customers for an
annual maintenance fee. In addition, KLA has the ability to provide support
services to customers for which it would charge Transcription an agreed upon
fee. In 1999, we recognized revenues of approximately $889,000 under this
agreement, of which approximately $427,000 represented royalties. Generally,
either party may terminate the agreement upon 90 days written notice.
In December 1997, we entered into a distribution agreement with Zygo under
which we granted Zygo a worldwide license to market, distribute and sublicense
our photomask inspection and measurement products. Through 1999, we recognized
revenues of approximately $1.3 million under the agreement, all of which are
constitute minimum commitment fees. Although we are entitled to royalty
payments under this agreement, we have not recieved any royalty payments to
date. Zygo will pay additional amounts to the extent that additional units, if
any, are ordered under the contract. The contract had an initial term of two
years and six months, but was amended to extend it to March 31, 2001. Zygo has
the right to renew the agreement for a period ending March 1, 2002 provided
that it has paid for at least 100 copies of our TVS product during the period
from March 1, 1999 to March 1, 2001.
Revenue from existing research and development licenses is recognized
ratably over a related service period. Maintenance revenue is typically priced
based on a percentage of the license fee and is recognized ratably over the
term of the agreement, typically 12 months. We typically recognize revenue from
technical services as the services are performed. For licenses to resellers and
licenses of our manufacturing data preparation software, where the license fee
is fixed or determinable and the collection of the fee is probable, revenue is
recognized upon delivery if no significant post delivery obligations remain. We
record billed
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amounts due from customers in excess of recognized revenue as deferred revenue.
The timing and amounts billed to customers can vary significantly depending on
specific contract terms and can therefore have a significant impact on the
amount of deferred revenue in any given period.
We have adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." This statement requires enterprises to report
information about operating segments in annual financial statements and
selected information about reportable segments in interim financial reports. It
also establishes standards for related disclosures about products, geographic
areas and major customers. The method for determining what information to
report is based upon the "management" approach. This method requires us to
report certain financial information related to continuing operations that is
provided to our chief operating decision-maker for the purpose of evaluating
financial performance and resource allocation. Our chief operating decision-
maker reviews revenue by both geography and customer. We allocate resources and
generate revenue based on requirements of our customers in the semiconductor
industry. We are not organized into business units nor do we capture expenses
or allocated resources based on segmentation of our business. Thus, we operate
in a single segment.
Since inception, we have incurred substantial costs to develop our
proprietary technologies and software products, to recruit and train personnel
for our engineering, sales and marketing and technical support departments, and
to establish an administrative organization. As a result, we have incurred net
losses in each year since inception and had an accumulated deficit of $16.2
million as of December 31, 1999. We anticipate that our operating expenses will
increase substantially in future years as we increase sales and marketing
operations, increase research and development, broaden technical support
services and expand international operations. In addition, we expect to incur
additional non-cash operating expenses relating to amortization of deferred
stock compensation and goodwill associated with our acquisition of
Transcription Enterprises Limited. Accordingly, we expect to incur additional
losses for the foreseeable future. In addition, our limited operating history
makes it difficult for us to predict future operating results and, accordingly,
there can be no assurance that we will achieve or sustain revenue growth or
profitability.
Results of Operations
Years 1998 and 1999
Revenue. Revenue increased from $736,000 in 1998 to $5.5 million in 1999.
The increase in 1999 was primarily due to increased research and development
licenses to foundries and IDMs and increased reseller sales.
Costs and Expenses
Cost of revenue. Cost of revenue includes primarily salary and related costs
for engineers associated with maintenance and technical services. Cost of
revenue increased from $127,000 in 1998 to $307,000 in 1999. This increase was
due primarily to an increase in the time spent on service and integration
efforts by our engineering personnel. Cost of revenue decreased as a percentage
of sales from 17.0% of revenue in 1998 to 6.0% of revenue in 1999. We
anticipate that cost of revenue will increase in dollar amount as we support
our expanding number of industry partners and customers and assist our research
and development licensees to transition into production. We expect, however,
that cost of revenue will continue to decrease as a percentage of revenue in
the long term.
Research and development. Research and development expenses consist
primarily of personnel and related costs. Research and development expenses
increased from $2.1 million in 1998, exclusive of a $600,000 bonus paid to one
of our founders and executive officers, to $4.8 million in 1999. The increase
in dollar amounts reflects our expanding research and development efforts in
subwavelength technologies and products. Research and development expenses
decreased as a percentage of revenue from 285.3% of revenue in 1998, exclusive
of the $600,000 bonus, to 87.3% of revenue in 1999. A significant portion of
the increase was due to the addition of personnel and personnel-related costs
for enhancement of existing applications and development of new products. We
anticipate that we will continue to commit substantial resources to research
and development in the future. We expect that research and development expenses
will increase in dollar amounts to support increased research and development
efforts, but decline as a percentage of revenue in the long term.
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Sales and marketing. Sales and marketing expenses consist primarily of
salaries and related costs for sales and marketing personnel, sales
commissions, tradeshows and other marketing activities. Sales and marketing
expenses increased from $1.4 million in 1998 to $4.3 million in 1999. This
increase was primarily due to the hiring of additional sales and marketing
personnel, increased sales commissions and higher tradeshow expenses. Sales and
marketing expenses decreased as percentage of revenue from 190.2% of revenue in
1998 to 77.8% of revenue in 1999. We expect that sales and marketing expenses
will increase in dollar amounts to support increased sales efforts, but decline
as a percentage of revenue in the long term.
General and administrative. General and administrative expenses consist
primarily of salaries and related costs for operations and finance employees
and legal and accounting services. General and administrative expenses
increased, exclusive of the $1.4 million bonus to a founder and officer in
1998, from $1.0 million in 1998 to $1.3 million in 1999. Exclusive of the
bonus, general and administrative expenses increased in 1999 primarily as a
result of increased spending in personnel and personnel-related costs. General
and administrative expenses decreased as a percentage of revenue from 129.8% of
revenue in 1998, exclusive of the $1.4 million bonus, to 23.6% of revenue in
1999. We expect that general and administrative will increase in dollar amounts
to support increased administrative efforts, but decline as a percentage of
revenue in the long term.
Amortization of deferred stock compensation. Amortization of deferred stock
compensation represents the amount of amortization related to the difference
between the exercise price of options granted and the estimated fair market
value of the underlying common stock on the date of the grant. We recognized
stock-based compensation of $2.8 million in 1998 and $23.3 million in 1999
related to the grant of stock options. We are amortizing these amounts over the
vesting periods of the individual options, using the multiple option method.
Amortization of deferred stock-based compensation totaled $862,000 and $4.0
million for 1998 and 1999, respectively. Outstanding options will continue to
vest over the next four years. Future compensation expense from options granted
through December 31, 1999 is estimated to be $11.2 million for 2000, $5.9
million for 2001, $3.0 million for 2002 and $1.1 million for 2003.
On February 1, 2000, we granted stock options to purchase an aggregate of
2,029,000 shares of common stock. In connection with the grant of these stock
options, we recognized deferred stock compensation totaling $17.0 million,
which will be amortized over the four year vesting period of the stock options.
Interest income. Interest income increased from $182,000 in 1998 to $373,000
in 1999 primarily due to higher average cash and short-term investment
balances.
Years 1997 and 1998
Revenue. Revenue increased from $620,000 in 1997 to $736,000 in 1998. This
increase was primarily attributable to increased reseller sales, as well as
maintenance and support on an increased number of customers.
Costs and Expenses
Cost of Revenue. Cost of revenue increased from $57,000 in 1997 to $127,000
in 1998. This increase was due primarily to increased service and integration
efforts by our engineering personnel.
Research and development. Research and development expenses increased from
$1.0 million in 1997 to $2.7 million in 1998. This increase was due to the
addition of personnel and higher personnel-related costs to enhance and expand
our product offerings and a $600,000 bonus paid to a founder and officer.
Sales and marketing. Sales and marketing expenses increased from $58,000 in
1997 to $1.4 million in 1998. This increase was primarily due to the addition
of personnel and higher personnel-related costs resulting from the continued
growth of our sales and marketing organizations, as well as costs associated
with the sales and marketing of our products.
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General and administrative. General and administrative expenses increased
from $131,000 in 1997 to $2.4 million in 1998. General and administrative
expenses increased in 1998 partly as a result of increased spending in legal,
accounting and human resources professional services. General and
administrative expenses also included a bonus of $1.4 million to one of our
founders and executive officers in 1998.
Interest income. Interest income increased from $35,000 in 1997 to $182,000
in 1998 primarily due to higher average cash and short-term investment
balances.
Net Operating Losses and Tax Credit Carryforwards
As of December 31, 1999, we had federal net operating losses and research
and development credit carryforwards of approximately $6.9 million and
$217,000, respectively. The net operating loss and research and development
credit carryforwards will expire at various dates, beginning in 2010, if not
utilized. Under the provisions of the Internal Revenue Code of 1986, as
amended, substantial changes in our ownership may limit the amount of net
operating loss carryforwards that can be utilized annually in the future to
offset taxable income. A valuation allowance has been established to fully
reserve the potential benefits of these carryforwards in our financial
statements to reflect the uncertainty of future taxable income required to
utilize available tax loss carryforwards and other deferred tax assets.
Liquidity and Capital Resources
Since inception, we have funded our operations primarily through the private
sale of our equity securities in aggregate net proceeds of approximately $24.5
million. As of December 31, 1999 we had $10.5 million in working capital and
$13.5 million in cash and cash equivalents. We anticipate using available cash
to fund growth in operations, invest in capital equipment, acquire businesses,
and license technologies or software products related to our line of business.
Net cash used in operating activities was $3.3 million in 1998, compared to
$4.4 million in 1999. Net cash used in operating activities in 1999 primarily
reflects a net loss of $8.8 million, partly offset by amortization of deferred
stock compensation costs of $4.0 million.
Net cash provided by financing activities was approximately $719,000 in
1997, $8.0 million in 1998 and $14.4 million in 1999. Net cash provided by
financing activities includes proceeds from the issuance of preferred and
common stock and stock warrants.
Capital expenditures were approximately $82,000 in 1997, $455,000 in 1998
and $1.5 million in 1999. Our capital expenditures consisted of purchases of
computer hardware and software, office furniture and equipment and leasehold
improvements. Purchases of computer equipment represent the largest component
of our capital expenditures. We expect to invest approximately $2.0 million in
2000 mainly for computer equipment, facilities and business systems upgrades.
On January 1, 2000, we acquired Transcription Enterprises Limited. In
connection with the acquisition, we issued $40.0 million in promissory notes.
Shortly after issuance of the notes, we repaid $5.0 million of the principal,
leaving a balance of $35.0 million outstanding under the notes. The remaining
principal amount, plus interest at 8% per annum, is payable in 16 equal
quarterly payments of $2.2 million, plus interest commencing on April 1, 2000.
We expect to repay these notes in full with the net proceeds of this offering.
We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business strategy. As a result, we
anticipate that such operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. In
addition, we may utilize cash resources to fund acquisitions of, or investments
in, complementary businesses, technologies or product lines. We believe that
the net proceeds from the sale of the common stock in this offering, together
with funds generated from operations,
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will be sufficient to meet our working capital requirements for at least the
next 12 months. Thereafter, we may find it necessary to obtain additional
equity or debt financing. In the event additional financing is required, we may
not be able to raise it on acceptable terms or at all.
Recent Accounting Pronouncements
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities", which establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts, collectively referred to as derivatives, and for hedging activities.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. This statement does not apply to us as we currently do not
have any derivative instruments or hedging activities.
Disclosures About Market Risk
Our exposure to market risk is limited to interest income sensitivity, which
is affected by changes in the general level of U.S. interest rates,
particularly since the majority of our investments are in short-term debt
securities issued by corporations. We place our investments with high quality
issuers and limit the amount of credit exposure to any one issuer. Due to the
nature of our short-term investments, we believe that we are not subject to any
material market risk exposure.
Year 2000 Compliance
As of March 2, 2000, we had not experienced, nor do we expect to experience,
any Year 2000-related disruption in the operation of our systems. To our
knowledge, none of our material suppliers or vendors experienced any material
Year 2000 problems or had any difficulty resolving the so-called "century leap
year" algorithm. Although most Year 2000 problems should have become evident on
January 1, 2000 or February 29, 2000, additional Year 2000-related problems may
become evident in the future.
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BUSINESS
Overview
We are a leading commercial provider of proprietary technologies and
software products that enable the design and manufacture of subwavelength
semiconductors using existing design tools and semiconductor equipment. We
believe we accelerate the semiconductor technology roadmap by at least two
years, enabling the production of semiconductors with feature sizes of 0.09
micron. Our comprehensive solution addresses each key stage of the design-to-
silicon flow, including physical design of semiconductors; verification that
the design is optimal; manufacturing data preparation, manufacturing and
inspection of photomasks, or templates; and the manipulation of light waves to
create images of IC patterns, or photolithography. By offering a subwavelength
solution that is used in every key stage of the semiconductor design and
manufacturing process, we help to integrate the entire design-to-silicon flow
for subwavelength ICs.
Our patented phase shifting, proprietary OPC and process modeling
technologies form the foundation of our subwavelength solution. By enabling our
industry partners and customers to produce smaller, faster and more power
efficient semiconductors with existing semiconductor equipment, our
subwavelength solution allows our industry partners and customers to introduce
new high performance semiconductors more quickly, while significantly
increasing their return on invested capital. Motorola and one of our industry
partners demonstrated success with our proprietary technologies, and MIT
Lincoln Laboratory, a research laboratory, demonstrated the future potential of
our proprietary technologies by creating 0.05 micron features. We believe our
technology leadership and our relationships with leading companies within the
semiconductor industry drive the adoption of our comprehensive subwavelength
solution as the industry standard. Our industry partners and customers include
Applied Materials, KLA-Tencor, DuPont Photomask, Phototronics, Cadence, TSMC
and UMC.
Industry Background
Businesses and individuals increasingly rely on electronic products and
systems powered by semiconductors. These products and systems include desktop
and portable personal computers, mobile phones, Internet appliances, video game
consoles, and high-speed networking and communications products that serve as
the backbone of the Internet. The semiconductor industry could not enhance
these electronic products or continue to introduce new, more sophisticated
products without these advances. Growing recognition of the benefits of
advances in electronics, including enhanced productivity and communications
capability, drives demand for higher performance, lower cost, smaller and more
power efficient products with greater functionality. To meet this demand,
manufacturers of electronic products and systems require an increasing supply
of faster, cheaper and more power efficient semiconductors. The Semiconductor
Industry Association estimated, in its October 1999 report, that the worldwide
market for semiconductors will grow from $144 billion in 1999 to $233 billion
in 2002, or 61.8%. Delivering these advanced semiconductors will require rapid
advances in IC design and manufacturing technologies.
The Historical March to Smaller Feature Sizes and Systems-on-a-Chip
The ability to produce advanced ICs depends on developing technology that
enables the design and manufacture of semiconductors with smaller feature
sizes. A semiconductor's "feature size" relates to the size of circuit
components in the device and is measured in microns, or millionths of a meter.
Advanced semiconductors today have feature sizes of 0.18 to 0.25 micron. To
illustrate how small these features are, when placed side by side, one thousand
0.10 micron transistors can fit within the width of a single human hair.
Smaller feature sizes significantly increase performance while decreasing the
size, cost and power consumption of semiconductors. Smaller feature sizes also
allow multiple components, such as microprocessors, memory, analog components
and digital signal processors, to be integrated into a single semiconductor.
The resulting complex semiconductor, commonly referred to as system-on-a-chip,
offers significant performance, cost, power and reliability benefits over
systems that require multiple semiconductors to perform the same tasks.
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Advances in semiconductor design and manufacturing technologies enabled
reductions in feature sizes from 3.0 micron in 1980 to 0.18 micron in today's
advanced production fabrication facilities. These advances led to significant
improvements in electronic systems and products. For example, today's cellular
phones compared to those of a few years ago have a battery life of days instead
of hours, weigh ounces instead of pounds and can be produced at a fraction of
the price. In addition, today's cellular phones have many times the computing
power of the most advanced personal computer in 1980.
To date, the semiconductor industry relied upon advances in semiconductor
equipment to produce smaller feature sizes on semiconductors. However, to fully
realize the benefits of smaller feature sizes, significant advances have also
been required in each of the following stages of the semiconductor design-to-
silicon flow:
. Semiconductor Design Tools. A variety of complex software programs used
to design, simulate and verify semiconductor designs.
. Photomasks. Transparent templates used to transfer images of electronic
circuits onto silicon wafers.
. Semiconductor Equipment. Sophisticated equipment used to manufacture
semiconductors.
. Semiconductor Manufacturing. Complex processes required to create
semiconductors on silicon.
Historically, leading semiconductor companies designed, manufactured and
tested their semiconductors in their own facilities using internally developed
tools. The growing complexity of the design and manufacturing processes and the
escalating cost of manufacturing facilities resulted in a disaggregation of the
semiconductor industry into companies separately focusing on each individual
stage of the design-to-silicon flow. This disaggregation is fueling the rapid
growth of "fabless" semiconductor companies, which do not own or operate their
own semiconductor fabrication facilities, design tool vendors, semiconductor
equipment manufacturers and third-party semiconductor manufacturers, or
foundries. Each of these industry markets faces significant challenges as
feature sizes continue to decrease.
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The Subwavelength Challenge
Semiconductor manufacturing equipment transmits light at a specific
wavelength through a photomask to create images of IC patterns on a
semiconductor. This process is referred to as photolithography or optical
lithography. At feature sizes below 0.25 micron, the semiconductor industry
reached a critical technology transition. At and above 0.25 micron, the
wavelength of light used is smaller than the IC features. However, at 0.18
micron and below, the wavelength of light used in production semiconductor
manufacturing equipment is significantly larger than the IC features, resulting
in image quality that degrades rapidly. This is like trying to paint a one-inch
line with a four-inch paint brush. This growing disparity between feature sizes
and wavelength of light is referred to as the "subwavelength gap." As a result,
manufacturers in the industry cannot produce semiconductors with feature sizes
of 0.18 micron and smaller with acceptable yield levels using traditional
technologies. Furthermore, as the demand for reduced feature sizes continues to
outpace the reduction in wavelengths used by available equipment, this
subwavelength gap will widen.
[GRAPH APPEARS HERE]
In its 1999 International Technology Roadmap, the Semiconductor Industry
Association predicted that the semiconductor industry would introduce
microprocessors with 0.10 micron feature sizes for semiconductors by the end of
2001 and 0.10 micron DRAM by the end of 2005. Advances in manufacturing
equipment technology alone can no longer enable the progression to smaller
feature sizes and we do not expect alternative non-optical manufacturing
processes to be commercially viable for many years. As a result, the
semiconductor industry must develop and integrate new subwavelength solutions
into all aspects of the design-to-silicon flow.
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Our Solution
We are a leading commercial provider of proprietary technologies and
software products that enable the design and manufacture of subwavelength
semiconductors using existing design tools and semiconductor equipment. We have
accelerated the semiconductor technology roadmap by at least two years,
enabling the production of semiconductors with feature sizes of 0.09 micron.
Our comprehensive solution addresses each key stage of the design-to-silicon
flow, including physical design, design verification, manufacturing data
preparation, photomask manufacturing inspection and photolithography. By
offering a subwavelength solution that is used in every stage of the
semiconductor design and manufacturing process, we integrate the entire design-
to-silicon flow for subwavelength ICs.
[FLOW CHART APPEARS HERE]
Our patented phase shifting and proprietary OPC and process modeling
technologies serve as the foundation for our subwavelength solution. Our
subwavelength solution leverages our expertise in semiconductor and photomask
manufacturing processes, semiconductor equipment, IC design, software
development and subwavelength technologies.
Our proprietary technologies and software products are designed to offer the
following key benefits:
Proven Path to Smaller, Faster, Cheaper and Power Efficient Devices. Our
industry partners and customers demonstrate the success of our proprietary
technologies and software products. For example, Motorola used our phase
shifting technology and software to enable its 0.18 micron wafer fabrication
facilities to produce 0.10 micron features. Similarly, in November 1999, one of
our industry partners announced that it developed the world's fastest digital
signal processor operating at one volt. To create this high-performance digital
signal processor, the partner reduced the feature sizes from 0.25 micron to
0.12 micron using our phase shifting technology software. Further, in February
2000, MIT Lincoln Laboratory, a research laboratory, demonstrated the future
potential of our technologies and products by successfully creating 0.05 micron
features. MIT used our phase shifting technology software and 0.25 micron
semiconductor manufacturing equipment.
Accelerate Time to Market. In today's economy, semiconductor manufacturers
can achieve a significant market advantage by being the first to introduce more
advanced semiconductors. Introducing next generation
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semiconductors has historically required the semiconductor industry to install
new equipment or to construct new manufacturing facilities, which may take up
to three years to complete. Our phase shifting technology and software products
enable companies to use existing equipment to produce smaller, faster and more
power efficient semiconductors, thereby enabling them to introduce new products
more rapidly.
Increase Return on Capital Equipment Investment. We design our proprietary
technologies and software products to enable existing semiconductor
manufacturing equipment to produce subwavelength ICs. Using our technologies
and products, semiconductor manufacturers will not be required to spend
billions of dollars to produce ICs with smaller and smaller feature sizes. As a
result, these semiconductor manufacturers can significantly increase their
return on invested capital. Furthermore, we believe that the use of our
proprietary technologies and software products results in higher manufacturing
yields.
Integrate the Key Stages of the Design-to-Silicon Flow. We design our
proprietary technologies and software products on a common platform and
architecture and are implemented in key stages of the design-to-silicon flow.
Our software products utilize a common process modeling and simulation
technique that allows the tools and equipment used in subsequent stages to
understand and process the results generated by each of the prior stages. For
example, the separate tools and equipment used to design, verify and
manufacture semiconductors can coordinate with each other to ensure an accurate
design-to-silicon flow. This coordination is particularly critical in the
semiconductor industry, which disaggregated into different companies that
specialize in separate key stages of the design-to-silicon flow. We believe
this is necessary to the successful production of subwavelength semiconductors.
Our Strategy
Our objective is to establish our proprietary technologies and software
products as the industry standard for the design and manufacture of
subwavelength semiconductors. Key elements of our strategy include:
Drive Continued Adoption of Our Subwavelengh Solution. We seek to
proliferate our proprietary technologies and software products as the solution
to the subwavelength gap problem. As part of this strategy, we intend to
continue to expand our relationships with leading integrated device
manufacturers, or IDMs, such as Lucent and Motorola, and leading foundries such
as TSMC and UMC. Due to the increasing proportion of semiconductors
manufactured at foundries, we intend to increasingly focus our efforts on
establishing our patented phase shifting technologies as the standard at TSMC,
UMC and other foundries to further drive the adoption of our subwavelength
solution by each of the other participants in the design-to-silicon flow.
Expand Relationships with Our Industry Partners. We intend to strengthen and
expand our industry partner relationships with the leading companies within
each stage of the design-to-silicon flow. To date, we have developed
relationships with semiconductor design tool vendors such as Cadence, photomask
manufacturers such as Dupont Photomask and Photronics, and semiconductor
equipment manufacturers such as Applied Materials and KLA-Tencor. We believe
that these broad-based industry relationships will help to proliferate our
proprietary technologies and software products as the industry standard.
Leverage Our Comprehensive Platform. We intend to leverage the common
platform of our proprietary technologies and software products to aggressively
market our products to each key market in the semiconductor industry. This
common platform enables data and information regarding subwavelength designs to
be shared by participants in each key stage of the design-to-silicon flow.
Because our proprietary technologies and software products ensure the accurate
and consistent communication of subwavelength design and process data, each
participant in the design-to-silicon flow benefits from their use.
Leverage Our Dominant Market Position in Manufacturing Data Preparation
Products. The vast majority of semiconductor, photomask and semiconductor
equipment manufacturers and foundries use our manufacturing data preparation
software as the essential link between the design and production stages of the
design-to-silicon flow. We intend to build on this dominant market position in
manufacturing data preparation to market our subwavelength proprietary
technologies and software products to these customers.
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Extend Technology Leadership Position. We believe we were among the first to
recognize that the subwavelength gap would represent a significant challenge to
continued advances in semiconductor technology. To capitalize on this business
opportunity, we engaged in significant research and development activities over
the past four years, pioneering proprietary and manufacturable phase shifting
technologies that we believe are the key to bridging the subwavelength gap. We
assembled a strong team of subwavelength experts, more than half of which have
graduate technical degrees, and we intend to continue expanding our research
and development efforts to further enhance our proprietary technologies.
Maintain Time-Based Software and Intellectual Property Licensing Models. Our
business model allows us to build on the sales and marketing efforts of our
industry partners, which resell, market and promote our technologies and
products. We seek to generate the majority of our future revenue through time-
based license fees, intellectual property licensing agreements and other
innovative, ongoing agreements with IDMs, foundries and reseller licensees.
Technology
As feature sizes decreased to dimensions smaller than the wavelength of
light used in optical lithography equipment, phase shifting and OPC
technologies became critical to the continued growth of the semiconductor
industry. Widespread deployment of subwavelength technologies requires the
industry to create an efficient and integrated IC design and manufacturing
process and introduce new technologies into several stages of the design-to-
silicon flow. Our proprietary technologies and software products allow IC
designers, as well as manufacturers of photomasks, semiconductor equipment and
semiconductor devices, to successfully deploy phase shifting and OPC
technologies. We believe we are the only company exclusively focused on
delivering a comprehensive solution that enables the design and manufacture of
subwavelength ICs.
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Phase Shifting
The foundation of our subwavelength process technologies lies in our phase
shifting technology, which manipulates light waves to produce high-resolution
images of subwavelength IC features. Our phase shifting technology sequences
positive and negative light wave patterns to prevent interfering waves from
causing the image on silicon to blur or disappear entirely. This enables
designers and manufacturers to create IC features that are less than half the
size of those that can be produced using conventional optical lithography
techniques. Our phase shifting technology also dramatically reduces sensitivity
to variations in the manufacturing process such as focus deviations and lens
imperfections, significantly improving manufacturing yields. We developed the
industry's first production-worthy, commercial phase shifting technology by
combining the multidisciplinary expertise of our scientists and engineers and
investing significantly in joint research and development activities with
leading photomask and semiconductor manufacturers.
[CHART APPEARS HERE]
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Optical Proximity Correction
Our OPC technologies embed corrective features in the IC design and
photomask to reduce image distortions caused by interfering light waves. We
developed these technologies in close collaboration with photomask and
semiconductor manufacturers to improve photomask manufacturability without
sacrificing performance. Our OPC technologies focus on correcting distortions
in semiconductor features that would most affect the semiconductor's
performance. OPC makes it possible to obtain an IC pattern that more closely
resembles the original desired design. However, as feature sizes continue to
decrease, OPC is no longer sufficient to ensure acceptable manufacturing
yields. At these smaller feature sizes, semiconductor manufacturers will employ
both OPC and phase shifting process technologies.
[4 CHARTS APPEAR HERE]
Process Modeling and Simulation
Historically, the designed layout of a semiconductor, its representation on
the photomask and the corresponding features on the semiconductor were
essentially identical. At subwavelength feature sizes, this relationship no
longer exists. As a result of distortions created during the manufacturing
process and the application of phase shifting and OPC, the design of a
semiconductor, its representation on the photomask and the pattern transferred
to the semiconductor all look different. We developed proprietary process
modeling and simulation technologies that recharacterize the relationship
between device design, photomask pattern and semiconductor features. This
recharacterized relationship allows designers and manufacturers to accurately
translate designs and photomasks to final semiconductors. Semiconductor
manufacturers can calibrate our process models to accurately characterize their
specific processes and use them in our software products throughout the design-
to-silicon flow. Manufacturers can use a common process model throughout the
design-to-silicon flow to facilitate consistency in the communication of
process and design data.
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Implementation Technologies
We developed several technologies necessary to implement the mainstream
design and manufacturing use of phase shifting and OPC technologies. These
include:
. design automation algorithms for phase shifting and OPC;
. hierarchical design data management technologies;
. subwavelength design verification technologies;
. photomask defect analysis technologies;
. high-performance process simulation algorithms and process model
calibration technologies; and
. algorithms for manufacturing data preparation.
Products
We offer technology products, software products and services that together
provide a comprehensive subwavelength design-to-silicon solution.
Technology Products
Phase Shift Technology. Our phase shifting technology licenses allow the
licensee to produce subwavelength semiconductor devices using our proprietary
technology. We offer limited use research and development licenses that allow
the licensee to use our proprietary technology for pre-production purposes. We
also offer production licenses of our phase shifting technology that are time
based, or are licensed per fabrication facility or per device produced.
Subwavelength Process Development. We offer a comprehensive implementation
package that includes a development plan, calibration and test photomasks and
on-site customer assistance to develop advanced subwavelength manufacturing
processes using our phase shifting and OPC technologies and software products.
Our engineers and scientists work on-site at our customers' fabrication
facilities to develop these processes and generate design rules, calibrated
models and associated design-to-silicon flows.
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<PAGE>
Software Products
We offer a comprehensive suite of complex, tightly integrated software
products that all of the key markets within the semiconductor industry can use.
These markets use our software products independently or integrate them with IC
design tools, and photomask and semiconductor manufacturing equipment. Our
products address the needs of subwavelength design and manufacture in four key
sectors of the design-to-silicon flow:
<TABLE>
<CAPTION>
Sector Products Applications
<S> <C> <C>
Physical Design and iNPhase . Ensure compatability of semiconductor
Post-
Layout Data Processing TROPiC designs with subwavelength processes
iMagic . Create phase shifted and OPC device
SiVL design layout
. Verify silicon performance of designs
- ---------------------------------------------------------------------------------------
Manufacturing Data CATS . Process design data required to
Preparation and iNMask fabricate and inspect photomasks
Photomask Manufacturing iNMask-MRC . Verify input data, manufacturing data
processing and photomask layout
. Convert photomask design data to
formats required by specific photomask
manufacturing equipment
. Verify photomask and wafer
manufacturability
- ---------------------------------------------------------------------------------------
Photomask Inspection Virtual Stepper . Characterize located photomask defects
and Measurement iNSpect . Transcribe and transfer design data to
photomask and wafer inspection and
measurement equipment
- ---------------------------------------------------------------------------------------
IC Fabrication and IC Workbench . Optimize fabrication process
Process parameters
Development ModelCal . Generate calibrated process models and
RuleGen design rules for phase shift and OPC
CheckIt processes and our products
. Verify silicon performance of designs
</TABLE>
Each of these products is described below.
Physical Design and Post-Layout Data Processing Products
iNPhase. Our iNPhase product automates and integrates the design,
verification and OPC functions of our phase shifting technology. iNPhase also
verifies that the semiconductor design is free of "phase conflicts," or design
configurations that could result in manufacturing failures.
TROPiC. This integrated product automatically corrects designs for process-
induced distortions of subwavelength features. TROPiC implements our OPC
technologies that control photomask complexity to lower photomask cost without
sacrificing semiconductor performance.
iMagic. Our process simulation software product uses process models that are
calibrated to individual semiconductor manufacturers' processes. iMagic is used
by designers to simulate the final IC features that correspond to their
designs.
SiVL. Our silicon-versus-layout product utilizes our proprietary process
simulation technologies to verify that conventional, phase shifting and OPC
designs produce printed IC patterns within specified tolerances. By
36
<PAGE>
accurately predicting "silicon level" failures, SiVL reduces or eliminates the
need to repeat the design and manufacturing process. SiVL integrates with tools
used to verify that the IC patterns are within specified tolerances.
Manufacturing Data Preparation and Photomask Manufacturing Products
CATS. This family of products includes products that automatically create
different photomask layers by sizing and combining design layers. Our CATS
products allow users to view the input and output data of the manufacturing
data preparation process and verify photomask design accuracy using a
combination of graphical algorithmic and query analyses.
iNMask. Our iNMask formatting product automatically transcribes photomask
layout data into input data formats optimized for specific photomask
manufacturing equipment. iNMask supports leading photomask equipment
manufacturers, including Etec, Hitachi and Leica.
iNMask-MRC. This product verifies that the photomask data files produce
manufacturable photomasks and wafers. The data is checked for variations from
manufacturing requirements, including minimum widths, spacing and layer to
layer errors.
Photomask Inspection and Metrology Products
Virtual Stepper. This product allows photomask manufacturers to accurately
assess the impact of photomask defects on the silicon wafer. Photomask
manufacturers using Virtual Stepper can quickly determine photomask quality,
improving their productivity and yield. The Virtual Stepper takes direct input
from defect inspection and review equipment manufactured by leading equipment
companies including Applied Materials, KLA-Tencor and Zygo.
iNSpect. Our iNSpect product automatically transcribes photomask layout data
into input data formats optimized for specific photomask and wafer inspection
equipment. iNSpect also identifies measurement locations for photomask and
wafer measurement equipment. This product supports leading equipment
manufacturers, including Applied Materials, KLA-Tencor, Leica and Zygo.
Semiconductor Fabrication and Process Development
IC Workbench. IC Workbench is an interactive process simulation, analysis
and optimization tool. This product includes a powerful graphical user
interface, design data viewer and editor with real-time simulation feedback.
This allows users to rapidly evaluate the impact of design and process
parameters on the final silicon results while optimizing subwavelength
processes.
ModelCal. This product enables users to automatically calibrate process
models using empirical measurement data from specific semiconductor
manufacturers' processes. ModelCal implements our proprietary model calibration
technology to produce extremely accurate process models using our calibration
photomask designs for both phase shifting and OPC applications.
RuleGen. This product automatically generates design rules and parameters
for phase shifting and OPC processes using our calibrated process models. The
output of RuleGen is fully compatible with the input requirements of InPhase
and TROPiC.
CheckIt. This product performs accurate, exhaustive, silicon-level
verification for phase shifting and OPC designs prior to IC production. CheckIt
accurately predicts potential failures in the manufacture of semi-conductors
and marginal locations on phase shifting and OPC designs.
37
<PAGE>
Services
Design Services. We assist our industry partners and customers with
semiconductor designs that use our phase shifting and OPC technologies. Our
design services include creating phase shifted designs, applying OPC technology
to designs and verifying the final design layout. Our design services help
industry partners and customers rapidly adopt our technologies.
Technology Integration Services. We offer technology integration services to
allow our industry partners to integrate our software products with their
products for marketing to their customers. We develop software interfaces to
semiconductor design tools and equipment to enable the necessary data
communication to integrate the operation of the combined products.
Customers and Industry Partners
We license our proprietary technologies and software products to companies
in key markets within the semiconductor industry. Our customers include
licensees of our phase shifting technology and software, manufacturing data
preparation software and silicon verification and photomask verification
software. Our industry partners integrate our technologies and software into
their products and act as resellers. The following customers and/or industry
partners accounted for license, maintenance and technical service revenues of
more than $100,000 in 1999:
<TABLE>
<S> <C>
IDMs and Foundries Design Tool Vendors
CNet Cadence Design Systems
Conexant
Fujitsu Semiconductor Equipment
IBM Manufacturers
LG International Applied Materials
Lucent KLA-Tencor
Matsushita Ultrabeam
Motorola Zygo
National Semiconductor
NEC Mask Manufacturers
OKI Align Rite
Samsung Compugraphics
Siemens Dai Nippon Printing
ST Microelectronics DuPont Photomask
Texas Instruments Hoya
Tokyo University Photronics
Toshiba Precision Semiconductor
TSMC Mask Corporation
UMC Taiwan Mask Corporation
VLSI Technology Toppan
World Semiconductor
Manufacturing Company
</TABLE>
All of the companies listed above are our customers. In addition, Lucent,
Motorola, Toshiba, TSMC, UMC, Cadence, Applied Materials, KLA-Tencor, Zygo,
DuPont Photomask, Photronics and Taiwan Mask Corporation are our industry
partners.
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<PAGE>
Sales and Marketing
We rely on our direct sales force and on our industry partner relationships
to penetrate each key market of the semiconductor industry. Domestically, our
direct sales force operates primarily out of our headquarters in California. We
also employ sales personnel in Minnesota and Texas. In addition, we maintain
sales personnel and support staff who work closely with resellers and partners
in Korea, Japan, The Netherlands and Taiwan. We intend to continue to expand
our sales and support personnel both domestically and internationally. As of
January 1, 2000, we had 28 employees involved in sales and marketing.
Our marketing personnel focus on developing our relationships with industry
partners. Our industry partners include leading semiconductor equipment
manufacturers, such as Applied Materials and KLA-Tencor, and design tool
companies, such as Cadence. We also entered into joint-marketing relationships
with leading photomask manufacturers, such Dupont Photomask and Photronics. Our
direct sales efforts have focused primarily on licensing to foundries and IDMs.
To date, we have concentrated our sales and marketing efforts on selling
research and development licenses. We expect to extend these efforts to
generate production licenses as semiconductor manufacturers move into
production of subwavelength ICs. We have already entered into a production
license with a leading IDM. We believe that our broad-based sales and marketing
efforts will facilitate the adoption of our subwavelength technologies as the
industry standard.
Research and Development
Our future success will depend to a large extent on our ability to rapidly
develop and introduce new proprietary technologies and software products and
enhancements to our existing products. We have made and expect to continue to
make substantial investments in research and development. The complexity of
phase shifting and OPC technologies requires expertise in physical IC design
and layout, photomask manufacturing, optical lithography, numerical algorithms
and software development. We believe that the multidisciplinary expertise of
our team of scientists and engineers will continue to advance our market and
technological leadership.
As of January 1, 2000, our engineering group consisted of 51 employees, 67%
of whom have advanced degrees, including 35% who have Ph.D.s. These employees
are focused on the following objectives:
Product Development. Our product development group is organized in teams
around the different products we offer. A separate team within this group
develops our common core technology and ensures that each product fits into
this common architecture.
Advanced Research. Our advanced research group works independently from our
product development group to assess and develop new technologies that meet the
evolving needs of subwavelength design and manufacturing.
Product Engineering. Our product engineering group is primarily focused on
product release, platform support, quality assurance and product documentation.
Competition
The semiconductor industry is highly competitive and characterized by
rapidly changing design and process technologies. The market for phase shifting
and OPC solutions is rapidly evolving and we expect competition to continue to
increase. We face direct competition from other providers of phase shifting,
OPC and manufacturing data preparation solutions, including Avant! and Mentor
Graphics. We also compete with companies that have developed or have the
ability to develop their own proprietary phase shifting and OPC enabling
solutions, such as IBM. Many of these companies are larger than we are, have
greater financial or other resources than we do and therefore can withstand
adverse market or economic conditions more readily than we can. We may also
face competition from alternatives to current photolithography systems. In
addition, commercially viable manufacturing processes that provide alternatives
to our subwavelength solution may be developed in the future by existing or
potential competitors. We believe that the principal competitive factors in
39
<PAGE>
our market include technology viability, product availability, performance,
reliability, functionality, cost and customer service. We believe we compete
favorably with respect to each of these factors.
Intellectual Property
Our future success and competitive position depend upon our continued
ability to develop and protect proprietary technologies. We rely significantly
on a combination of patents, copyrights, trademarks and trade secrets to
protect our proprietary technologies and prevent competitors from using our
technologies in their products. We have been issued two U.S. patents and have
five U.S. patent applications currently pending in the U.S. and nine foreign
patent applications currently pending in selected foreign countries. In the
future, we may seek additional patent protection when we feel it is necessary.
Our existing or future patents may be circumvented, blocked, licensed to
others or challenged as to inventorship, ownership, scope, validity or
enforceability. Third parties have advised us of literature which they believe
to be relevant to our patents. We have not yet reviewed all of the information
contained in this literature. It is possible that this literature or literature
we may be advised of in the future could negatively affect in the future the
scope or enforceability of either our present or future patents. We may not
receive competitive advantages from the rights granted under our patents. In
addition, our future patent applications may not be issued with the scope of
the claims sought by us, if at all. Furthermore, others may develop
technologies that are similar or superior to our proprietary technologies,
duplicate our proprietary technologies or design around the patents owned or
licensed by us. We are aware of and are evaluating certain patents with which
our products, patents or patent applications may conflict. If any of these
patents are found to be valid, and we are unable to license such patents on
reasonable terms, or if our products, patents or patent applications are found
to conflict with these patents, we could be prevented from selling our
products, our patents may be declared invalid or our patents applications may
not result in issued patents. In addition, in foreign countries, we may not
receive effective patent and trademark protection. We cannot be sure that steps
we take to protect our proprietary technologies will prevent misappropriation
of our technologies.
In addition, we generally enter into confidentiality agreements with our
employees, industry partners and customers, as well as generally control access
to and distribution of our documentation and other proprietary information.
Despite this protection, unauthorized parties may copy aspects of our current
or future software products or obtain and use information that we regard as
proprietary.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions. There are also numerous
patents in the semiconductor industry and new patents are being issued at a
rapid rate. This often results in significant and often protracted and
expensive litigation. From time to time third parties may notify us of
intellectual property infringement claims. If it is necessary or desirable, we
may seek licenses under these third party patents or intellectual property
rights. However, we cannot be sure that third parties will offer licenses to us
or that we accept the terms of any offered licenses.
If we fail to obtain a license from a third party for proprietary
technologies that we use, we could incur substantial liabilities, or suspend
sales of our software products or our use of processes requiring the
technologies. Litigation could cause us to incur significant expenses, harm our
sales of the challenged technologies or software products and divert the
efforts of our technical and management personnel, whether or not a court
decides the litigation is in our favor. In the event we receive an adverse
result in any litigation, we could be required to pay substantial damages,
cease sale of infringing products, expend significant resources to develop or
acquire non-infringing technology and discontinue the use of processes
requiring the infringing technology or obtain licenses to the infringing
technology. We may not be successful in the development or acquisition of
intellectual property, or the necessary licenses may not be available under
reasonable terms, and any development, acquisition or license could require us
to expend a substantial amount of time and other resources. Any of these
developments would harm our business.
40
<PAGE>
Employees
As of January 1, 2000, we employed 98 individuals in the United States, of
which 96 were located in the Silicon Valley. As of January 1, 2000, we also
employed seven individuals abroad to provide technical support to customers in
Asia and Europe, two of which were located in Korea, two in Taiwan, one in
Japan and two in The Netherlands. None of our employees is represented by a
labor union or is subject to a collective bargaining agreement. We believe that
our relationship with our employees is good.
Facilities
Our executive offices and principal operations are currently located in
approximately 39,300 square feet of office space in San Jose, California under
a lease that expires in May 2004. We also lease approximately 2,400 square feet
of office space in Los Gatos, California under a lease that expires in January
2001. We believe that our existing facilities are adequate for our current
needs.
Legal Proceedings
We are not currently party to any material legal proceedings.
41
<PAGE>
MANAGEMENT
The following table sets forth information regarding our executive officers
and directors as of January 24, 2000:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
William H. Davidow(b)..... 64 Chairman of the Board
Y. C. (Buno) Pati......... 35 President, Chief Executive Officer and
Director
Yao-Ting Wang............. 36 Chief Technology Officer and Director
Richard Mora.............. 53 Chief Financial Officer and Vice President,
Operations
Atul Sharan............... 40 Vice President, Marketing and Business
Development
Lars Herlitz.............. 35 Vice President, Engineering
John Traub................ 53 Vice President, Worldwide Sales
Kevin MacLean............. 37 Vice President and General Manager,
Transcription
Roger Sturgeon............ 55 Director and Fellow
Thomas Kailath(b)......... 64 Director
Narendra K. Gupta(a)...... 51 Director
Abbas El Gamal(a)......... 49 Director
Harvey Jones(a)(b)........ 47 Director
</TABLE>
- --------
(a) Member of the Audit Committee
(b) Member of the Compensation Committee
William H. Davidow has served as our Chairman of the Board since January
2000 and as a director of our company since June 1998. Mr. Davidow has served
as a partner at Mohr, Davidow Ventures since May 1985 and has been a high-
technology industry executive and a venture investor for over 20 years. From
August 1973 to January 1985, Mr. Davidow was at Intel Corporation where he was
Senior Vice President of marketing and sales, Vice President of the
microcomputer division and Vice President of the microcomputer systems
division. Mr. Davidow received a Ph.D. in electrical engineering from Stanford
University, an M.S. in electrical engineering from the California Institute of
Technology, an M.S. in electrical engineering from Dartmouth College and a B.S.
in electrical engineering from Dartmouth. Mr. Davidow is chairman of the board
at both Rambus Corporation and Viant Corporation. Mr. Davidow also serves on
the boards of several other start-up companies.
Dr. Y. C. (Buno) Pati has served as our President and Chief Executive
Officer and a director since he co-founded our company in October 1995. From
October 1995 to December 1996, Dr. Pati served as an assistant professor of
electrical engineering and computer science at Harvard University. From October
1992 to October 1995, Dr. Pati conducted research efforts in computational and
system sciences applied to integrated circuit manufacturing at Stanford
University. Dr. Pati has published numerous articles in signal processing,
communications, fast lithography simulations and automated phase shifting
photomask design. Dr. Pati received a B.S., an M.S. and a Ph.D. in electrical
engineering from the University of Maryland at College Park.
Dr. Yao-Ting Wang has served as our Chief Technology Officer and a director
since he co-founded our company in October 1995. Dr. Wang's doctoral
dissertation research was on automated design of phase shifting photomasks
using fast algorithms and signal processing techniques. Dr. Wang is active in
the areas of fast lithography simulations and automated advanced photomask
designs, with specific interests in communications, signal processing and
lithographic techniques. Dr. Wang received a B.S. degree from National Taiwan
University and a Ph.D. in Electrical Engineering from Stanford University.
Richard Mora has served as our Chief Financial Officer and Vice President,
Operations since May 1999. From August 1994 to April 1999, Mr. Mora was Chief
Financial Officer and Vice President of Finance at Mattson Technologies, Inc.,
a semiconductor equipment manufacturer. From June 1998 to May 1999, Mr. Mora
was also Vice President and General Manager of the High Temp Products Division
at Mattson. From
42
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September 1988 to August 1994, Mr. Mora served as Chief Financial Officer and
Vice President of Finance at Actel Corporation, a semiconductor manufacturer.
From June 1985 to August 1988, Mr. Mora was Chief Financial Officer and Vice
President of Finance at HHB Systems. Mr. Mora received a B.S. in Accounting
from Santa Clara University and is a Certified Public Accountant.
Atul Sharan has served as our Vice President, Marketing and Business
Development since October 1998. From April 1997 to October 1998, Mr. Sharan was
director of strategic business development at Ambit Design Systems where he
helped establish and manage key partner relationships with LSI Logic and
Cadence. From May 1991 to March 1997, Mr. Sharan held senior sales and
marketing management positions at Compass Design Automation. While at Compass
as General Manager-Compass India Operations, Mr. Sharan helped establish a
software development center in India. From December 1984 to May 1991, Mr.
Sharan worked in semiconductor manufacturing operations at VLSI Technology and
Integrated Device Technology. While at IDT, Mr. Sharan helped initiate the
company's first overseas test and assembly plant in Penang, Malaysia.
Mr. Sharan received an M.B.A. from the University of California at Berkeley, an
M.S. in engineering from the University of Houston, Texas and a B.Tech. Degree
in engineering from the Indian Institute of Technology in Kanpur, India.
Lars Herlitz has served as our Vice President, Engineering since December
1998. From March 1994 to November 1998, Mr. Herlitz served in various positions
at Escalade Corporation, an engineering design automation company focused on
system-on-chip design. Mr. Herlitz culminated his career at Escalade as Vice
President of Engineering from 1997 to 1998. From December 1987 to March 1994,
Mr. Herlitz served in various positions at Cadence, including as Director of
Engineering from 1993 to 1994. Mr. Herlitz received an M.S. in electrical
engineering and computer science from the University of Linkoping in Sweden.
John Traub has served as our Vice President, Worldwide Sales since September
1999. From December 1998 to September 1999, Mr. Traub served as Vice President
of Worldwide Sales at Ultratech Stepper, Inc. From June 1997 to December 1998,
he was President and Chief Executive Officer of Cyberspace Inc., a technology
consulting company which he founded. From June 1989 to June 1997, Mr. Traub
held various positions at Systems Chemistry, Inc., a manufacturer of ultra-high
parity chemical systems, including Vice President of Worldwide Sales, Chairman,
President and Chief Executive Officer. From April 1982 to June 1989, he was
founder and Managing Director and Vice President of Business Development of
Align-Rite Ltd. in Wales, where he successfully expanded the U.S. company's
business into the European market.
Kevin MacLean has served as our Vice President and General Manager,
Transcription since January 2000. In June 1986, Mr. MacLean co-founded
Transcription Enterprises Limited, where he served as Vice President until we
acquired the company in January 2000. Mr. MacLean received a B.S. in mechanical
engineering from Cornell University.
Roger Sturgeon has served as a director of our company and a Fellow since
January 2000. In June 1986, he co-founded Transcription Enterprises Limited,
where he served as President until we acquired the company in January 2000. Mr.
Sturgeon received an M.S. in electrical engineering and computer science from
the University of California at Berkeley and a B.S. in engineering sciences
from the University of California at Berkeley.
Dr. Thomas Kailath has served as a director of our company since October
1995 and was Chairman of the Board from October 1995 to January 2000. Dr.
Kailath has served as the Hitachi American Professor of Engineering at Stanford
University since 1987. From January 1981 to June 1987, Dr. Kailath was
Associate Department Chairman of the Department of Electrical Engineering at
Stanford University and served as Director of the Information Systems
Laboratory from January 1971 to January 1981. In February 1980, Dr. Kailath co-
founded Integrated Systems Inc., a leading developer of embedded software, and
has served as a director of Integrated Systems since its inception. Dr. Kailath
received an Sc.D. in Electrical Engineering from the Massachusetts Institute of
Technology, an S.M. in Electrical Engineering from MIT and a B.E. in
telecommunications from the University of Poona, India. Dr. Kailath is a member
of the National Academy of
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<PAGE>
Engineering and the American Academy of Arts and Sciences. Dr. Kailath serves
on the board of Excess Bandwidth Corporation.
Dr. Narendra K. Gupta has served as director of our company since April
1997. Dr. Gupta co-founded Integrated Systems in 1980 and has served as its
Chairman since November 1992. He was the President and Chief Executive Officer
of Integrated Systems from its inception until May 1994. Dr. Gupta received a
Ph.D. in engineering from Stanford and an M.S. in engineering from the
California Institute of Technology. Dr. Gupta also received a B. Tech. Degree
in mechanical engineering from the Indian Institute of Technology. Dr. Gupta
was elected a Fellow of the Institute for Electrical and Electronics in 1991.
Dr. Abbas El Gamal has served as a director of our company since April 1997.
Dr. El Gamal has been on the faculty of the Electrical Engineering department
at Stanford University since September 1981. In December 1990, Dr. El Gamal co-
founded Silicon Architects, which was acquired by Synopsis in 1995 and served
as its Chief Technical Officer until May 1995. In July 1986, Dr. El Gamal co-
founded Actel Corporation and served as its Chief Scientist until November
1990. From July 1984 to July 1986, Dr. El Gamal served as a director of LSI
Logic's Research Lab, where he developed silicon compilation technology, DSP
and image processing ASICs. Dr. El Gamal's research interests include CMOS
image sensors and digital cameras, image processing, photomask programmable
gate arrays and information theory. He has authored or co-authored over 100
papers and 20 patents in these areas. Dr. El Gamal received a Ph.D. in
electrical engineering from Stanford, an M.S. in Statistics from Stanford and a
B.S. in Electrical Engineering from Cairo University, Egypt. Dr. El Gamal is a
Fellow of The Institute of Electrical and Electronics Engineers and serves on
the boards of Lightspeed Semiconductor and PiXIM, Inc.
Harvey Jones has served as a director of our company since June 1998. From
December 1987 to February 1998, Mr. Jones was employed by Synopsys, an
electronic design automation software company. Mr. Jones served as President
and Chief Executive Officer of Synopsys from December 1987 to January 1995, and
as its Executive Chairman of the Board from January 1995 to February 1998. From
April 1981 to November 1987, Mr. Jones served in various positions at Daisy
Systems, a computer-aided engineering company he co-founded, most recently as
President and Chief Executive Officer. From August 1974 to March 1981, Mr.
Jones served in various positions at Calma, a computer-aided design company,
most recently as Vice President of Marketing. In addition to his operational
roles, Mr. Jones has been an investor and active board member of such ventures
as Remedy Corporation, an enterprise software company, and NVIDIA Corporation,
a 3-D graphics processor company. Mr. Jones received an M.S. degree from MIT's
Sloan School of Management and a B.S. in mathematics and computer sciences from
Georgetown University.
Classified Board
Immediately following the offering, our board of directors will consist of
eight directors divided into three classes with each class serving for a term
of three years as follows:
<TABLE>
<CAPTION>
Class Expiration Member
----- ---------- ------
<S> <C> <C>
Class I............. 2001 El Gamal, Jones and Wang
Class II............ 2002 Kailath and Sturgeon
Class III........... 2003 Davidow, Gupta and Pati
</TABLE>
At each annual meeting of stockholders, directors will be elected by the
holders of common stock to succeed those directors whose terms are expiring. In
addition, our bylaws provide that the authorized number of directors may be
changed only by resolution of the board of directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the total number of directors. This classification
of the board of directors may have the effect of delaying or preventing changes
in control of our company.
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<PAGE>
Board Committees
The board of directors has a compensation committee and an audit committee.
The compensation committee, currently comprised of Mr. Davidow, Mr. Jones and
Mr. Kailath, administers the 1997 stock plan, the 2000 stock plan, the 2000
employee stock purchase plan and all matters concerning executive compensation
and employee agreements. The audit committee, currently comprised of Mr. El
Gamal, Mr. Gupta and Mr. Jones, performs the following functions:
. monitors our system of internal controls;
. corporate financial reporting and internal and external audits;
. provides the board of directors with the results of its examinations and
recommendations;
. outlines to the board of directors the improvements made or to be made in
internal accounting controls;
. nominates independent auditors; and
. provides the board of directors with other information and materials
necessary to make the board of directors aware of significant financial
matters.
Each of the audit committee and compensation committee was established in
January 2000.
Director Compensation
We do not currently pay compensation to directors for serving in that
capacity, nor do we reimburse directors for expenses incurred in attending
board meetings. In November 1999, Mr. Davidow received an option to purchase an
aggregate of 150,000 shares of common stock at an exercise price per share of
$1.00. On February 1, 2000, Mr. Sturgeon received an option to purchase an
aggregate of 225,000 shares of common stock at an exercise price per share of
$2.67. Please see "Related Party Transactions--Restricted Stock Purchase
Agreements." On February 1, 2000, each of Mr. Davidow, Mr. El Gamal, Mr. Gupta,
Mr. Jones and Mr. Kailath received an option to purchase 7,500 shares of common
stock at an exercise price per share of $2.67 in consideration for their prior
services on the board of directors. The board has the discretion to grant
options to non-employee directors under the 2000 stock plan. See "Employee
Benefit Plans--2000 Stock Plan."
Compensation Committee Interlocks and Insider Participation
The compensation committee is currently comprised of Mr. Davidow, Mr. Jones
and Mr. Kailath. None of these committee members has at any time been an
officer or employee of our company. No interlocking relationship exists between
our board of directors or compensation committee and the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past.
Limitation on Liability and Indemnification Matters
Our amended and restated certificate of incorporation limits the personal
liability of directors for breach of fiduciary duty to the maximum extent
permitted by Delaware law. Delaware law provides that directors of a
corporation will not be personally liable to us or our stockholders for
monetary damages for breach of their fiduciary duties as directors, except for:
. any breach of the director's duty of loyalty to us or our stockholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions; or
. any transaction from which the director derived an improper personal
benefit.
Our bylaws require that we indemnify our directors and officers to the
extent permitted by Delaware law. We may, in our discretion, indemnify other
employees and agents to the extent permitted by Delaware law. We believe that
indemnification under our bylaws covers at least negligence and gross
negligence on the part of
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<PAGE>
indemnified parties. Our bylaws also permit us to secure insurance on behalf of
any of our officers, directors, employees or other agents for any liability
incurred in that capacity or arising out of that status, regardless of whether
indemnification is permitted under Delaware law.
We have also entered into agreements to indemnify our directors and
officers. These agreements indemnify our directors and officers for some
expenses, including attorneys' fees, judgments, fines and settlement amounts
incurred by them in any action or proceeding, including any action by or in the
right of our company, arising out of their services as one of our directors or
officers, any of our subsidiaries or any other company or enterprise to which
the person provides services at our request. In addition, we have obtained
directors' and officers' insurance providing indemnification for some of our
directors, officers and employees for certain liabilities. We believe that
these provisions, agreements and insurance are necessary to attract and retain
qualified directors and officers.
The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a derivative action, if successful, might otherwise benefit us and our
stockholders. Moreover, a stockholder's investment in us may be adversely
affected to the extent we pay the costs of settlement or damage awards against
our directors and officers under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
Executive Compensation
The following table sets forth information concerning the compensation that
we paid during the fiscal year ended December 31, 1999 to our Chief Executive
Officer and our three other most highly compensated officers who earned more
than $100,000 during that fiscal year. All option grants were made under our
1997 stock plan. The amounts listed under "All Other Compensation" represent
the dollar value of term life insurance premiums paid by us on behalf of the
named executive officer during the fiscal year ended December 31, 1999. There
is no cash surrender value under the life insurance policy.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual
Compensation Long Term Compensation
---------------- ----------------------------
Securities
Salary Bonus Underlying All Other
Name and Principal Position ($) ($) Options (#) Compensation ($)
- --------------------------- -------- ------- ----------- ----------------
<S> <C> <C> <C> <C>
Buno Pati........................ $104,000 $ -- -- $ 91
President and Chief Executive
Officer
Richard Mora..................... 80,095 25,962 412,500 78
Chief Financial Officer and Vice
President, Operations
Atul Sharan...................... 130,000 52,000 277,500 101
Vice President, Marketing and
Business Development
Lars Herlitz..................... 130,000 37,250 255,000 101
Vice President, Engineering
</TABLE>
46
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth information with respect to stock options
granted to our Chief Executive Officer and our three most highly compensated
executive officers during the fiscal year ended December 31, 1999. We have
never granted any stock appreciation rights. All option grants were made under
our 1997 stock plan. The exercise price per share was equal to the fair market
value of the common stock on the date of grant as determined by the board of
directors. Percentage of total options is based on an aggregate of
3,019,050 shares of common stock granted under the 1997 stock plan in the year
ended December 31, 1999. The potential realizable value is calculated based on
the term of the ten-year option and assumed rates of stock appreciation of 5%
and 10%, compounded annually. These assumed rates comply with the rules of the
Securities and Exchange Commission and do not represent our estimate of future
stock price. Actual gains, if any, on stock option exercises will be dependent
on the future performance of our common stock.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------------ Value at Assumed
Number Annual Rates of Stock
of Securities % of Price Appreciation
Underlying Total Options Exercise for Option Term ($)
Options Granted in Price Per Expiration ----------------------
Name Granted (#) 1999 (%) Share ($) Date 5% 10%
- ---- ------------- ------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Buno Pati............... -- -- -- -- -- --
Richard Mora............ 195,000 6.5 0.50 05/26/09 61,317 155,390
Richard Mora............ 217,500 7.2 1.00 12/27/09 136,785 346,639
Atul Sharan............. 90,000 3.0 0.33 03/31/09 18,865 47,807
Atul Sharan............. 187,500 6.2 1.00 12/27/09 117,918 298,827
Lars Herlitz............ 172,500 5.7 0.33 02/03/09 36,158 91,631
Lars Herlitz............ 82,500 2.7 1.00 12/27/09 51,884 131,484
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth our Chief Executive Officer and our three
other most highly compensated executive officers information concerning shares
acquired upon exercise of stock options in fiscal year ended December 31, 1999
and exercisable and unexercisable options held as of December 31, 1999. All
options were granted under our 1997 stock plan. The value realized is based on
the assumed initial public offering price of $12.00, minus the per share
exercise price, multiplied by the number of shares issued upon exercise of the
option.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at December 31, In-the-Money Options at
Shares 1999 (#) December 31, 1999 ($)
Acquired on Value ------------------------- -------------------------
Name Exercise (#)(a) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Buno Pati............... -- -- -- -- -- --
Richard Mora............ 412,500 4,635,000 -- -- -- --
Atul Sharan............. 73,500 857,500 339,000 -- 101,000 --
Lars Herlitz............ 198,282 2,296,102 56,718 -- -- --
</TABLE>
- --------
(a) The shares acquired by each of Mr. Mora, Mr. Sharan and Mr. Herlitz were
acquired pursuant to restricted stock purchase agreements. We have the
right to repurchase any unvested shares at their cost in the event of any
of such employees termination of employment. As of December 31, 1999,
approximately 412,500 shares held by Mr. Mora, 17,250 shares held by Mr.
Sharan and 155,157 shares held by Mr. Herlitz were unvested and subject to
our repurchase.
47
<PAGE>
Employment Agreements
Mr. Sturgeon.
On January 1, 2000, Mr. Sturgeon entered into an employment agreement with
Transcription. Pursuant to the employment agreement, Mr. Sturgeon is to serve
as Fellow for a term of two years. Mr. Sturgeon is entitled to a base salary of
$205,000 per year and a bonus for the year 2000 of up to approximately $50,000,
based upon the achievement of mutually agreed upon performance objectives.
Simultaneously with the execution of his employment agreement, Mr. Sturgeon
entered into a non-competition agreement with us and Transcription. Pursuant to
the non-competition agreement, Mr. Sturgeon agreed not to compete against or
solicit the employees of either us or Transcription for, generally, a period of
two years after his termination of employment.
Mr. MacLean.
On January 1, 2000, Mr. MacLean entered into an employment agreement with
Transcription. Pursuant to the employment agreement, Mr. MacLean is to serve as
Vice President and General Manager of Transcription for a term of two years.
Mr. MacLean is entitled to a base salary of $200,000 per year and a bonus for
the year 2000 of up to approximately $100,000, based upon the achievement of
mutually agreed upon revenue quotas. Simultaneously with the execution of his
employment agreement, Mr. MacLean entered into a non-competition agreement with
us and Transcription substantially similar to the non-competition agreement
executed by Mr. Sturgeon described above.
Generally.
We require each of our employees to enter into confidentiality agreements
prohibiting the employee from disclosing any of our confidential or proprietary
information. In addition, the agreements generally provide that upon
termination, the employee will not solicit our employees for a period of twelve
months. At the time of commencement of employment, our employees also generally
sign offer letters specifying certain basic terms and conditions of employment.
Other than as described above, in general, our employees are not subject to
written employment agreements.
Employee Benefit Plans
2000 Stock Plan.
Our 2000 stock plan provides for the granting to employees of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code
and for the granting to employees, directors, and consultants of nonstatutory
stock options and stock purchase rights. As of February 15, 2000, 3,000,000
shares were authorized under the plan, no shares were subject to outstanding
options and approximately 1,450,001 shares remain available for future grant.
The 2000 stock plan provides for annual increases on the first day of each
fiscal year beginning 2001 equal to the lesser of:
. 3,000,000 shares;
. 5% of our outstanding shares as of such date; or
. a lesser amount determined by the board of directors.
The 2000 stock plan may be administered by the board of directors or a
committee of the board. The board has the power to determine the terms of the
options granted, including the exercise price, the number of shares subject to
each option, the exercisability of the option grant and the form of
consideration payable upon such exercise. The board also has the authority to
amend, suspend or terminate the 2000 stock plan, provided that no such action
may affect any share of common stock previously issued and sold or any option
previously granted under the plan. The 2000 stock plan terminates in 2010.
48
<PAGE>
The 2000 stock plan provides that in the event we merge with or into another
corporation, or we sell substantially all of our assets, each option may be
assumed or substituted by the successor corporation. If the outstanding options
are not assumed or substituted by the successor corporation, each outstanding
option will fully vest and become exercisable, and the optionee will have 15
days to exercise the option, after which such time the option will terminate.
Non-Employee Director Stock Program. Pursuant to the 2000 stock plan, the
board has the discretion to grant options to non-employee directors. The
director option component of the 2000 stock plan will not become effective
until the date of this offering. Each non-employee director who first becomes a
board member after the date of this offering may be granted options for up to
30,000 shares. In addition, each non-employee director may be granted options
for up to 7,500 shares annually.
The exercise price of all options granted to non-employee directors under
the 2000 stock plan is required to be 100% of the fair market value per share
of the common stock, determined with reference to the closing price of the
common stock as reported on the Nasdaq National Market on the date of grant.
In the event of a change of control, each option granted pursuant to the
non-employee director stock program will become fully-vested and exercisable.
1997 Stock Plan. Our 1997 stock plan provides for the granting to employees
of incentive stock options within the meaning of Section 422 of the Internal
Revenue Code and for the granting to employees and consultants of nonstatutory
stock options. The terms of the 1997 stock plan are substantially similar to
those of the 2000 stock plan. As of February 15, 2000, 6,196,500 shares were
authorized under the plan, 1,238,155 shares were subject to outstanding options
and approximately 962,910 shares remain available for future grant. Upon the
completion of this offering, the 1997 stock plan will terminate, no further
option grants will be made under the 1997 stock plan, and any shares reserved
but not yet issued under the 1997 stock plan will be available for future grant
under the 2000 stock plan.
The stock option agreements under the 1997 stock plan provide for the full
acceleration of vesting of options and stock purchase rights if such options or
stock purchase rights are not assumed or substituted by the successor
corporation in a merger or asset sale.
2000 Employee Stock Purchase Plan. As of February 15, 2000, a total of
300,000 shares of common stock have been reserved for issuance under our 2000
employee stock purchase plan, plus annual increases on the first day of each
fiscal year beginning 2001 equal to the lesser of:
. 675,000 shares;
. 2% of our outstanding shares as of such date; or
. a lesser amount determined by the board of directors.
The 2000 employee stock purchase plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, contains 24 month offering periods.
The offering periods generally start on the first trading day on or after May
15 and November 15 of each year, except for the first such offering period,
which will commence on the first trading day on or after the effective date of
this offering and ends on the last trading day on or before May 14, 2002.
Subsequent offering periods will each have a six-month duration commencing on
the first trading day on or after May 15 and November 15 of each year.
Employees are eligible to participate if they are employed by us or any
participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, the following employees may not be
granted options to purchase stock under the purchase plan:
. any employee who immediately after the grant would own stock possessing
5% or more of the total combined voting power or value of all classes of
our capital stock; or
. any employee whose rights to purchase stock under all of our employee
stock purchase plans accrues at a rate which exceeds $25,000 worth of
stock for each calendar year.
49
<PAGE>
Participants may purchase common stock through payroll deductions of up to
15% of the participant's compensation. The maximum number of shares a
participant may purchase during a six month offering period is 2,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the purchase plan is 85% of the lower of the fair market value
of the common stock at the beginning of the offering period and the fair market
value of the common stock at end of the offering period.
The purchase plan provides that in the event we merge with or into another
company, or we sell substantially all of our assets, each outstanding option
may be assumed or substituted by the successor company. If the successor
company refuses to assume or substitute the options, the offering period then
in progress will be shortened and a new exercise date will be set, which will
occur before the proposed merger or sale.
The purchase plan will become effective on the effective date of this
offering and will terminate ten years thereafter, unless sooner terminated by
the board of directors. The board has the authority to amend or terminate the
purchase plan, except that no such action may adversely affect any outstanding
rights to purchase stock.
401(k) Savings Plan
We sponsor a 401(k) savings in which eligible employees may participate. The
401(k) savings plan is intended to qualify under Sections 401(a) and 401(k) of
the Internal Revenue Code of 1986, as amended. Contributions to the 401(k)
savings plan and income earned on such contributions are not taxable to
employees until withdrawn from the 401(k) savings plan. Subject to restrictions
imposed by the Internal Revenue Code on highly compensated employees, employees
may generally defer up to 15% of their pre-tax earnings up to the statutorily
prescribed annual limit, which is $10,500 for the 2000 calendar year, and to
have the amount of such reduction contributed to the 401(k) savings plan. The
401(k) savings plan permits, but does not require, additional matching
contributions to the 401(k) savings plan. To date, we have not made any
matching contributions to the 401(k) savings plan. The 401(k) savings plan may
be amended or terminated by us at anytime, and in our sole discretion.
50
<PAGE>
RELATED PARTY TRANSACTIONS
Equity Investment Transactions
In October and December 1996, we sold 2,250,006 shares of Series A preferred
stock for $0.24 per share. In June and August 1997, we sold 1,050,000 shares of
Series B preferred stock for $0.67 per share. In June and August 1998, we sold
2,445,089 shares of Series C preferred stock for $3.26 per share. In June and
August 1999, we sold 2,357,906 shares of Series D preferred stock for $5.89 per
share. In January 2000, we issued 3,809,994 shares of Series E preferred stock,
for $10.67 per share, in connection with our acquisition of Transcription. Upon
consummation of this offering, each outstanding share of Series A, Series B,
Series C and Series D preferred stock will automatically convert into one share
of common stock. Listed below are the directors, executive officers, and
stockholders who beneficially own 5% or more of our securities who participated
in these financings.
<TABLE>
<CAPTION>
#/Shares
Series A Series B Series C Series D Series E Aggregate Value of of Common
Directors, Executive Officers Preferred Preferred Preferred Preferred Preferred Cash Transcription Stock upon
and 5% Stockholders Stock Stock Stock Stock Stock Consideration Shares Conversion
- ----------------------------- --------- --------- --------- --------- --------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Entities affiliated with
Mohr, Davidow
Ventures(a)............ -- -- 1,687,116 -- -- $5,500,000 -- 1,687,116
Thomas Kailath(b)....... 416,667 -- 19,500 -- -- 163,579 -- 436,167
Narendra Gupta(c)....... 416,666 -- 338,248 -- -- 1,202,705 -- 754,914
Abbas El Gamal.......... 416,667 -- -- -- -- 100,000 -- 416,667
Roger Sturgeon.......... -- -- -- -- 2,388,715 -- $25,479,632 2,388,715
Kevin MacLean........... -- -- -- -- 1,194,356 -- 12,739,808 1,194,356
</TABLE>
- --------
(a) The Mohr, Davidow Ventures shares include shares purchased by Mohr,
Davidow Ventures V, L.P. and Mohr, Davidow Ventures V, L.P., as nominee
for MDV Entrepreneur's Network Fund II (A), L.P. and MDV Entrepreneur's
Network Fund II (B), L.P. Entities affiliated with Mohr, Davidow Ventures
also hold warrants exercisable for an aggregate of 150,000 shares of
Series C preferred stock, at an exercise price per share of $3.26, for an
additional aggregate cash consideration of $489,000. Mr. Davidow, a
partner of Mohr, Davidow Ventures and a director of our company, disclaims
beneficial ownership of the securities held by these entities except for
his proportional interest in the entities.
(b) Includes shares held by Paul V. Kailath Revocable Trust u/a/d 10/1/89 and
Priya S. Kailath Revocable Trust u/a/d 10/1/89. Includes 145,833 shares of
Series A preferred stock and 19,500 shares of Series C preferred stock
held by a limited number of relatives of Dr. Kailath.
(c) Includes shares held by Dr. Gupta, as custodian, for his minor children.
Includes 31,500 shares of Series C preferred stock held by a limited
number of relatives of Dr. Gupta.
Restricted Stock Purchase Agreements
Mr. Davidow.
In November 1999, Mr. Davidow exercised an option grant to purchase 150,000
shares of common stock and entered into a restricted stock purchase agreement
regarding the shares. Pursuant to the restricted stock purchase agreement, we
have the right to repurchase any of the unvested shares upon termination of his
services. As of February 15, 2000, 93,750 shares held by Mr. Davidow remain
unvested. All 150,000 of Mr. Davidow's shares will be released from our
repurchase option on June 24, 2002. Mr. Davidow paid the $1.00 exercise price
per share for such shares in cash. In addition, Mr. Davidow's stock option
agreement provides that if we enter into any transaction which involves a
change of control, the shares held by Mr. Davidow will automatically vest in
full. Generally, a "change of control" is defined to include mergers, asset
sales or other transactions involving a transfer of at least 50% of our
securities.
51
<PAGE>
Mr. Mora.
In May and December 1999, Mr. Mora exercised option grants to purchase an
aggregate of 412,500 shares of common stock and entered into restricted stock
purchase agreements regarding the shares. Pursuant to the restricted stock
purchase agreements, we have the right to repurchase any of the unvested shares
upon his termination of employment. As of February 15, 2000, an aggregate of
412,500 shares held by Mr. Mora remain unvested. All 412,500 of Mr. Mora's
shares will be released from our repurchase option on December 27, 2003. Mr.
Mora paid the $0.50 exercise price per share for 195,000 of such shares by
delivery of two-year full-recourse promissory note bearing interest at 4.90%
per annum, compounded annually. Mr. Mora paid the $1.00 exercise price per
share for the remaining 217,500 shares by delivery of a two-year full-recourse
promissory note bearing interest at 5.74% per annum, compounded annually. Each
of the notes is secured by the shares of common stock purchased by Mr. Mora. As
of February 15, 2000, approximately $320,226 in unpaid principal and interest
was outstanding in the aggregate under the notes. In addition, each of Mr.
Mora's option agreements provide that:
. upon a change of control of our company, 50% of the shares subject to the
options held by Mr. Mora that have not vested as of six months after the
change of control shall vest in full; as of February 15, 2000, an
aggregate of 412,500 shares have not vested; and
. if Mr. Mora's employment is terminated as a result of an involuntary or
constructive termination within 12 months of the change of control, all
of the shares subject to the options held by Mr. Mora will vest in full.
Mr. Sharan.
In October 1998 and March and December 1999, Mr. Sharan received option
grants to purchase an aggregate of 412,500 shares of common stock and entered
into restricted stock purchase agreements regarding the shares. Pursuant to the
restricted stock purchase agreements, we have the right to repurchase any of
the unvested shares upon his termination of employment. As of February 15,
2000, an aggregate of 342,188 shares held by Mr. Sharan remain unvested. All
342,188 of Mr. Sharan's shares will be released from our repurchase option on
October 21, 2003. Mr. Sharan paid the $0.33 exercise price for 151,500 of such
shares by delivery of a two-year full-recourse promissory note bearing interest
at 5.88% per annum, compounded annually. Mr. Sharan paid the $1.00 exercise
price per share for 187,500 of such shares by delivery of a two-year full-
recourse promissory note bearing interest at 5.88% per annum, compounded
annually. Each of the notes is secured by shares of common stock purchased by
Mr. Sharan. As of February 15, 2000, approximately $238,747 in unpaid principal
and interest was outstanding in the aggregate under the notes. Mr. Sharan paid
the remainder of the exercise price of such shares in cash. In addition, each
of Mr. Sharan's option agreements provided that:
. upon a change of control of our company, 50% of the shares subject to the
options held by Mr. Sharan that have not vested as of six months after
the change of control shall vest in full; as of February 15, 2000, an
aggregate of 342,188 shares have not vested; and
. if Mr. Sharan's employment is terminated as a result of an involuntary or
constructive termination within 12 months of the change of control, all
of the shares subject to the options held by Mr. Sharan will vest in
full.
Mr. Herlitz.
In February and December 1999, Mr. Herlitz received option grants to
purchase an aggregate of 255,000 shares of our common stock. Mr. Herlitz has
exercised and entered into restricted stock purchase agreements regarding all
172,500 shares of the February 1999 option grant and 25,782 shares of the
82,500 shares of common stock subject to the December 1999 option grant.
Pursuant to the restricted stock purchase agreements, we have the right to
repurchase any of the unvested shares upon his termination of employment. As of
February 15, 2000, 129,375 shares of the February 1999 option grant and 25,782
shares of the December 1999 option grant held by Mr. Herlitz remain unvested.
All 198,282 of Mr. Herlitz's shares will
52
<PAGE>
be released from our repurchase option on December 14, 2003. Mr. Herlitz paid
the $0.33 exercise price per share for 172,500 of the shares, and the $1.00
exercise price per share for the remaining 25,782 shares, in cash. The
remaining 56,718 shares subject to the December 1999 option grant held by Mr.
Herlitz have not been exercised, but are exercisable at any time at an exercise
price per share of $1.00. In addition, each of Mr. Herlitz's option agreements
provide that:
. upon a change of control of our company, 50% of the shares subject to the
options held by Mr. Herlitz that have not vested as of six months after
the change of control shall vest in full; as of February 15, 2000, an
aggregate of 211,875 shares have not vested; and
. if Mr. Herlitz's employment is terminated as a result of an involuntary
or constructive termination within 12 months of the change of control,
all of the shares subject to the options held by Mr. Herlitz will vest in
full.
Mr. Traub.
In November and December 1999, Mr. Traub received option grants to purchase
an aggregate of 232,500 shares of common stock. Mr. Traub has exercised and
entered into restricted stock purchase agreements for 37,500 shares of the
150,000 shares of common stock subject to the November 1999 option grant and
20,625 of the 82,500 shares of common stock subject to the December 1999 option
grant. Pursuant to the restricted stock purchase agreements, we have the right
to repurchase any of the unvested shares upon his termination of employment. As
of February 15, 2000, all of the 58,125 shares held by Mr. Traub remain
unvested. All 58,125 of Mr. Traub's shares will be released from our repurchase
option on December 27, 2003. Mr. Traub paid the $1.00 exercise price per share
for all such shares in cash. The remaining 174,375 shares subject to the option
grants held by Mr. Traub have not been exercised, but are exercisable at any
time at an exercise price per share of $1.00. In addition, each of Mr. Traub's
option agreements provide that:
. upon a change of control of our company, 50% of the shares subject to the
options held by Mr. Traub that have not vested as of six months after the
change of control shall vest in full; as of February 15, 2000, an
aggregate of 232,500 shares have not vested; and
. if Mr. Traub's employment is terminated as a result of an involuntary or
constructive termination within 12 months of the change of control, all
of the shares subject to the options held by Mr. Traub will vest in full.
Mr. Jones.
In April 1999, Mr. Jones exercised an option grant to purchase 150,000
shares of common stock and entered into a restricted stock purchase agreement
regarding the shares. Pursuant to the restricted stock purchase agreement, we
have the right to repurchase any of the unvested shares upon termination of his
services. As of February 15, 2000, 93,750 shares held by Mr. Jones remain
unvested. All 150,000 of Mr. Jones' shares will be released from our repurchase
option on June 24, 2002. Mr. Jones paid the $0.33 exercise price per shares for
such shares in cash. In addition, Mr. Jones' stock option agreement provides
that if we enter into any transaction which involves a change of control, the
shares held by Mr. Jones will automatically vest in full.
Mr. Sturgeon.
In February 2000, Mr. Sturgeon exercised an option grant to purchase an
aggregate of 225,000 shares of common stock and entered into a restricted stock
purchase agreement regarding the shares. Pursuant to the restricted stock
purchase agreement, we have the right to repurchase any of the unvested shares
upon his termination of employment from Transcription. As of February 15, 2000,
all 225,000 shares held by Mr. Sturgeon remain unvested. All 225,000 of Mr.
Sturgeon's shares will be released from our repurchase option on January 1,
2004. Mr. Sturgeon paid the $2.67 exercise price per share for such shares in
cash. In addition, Mr. Sturgeon's restricted stock purchase agreement provides
that in the event of Mr. Sturgeon's termination of employment from
Transcription due to death or disability prior to January 1, 2002, 6.25% of the
shares will be
53
<PAGE>
released from our repurchase option for each three month period, measured from
January 1, 2000, for which Mr. Sturgeon completed employment with Transcription
prior to his termination as a result of death or disability. Further:
. upon a change of control of our company, 50% of the shares subject to
options held by Mr. Sturgeon that have not vested as of the later of
January 2, 2002 or six months after the change of control shall vest in
full; as of February 15, 2000, an aggregate of 225,000 shares have not
vested; and
. if Mr. Sturgeon's employment is terminated as a result of an involuntary
or constructive termination within 12 months of the change of control,
all of the shares subject to options held by Mr. Sturgeon will vest in
full.
Mr. MacLean.
In February 2000, Mr. MacLean exercised an option grant to purchase an
aggregate of 225,000 shares of common stock and entered a restricted stock
purchase agreement regarding the shares. Pursuant to the restricted stock
purchase agreement, we have the right to repurchase any of the unvested shares
upon his termination of employment from Transcription. As of February 15, 2000,
all 225,000 shares held by Mr. MacLean remain unvested. All 225,000 of Mr.
MacLean's shares will be released from our repurchase option on January 1,
2004. Mr. MacLean paid the $2.67 exercise price per share for such shares by
delivery of a one-year full-recourse promissory note bearing interest at 8.0%
per annum, compounded annually. The note is secured by the shares of common
stock purchase by Mr. MacLean. As of February 15, 2000, approximately $601,973
in unpaid principal and interest was outstanding under the note. In addition,
in the event Mr. MacLean's employment with Transcription is terminated prior to
January 1, 2002 as a result of death or disability, the shares will be released
from our repurchase option according to the same accelerated schedule described
under Mr. Sturgeon's restricted stock purchase agreement above. Further:
. upon a change of control of our company, 50% of the shares subject to
options held by Mr. MacLean that have not vested as of the later of
January 2, 2002 or six months after the change of control shall vest in
full; as of February 15, 2000, an aggregate of 225,000 shares have not
vested; and
. if Mr. MacLean's employment is terminated as a result of an involuntary
termination within 12 months of the change of control, all of the shares
subject to options held by Mr. MacLean will vest in full.
Mr. Pati.
In February 2000, Mr. Pati exercised an option grant to purchase an
aggregate of 600,000 shares of common stock and entered into a restricted stock
purchase agreement regarding the shares. Pursuant to the restricted stock
purchase agreement, we have the right to repurchase any of the unvested shares
upon his termination of employment. As of February 15, 2000, all 600,000 shares
held by Mr. Pati remain unvested. All 600,000 of Mr. Pati's shares will be
released from our repurchase option on February 1, 2004. Mr. Pati paid the
$2.67 exercise price per share for the shares by delivery of a two-year full-
recourse promissory note bearing interest at 6.20% per annum, compounded
annually. The note is secured by the shares of common stock purchase by Mr.
Pati. As of February 15, 2000, approximately $1,601,696 in unpaid principal and
interest was outstanding under the note. In addition, Mr. Pati's option
agreement provides that:
. upon a change of control of our company, 50% of the shares subject to the
options held by Mr. Pati that have not vested as of six months after the
change of control shall vest in full; as of February 15, 2000, an
aggregate of 600,000 shares have not vested; and
. if Mr. Pati's employment is terminated as a result of an involuntary
termination within 12 months of the change of control, all of the shares
subject to options held by Mr. Pati will vest in full.
54
<PAGE>
Mr. Wang.
In February 2000, Mr. Wang exercised an option grant to purchase an
aggregate of 499,999 shares of common stock and entered into a restricted stock
purchase agreement regarding the shares. Pursuant to the restricted stock
purchase agreement, we have the right to repurchase any of the unvested shares
upon his termination of employment. As of February 15, 2000, all 499,999 shares
held by Mr. Wang remain unvested. All 499,999 of Mr. Wang's shares will be
released from our repurchase option on February 1, 2004. Mr. Wang paid the
$2.67 exercise price per share for the shares by delivery of a two-year full-
recourse promissory note bearing interest at 6.20% per annum, compounded
annually. The note is secured by the shares of common stock purchase by Mr.
Wang. As of February 15, 2000, approximately $1,334,746 in unpaid principal and
interest was outstanding under the note. In addition, Mr. Wang's option
agreement provides that:
. upon a change of control of our company, 50% of the shares subject to the
options held by Mr. Wang that have not vested as of six months after the
change of control shall vest in full; as of February 15, 2000, an
aggregate of 499,999 shares have not vested; and
. if Mr. Wang's employment is terminated as a result of involuntary or
constructive termination within 12 months of the change of control, all
of the shares subject to the options held by Mr. Pati will vest in full.
Mr. Gupta.
In February 2000, Mr. Gupta exercised an option grant to purchase 7,500
shares of common stock and entered into a restricted stock purchase agreement
regarding the shares. Pursuant to the restricted stock purchase agreement, we
have the right to repurchase any of the unvested shares upon termination of his
services. As of February 15, 2000, all 7,500 shares held by Mr. Gupta remain
unvested. All 7,500 of Mr. Gupta's shares will be released from our repurchase
option on February 1, 2004. Mr. Gupta paid the $2.76 exercise price per share
for such shares in cash. In addition, Mr. Gupta's stock option agreement
provides that if we entered into any transaction which involves a change of
control, the shares held by Mr. Gupta will automatically vest in full.
Acquisition of Transcription
Agreement and Plan of Reorganization.
Pursuant to an agreement and plan of reorganization, dated December 21,
1999, among Transcription, Transcription Enterprises Limited, Mr. Sturgeon, Mr.
MacLean and us, we acquired Transcription. The acquisition was effective
January 1, 2000 and, as a result, Transcription is now our wholly-owned
subsidiary.
The consideration paid by us for Transcription Enterprises Limited was a
combination of stock and promissory notes. We issued 3,809,994 shares of our
Series E preferred stock, which the parties agreed had a stated value of $10.67
per share. Mr. Sturgeon received 2,388,715 of such shares, or an aggregate of
$25,479,632, and Mr. MacLean received 1,194,356 of such shares, or an aggregate
of $12,739,808. We also issued an aggregate principal amount of $40,000,000 in
promissory notes, $5,000,000 of which has already been paid by us. As of
January 1, 2000, the aggregate principal amounts of the notes outstanding to
Mr. Sturgeon and Mr. MacLean is approximately $21,943,574 and $10,971,787,
respectively.
As collateral security for the payment of any indemnification obligations of
the former shareholders of Transcription Enterprises Limited, subject to a
deductible of $100,000, 1,904,995 shares of the Series E preferred stock we
issued to such shareholders were pledged to us. Such shares were withheld from
the former shareholders, on a pro rata basis, and are being held in escrow with
an escrow agent. 1,194,357 of the shares of Series E preferred stock issued to
Mr. Sturgeon and 597,178 of the shares of Series E preferred stock issued to
Mr. MacLean have been pledged to us and are in escrow. Generally, all of the
pledged shares to be issued to the former shareholders of Transcription
Enterprises Limited, other than Mr. Sturgeon and Mr. MacLean, or
55
<PAGE>
approximately 113,460 shares, will be released from the escrow upon the closing
of this offering. The remaining pledged shares, approximately 1,791,535 shares,
will be released to Mr. Sturgeon and Mr. MacLean as follows:
. 50% of such shares will be released on January 1, 2001; and
. the remaining 50% of the pledged shares will be released on January 1,
2002.
Pursuant to the reorganization agreement, 55% of a specified amount of the
accounts receivable of Transcription Enterprises Limited is to be distributed
to the former shareholders of the company, on a pro rata basis, as such
receivables are collected by Transcription. We are entitled to retain 45% of
such accounts receivable, plus all fees associated with maintenance, support or
other services rendered by Transcription Enterprises Limited on such accounts.
We currently anticipate that we will collect and retain approximately
$1,126,000 of the accounts receivables and maintenance services and distribute
approximately $1,253,000 of such receivables to the former shareholders of
Transcription Enterprises Limited. Of that $1,253,000 amount, Mr. Sturgeon and
Mr. MacLean are to receive $786,000 and $393,000, respectively.
Promissory Notes.
We issued an aggregate principal amount of $40,000,000 in promissory notes,
with each note dated January 1, 2000, to the ten former shareholders of
Transcription Enterprises Limited. An aggregate principal amount of $5,000,000
under the notes was paid by us to such shareholders shortly after January 1,
2000. The remaining $35,000,000 in unpaid principal amount under the notes
bears interest at a rate of 8.0% per annum. The unpaid principal amount, plus
accrued interest, is due and payable in 16 equal quarterly installments of
approximately $2,187,500, commencing on April 1, 2000, and thereafter on July
1, October 1 and December 31, with the final installments due December 31,
2003. With some limitations, the notes may be prepaid in whole or in part by us
at any time, without penalty.
The holders of a majority of the outstanding aggregate principal amount of
the notes have the option to set-off, on behalf of all holders of the notes,
any indemnification obligations owned to us under the agreement and plan of
reorganization against the outstanding aggregate principal amount of the notes.
Any such set-off is to be on a pro rated basis.
In the event of our default under the notes, the outstanding aggregate
principal amounts of the notes, and all accrued interest on the notes, will be
immediately due and payable. Events of default under the notes include:
. default in the payment of principal or interest on a payment date;
. our general nonpayment of our debts as they become due, or the
institution of bankruptcy proceedings against us which we do not cure
within 60 days;
. the entry of an order for relief relating to bankruptcy, or an order
ordering our liquidation or winding up; or
. our default of a material term under the security agreement which is not
cured within 30 days.
Security Agreement.
Pursuant to the security agreement, dated January 1, 2000, the former
shareholders of Transcription Enterprises Limited were granted a security
interest in the assets of Transcription, including, without limitation, all
software, licenses, intellectual property and receivables. In addition,
Transcription agreed to several standards covenants for such agreements,
including without limitation to preserve and protect the assets and pay all
material taxes on the assets as they become due. Upon our event of default
under the notes, or Transcription's default of a material term of the security
agreement which is not cured within 30 days, the former shareholders of
Transcription Enterprises Limited may foreclose on Transcription's assets.
56
<PAGE>
Other Transactions
We have entered into indemnification agreements with each of our executive
officers and directors.
We have granted options to certain of our executive officers and directors.
Please see "Management--Director Compensation" and "--Option Grants in Last
Fiscal Year" and "Related Party Transactions--Restricted Stock Purchase
Agreements."
Holders of preferred stock are entitled to certain registration rights with
respect to the common stock issued or issuable upon conversion of the preferred
stock. Please see "Description of Capital Stock--Registration Rights."
We believe that all related-party transactions described above were on terms
no less favorable than could have been otherwise obtained from unrelated third
parties.
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of our common stock, as of February 15, 2000, and as
adjusted to reflect the sale of common stock offered by us in this offering,
for:
. each person who we know beneficially owns more than 5% of the common
stock;
. each of our directors;
. each executive officer named in the Summary Compensation Table; and
. all of our directors and officers as a group.
Unless otherwise indicated, the principal address of each of the
stockholders below is c/o Numerical Technologies, Inc., 70 West Plumeria Drive,
San Jose, California 95134. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and includes voting or
investment power with respect to the securities. Except as indicated by
footnote, and subject to applicable community property laws, each person
identified in the table possesses sole voting and investment power with respect
to all shares of common stock shown held by them. The number of shares of
common stock outstanding used in calculating the percentage for each listed
person includes shares of common stock underlying options or warrants held by
such person that are exercisable within 60 days of February 15, 2000, but
excludes shares of common stock underlying options or warrants held by any
other person. Percentage of beneficial ownership is based on 23,548,005 shares
of common stock outstanding as of February 15, 2000, after giving effect to the
conversion of all outstanding shares of preferred stock upon the closing of
this offering. The numbers shown in the table assume no exercise by the
underwriters of their over-allotment option.
<TABLE>
<CAPTION>
Shares Owned
Prior to the Percentage
Offering Beneficially Owned
------------ ------------------------------
Number Before Offering After Offering
------------ --------------- --------------
<S> <C> <C> <C>
5% Stockholders:
Funds affiliated with Mohr,
Davidow Ventures(a).............. 1,837,116 7.8% 6.3%
Directors and Executive Officers:
Buno Pati(b)...................... 3,118,500 13.2 10.7
Roger Sturgeon(c)................. 2,613,715 11.1 9.0
Yao-Ting Wang(d).................. 2,592,499 11.0 8.9
William H. Davidow(a) (e)......... 1,994,616 8.4 6.8
Kevin MacLean(c).................. 1,419,356 6.0 4.9
Thomas Kailath(f)................. 1,069,914 4.5 3.7
Narendra K. Gupta(g).............. 954,914 4.1 3.3
Abbas El Gamal(h)................. 649,167 2.8 2.2
Richard Mora(i)................... 412,500 1.8 1.4
Atul Sharan(j).................... 412,500 1.8 1.4
Harvey Jones(e)................... 310,873 1.3 1.1
Lars Herlitz(k)................... 255,000 1.1 *
John Traub(l)..................... 236,746 1.0 *
All executive officers and
directors as a group (13)
persons)(m)...................... 16,040,300 67.0 54.4
</TABLE>
- --------
* Less than 1%
(a) Principal address is 2775 Sand Hill Road, Suite 240, Menlo Park, CA 94025.
Number of shares includes 1,569,018 shares held by Mohr, Davidow Ventures
V, L.P., 118,098 shares held by Mohr, Davidow Ventures V, L.P., as nominee
for MDV Entrepreneurs' Network Fund II (A), L.P. and MDV Entrepreneurs'
Network Fund II (B), L.P., a warrant issued to Mohr, Davidow Ventures V,
L.P. to purchase 139,500 shares exercisable within 60 days of February 15,
2000 and a warrant issued to
58
<PAGE>
Mohr, Davidow Ventures V, L.P., as nominee for MDV Entrepreneurs' Network
Fund II(A), L.P. and MDV Entrepreneurs' Network Fund II (B), L.P. to
purchase 10,500 shares exercisable within 60 days of February 15, 2000.
Each of the following individuals is a Member, Fifth MDV Partners, L.L.C.,
General Partner of Mohr, Davidow Ventures V, L.P. and Mohr, Davidow
Ventures V, L.P. as nominee for MDV Entrepreneurs' Network Fund II (A),
L.P. and MDV Entrepreneur's Network Fund II (B), L.P., and, as such, each
has the authority to make all decisions concerning the shares held by these
funds, including selling and voting: Jonathan D. Feiber, Nancy J.
Schoendorf and George Zachary. Mr. Davidow, a director of our company, is a
partner at Mohr, Davidow Ventures. Mr. Davidow disclaims beneficial
ownership of the shares held by these entities except to the extent of his
proportional interest in the entities.
(b) Includes 600,000 shares issued upon exercise of a stock option, all of
which are subject to a repurchase option we hold as of February 15, 2000.
(c) Includes 225,000 shares issued upon exercise of a stock option, all of
which are subject to a repurchase option we hold as of February 15, 2000.
(d) Includes 499,999 shares issued upon exercise of a stock option, all of
which are subject to a repurchase option we hold as of February 15, 2000.
(e) Includes 150,000 shares issued upon exercise of stock options, 93,750 of
which are subject to a repurchase option we hold as of February 15, 2000,
153,373 shares held by The Jones Living Trust and an option to purchase
7,500 shares exercisable within 60 days of February 15, 2000.
(f) Includes 671,580 shares held by Thomas and Sarah Kailath Revocable Living
Trust Dated 02/15/89, 185,001 shares held by Thomas Kailath, Trustee of
the Paul V. Kailath Irrevocable Trust UAD 10-1-89, 205,833 shares held by
Thomas Kailath, Trustee of the Priya S. Kailath Irrevocable Trust
UAD 10-1-89, and an option to purchase 7,500 shares exercisable within 60
days of February 15, 2000.
(g) Includes 231,000 shares held directly by Dr. Gupta, all of which were
issued upon exercise of a stock option, 49,688 of which are subject to a
repurchase option we hold as of February 15, 2000, 306,748 shares held by
Naren and Vinita Gupta Living Trust dated 12/2/94, and 416,666 shares held
by Mr. Gupta as custodian for his minor children.
(h) Includes 225,000 shares held by El Gamal Family Partnership, all of which
were issued upon exercise of a stock option by Dr. El Gamal, 42,188 of
which are subject to a repurchase option we hold as of February 15, 2000,
and an option to purchase 7,500 shares exercisable within 60 days of
February 15, 2000.
(i) All of such shares issued upon exercise of stock options, all of which are
subject to a repurchase option we hold as of February 15, 2000. Includes
54,000 shares held by Mr. Mora as custodian for his minor children.
(j) All of such shares issued upon exercise of stock options, 342,188 of which
are subject to a repurchase option we hold as of February 15, 2000.
(k) Includes 198,282 shares issued upon exercise of stock options, 155,157 of
which are subject to a repurchase option we hold as of February 15, 2000,
and options to purchase 56,718 shares exercisable within 60 days of
February 15, 2000.
(l) Includes 58,125 shares issued upon exercise of stock options, all of
which are subject to a repurchase option we hold as of February 15, 2000,
and options to purchase 174,375 shares exercisable within 60 days of
February 15, 2000.
(m) Includes an aggregate of:
. 2,797,345 shares of which are subject to a repurchase option we hold as
of February 15, 2000;
. 3,388,906 shares issued upon exercise of stock options; and
. options and warrants to purchase 411,093 shares exercisable within 60
days of February 15, 2000.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, our authorized capital stock will
consist of 100,000,000 shares of common stock, $0.0001 par value, and 5,000,000
shares of preferred stock, $0.0001 par value.
The following summary of the rights of the common stock and preferred stock
does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of our amended and restated certificate of
incorporation and bylaws which are included as exhibits to the registration
statement of which this prospectus is a part and by the provisions of Delaware
law.
Common Stock
After giving effect to the three for two forward stock split of the all
outstanding common stock and preferred stock and the conversion of all
previously outstanding preferred stock into shares of common stock, as of
February 15, 2000, there were 23,548,005 shares of common stock outstanding
held of record by approximately 191 stockholders. There will be 29,082,005
shares of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of certain outstanding options or
warrants, after giving effect to the sale of common stock in the offering.
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to the following rights:
. to receive dividends out of assets legally available therefor at such
times and in such amounts as the board of directors from time to time may
determine;
. one vote for each share held on all matters submitted to a vote of
stockholders; and
. upon our liquidation, dissolution or winding-up, to share ratably in all
assets remaining after payment of liabilities and the liquidation of any
preferred stock.
Cumulative voting for the election of directors is not authorized by our
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election. The
common stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Each outstanding share of common stock is, and all
shares of common stock to be outstanding upon completion of this offering will
be, upon payment therefor, duly and validly issued, fully paid and
nonassessible.
Preferred Stock
Upon the consummation of this offering, each outstanding share of Series A,
Series B, Series C, Series D and Series E preferred stock will automatically
convert into one share of common stock. Pursuant to our amended and restated
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 in one or more series and to fix the designations, powers,
preferences, privileges, which may be greater than the rights of the common
stock. The board, without stockholder approval, can issue preferred stock with
voting, conversion or other rights that could adversely affect the voting power
and other rights of the holders of common stock. Preferred stock could thus be
issued quickly with terms calculated to delay or prevent a change in control of
our company or make removal of management more difficult. Additionally, the
issuance of preferred stock may have the effect of decreasing the market price
of the common stock. At present, there are no shares of preferred stock
outstanding, and we have no plans to issue any of the preferred stock.
Registration Rights
Upon completion of the offering, the holders of an aggregate of
approximately 17,481,325 shares of common stock will be entitled to certain
rights with respect to the registration of such shares under the Securities Act
of 1933. Under the terms of the 1999 second amended and restated shareholders
rights
60
<PAGE>
agreement, as amended, if we propose to register any of its securities under
the Securities Act of 1933, either for our own account or for the account of
other security holders, these holders are entitled to notice of such
registration and are entitled to include shares of common stock in the
registration. The rights are subject to conditions and limitations, among them
the right of the underwriters of an offering subject to the registration to
limit the number of shares included in such registration. A limited number of
the holders of these rights may also require us to file a registration
statement under the Securities Act of 1933 with respect to their shares of
common stock and we are required to use our best efforts to effect such
registration, subject to conditions and limitations. Furthermore, stockholders
with registration rights may require us to file additional registration
statements on Form S-3, subject to conditions and limitations.
Delaware Anti-Takeover Law and Certain Charter and Bylaws Provisions
Delaware Anti-Takeover Statute. We are subject to Section 203 of the
Delaware General Corporation Law. In general, these provisions prohibit a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that the
stockholder became an interested stockholder, unless the transaction in which
the person became an interested stockholder is approved in a manner presented
in Section 203 of the Delaware General Corporation Law.
Generally, a "business combination" is defined to include mergers, asset or
stock sales and other transactions resulting in financial benefit to a
stockholder. In general, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years, did own, 15% or
more of a corporation's outstanding voting stock.
Certificate of Incorporation and Bylaws. Our certificate of incorporation
and bylaws include provisions that:
. allow the board of directors to issue, without further action by the
stockholders, up to 5,000,000 shares of undesignated preferred stock;
. require that any action to be taken by our stockholders be effected at a
duly called annual or special meeting and not by written consent;
. divide the board of directors into three classes, with each class serving
for a term of three years;
. prohibit cumulative voting in the election of directors;
. require that special meetings of our stockholders be called only by the
board of directors, the chairman of the board, the chief executive
officer and the president;
. establish an advance notice procedure for stockholder proposals to be
brought before an annual meeting of our stockholders, including proposed
nominations of persons for election to the board of directors; and
. require that certain amendments to the certificate of incorporation and
the bylaws require the approval of the holders of at least 66 2/3% of the
voting power of all outstanding stock.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the board and in the policies formulated by the
board and to discourage certain types of transactions that may involve an
actual or threatened change of control of our company. These provisions are
designed to reduce our vulnerability to an unsolicited proposal for a takeover
that does not contemplate the acquisition of all of our outstanding shares or
an unsolicited proposal for the restructuring or sale of all or part of our
company. These provisions, however, could discourage potential acquisition
proposals and could complicate, delay or prevent a change in control of our
company. They may also have the effect of preventing changes in our management.
We believe that the benefits of increased protection of our potential ability
to negotiate with the proponent of an unfriendly or unsolicited proposal to
acquire or restructure us outweighs the disadvantages of discouraging these
proposals, including proposals that are priced above the then current market
value of our common stock, because, among other things, negotiation of these
proposals could result in an improvement of their terms.
61
<PAGE>
Transfer Agent and Registrar
The transfer agent and registrar for common stock is ChaseMellon Shareholder
Services, L.L.C.
Listing
Our common stock will be listed on the Nasdaq National Market under the
trading symbol "NMTC." We have not applied to list our common stock on any
other exchange or quotation system.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market
following the offering could cause the prevailing market price of our common
stock to fall and impede our ability to raise equity capital at a time and on
terms favorable to us.
Upon completion of the offering, we will have outstanding an aggregate of
29,082,005 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or outstanding
warrants after February 15, 2000. Of these outstanding shares, the 5,534,000
shares sold in the offering will be freely tradable without restriction or
further registration under the Securities Act of 1933, unless purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act of
1933. The remaining 23,548,005 shares of common stock outstanding upon
completion of the offering and held by existing stockholders will be
"restricted securities" as that term is defined in Rule 144 under the
Securities Act of 1933. Restricted shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act of 1933, which rules
are summarized below, or another exemption. Sales of the restricted shares in
the public market, or the availability of such shares for sale, could adversely
affect the market price of the common stock.
All officers, directors and certain other holders of common stock have
entered into contractual "lock-up" agreements providing that they will not
offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of shares of common stock owned by them or that could be purchased by
them through the exercise of options or warrants for a period of 180 days after
the date of this prospectus without the prior written consent of Credit Suisse
First Boston Corporation. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, additional shares will be available beginning 181
days after the effective date of the offering, subject in some cases to certain
volume limitations.
Of the remaining restricted shares:
. 3,655,379 shares are subject to our repurchase option in the event of
termination of employment; and
. 3,809,994 shares will not be eligible for sale pursuant to Rule 144 until
the expiration of a one-year holding period on January 1, 2001.
Beginning 181 days after the date of this prospectus, approximately 102,671
additional shares subject to vested options will be available for sale subject
to compliance with Rule 701 and upon the expiration of agreements not to sell
such shares entered into between the underwriters and such stockholders. Any
shares subject to lock-up agreements may be released at any time without notice
by the underwriters.
In general, under Rule 144 as currently in effect, beginning 91 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year, including
persons who may be deemed to be our "affiliates", would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately 290,820 shares immediately after the offering; or
. the average weekly trading volume of the common stock as reported through
the Nasdaq National Market during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who is not deemed to have been our
affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned for at least two years the restricted shares proposed to be
sold, 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.
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<PAGE>
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 permits resales of shares issued
prior to the date the issuer becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, pursuant to certain compensatory benefit
plans and contracts commencing 90 days after the issuer becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, in reliance upon
Rule 144 but without compliance with certain restrictions, including the
holding period requirements. In addition, the Securities and Exchange
Commission has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of such options, including exercises after the date the issuer becomes
so subject. Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 91 days
after the date of this prospectus, may be sold by persons other than affiliates
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one-year minimum holding period
requirements.
We have agreed not to sell or otherwise dispose of any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock, or enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the common stock, for a
period of 180 days after the date of this prospectus, without the prior written
consent of Credit Suisse First Boston Corporation, subject to limited
exceptions.
We intend to file a registration statement under the Securities Act of 1933
covering the shares of common stock subject to outstanding options or reserved
for issuance under the 2000 stock plan, 1997 stock plan and 2000 employee stock
purchase plan. This registration statement is expected to be filed
simultaneously with the effectiveness of the registration statement covering
the shares of common stock offered in this offering and will automatically
become effective upon filing. Accordingly, shares registered under such
registration statement will, subject to Rule 144 volume limitations applicable
to affiliates and the expiration of a 180-day lockup period, be available for
sale in the open market, except to the extent that such shares are subject to
our vesting restrictions or the contractual restrictions described above.
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<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Chase Securities, Inc.
and SG Cowen Securities Corporation are acting as representatives, the
following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Chase Securities, Inc. ............................................
SG Cowen Securities Corporation....................................
---------
Total............................................................ 5,534,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase shares of common stock in the offering if any are purchased, other
than those shares covered by the over-allotment option described below. The
underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to an additional 830,100 shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-Allotment Over-allotment Over-Allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions paid by
us..................... $ $ $ $
Expenses paid by us..... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5.0% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the data of this prospectus.
Our officers and directors and certain other stockholders, including holders
of our preferred stock and warrants, have agreed that they will not offer,
sell, contract to sell pledge or otherwise dispose of, directly or indirectly,
any shares of our common stock or securities convertible into or exchangeable
or exercisable for shares of our common stock, or publicly disclose the
intention to make any such offer, sale, pledge or disposal, without, in each
case, the prior written consent of Credit Suisse First Boston Corporation for a
period of 180 days after the date of this prospectus.
65
<PAGE>
The underwriters have reserved for sale, at the initial public offering
price, up to 276,700 shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. In addition, at our request, the
underwriters will reserve up to 416,667 shares of common stock at the initial
public offering price for sale to KLA-Tencor. There can be no assurance that
any of the reserved shares will be purchased. KLA-Tencor will agree that, if it
purchases any shares of common stock or other securities of Numerical
Technologies, it will not sell or otherwise dispose of or hedge such shares or
securities until 180 days after this offering. The number of shares available
for sale to the general public in the offering will be reduced to the extent
any of the reserved shares are purchased. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same terms as
the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be
required to make in that respect.
We will list the shares of common stock on The Nasdaq Stock Market's
National Market.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The underwriters may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the representatives of the underwriters to underwriters that may
make Internet distributions on the same basis as other allocations. Other than
the prospectus in electronic format, the information contained on any
underwriter's web site or on any web site maintained by an underwriter is not
part of this prospectus or the registration statement of which this prospectus
forms a part, has not been approved or endorsed by us or any underwriter in its
capacity as an underwriter and should not be relied upon by investors.
Prior to the offering, there has been no public market for the common stock.
The initial public offering price for the common stock will be determined by
negotiation between us and the representatives, and does not reflect the market
price for the common stock following the offering. Among the principal factors
considered in determining the initial public offering price will be:
. the information in this prospectus and otherwise available to the
representatives;
. market conditions for initial public offerings;
. the history of and prospects for the industry in which we will compete;
. the ability of our management;
. our prospects for future earnings;
. the present state of our development and our current financial condition;
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies; and
. the general condition of the securities markets at the time of this
offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934, as amended.
. Over-allotment involves sales in excess of the offering size, which
creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq Stock Markets National Market or otherwise and, if
commenced, may be discontinued at any time.
66
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that: (i) such purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws; (ii) where
required by law, such purchaser is purchasing as principal and not as agent;
and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or these persons. All or a substantial portion of the assets of
the issuer and these persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against the
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. This report must be
in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from us. Only one report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in the
common stock in their particular circumstances and with respect to the
eligibility of the common stock for investment by the purchaser under relevant
Canadian legislation.
67
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Certain legal matters in connection with
this offering will be passed upon for the underwriters by Morrison & Forrester,
LLP, Palo Alto, California. WS Investment Company, an investment partnership
composed of certain current and former members of and persons associated with
Wilson Sonsini Goodrich & Rosati, Professional Corporation, as well as an
individual attorney of this firm, beneficially own an aggregate of 87,000
shares of our common stock.
EXPERTS
The balance sheets of Numerical Technologies, Inc. at December 31, 1998 and
1999 and the statements of operations, of stockholders' equity and of cash
flows for each of the three years in the period ended December 31, 1999,
included in this prospectus, have been included herein in reliance upon the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The balance sheets of Transcription Enterprises Limited at December 31, 1998
and 1999 and the statements of operations, of shareholders' equity and of cash
flows for the years then ended, included in this prospectus, have been included
herein in reliance upon the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, under the Securities Act of 1933, a registration statement on Form S-1
relating to the common stock offered hereby. This prospectus does not contain
all of the information set forth in the registration statement and the exhibits
and schedules thereto. For further information with respect to our company and
the shares we are offering by this prospectus you should refer to the
registration statement, including the exhibits and schedules thereto. You may
inspect a copy of the registration statement without charge at the Public
Reference Section of the Securities and Exchange Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 or at the Securities and Exchange
Commission's regional offices at 5670 Wilshire Boulevard, 11th Floor, Los
Angeles, California 90036. The public may obtain information on the operation
of the Public Reference Room by calling the Securities and Exchange Commission.
The Securities and Exchange Commission also maintains an Internet site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission. The Securities and Exchange Commission's World Wide Web address is
http://www.sec.gov.
We intend to furnish holders of the common stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing
unaudited condensed financial information for the first three quarters of each
fiscal year. We intend to furnish such other reports as it may determine or as
may be required by law.
68
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Numerical Technologies, Inc.
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
Unaudited Pro Forma Combined Financial Information
Overview................................................................... F-18
Unaudited Pro Forma Combined Balance Sheet................................. F-19
Unaudited Pro Forma Combined Statement of Operations....................... F-20
Notes to Unaudited Pro Forma Combined Financial Information................ F-21
Transcription Enterprises Ltd.
Report of Independent Accountants.......................................... F-23
Balance Sheets............................................................. F-24
Statements of Operations................................................... F-25
Statements of Shareholders' Equity (Deficit)............................... F-26
Statements of Cash Flows................................................... F-27
Notes to Financial Statements.............................................. F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The reincorporation and three-for-two stock split described in Note 1 to the
financial statements have not been consummated at February 2, 2000. When they
have been consummated, we will be in a position to furnish the following
report:
To the Board or Directors and
Stockholders of
Numerical Technologies, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Numerical Technologies, Inc. at
December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 2, 2000
F-2
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity
----------------- December 31,
1998 1999 1999
------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 4,973 $ 13,486
Accounts receivable......................... 1,083 1,819
Prepaid and other........................... 60 394
------- --------
Total current assets...................... 6,116 15,699
Property and equipment, net................... 456 1,613
Other assets.................................. 39 293
------- --------
$ 6,611 $ 17,605
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 239 $ 613
Accrued expenses............................ 1,341 1,945
Deferred revenue............................ 2,216 2,642
------- --------
Total current liabilities................. 3,796 5,200
------- --------
Commitments (See Note 3)
Stockholders' equity:
Convertible preferred stock, $0.0001 par
value:
Authorized: 12,253 shares;
Issued and outstanding: 5,745 and 8,103
shares in 1998 and 1999, respectively, and
none in pro forma (unaudited).............. 1 1 $ --
Common stock, $0.0001 par value:
Authorized: 30,000 shares;
Issued and outstanding: 7,727 and
9,570 shares in 1998 and 1999,
respectively, and 17,673 in pro forma
(unaudited)................................ 1 1 1
Additional paid in capital.................... 12,090 50,100 50,101
Receivable from stockholders.................. (5) (315) (315)
Deferred stock compensation................... (1,938) (21,220) (21,220)
Accumulated deficit........................... (7,334) (16,162) (16,162)
------- -------- --------
Total stockholders' equity................ 2,815 12,405 $ 12,405
------- -------- ========
$ 6,611 $ 17,605
======= ========
</TABLE>
The accompanying notes are an integral part of financial statements.
F-3
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
Revenue............................................. $ 620 $ 736 $ 5,492
------ ------- -------
Costs and expenses:
Cost of revenue................................... 57 127 307
Research and development.......................... 993 2,721 4,816
Sales and marketing............................... 58 1,404 4,277
General and administrative........................ 131 2,355 1,303
Amortization of deferred stock compensation (*)... -- 862 3,990
------ ------- -------
Total costs and expenses........................ 1,239 7,469 14,693
------ ------- -------
Loss from operations................................ (619) (6,733) (9,201)
Interest income..................................... 35 182 373
------ ------- -------
Net loss............................................ $ (584) $(6,551) $(8,828)
====== ======= =======
Net loss per common share, basic and diluted........ $(0.08) $ (0.89) $ (1.26)
====== ======= =======
Weighted average common shares, basic and diluted... 7,397 7,373 7,019
====== ======= =======
Pro forma net loss per common share, basic and
diluted (unaudited)................................ $ (0.64)
=======
Pro forma weighted average common shares, basic and
diluted (unaudited)................................ 13,885
=======
(*) Amortization of Deferred Stock Compensation:
Cost of revenue................................... -- $ 22 $ 117
Research and development.......................... -- 465 1,836
Sales and marketing............................... -- 361 1,444
General and administrative........................ -- 14 593
------ ------- -------
$ -- $ 862 $ 3,990
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1998 and 1999
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred Receivable Deferred
Stock Common Stock Additional from Stock
------------- -------------- Paid in Stock- Compen- Accumulated
Shares Amount Shares Amount Capital holders sation Deficit Total
------ ------ ------ ------ ---------- ---------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... 2,250 $ -- 7,083 $ 1 $ 538 $ -- $ -- $ (199) $ 340
Exercise of common stock
options................ -- -- 847 -- 23 -- -- -- 23
Issuance of Series B
preferred stock and
warrants, net of
issuance costs of $7... 1,050 -- -- -- 746 (50) -- -- 696
Net loss................ -- -- -- -- -- -- -- (584) (584)
----- ----- ----- --- ------- ----- -------- -------- -------
Balance, December 31,
1997................... 3,300 -- 7,930 1 1,307 (50) -- (783) 475
Exercise of common stock
options................ -- -- 825 -- 61 (5) -- -- 56
Return of common stock.. -- -- (525) -- -- -- -- -- --
Repurchase of common
stock.................. -- -- (503) -- (2) -- -- -- (2)
Issuance of Series C
preferred stock and
warrants, net of
issuance costs of $47.. 2,445 1 -- -- 7,924 -- -- -- 7,925
Repayment of note
receivable............. -- -- -- -- -- 50 -- -- 50
Deferred stock
compensation related to
grants of stock options
and issuance of common
stock.................. -- -- -- -- 2,800 -- (2,800) -- --
Amortization of deferred
stock compensation..... -- -- -- -- -- -- 862 -- 862
Net loss................ -- -- -- -- -- -- -- (6,551) (6,551)
----- ----- ----- --- ------- ----- -------- -------- -------
Balance, December 31,
1998................... 5,745 1 7,727 1 12,090 (5) (1,938) (7,334) 2,815
Exercise of common stock
options................ -- -- 2,001 -- 1,333 (315) -- -- 1,018
Repurchase of common
stock.................. -- -- (158) -- (20) -- -- -- (20)
Issuance of Series D
preferred stock, net of
issuance
costs of $455.......... 2,358 -- -- -- 13,425 -- -- -- 13,425
Repayment of note
receivable............. -- -- -- -- -- 5 -- -- 5
Deferred stock
compensation related to
grants of stock options
and issuance of common
stock.................. -- -- -- -- 23,272 -- (23,272) -- --
Amortization of deferred
stock compensation..... -- -- -- -- -- -- 3,990 -- 3,990
Net loss................ -- -- -- -- -- -- -- (8,828) (8,828)
----- ----- ----- --- ------- ----- -------- -------- -------
Balance, December 31,
1999................... 8,103 $ 1 9,570 $ 1 $50,100 $(315) $(21,220) $(16,162) $12,405
===== ===== ===== === ======= ===== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------
1997 1998 1999
----- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(584) $(6,551) $(8,828)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................ 24 99 340
Amortization of deferred stock compensation......... 862 3,990
Changes in assets and liabilities:
Accounts receivable............................... (323) (758) (736)
Prepaid and other................................. (4) (67) (334)
Other assets...................................... (7) (31) (254)
Accounts payable.................................. 90 111 374
Accrued expenses.................................. 81 1,244 604
Deferred revenue.................................. 127 1,834 426
----- ------- -------
Net cash used in operating activities........... (596) (3,257) (4,418)
----- ------- -------
Cash flows from investing activities:
Purchases of property and equipment................... (82) (455) (1,497)
----- ------- -------
Net cash used in investing activities........... (82) (455) (1,497)
----- ------- -------
Cash flows from financing activities:
Proceeds from exercise of common stock options........ 23 56 1,018
Proceeds from issuance of preferred stock............. 696 7,925 13,425
Repurchase of common stock............................ -- (2) (20)
Repayment of notes receivable for preferred and common
stock................................................ -- 50 5
Proceeds from related party loan...................... -- 250 --
Repayment of related party loan....................... -- (250) --
----- ------- -------
Net cash provided by financing activities....... 719 8,029 14,428
----- ------- -------
Net increase in cash and cash equivalents............. 41 4,317 8,513
Cash and cash equivalents at beginning of year........ 615 656 4,973
----- ------- -------
Cash and cash equivalents at end of year.............. $ 656 $ 4,973 $13,486
===== ======= =======
Supplemental disclosures noncash financing activities:
Stockholder notes receivable exchanged for common
stock or preferred stock........................... $ 50 $ 5 $ 315
===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Numerical Technologies, Inc. (the "Company") designs and develops
proprietary technologies and software products that enable the design and
manufacture of integrated circuits with subwavelength feature sizes. The
Company markets and sells its products and services to semiconductor
manufacturers, resellers and original equipment manufacturers primarily in
North America, Europe, Japan and the Pacific Rim.
Reincorporation and stock split
In January 2000, the Company's Board of Directors authorized the
reincorporation of the Company in the State of Delaware. As a result of the
reincorporation, the Company is authorized to issue 100,000,000 shares of
$0.0001 par value Common Stock and 5,000,000 shares of $0.0001 par value
Preferred Stock. In January 2000, the Company's Board of Directors approved a
three-for-two share split of the Company's Preferred and Common Stock. The
share split will take effect immediately prior to the closing of the initial
public offering. All share and per share information have been adjusted to
reflect the reincorporation and the share split.
Certain risks and concentrations
At December 31, 1999, substantially all of the Company's cash and cash
equivalents were invested with two financial institutions.
The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. The
Company had amounts receivable from one customer representing 86% and four
customers representing 84% of accounts receivable at December 31, 1998 and
1999, respectively. The Company has experienced no losses and does not consider
allowance for doubtful accounts necessary at December 31, 1998 and 1999.
In 1997, four customers accounted for 40%, 29%, 19% and 12% of total
revenues. In 1998, three customers accounted for 37%, 30% and 25% of total
revenues. In 1999, three customers accounted for 23%, 17%, and 16% of total
revenues.
Financial instruments
The carrying amount of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and accrued
expenses, approximate fair value due to their short maturities.
Cash and cash equivalents
The Company considers all highly liquid investments with maturities of three
months or less at the time of purchase and money market funds to be cash
equivalents. At December 31, 1999, cash and cash equivalents included
restricted cash of $204,000 related to a certificate of deposit issued as
collateral for a Letter of Credit.
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
estimated useful lives of 2 to 3 years. When assets are sold or retired, the
cost and related accumulated depreciation is removed from the accounts and the
resulting gains or losses are included in the statement of operations.
F-7
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Software development costs
Software development costs incurred in the research and development of new
products and enhancements to existing products are charged to expense as
incurred. Software development costs are capitalized after technological
feasibility has been established. The period between achievement of
technological feasibility, which the Company defines as the establishment of a
working model, until the general availability of such software to customers,
has been short, and software development costs qualifying for capitalization
have been insignificant. Accordingly, the Company has not capitalized any
software development costs since its inception.
Income taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue recognition
The Company recognizes revenues in accordance with the provisions of
Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition", as
amended by SOP 98-4 and 98-9. The Company's revenues are derived from
intellectual property and software licenses and maintenance and technical
services. Revenues are recognized for the various contract elements based upon
vendor-specific objective evidence ("VSOE") of fair value of each element. If
VSOE of fair value does not exist but postcontract customer services ("PCS") is
the only undelivered element, the Company recognized the fee including up-front
payments for licenses, under the arrangement ratably over the contractual PCS
period. To date, the Company has not established VSOE for the service or annual
maintenance elements of the contracts. License revenues, including up-front
fees, are recognized when persuasive evidence of an agreement exists, the
product has been delivered, no significant post-delivery obligations remain,
the license fee is fixed or determinable and collection of the fee is probable.
Revenue for technical services is recognized as the services are performed.
Maintenance services are typically priced based on a percentage of the license
fee and have a one-year term, renewable annually. Services provided to
customers under maintenance agreements include technical product support and
unspecified product upgrades. Deferred revenues include billings in excess of
recognized revenue and payments received in advance of revenue recognition.
Prior to the adoption of SOP 97-2, on January 1, 1998, the Company
recognized revenue for software and intellectual property upon delivery if
remaining obligations were insignificant and collection of the resulting
accounts receivable was probable. Revenue from software maintenance contracts,
including amounts unbundled from license, were deferred and recognized ratably
over the period of the contract. The adoption of SOP 97-2, SOP 98-4 and 98-9
have not had and are not expected to have a material impact on the Company's
results of operations, financial position or cash flows.
F-8
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock-based compensation
The Company accounts for its stock based compensation in accordance with the
provisions of Accounting Principles Board Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees" and complies with the disclosure
provisions of Statement of Financial Accounting Standard No. 123 ("SFAS
No. 123"). Deferred compensation recognized under APB No. 25 is amortized over
the vesting period on an accelerated basis using the model presented in
Financial Accounting Standards Board Interpretation No. 28, "Accounting for
Stock Appreciation Rights and Other Variable Stock Option or Award Plans" ("FIN
No. 28"). Accordingly, the percentages of the deferred compensation amortized
in the first, second, third and fourth years following the option grant date
are approximately 52%, 27%, 15% and 6%, respectively, for options with a
four-year vesting period.
Net loss per share
The basic net loss per share is computed by dividing the net loss
attributable to common stockholders for the period by the weighted average
number of the common shares outstanding during the period. The diluted net loss
per share is the same as the basic net loss per share for the periods presented
because common equivalent shares, composed of common shares subject to
repurchase and common shares issuable upon the exercise of stock options and
warrants and upon conversion of convertible preferred shares, are considered
when their effect would be dilutive. In 1997, 1998 and 1999, 4,337,000,
7,580,000 and 11,976,000, respectively, antidilutive securities including
options, warrants and convertible preferred stock were excluded from the net
loss per share computation.
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of convertible
preferred shares into common shares effective upon the closing of the Company's
initial public offering on an as-if-converted basis. Pro forma diluted net loss
per share is computed using the pro forma weighted average number of common and
common equivalent shares outstanding. Common equivalent shares, composed of
common shares subject to repurchase and common shares issuable upon the
exercise of stock options and warrants, are not included in pro forma diluted
net loss per share as such shares are antidilutive. Antidilutive securities
totaling 3,873,000 including options and warrants were excluded from the pro
forma net loss per share computation.
Pro forma December 31, 1999 balance sheet (unaudited)
Upon consummation of the offering, all shares of convertible preferred stock
outstanding will convert into an aggregate of 8,103,000 shares of common stock.
The effect of this conversion has been reflected in the accompanying unaudited
pro forma consolidated balance sheet as of December 31, 1999.
Comprehensive income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130"), FAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. There was no difference between the
Company's net loss and its total comprehensive loss for each of the periods
presented.
Recent accounting pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, or SFAS 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 establishes new standards of
F-9
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
accounting and reporting for derivative instruments and hedging activities.
SFAS 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that
exists. SFAS 133 will be effective for fiscal years beginning after June 15,
2000. The Company does not currently hold derivative instruments or engage in
hedging activities.
NOTE 2--BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------ ------
<S> <C> <C>
Property and equipment:
Computer equipment......................................... $ 393 $1,362
Furniture and equipment.................................... 133 490
Computer software.......................................... 63 234
------ ------
589 2,086
Less accumulated depreciation.............................. (133) (473)
------ ------
$ 456 $1,613
====== ======
Accrued expenses:
Payroll and related expenses............................... $1,259 $1,204
Other accrued expenses..................................... 82 741
------ ------
$1,341 $1,945
====== ======
</TABLE>
NOTE 3--COMMITMENTS
Operating leases
The Company leases its facility under a noncancelable operating lease which
expires in May 2004. The Company has the option to renew the lease for three
years. The lease requires a security deposit of $272,000 in the form of cash
and a letter of credit. The letter of credit is secured by a $204,000
certificate of deposit, which was considered restricted cash at December 31,
1999. The terms of the lease provide for rental payments on a graduated scale.
The Company recognized rent expense on a straight-line basis over the period,
and has accrued for rent expense incurred but not paid. The Company is
responsible for maintenance, insurance and taxes.
Minimum lease payments as of December 31, 1999 for noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
Lease
Year Payments
---- --------
<S> <C>
2000.............................................................. $ 723
2001.............................................................. 748
2002.............................................................. 770
2003.............................................................. 793
2004.............................................................. 478
------
$3,512
======
</TABLE>
Rent expense was $60,000, $229,000 and $474,000 for 1997, 1998 and 1999,
respectively.
F-10
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 4--CAPITAL STOCK
Convertible preferred stock
At December 31, 1999, the amounts, terms and liquidation values of Series A,
Series B, Series C, Series D and Series E convertible preferred stock are as
follows:
<TABLE>
<CAPTION>
Common
Shares
Reserved
Issued and for Liquidation
Series Amount Designated Outstanding Conversion Value
------ -------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
A.................. $ 538 2,250 2,250 2,250 $ 540
B.................. 693 1,050 1,050 1,050 700
C.................. 7,636 2,595 2,445 2,445 7,971
D.................. 13,425 2,548 2,358 2,358 13,880
E.................. -- 3,810 -- -- --
-------- ------ ----- ----- -------
$ 22,292 12,253 8,103 8,103 $23,091
======== ====== ===== ===== =======
</TABLE>
Each share of preferred stock is convertible into common stock on a one-for-
one basis subject to adjustment for certain changes in capitalization and
certain dilutive issuances. Conversion of preferred stock into common stock is
at the option of the holder, and is automatic upon the earlier of (1) for
Series A, Series B, Series C and Series D preferred stock the election of
holders of at least a majority of the outstanding shares of Series A, Series B,
Series C and Series D preferred stock voting as a class, and for Series E
preferred stock the election of holders of at least a majority of the
outstanding shares of Series E preferred stock voting as a class, or (2) the
closing of a public offering of the Company's common stock at a price per share
of not less than $10.67 and an aggregate offering price of not less than
$15,000,000. The holders of shares of preferred stock are entitled to the
number of votes equal to the number of shares of common stock into which the
preferred shares are convertible.
The holders of preferred stock may receive noncumulative dividends of $0.02,
$0.07, $0.33, $0.47 and $0.85, per share per annum for Series A, Series B,
Series C, Series D and Series E preferred stock, respectively, when and as
declared by the Board of Directors. No cash dividends may be paid to holders of
common stock during any year until dividends of $0.02, $0.07, $0.33, $0.47 and
$0.85 per share for Series A, Series B, Series C, Series D and Series E
preferred stock, respectively, have been paid in that year. No dividends have
been declared to date. The holders of preferred stock have certain registration
rights.
The holders of Series E preferred have preference of the holders of common
stock and all other series of preferred stock in liquidation to the extent of
$10.67 per share plus all declared but unpaid dividends. The holders of Series
D preferred stock have preference over the holders of common stock and Series
A, Series B and Series C preferred stock in liquidation to the extent of $5.89
per share plus all declared but unpaid dividends. The holders of Series C
preferred stock have preference over the holders of common stock and Series A
and Series B preferred stock in liquidation to the extent of $3.26 per share
plus all declared but unpaid dividends. Thereafter, Series A and Series B have
preference over common stock in liquidation to the extent of $0.24 and $0.67
per share, respectively, plus all declared but unpaid dividends. The holders of
common stock are then entitled to share ratably in the remaining assets, based
on the number of shares of common stock held by each stockholder.
Stock Option Plans
1997 Stock Option Plan
Under the Company's 1997 Stock Option Plan (the "1997 Plan"), 6,197,000
shares of the Company's common stock are reserved for issuance to employees,
directors and consultants. Options granted under the
F-11
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
1997 Plan may be incentive stock options or non-statutory stock options. Stock
purchase rights may also be granted under the 1997 Plan. Incentive stock
options may only be granted to employees. The 1997 Plan, which is administered
by the board of directors, provides generally that the option price shall not
be less than the fair market value of the shares on the date of grant and that
no portion may be exercised beyond ten years from that date. Under the 1997
Plan, stock options vest over a period that is limited to five years, but are
typically granted with a four year vesting period. Each option outstanding
under the 1997 Plan may be exercised in whole or in part at any time.
Exercised but unvested shares are subject to repurchase by the Company at the
initial exercise price. At December 31, 1999, 2,188,000 shares were subject to
repurchase.
Activity under this plan is as follows:
<TABLE>
<CAPTION>
Outstanding Shares
------------------- Weighted
Shares Number Average
Available of Price Per Exercise
for Grant Shares Share Price
--------- ------ ----------- --------
<S> <C> <C> <C> <C>
Options reserved upon adoption of the
plan.................................. 1,107
Options granted........................ (905) 905 $ 0.03-0.07 $0.03
Options exercised...................... (848) $ 0.03 $0.03
------ ------
Balances, December 31, 1997............ 202 57 $ 0.07 $0.07
Options reserved upon amendment of the
plan.................................. 1,591
Options granted........................ (1,236) 1,236 $0.03-$0.17 $0.17
Options exercised...................... (825) $0.03-$0.17 $0.33
Shares repurchased..................... 35
Options cancelled...................... 47 (47) $ 0.33 $0.08
------ ------
Balances, December 31, 1998............ 639 421 $ 0.33 $0.33
Options reserved upon amendment of the
plan.................................. 3,498
Options granted........................ (3,019) 3,019 $0.33-$1.00 $0.81
Options exercised...................... (2,001) $0.03-$1.00 $0.67
Shares repurchased..................... 158
Options cancelled...................... 31 (31) $ 0.33
------ ------
Balances, December 31, 1999............ 1,307 1,408 $ 0.88 $0.88
====== ======
</TABLE>
The weighted average grant date fair value of options granted during 1997,
1998 and 1999 was $0.08, $3.45, and $11.85, respectively.
The options outstanding and currently exercisable by exercise price at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Options Upon Exercise
Options Outstanding Subject to Repurchase
------------------------------------------------------------------------------------
Weighted
Average
Remaining Weighted Weighted
Number Contractual Average Number Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
--------------- ----------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.33-
$1.00 1,408 9.73 $0.88 1,303 $0.88
</TABLE>
Deferred Stock Compensation
During 1999 and 1998, the Company issued stock options under the 1997 Plan
at exercise prices deemed by the Board of Directors at the date of grant to be
the fair value. In anticipation of the Company's initial
F-12
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
public offering, the Company has subsequently determined that, for financial
statement purposes, the estimated value of its common stock was in excess of
the exercise prices. Accordingly the Company has recorded deferred compensation
for the difference between the purchase price of stock issued to employees
under stock options and the fair market value of the Company's stock at the
date of grant. This deferred compensation is amortized to expense over the
period during which the Company's right to repurchase the stock lapses or
options become exercisable, generally four years. At December 31, 1999, the
Company had recorded deferred compensation related to these options in the
total amount of $26.0 million of which $862,000 and $3,990,000 had been
amortized to expense during 1998 and 1999, respectively. Future compensation
expense from options granted through December 31, 1999 is estimated to be $11.2
million, $5.9 million, $3.0 million and $1.1 million for 2000, 2001, 2002 and
2003, respectively.
Pro forma stock-based compensation
Had compensation expense for the 1997 Plan been determined based on the fair
value at the grant date for options granted in 1999, 1998 and 1997 consistent
with the provisions of SFAS No. 123, the Company's net loss and net loss per
share would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December
31,
------------------------
1997 1998 1999
------ ------- -------
(in thousands, except
per share data)
<S> <C> <C> <C>
Net loss
As reported...................................... $ (584) $(6,551) $(8,828)
====== ======= =======
Pro forma........................................ $ (585) $(6,558) $(8,946)
====== ======= =======
Net loss per common share, basic and diluted
As reported...................................... $(0.08) $ (0.89) $ (1.26)
====== ======= =======
Pro forma........................................ $(0.08) $ (0.89) $ (1.27)
====== ======= =======
</TABLE>
The increases in the pro forma amounts above reflect the incremental fair
value over the intrinsic value recognized as part of deferred stock
compensation.
The fair value of each option grant is calculated on the date of grant using
the minimum value method under the Black-Scholes pricing model with a
volatility factor of effectively zero as described by SFAS No. 123, an expected
divident yield of 0%, and with the following assumptions:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate........................ 5.3%-6.3% 5.3%-5.6% 4.8%-6.1%
Expected life (years).......................... 5 5 5
</TABLE>
Warrants
In June 1997, the Company issued immediately exercisable warrants to
purchase 195,000 shares of the Company's Series B preferred Stock at an
exercise price of $0.67 per share. These warrants were issued to a customer of
the Company in connection with the issuance of Series B preferred stock and
entering into a licensing and services contract (see Note 6). The Company
determined the fair value of such warrants to be approximately $53,000 using
the Black-Scholes model and the following assumptions: no future dividends,
volatility of 60%, a weighted average risk-free interest rate of 5.88% and a
term of 2 years. The warrants expired in June 1999.
F-13
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In June 1998, in connection with the issuance of Series C preferred stock,
the Company issued immediately exercisable warrants to purchase 150,000 shares
of the Company's Series C preferred stock at an exercise price of $3.26 per
share. The Company determined the fair value of such warrants to be
approximately $289,000 using the Black-Scholes model and the following
assumptions: no future dividends, volatility factor of 60%, a weighted average
risk-free interest rate of 4.73% and a term of 5 years. The warrants will
expire upon the earlier of June 2003 or the closing of a public offering of the
Company's common stock at a price per share of not less than $6.40 and an
aggregate offering price of not less than $15,000,000. At December 31, 1999,
150,000 shares of Series C preferred stock are reserved for the exercise of the
warrants. The Company expects these warrants will be exercised upon the initial
public offering and will recognize a charge of approximately $778,000 related
to the beneficial conversion feature of these warrants.
Notes receivable from Stockholders
During 1999, an officer of the Company exercised stock options in exchange
for notes receivable totaling $315,000, which are secured by the underlying
shares of common stock. The notes accrue interest at rates ranging from 4.9% to
5.7% per annum, and are payable, with principal, in 2001.
NOTE 5--INCOME TAXES
The components of the net deferred tax asset comprise:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998 1999
(in thousands) ----- ------- -------
<S> <C> <C> <C>
Net operating loss carryforward..................... $240 $ 1,323 $ 2,675
Research and development credit carryforward........ 50 222 382
Accrued liabilities................................. 65 450 1,444
Valuation allowance................................. (355) (1,995) (4,501)
----- ------- -------
$ -- $ -- $ --
===== ======= =======
</TABLE>
The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
Annually, management evaluates the recoverability of the deferred tax assets
and the level of the valuation allowance. At such time as it is determined that
it is more likely than not that deferred tax assets are realizable the
valuation allowance will be reduced.
The Company had the following carryforwards and credits at December 31,
1999:
<TABLE>
<CAPTION>
Expiration
Date Amount
(in thousands) ---------- ------
<S> <C> <C>
Net operating loss carryforwards
Federal................................................. 2010-2019 $6,904
State................................................... 2002-2004 5,611
Research and development credits
Federal................................................. Indefinite $ 217
State................................................... Indefinite 165
</TABLE>
For federal and state tax purposes, a portion of the Company's net operating
loss and tax credit carryforwards may be subject to certain limitations on
annual utilization due to an "Ownership Change," as defined by federal and
state tax law.
F-14
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 6--RELATED PARTY TRANSACTIONS
During 1997, the Company received $120,000 from a Series B preferred
stockholder under a licensing and service contract negotiated concurrently with
the purchase of Series B preferred stock and warrants to purchase Series B
preferred stock. As the fair value of these warrants was determined to be
approximately $53,000, such amount was allocated to the warrants. The warrants
expired unexercised in June 1999.
During 1998, the chairman loaned the Company $250,000 for a period of 2
months at an annual interest rate of 8%. The loan was repaid in 1998.
NOTE 7--EMPLOYEE BENEFIT PLAN
The Company sponsors the Numerical Technologies, Inc. 401(k) Retirement Plan
(the "401(k) Plan"). The 401(k) Plan provides for tax deferred automatic salary
deductions. Under the terms of the 401(k) Plan, employees over the age of 21
are eligible to participate after completing three months of employment. The
Company is permitted to make contributions to the 401(k) Plan as determined by
the Board of Directors. No Company contributions were made to the 401(k) Plan
in 1999, 1998 or 1997.
NOTE 8--OPERATING SEGMENTS
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement requires enterprises to
report information about operating segments in annual financial statements and
selected information about reportable segments in interim financial reports. It
also establishes standards for related disclosures about products, geographic
areas and major customers. The method for determining what information to
report is based upon the "management" approach, which requires the Company to
report certain financial information related to continuing operations that is
provided to the Company's chief operating decision-maker for the purpose of
evaluating financial performance and resource allocation. The Company's chief
operating decision-maker reviews revenue by both geography and customer. The
Company is not organized into business units nor does it capture expenses or
allocate resources based on segmentation of its business. Therefore, the
Company believes that it operates in a single segment.
The following is a summary of the Company's revenue attributed to the
geographic regions in which the technology and services are delivered:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ------
<S> <C> <C> <C>
United States............................................... $380 $626 $4,300
Japan....................................................... -- 105 516
Taiwan...................................................... -- -- 558
Korea....................................................... -- -- 117
Germany..................................................... 215 5 1
Other....................................................... 25 -- --
---- ---- ------
Total....................................................... $620 $736 $5,492
==== ==== ======
</TABLE>
The Company has no long-lived assets outside the United States in any of the
years presented.
F-15
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 9--SUBSEQUENT EVENTS
Acquisition of Transcription
On January 1, 2000, Numerical Technologies, Inc. (" Numerical" or the "
Company") acquired Transcription Enterprises Ltd. ("Transcription"), a company
incorporated in California. Under the terms of the acquisition, the Company
issued 3,810,000 shares of Series E Convertible Preferred Stock and $40.0
million in notes payable for all of the outstanding stock of Transcription. The
total purchase price was $86.0 million, including acquisition costs of
$250,000. The transaction will be accounted for as a purchase.
Under the terms of the agreement, Numerical acquired specified accounts
receivable of Transcription, consisting of 45% of accounts receivable for
license fees, plus all fees associated with maintenance, support and other
services rendered by Transcription on such accounts. The allocation of the
purchase price is as follows: (in thousands):
<TABLE>
<S> <C>
Net tangible assets................................................. $ 243
In process research and development................................. 300
Developed technology................................................ 7,400
Customer base....................................................... 14,300
Covenants not to compete............................................ 2,700
Work force.......................................................... 1,500
Trade name.......................................................... 200
Goodwill............................................................ 59,327
-------
$85,970
=======
</TABLE>
The estimated purchase price was allocated to the identifiable assets
acquired and the liabilities assumed based upon the fair market value on the
acquisition date. The net tangible assets consist primarily of accounts
receivable, property and equipment, and other liabilities. Because the in-
process technology had not reached the stage of technological feasibility at
the acquisition date and had no alternative future use, the amount was
immediately charged to operations. The amounts allocated to developed
technology and customer base and trade name are amortized over the estimated
useful life of five years. The amounts allocated to covenants not to compete
and work force are being amortized over the estimated useful lives of two and
four years, respectively. The excess amount of the purchase price over the fair
market value of the identifiable assets acquired is accounted for as goodwill
and is being amortized over its estimated useful life of five years. The
valuation for the intangible assets has been determined using management's
assumptions and the report from an independent appraiser.
The following unaudited pro forma consolidated financial information
reflects the results of operations for the years ended December 31, 1999, as if
the acquisition had occurred on January 1, 1999, and after giving effect to
purchase accounting adjustments. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what operating
results would have been had the acquisition actually taken place on January 1,
1999, and may not be indicative of future operating results.
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
---------------------
(unaudited)
(in thousands, except
per share data)
<S> <C>
Revenues............................................... $ 19,159
Loss from operations................................... (17,912)
Net loss............................................... (20,684)
Basic and diluted net loss per share................... $ (2.95)
</TABLE>
F-16
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Under the terms of the acquisition agreement, the $40 million note is
secured by substantially all the assets of Transcription. The note bears
interest at the rate of 8% per annum. $5 million was due and paid upon issuance
of the note, with the remaining principal amount due and payable in 16 equal
quarterly installments of $2.2 million, commencing on April 1, 2000 and
thereafter on each of calendar quarter with the final installment being due on
January 1, 2004. All interest accrued to each payment is due and payable on
such payment date. The major stockholders of Transcription have the right to
setoff certain indemnification claims against the interest and principal of the
note otherwise due.
2000 Stock Option Plan
On January 24, 2000, the Company approved the 2000 Stock Option/Stock
Issuance Plan (the "2000 Plan"), under which all remaining shares available for
grant under the Company's 1997 Stock Option Plan and 3,000,000 additional
shares of the Company's common stock has been authorized for issuance. The 2000
Plan is intended to serve as a successor to the 1997 Stock Option Plan and has
term similar to those of the 1997 Plan. Under the 2000 Plan, the term of the
options is generally ten years with a vesting requirement of 25% after one year
of service and monthly, thereafter, fully vesting upon completion of the fourth
year of service. Pursuant to the 2000 Plan, the board of directors has the
discretion to grant options to non-employee directors. The director option
component will not become effective until the date of this offering. Each
nonemployee director who first becomes a board member after the date of this
offering may be granted options for up to 30,000 shares. In addition, each non-
employee director may be granted options for up to 7,500 shares annually.
2000 Employee Stock Purchase Plan
On January 24, 2000, the Company approved the Company's 2000 Employee Stock
Purchase Plan (the "ESPP") and authorized 300,000 shares to be issued under the
ESPP. Under the ESPP, employees are granted the right to purchase shares of
common stock at a price per share that is 85% of the lesser of: the fair market
value of the shares at (i) the beginning of a rolling twenty-four-month
offering period, or (ii) the end of each semi-annual purchase period. The ESPP
will become effective on the effective date of this offering.
Stock-based compensation
On February 1, 2000, the Company granted under the 1997 and 2000 Plans
approximately 2,029,000 options to purchase the Company's common stock. In
connection with these stock option grants, the Company recognized deferred
compensation of approximately $16,990,000, which is being amortized over
vesting periods for the related options of generally four years.
F-17
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
OVERVIEW
On January 1, 2000, Numerical Technologies, Inc. (" Numerical" or the "
Company") acquired Transcription Enterprises Ltd. ("Transcription"), a company
incorporated in California. Under the terms of the acquisition, the Company
issued 3,810,000 shares of Series E Convertible Preferred Stock and $40.0
million in notes payable for all of the outstanding stock of Transcription. The
total purchase price was $86.0 million, including acquisition costs of
$250,000.
Under the terms of the agreement, Numerical acquired specified accounts
receivable of Transcription, consisting of 45% of accounts receivable for
license fees, plus all fees associated with maintenance, support and other
services rendered by Transcription on such accounts. The transaction will be
accounted for as a purchase.
The allocation of the purchase price is as follows (in thousands):
<TABLE>
<S> <C>
Net tangible assets................................................. $ 243
In process research and development................................. 300
Developed technology................................................ 7,400
Customer base....................................................... 14,300
Covenants not to compete............................................ 2,700
Work force.......................................................... 1,500
Trade name.......................................................... 200
Goodwill............................................................ 59,327
-------
$85,970
=======
</TABLE>
The estimated purchase price was allocated to the identifiable assets
acquired and the liabilities assumed based upon the fair market value on the
acquisition date.The net tangible assets consist primarily of accounts
receivable, property and equipment and other liabilities. Because the in-
process technology has not reached the stage of technological feasibility at
the acquisition date and had no alternative future use, the amount was
immediately charged to operations. The amounts allocated to developed
technology, customer base and trade name are amortized over the estimated
useful life of five years. The amounts allocated to covenants not to compete
and work force are being amortized over the estimated useful lives of two and
four years, respectively. The excess amount of the purchase price over the fair
market value of the identifiable assets acquired is accounted for as goodwill
and is being amortized over its estimated useful life of five years. The
valuation for the intangible assets has been determined using management's
assumptions and the preliminary report from an independent appraiser.
The accompanying unaudited pro forma combined balance sheet gives effect to
the acquisition of Transcription as if such transaction had occurred on
December 31, 1999, by consolidating the balance sheet of Transcription at
December 31, 1999 with the balance sheet of Numerical at December 31, 1999.
The accompanying unaudited pro forma combined statement of operations gives
effect to the acquisition of Transcription as if it had occurred on January 1,
1999, by consolidating the results of operations of Transcription for the year
ended December 31, 1999 with the results of operations of Numerical for the
year ended December 31, 1999.
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the transaction had
been consummated at the dates indicated, nor is it necessarily indicative of
future operating results or the financial position of the combined companies.
F-18
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
Numerical Transcription Pro forma
------------ ------------- ----------------------
December 31, December 31,
1999 1999 Adjustments Combined
------------ ------------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $ 13,486 $ 132 $ (250)(a) $ 8,236
(132)(b)
(5,000)(c)
Accounts receivable...... 1,819 2,424 (1,298)(b) 2,945
Prepaid and other........ 394 31 (31)(b) 394
-------- ------ ------- --------
Total current assets... 15,699 2,587 (6,711) 11,575
Property and equipment,
net....................... 1,613 211 -- 1,824
Intangible assets.......... -- -- 85,427 (a) 85,427
Other assets............... 293 42 (42)(b) 293
-------- ------ ------- --------
$ 17,605 $2,840 $78,674 $ 99,119
======== ====== ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......... $ 613 $ 75 $ (75)(b) $ 613
Accrued expenses......... 1,945 72 (72)(b) 1,945
Deferred revenue......... 2,642 3,410 (2,316)(a) 3,736
Current portion notes
payable................. -- -- 8,750 (a) 8,750
-------- ------ ------- --------
Total current
liabilities........... 5,200 3,557 6,287 15,044
Long term notes payable.... -- -- 31,250 (a) 26,250
(5,000) (c)
-------- ------ ------- --------
Total liabilities.......... 5,200 3,557 (32,537) 41,294
-------- ------ ------- --------
Stockholders' equity:
Preferred Stock.......... 1 -- (1)(h) --
Common Stock............. 1 43 (43)(b) 2
1 (h)
Additional paid-in
capital................. 50,100 -- 45,720 (a) 95,820
Receivable from
stockholders............ (315) -- -- (315)
Deferred stock
compensation............ (21,220) -- (21,220)
Accumulated deficit...... (16,162) (760) 760 (b) (16,462)
(300)(d)
-------- ------ ------- --------
Total stockholders'
equity................ 12,405 (717) 46,137 57,825
-------- ------ ------- --------
$ 17,605 $2,840 $78,674 $ 99,119
======== ====== ======= ========
</TABLE>
F-19
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Numerical Transcription Pro forma
--------- ------------- ----------------------
For the Year Ended
December 31, 1999 Adjustment Combined
------------------------ ---------- --------
<S> <C> <C> <C> <C>
Revenue..................... $ 5,492 $13,667 $ -- $ 19,159
-------- ------- -------- --------
Costs and expenses:
Cost of revenue........... 307 1,050 1,480 (f) 2,837
Research and development.. 4,816 1,580 863 (f) 7,259
Sales and marketing....... 4,277 857 3,669 (f) 8,803
General and
administrative........... 1,303 920 94 (f) 2,317
Amortization of deferred
stock compensation....... 3,990 -- -- 3,990
Amortization of goodwill.. -- -- 11,865 (f) 11,865
-------- ------- -------- --------
Total costs and
expenses............... 14,693 4,407 17,971 37,071
-------- ------- -------- --------
Income (loss) from
operations................. (9,201) 9,260 (17,971) (17,912)
Interest income (expense),
net........................ 373 55 (3,200)(e) (2,772)
-------- ------- -------- --------
Income (loss) before
provision for income
taxes...................... (8,828) 9,315 (21,171) (20,684)
Provision for income taxes.. -- 120 (120)(g) --
-------- ------- -------- --------
Net income (loss)........... $(8,828) $ 9,195 $(21,051) $(20,684)
======== ======= ======== ========
Net loss per common share,
basic and diluted, for pro
forma financial
statements................. $ (1.26) $ (2.95)(h)
======== ========
Weighted average common
shares, basic and diluted,
for pro forma financial
statements................. 7,019 7,019 (h)
======== ========
Net loss per common share,
basic and diluted pro forma
assuming conversion of all
outstanding preferred stock
and warrants:
Basic and diluted......... $(1.17)
========
Weighted average shares... 10,676 (h) 17,695
======== ========
</TABLE>
F-20
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
(unaudited)
The following adjustments were reflected in the unaudited pro forma
combined condensed balance sheet.
(a) To record the acquisition of Transcription assuming the issuance of
3,810,000 shares of Numerical's Series E valued at $45.7 million and the
issuance of notes of $40 million in debt.
Under purchase accounting, the total purchase price will be allocated to
the acquired assets and liabilities of Transcription based on the relative
fair values as described in the overview. The amounts and components of the
purchase price, along with the allocation of the purchase price to assets
purchased are as follows (in thousands):
<TABLE>
<S> <C>
Series E Preferred Stock............................................ $45,720
Notes Payable....................................................... 40,000
Estimated transaction costs......................................... 250
-------
Gross Purchase Price.............................................. 85,970
In process research and development charge.......................... (300)
-------
Net Purchase price................................................ $85,670
=======
Assets Acquired:
Accounts Receivable............................................... $ 1,126
Deferred Revenue.................................................. (1,094)
Net fixed Assets.................................................. 211
-------
Fair value of net tangible assets acquired...................... 243
Developed Technology.............................................. 7,400
Customer Base..................................................... 14,300
Non-compete agreement............................................. 2,700
Workforce......................................................... 1,500
Trademark......................................................... 200
Goodwill.......................................................... 59,327
-------
Net assets acquired............................................. $85,670
=======
</TABLE>
(b) To reflect the elimination of certain assets and liabilities of
Transcription that were not purchased or assumed by Numerical.
(c) To record principal payment of $5.0 million upon issuance of the notes
payable. The balance of the notes payable of $35 million is expected to be
paid upon the consummation of the IPO.
(d) To record a charge for in-process research and development.
The following adjustments have been reflected in the unaudited pro forma
combined condensed statement of operations:
(e) To record interest expense on notes payable at the stated interest rate of
8.0% per annum on the principal of $40 million, assuming no initial or
quarterly principal payments.
F-21
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION--(Continued)
(Unaudited)
(f) To record the amortization of identifiable intangible assets and goodwill
related to the acquisition of Transcription as if the transaction occurred
on January 1, 1999 as follows:
<TABLE>
<CAPTION>
Estimated
Useful Annual
Value Life Amortization
------- --------- ------------
<S> <C> <C> <C>
Developed Technology.......................... $ 7,400 5 years $ 1,480
Customer Base................................. 14,300 5 years 2,860
Non-compete agreement......................... 2,700 2 years 1,350
Workforce..................................... 1,500 4 years 375
Tradename..................................... 200 5 years 40
Goodwill...................................... 59,327 5 years 11,866
-------
$17,971
=======
</TABLE>
(g) To reflect the pro forma combined net loss position resulting in no tax
provision on a combined basis.
(h) To reflect the shares of Series E convertible preferred stock issued in
conjunction with the acquisition of Transcription on an "as if converted"
basis. Antidilutive securities totaling 3,723,000, including options and
warrants were excluded from the pro forma net loss per share.
<TABLE>
<CAPTION>
Pro Forma
-------------------
As-If
Combined Converted
-------- ---------
<S> <C> <C>
Combined Pro Forma Net Loss............................... $(24,218) $(24,218)
======== ========
Weighted Average Common Shares, basic and diluted......... 7,019 7,019
As if conversion of Series A, B, C and D preferred stock.. -- 6,866
As if conversion of Series E preferred stock.............. -- 3,810
-------- --------
7,019 17,215
======== ========
Pro forma net loss per share, basic and diluted........... $ (3.24) $ (1.32)
======== ========
</TABLE>
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of
Transcription Enterprises Limited
In our opinion, the accompanying balance sheets and the related statements
of operations, of shareholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of Transcription
Enterprises Limited at December 31, 1998 and 1999, and the results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
January 21, 2000
F-23
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-------------
1998 1999
------ ------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash
equivalents.............. $1,497 $ 132
Accounts receivable....... 2,147 2,424
Prepaid and other......... 90 31
------ ------
Total current assets.... 3,734 2,587
Property and equipment,
net........................ 197 211
Other assets................ 3 42
------ ------
$3,934 $2,840
====== ======
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
(DEFICIT)
<S> <C> <C>
Current liabilities:
Accounts payable.......... $ 23 $ 75
Accrued expenses.......... 273 72
Deferred revenue.......... 2,584 3,410
------ ------
Total current
liabilities............ 2,880 3,557
------ ------
Shareholders' equity:
Common stock, no par value:
Authorized: 10,000 shares;
Issued and outstanding:
798 shares............... 43 43
Retained earnings
(deficit)................ 1,011 (760)
------ ------
Total shareholders'
equity (deficit)....... 1,054 (717)
------ ------
$3,934 $2,840
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------
1998 1999
--------- ---------
<S> <C> <C>
Revenue:
License.................................................. $ 7,162 $ 5,708
Service.................................................. 7,396 7,959
--------- ---------
Total revenue.......................................... 14,558 13,667
--------- ---------
Costs and expenses:
Cost of revenue.......................................... 789 1,050
Research and development................................. 1,704 1,580
Sales and marketing...................................... 779 857
General and administrative............................... 885 920
--------- ---------
Total costs and expenses............................... 4,157 4,407
--------- ---------
Income from operations..................................... 10,401 9,260
Interest income............................................ 78 55
--------- ---------
Income before provision for income taxes................... 10,479 9,315
Provision for income taxes................................. 118 120
--------- ---------
Net income................................................. $ 10,361 $ 9,195
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Common Stock Retained
------------- Earnings
Shares Amount (Deficit) Total
------ ------ --------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1997.................. 798 $43 $ 1,376 $ 1,419
Net income................................ -- -- 10,361 10,361
Distributions to shareholders............. -- -- (10,726) (10,726)
--- --- -------- --------
Balance, December 31, 1998.................. 798 43 1,011 1,054
Net income................................ -- -- 9,195 9,195
Distributions to shareholders............. -- -- (10,966) (10,966)
--- --- -------- --------
Balance, December 31, 1999.................. 798 $43 $ (760) $ (717)
=== === ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Years
Ended
December 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 10,361 $ 9,195
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation............................................ 91 129
Changes in assets and liabilities:
Accounts receivable................................... 72 (277)
Prepaid and other..................................... (38) 59
Other assets.......................................... (1) (39)
Accounts payable...................................... 8 52
Accrued expenses...................................... (40) (201)
Deferred revenue...................................... 511 826
-------- --------
Net cash provided by operating activities........... 10,964 9,744
-------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (152) (143)
-------- --------
Net cash used in investing activities............... (152) (143)
-------- --------
Cash flows from financing activities:
Distrubutions to shareholders............................. (10,726) (10,966)
-------- --------
Net cash used in financing activities............... (10,726) (10,966)
-------- --------
Net increase (decrease) in cash and cash equivalents...... 86 (1,365)
Cash and cash equivalents at beginning of year............ 1,411 1,497
-------- --------
Cash and cash equivalents at end of year.................. $ 1,497 $ 132
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
NOTES TO FINANCIAL STATEMENTS
NOTE 1--BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Transcription Enterprises Limited (the "Company") was incorporated in
California in May 1986 as an S Corporation to develop and market integrated
software products and services that provide semiconductor manufacturers with an
interactive graphics system for fracturing and verifying photomask pattern
data.
Certain risks and concentrations
At December 31, 1998 and 1999, substantially all of the Company's cash and
cash equivalents were invested with four major financial institutions.
The Company markets and sells its products and services to end users and
original equipment manufacturers primarily in North America, Europe and Japan.
The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. The
Company had accounts receivable from one customer representing 10% and one
customer representing 27% of accounts receivable at December 31, 1998 and 1999,
respectively.
In 1998 and 1999, the Company had one customer who accounted for 12%, and
15% of sales, respectively.
The Company operates in one industry segment. The following is a summary of
the Company's revenue by geographic operations. Revenues are attributed to the
countries in which the products and services are delivered:
<TABLE>
<CAPTION>
U.S. Japan Pac Rim Europe Other Total
------ ------ ------- ------ ----- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
1998.............................. $6,846 $2,814 $2,383 $2,131 $384 $14,558
1999.............................. 6,400 3,101 1,654 2,005 507 13,667
</TABLE>
The Company had no material long-lived assets outside of the United States.
Financial instruments
The carrying amount of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses approximate fair value due to their short maturities.
Cash and cash equivalents
The Company considers all highly liquid investments with maturities of three
months or less at the time of purchase and money market funds to be cash
equivalents.
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
estimated useful lives of 3 years.
F-28
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Research and development costs
Costs related to research, design and development of products are charged to
research and development expenses as incurred. Software development costs are
capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers. The Company has not capitalized any software development costs to
date, as such costs have not been significant.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue recognition
The Company recognizes revenues in accordance with the provisions of
Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition", as
amended by SOP 98-4 and 98-9. The Company's revenues are derived from licenses
of its software and technology and from services the Company provides to its
customers. Revenues are recognized for the various contract elements based upon
vendor-specific objective evidence ("VSOE") of fair value of each element. If
VSOE of fair value exists only for undelivered elements, the Company recognizes
fees assigned to the delivered element(s) as the difference between the total
arrangement fee and the VSOE of the undelivered element.
License revenues are recognized when persuasive evidence of an agreement
exists, the software and technology has been delivered, no significant post-
delivery obligations remain, the license fee is fixed or determinable and
collection of the fee is probable.
Services revenues consist of maintenance fees. Maintenance agreements are
typically priced based on a percentage of the product license fee and have a
one-year term, renewable annually. Services provided to customers under
maintenance agreements include technical product support and unspecified
product upgrades. Deferred revenues from advanced payments for maintenance
agreements are recognized ratably over the term of the contract, which is
typically one year.
Comprehensive income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. There was no difference between the
Company's net income and its total comprehensive income for 1998 and 1999.
Recent accounting pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, or SFAS 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 establishes new standards of accounting and reporting for
derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the statement of financial position,
and that the corresponding gains or losses be reported either in the statement
of operations or as a component of comprehensive income, depending on the type
of hedging relationship that exists. SFAS 133 will be effective for fiscal
years beginning after June 15, 2000. The Company does not currently hold
derivative instruments or engage in hedging activities.
F-29
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 2--BALANCE SHEET DETAIL
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------ ------
(in
thousands)
<S> <C> <C>
Property and equipment:
Computer equipment......................................... $ 753 $ 895
Furniture and equipment.................................... 14 15
------ ------
767 910
Less accumulated depreciation.............................. (570) (699)
------ ------
$ 197 $ 211
====== ======
Accrued expenses:
Payroll and related expenses............................... $ 248 $ 65
Other accrued expenses..................................... 25 7
------ ------
$ 273 $ 72
====== ======
</TABLE>
NOTE 3--COMMITMENTS
Operating leases
The Company leases its facility under a noncancelable operating lease, which
expires in January 2001. The Company has the option to renew the lease for five
years. The Company is responsible for maintenance, insurance and taxes.
Minimum lease payments as of December 31, 1999 for noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
Year Lease Payments
---- --------------
<S> <C>
2000.......................................................... $73
2001.......................................................... 6
---
$79
===
</TABLE>
Rent expense was $70,000 and $67,000 for 1999 and 1998, respectively.
NOTE 4--INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company is not subject
to federal corporate income taxation. Rather, the Company's shareholders
include their respective portions of taxable income in their individual income
tax returns. Therefore, no provision or liability for federal income taxes has
been included in these financial statements.
The state of California generally conforms to the federal provisions
recognizing S corporations as pass-through entities. However, California
imposes a 1.5% tax at the entity level. The income tax provisions for 1998 and
1999 consist of current state tax expense.
F-30
<PAGE>
TRANSCRIPTION ENTERPRISES LIMITED
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 5--PROFIT SHARING PLAN
For the years ended December 31, 1998 and 1999, the company had a
discretionary profit sharing plan under which ten percent of the Company's
profits were redistributed to the employees, a portion of which is invested in
a retirement fund (up to a maximum allowable by the IRS) and the balance is
paid to the employee. The plan was terminated upon the effective date of the
merger described in Note 6.
NOTE 6--SUBSEQUENT EVENT
On January 1, 2000, the Company was acquired by and became a wholly-owned
subsidiary of Numerical Technologies, Inc. (the Parent). Under the terms of the
acquisition Agreement, each share of the common stock of the Company was
converted to 4.778 shares of Series E Preferred Stock and $50.1575 in principal
amount of a Promissory Note. The maximum consideration to be paid by the
Company pursuant to the Merger is 3,810,000 shares of Series E preferred stock
plus $40.0 million in aggregate principal amount of Notes. The Promissory Notes
are secured by the assets of the Company.
F-31
<PAGE>
[LOGO OF NUMERICAL APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of common stock being registered. All amounts are estimates,
except the registration fee, the NASD filing fee and the Nasdaq listing fee.
<TABLE>
<CAPTION>
Amount To
Be Paid
----------
<S> <C>
Registration Fee............................................... $ 21,841
NASD Fee....................................................... 7,500
Nasdaq Listing Fee............................................. 95,000
Legal Fees and Expenses........................................ 510,000
Accounting Fees and Expenses................................... 400,000
Printing and Engraving Expenses................................ 275,000
Blue Sky Fees and Expenses..................................... 8,000
Transfer Agent Fees............................................ 25,000
Miscellaneous.................................................. 257,659
----------
Total........................................................ $1,600,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
As permitted by Section 145 of the Delaware General Corporation Law, the
registrant's amended and restated certificate of incorporation includes a
provision that eliminates the personal liability of its directors for monetary
damages for breach or alleged breach of their duty of care. In addition, as
permitted by Section 145 of the Delaware General Corporation Law, the bylaws of
the registrant provide that: (1) the registrant is required to indemnify its
directors and executive officers and persons serving in such capacities in
other business enterprises at the registrant's request, to the fullest extent
permitted by Delaware law, including in those circumstances in which
indemnification would otherwise be discretionary; (2) the registrant may, in
its discretion, indemnify employees and agents in those circumstances where
indemnification is not required by law; (3) the registrant is required to
advance expenses, as incurred, to its directors and executive officers in
connection with defending a proceeding, except that it is not required to
advance expenses to a person against whom the registrant brings a claim for
breach of the duty of loyalty, failure to act in good faith, intentional
misconduct, knowing violation of law or deriving an improper personal benefit;
(4) the rights conferred in the bylaws are not exclusive, and the registrant is
authorized to enter into indemnification agreements with its directors,
executive officers and employees; and (5) the registrant may not retroactively
amend the bylaw provisions in a way that is adverse to such directors,
executive officers and employees in these matters.
The registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum indemnity
allowed to directors and executive officers by Section 145 of the Delaware
General Corporation Law and the bylaws, as well as certain additional
procedural protections. In addition, such indemnification agreements provide
that the registrant's directors and executive officers will be indemnified to
the fullest possible extent not prohibited by law against all expenses,
including attorney's fees, and settlement amounts paid or incurred by them in
any action or proceeding, including any derivative action by or in the right of
the registrant, on account of their services as directors or executive officers
of the registrant or as directors or officers of any other company or
enterprise when they are serving in such capacities at the request of the
registrant. The registrant will not be obligated pursuant to the
indemnification agreements to indemnify or advance expenses to an indemnified
party with respect to proceedings or claims initiated by the
II-1
<PAGE>
indemnified party and not by way of defense, except with respect to proceedings
specifically authorized by the registrant's board of directors or brought to
enforce a right to indemnification under the indemnification agreement, the
registrant's bylaws or any statute or law. Under the agreements, the registrant
is not obligated to indemnify the indemnified party (1) for any expenses
incurred by the indemnified party with respect to any proceeding instituted by
the indemnified party to enforce or interpret the agreement, if a court of
competent jurisdiction determines that each of the material assertions made by
the indemnified party in such proceeding was not made in good faith or was
frivolous; (2) for any amounts paid in settlement of a proceeding unless the
registrant consents to such settlement; (3) with respect to any proceeding
brought by the registrant against the indemnified party for willful misconduct,
unless a court determines that each of such claims was not made in good faith
or was frivolous; (4) on account of any suit in which judgment is rendered
against the indemnified party for an accounting of profits made from the
purchase or sale by the indemnified party of securities of the registrant
pursuant to the provisions of (S)16(b) of the Securities Exchange Act of 1934,
and related laws; (5) on account of the indemnified party's conduct which is
finally adjudged to have been knowingly fraudulent or deliberately dishonest,
or to constitute willful misconduct or a knowing violation of the law; (6) an
account of any conduct from which the indemnified party derived an improper
personal benefit; (7) on account of conduct the indemnified party believed to
be contrary to the best interests of the registrant or its stockholders; (8) on
account of conduct that constituted a breach of the indemnified party's duty of
loyalty to the registrant or its stockholders; or (9) if a final decision by a
court having jurisdiction in the matter shall determine that such
indemnification is not lawful.
The indemnification provision in the bylaws and the indemnification
agreements entered into between the registrant and its directors and executive
officers may be sufficiently broad to permit indemnification of the
registrant's officers and directors for liabilities arising under the
Securities Act of 1933.
Reference is made to the following documents filed as exhibits to this
registration statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
Exhibit
Document Number
- -------- -------
<S> <C>
Form of Underwriting Agreement........................................ 1.1
Certificate of Incorporation of the registrant........................ 3.1
Form of Amended and Restated Certificate of Incorporation of the
registrant to be filed upon closing of the offering.................. 3.2
Bylaws of registrant.................................................. 3.3
Form of Indemnification Agreement entered into by the registrant with
each of its directors and executive officers......................... 10.1
</TABLE>
Item 15. Recent Sales of Unregistered Securities
Since January 1, 1997, the registrant has issued and sold the securities
described below.
(a) From January 1, 1997 to February 15, 2000, the registrant issued and
sold an aggregate of 4,217,465 shares of unregistered common stock to 94
directors, officers, employees, former employees and consultants at prices
ranging from $0.03 to $2.67 per share, for aggregate cash consideration of
approximately $1,964,652, of which approximately $553,000 is subject to
outstanding promissory notes payable to the registrant. These shares were sold
pursuant to the exercise of options granted by the board. As to each director,
officer, employee, former employee and consultant of the registrant who was
issued such securities, the registrant relied upon Rule 701 of the Securities
Act of 1933. Each such person purchased securities of the registrant pursuant
to a written contract between such person and the registrant. In addition, the
registrant met the conditions imposed under Rule 701(b).
II-2
<PAGE>
(b) On June 27, 1997 and August 26, 1997, the registrant issued and sold (1)
in the aggregate 1,050,000 shares of unregistered Series B preferred stock at a
price per share of $0.67, and (2) an unregistered warrant to purchase 195,000
shares of unregistered Series B preferred stock, with an exercise price per
share of $0.67, to certain investors for an aggregate cash consideration of
$700,000. These shares and warrant were sold pursuant to a Series B preferred
stock and warrant purchase agreement between the registrant and such investors.
The warrant expired, unexercised, on June 27, 1999. The registrant relied upon
Section 4(2) of the Securities Act of 1933 and Regulation D, Rule 506, in
connection with the sale of these securities. The sale of Series B preferred
stock and warrant were made in compliance with all of the terms of Rules 501
and 502 of Regulation D, there were no more than 35 investors, as calculated
pursuant to Rule 501(e) of Regulation D, and each investor who was not an
accredited investor represented to the registrant that it had such knowledge
and experience in financial and business matters that it was capable of
evaluating the merits and risks of the investment.
(c) On June 5, 1998 and August 4, 1998, the registrant issued and sold (1)
in the aggregate 2,445,089 shares of unregistered Series C preferred stock at a
price per share of $3.26, and (2) unregistered warrants to purchase 150,000
shares of unregistered Series C preferred stock, with an exercise price per
share of $3.26, to certain investors for aggregate cash consideration of
approximately $7,970,998. The shares and warrants were sold pursuant to a
Series C preferred stock and warrant purchase agreement between the registrant
and such investors. The warrants may be exercised in whole or in part at any
time prior to the completion of this offering, at which time they expire. The
warrants may be exercised for cash or pursuant to a net exercise provision
contained therein. The registrant relied upon Section 4(2) of the Securities
Act of 1933 and Regulation D, Rule 506, in connection with the sale of these
securities. The sale of Series C preferred stock and warrants were made in
compliance with all of the terms of Rules 501 and 502 of Regulation D, there
were no more than 35 investors, as calculated pursuant to Rule 501(e) of
Regulation D, and each investor who was not an accredited investor represented
to the registrant that it had such knowledge and experience in financial and
business matters that it was capable of evaluating the merits and risks of the
investment.
(d) On June 24, 1999 and August 31, 1999, the registrant sold in the
aggregate 2,357,906 shares of unregistered Series D preferred stock at a price
per share of $5.89 to certain investors for aggregate cash consideration of
approximately $13,880,230. The shares were sold pursuant to a Series D
preferred stock purchase agreement between the registrant and such investors.
The registrant relied upon Section 4(2) of the Securities Act of 1933 and
Regulation D, Rule 506, in connection with the sale of these shares. The sale
of Series D preferred stock was made in compliance with all of the terms of
Rules 501 and 502 of Regulation D, there were no more than 35 investors, as
calculated pursuant to Rule 501(e) of Regulation D, and each investor who was
not an accredited investor represented to the registrant that it had such
knowledge and experience in financial and business matters that it was capable
of evaluating the merits and risks of the investment.
(e) On January 1, 2000, the registrant issued and sold to the shareholders
of Transcription Enterprises Limited (1) 3,809,994 shares of unregistered
Series E preferred stock valued at $10.67 per share, and (2) unregistered
promissory notes in the aggregate principal amount of $40,000,000, in exchange
for all outstanding stock of Transcription Enterprises Limited. These
securities were issued pursuant to an agreement and plan of reorganization. The
registrant relied upon Section 3(a)(11) of the Securities Act of 1933 and Rule
147 in connection with the sale and issuance of these securities.
(f) In February 2000, the registrant issued and sold an aggregate of
1,549,999 shares of unregistered common stock to Kevin MacLean, Y.C. (Buno)
Pati, Roger Sturgeon and Yao-Ting Wang at a price per share of $2.67 for
aggregate cash consideration of approximately $4,133,332, of which
approximately $3,533,332 is subject to outstanding promissory notes payable to
the registrant. These shares were sold pursuant to the exercise of stock
options granted by the board of directors. The registrant relied upon Section
4(2) of the Securities Act of 1933 in connection with the issuance of these
securities.
Appropriate legends were affixed to the share certificates issued in the
transactions described above. All recipients had adequate access, through their
relationships with the registrant, to information about the registrant.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
2.1 Agreement and Plan of Reorganization, dated as of December 21, 1999,
between the registrant, Transcription Enterprises Limited, Transcription
Enterprises, Inc., Kevin MacLean and Roger Sturgeon.*
2.2 Agreement and Plan of Merger between the registrant and Numerical
Technologies, Inc., a Delaware corporation.
3.1 Certificate of Incorporation of registrant.*
3.2 Form of Amended and Restated Certificate of Incorporation of registrant
to be filed upon the closing of the offering made under the registration
statement.*
3.3 Bylaws of registrant.*
4.1 Form of registrant's common stock certificate.*
4.2 1999 Second Amended and Restated Shareholders Rights Agreement, dated
January 1, 2000, between the registrant and the parties named therein,
as amended on January 14, 2000.*
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.*
10.1 Form of Indemnification Agreement entered into by registrant with each
of its directors and executive officers.*
10.2 2000 Stock Plan and related agreements.*
10.3 1997 Stock Plan and related agreements.*
10.4 2000 Employee Stock Purchase Plan and related agreements.
10.7 Lease Agreement, dated June 15, 1999, by and between the registrant and
CarrAmerica Realty Corporation.*
10.6 Lease Agreement, dated May 10, 1990, between Transcription Enterprises,
Inc. and Los Gatos Business Park.*
10.7 Employment Agreement, dated January 1, 2000, by and between
Transcription Enterprises, Inc. and Roger Sturgeon.*
10.8 Employment Agreement, dated January 1, 2000, by and between
Transcription Enterprises, Inc. and Kevin MacLean.*
10.9 Non-Competition Agreement, dated January 1, 2000, by and between
Numerical Technologies, Inc., Transcription Enterprises, Inc.,
Transcription Enterprises Limited and Roger Sturgeon.*
10.10 Non-Competition Agreement, dated January 1, 2000, by and between
Numerical Technologies, Inc., Transcription Enterprises, Inc.,
Transcription Enterprises Limited and Kevin MacLean.*
10.11 Stock Option Agreement--Early Exercise, dated November 2, 1999, by and
between the registrant and William Davidow.*
10.12 Stock Option Agreement--Early Exercise, dated May 26, 1999, by and
between the registrant and Richard Mora.*
10.13 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and Richard Mora.*
10.14 Stock Option Agreement--Early Exercise, dated March 31, 1999, by and
between the registrant and Atul Sharan.*
10.15 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and Atul Sharan.*
10.16 Stock Option Agreement--Early Exercise, dated February 3, 1999, by and
between the registrant and Lars Herlitz.*
10.17 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and Lars Herlitz.*
10.18 Stock Option Agreement--Early Exercise, dated November 17, 1999, by and
between the registrant and John Traub.*
10.19 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and John Traub.*
10.20 Stock Option Agreement--Early Exercise, dated July 15, 1998, between the
registrant and Harvey Jones.*
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.21 License Agreement, dated as of October 1, 1999, between registrant and
Cadence Design Systems, Inc.+
10.22 OEM Software License Agreement, dated December 31, 1997, between
registrant and Zygo Corporation (fka Technical Instrument Company).+
10.23 Addendum to OEM Software License Agreement, dated March 25, 1999,
between registrant and Zygo Corporation.*
10.24 Software Production and Distribution Agreement, dated January 9, 1998,
between registrant and KLA-Tencor Corporation.+
10.25 License Agreement, dated December 23, 1999, between registrant and Seiko
Instruments, Inc.*#
10.26 Development and Distribution Agreement, dated October 1, 1991, between
Transcription Enterprises Limited and KLA Instruments Corporation.+
10.27 Addendum Number One to Development and Distribution Agreement, dated
December 27, 1999, between Transcription Enterprises Limited and KLA
Instruments Corporation.+
10.28 Stock Option Agreement--Early Exercise, dated February 1, 2000, by and
between the registrant and Roger Sturgeon.*
10.29 Stock Option Agreement--Early Exercise, dated February 1, 2000, by and
between the registrant and Kevin MacLean.*
10.30 Stock Option Agreement--Early Exercise, dated February 10, 2000, by and
between the registrant and Y.C. (Buno) Pati.*
10.31 Stock Option Agreement--Early Exercise, dated February 10, 2000, by and
between the registrant and Yao-Ting Wang.*
10.32 Stock Option Agreement--Early Exercise, dated October 23, 1998, by and
between the registrant and Atul Sharan.*
10.33 Amendment No. 1 to Lars Herlitz' Stock Option Agreements dated February
3, 1999 and December 27, 1999, dated as of January 24, 2000, by and
between the registrant and Lars Herlitz.*
10.34 Amendment No. 1 to Atul Sharan's Stock Option Agreements dated October
23, 1998, March 31, 1999 and December 27, 1999, dated as of January 24,
2000, by and between the registrant and Atul Sharan.*
10.35 Amendment No. 1 to John Traub's Stock Option Agreements dated November
17, 1999 and December 27, 1999, dated as of January 24, 2000, by and
between the registrant and John Traub.*
10.36 Stock Option Agreement--Early Exercise, dated February 10, 2000, by and
between the registrant and Naren Gupta.*
10.37 PSM Software Development and License Agreement, dated as of March 10,
2000, by and between registrant and Cadence Design Systems, Inc.+
21.1 Subsidiaries of the registrant.*
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).*
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1 Power of Attorney (See page II-6).*
27.1 Financial Data Schedule.*
</TABLE>
- --------
* Previously filed.
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
# While portions of this agreement were previously inadvertently filed,
management has deemed that this agreement is not material.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-5
<PAGE>
Item 17. Undertakings
The undersigned 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
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions referenced in Item 14 of this
registration statement 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 of 1933, 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 hereunder, 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 of 1933 and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Jose, State of California, on this 6th day of April 2000.
NUMERICAL TECHNOLOGIES, INC.
/s/ Yagyensh C. Pati
By: _________________________________
Yagyensh C. Pati
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1934, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Yagyensh C. Pati President and Chief April 6, 2000
______________________________________ Executive Officer and
Yagyensh C. Pati Director (Principal
Executive Officer)
/s/ Richard Mora Chief Financial Officer April 6, 2000
______________________________________ and Vice President,
Richard Mora Operations (Principal
Financial and Accounting
Officer)
* Chairman of the Board April 6, 2000
______________________________________
William Davidow
* Director and Chief April 6, 2000
______________________________________ Technology Officer
Yao-Ting Wang
* Director April 6, 2000
______________________________________
Thomas Kailath
* Director April 6, 2000
______________________________________
Narendra Gupta
* Director April 6, 2000
______________________________________
Abbas El Gamal
* Director April 6, 2000
______________________________________
Harvey Jones
* Director and Fellow April 6, 2000
______________________________________
Roger Sturgeon
/s/ Richard Mora April 6, 2000
*By: _________________________________
Richard Mora
attorney-in-fact
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
2.1 Agreement and Plan of Reorganization, dated as of December 21, 1999,
between the registrant, Transcription Enterprises Limited, Transcription
Enterprises, Inc., Kevin MacLean and Roger Sturgeon.*
2.2 Agreement and Plan of Merger between the registrant and Numerical
Technologies, Inc., a Delaware corporation.
3.1 Certificate of Incorporation of registrant.*
3.2 Form of Amended and Restated Certificate of Incorporation of registrant
to be filed upon the closing of the offering made under the registration
statement.*
3.3 Bylaws of registrant.*
4.1 Form of registrant's common stock certificate.*
4.2 1999 Second Amended and Restated Shareholders Rights Agreement, dated
January 1, 2000, between the registrant and the parties named therein,
as amended on January 14, 2000.*
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.*
10.1 Form of Indemnification Agreement entered into by registrant with each
of its directors and executive officers.*
10.2 2000 Stock Plan and related agreements.*
10.3 1997 Stock Plan and related agreements.*
10.4 2000 Employee Stock Purchase Plan and related agreements.
10.5 Lease Agreement, dated June 15, 1999, by and between the registrant and
CarrAmerica Realty Corporation.*
10.6 Lease Agreement, dated May 10, 1999, between Transcription Enterprises,
Inc. and Los Gatos Business Park.*
10.7 Employment Agreement, dated January 1, 2000, by and between
Transcription Enterprises, Inc. and Roger Sturgeon.*
10.8 Employment Agreement, dated January 1, 2000, by and between
Transcription Enterprises, Inc. and Kevin MacLean.*
10.9 Non-Competition Agreement, dated January 1, 2000, by and between
Numerical Technologies, Inc., Transcription Enterprises, Inc.,
Transcription Enterprises Limited and Roger Sturgeon.*
10.10 Non-Competition Agreement, dated January 1, 2000, by and between
Numerical Technologies, Inc., Transcription Enterprises, Inc.,
Transcription Enterprises Limited and Kevin MacLean.*
10.11 Stock Option Agreement--Early Exercise, dated November 2, 1999, by and
between the registrant and William Davidow.*
10.12 Stock Option Agreement--Early Exercise, dated May 26, 1999, by and
between the registrant and Richard Mora.*
10.13 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and Richard Mora.*
10.14 Stock Option Agreement--Early Exercise, dated March 31, 1999, by and
between the registrant and Atul Sharan.*
10.15 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and Atul Sharan.*
10.16 Stock Option Agreement--Early Exercise, dated February 3, 1999, by and
between the registrant and Lars Herlitz.*
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.17 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and Lars Herlitz.*
10.18 Stock Option Agreement--Early Exercise, dated November 17, 1999, by and
between the registrant and John Traub.*
10.19 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and
between the registrant and John Traub.*
10.20 Stock Option Agreement--Early Exercise, dated July 15, 1998, between the
registrant and Harvey Jones.*
10.21 License Agreement, dated as of October 1, 1999, between registrant and
Cadence Design Systems, Inc.+
10.22 OEM Software License Agreement, dated December 31, 1997, between
registrant and Zygo Corporation (fka Technical Instrument Company).+
10.23 Addendum to OEM Software License Agreement, dated March 25, 1999,
between registrant and Zygo Corporation.*
10.24 Software Production and Distribution Agreement, dated January 9, 1998,
between registrant and KLA-Tencor Corporation.+
10.25 License Agreement, dated December 23, 1999, between registrant and Seiko
Instruments, Inc.*#
10.26 Development and Distribution Agreement, dated October 1, 1991, between
Transcription Enterprises Limited and KLA Instruments Corporation.+
10.27 Addendum Number One to Development and Distribution Agreement, dated
December 27, 1999, between Transcription Enterprises Limited and KLA
Instruments Corporation.+
10.28 Stock Option Agreement--Early Exercise, dated February 1, 2000, by and
between the registrant and Roger Sturgeon.*
10.29 Stock Option Agreement--Early Exercise, dated February 1, 2000, by and
between the registrant and Kevin MacLean.*
10.30 Stock Option Agreement--Early Exercise, dated February 10, 2000, by and
between the registrant and Y.C. (Buno) Pati.*
10.31 Stock Option Agreement--Early Exercise, dated February 10, 2000, by and
between the registrant and Yao-Ting Wang.*
10.32 Stock Option Agreement--Early Exercise, dated October 23, 1998, by and
between the registrant and Atul Sharan.*
10.33 Amendment No. 1 to Lars Herlitz' Stock Option Agreements dated February
3, 1999 and December 27, 1999, dated as of January 24, 2000, by and
between the registrant and Lars Herlitz.*
10.34 Amendment No. 1 to Atul Sharan's Stock Option Agreements dated October
23, 1998, March 31, 1999 and December 27, 1999, dated as of January 24,
2000, by and between the registrant and Atul Sharan.*
10.35 Amendment No. 1 to John Traub's Stock Option Agreements dated November
17, 1999 and December 27, 1999, dated as of January 24, 2000, by and
between the registrant and John Traub.*
10.36 Stock Option Agreement--Early Exercise, dated February 10, 2000, by and
between the registrant and Naren Gupta.*
10.37 PSM Software Development and License Agreement, dated as of March 10,
2000, by and between registrant and Cadence Design Systems, Inc.+
21.1 Subsidiaries of the registrant.*
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).*
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
24.1 Power of Attorney (See page II-6).*
27.1 Financial Data Schedule.*
</TABLE>
- --------
* Previously filed.
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
# While portions of this agreement were previously inadvertently filed,
management has deemed that this agreement is not material.
<PAGE>
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
OF NUMERICAL TECHNOLOGIES, INC.,
A DELAWARE CORPORATION,
AND
NUMERICAL TECHNOLOGIES, INC.,
A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER dated as of April 4, 2000 (the
"Agreement") is between Numerical Technologies, Inc., a Delaware corporation
("Numerical Technologies Delaware"), and Numerical Technologies, Inc., a
California corporation ("Numerical Technologies California"). Numerical
Technologies Delaware and Numerical Technologies California are sometimes
referred to herein as the "Constituent Corporations."
RECITALS
A. Numerical Technologies Delaware is a corporation duly organized and
existing under the laws of the State of Delaware and has an authorized capital
of 28,168,820 shares, of which 20,000,000 shares are designated "Common Stock,"
and 8,168,820 shares are designated "Preferred Stock." Of the authorized shares
of Preferred Stock, 1,500,005 shares are designated Series A Preferred Stock,
700,000 shares are designated Series B Preferred Stock, 1,730,061 shares are
designated Series C Preferred Stock, 1,698,754 shares are designated Series D
Preferred Stock and 2,540,000 shares are designated Series E Preferred Stock.
As of the date hereof, 1,000 shares of Common Stock were issued and outstanding,
all of which are held by Numerical Technologies California, and no shares of
Preferred Stock were issued and outstanding.
B. Numerical Technologies California is a corporation duly organized and
existing under the laws of the State of California and has an authorized capital
of 28,168,820 shares, of which 20,000,000 are designated "Common Stock," and
8,168,820 shares are designated "Preferred Stock." Of the authorized shares of
Preferred Stock, 1,500,005 shares are designated Series A Preferred Stock,
700,000 shares are designated Series B Preferred Stock, 1,730,061 shares are
designated Series C Preferred Stock, 1,698,754 shares are designated Series D
Preferred Stock and 2,540,000 shares are designated Series E Preferred Stock.
As of the date hereof, 7,848,426 shares of Common Stock were issued and
outstanding, and 1,500,005 shares of Series A Preferred Stock, 700,000 shares of
Series B Preferred Stock, 1,630,061 shares of Series C Preferred Stock,
1,571,940 shares of Series D Preferred Stock and 2,540,000 shares of Series E
Preferred Stock were issued and outstanding.
C. The Board of Directors of Numerical Technologies California has
determined that, for the purpose of effecting the reincorporation of Numerical
Technologies California in the State of Delaware, it is advisable and in the
best interests of Numerical Technologies California and its shareholders that
Numerical Technologies California merge with and into Numerical Technologies
Delaware upon the terms and conditions herein provided.
-1-
<PAGE>
D. The respective Boards of Directors of Numerical Technologies Delaware
and Numerical Technologies California have approved this Agreement.
E. The terms of this Agreement were approved by the vote of a number of
shares of each class of stock of both Numerical Technologies Delaware and
Numerical Technologies California which equaled or exceeded the vote required.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, Numerical Technologies Delaware and Numerical Technologies
California agree, subject to the terms and conditions set forth below, as
follows:
I
MERGER
1.1 Merger. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law and the California General Corporation Law,
Numerical Technologies California shall be merged with and into Numerical
Technologies Delaware (the "Merger"), the separate existence of Numerical
Technologies California shall cease and Numerical Technologies Delaware shall
survive the Merger and shall continue to be governed by the laws of the State of
Delaware, and Numerical Technologies Delaware shall be, and is herein sometimes
referred to as, the "Surviving Corporation," and the name of the Surviving
Corporation shall be Numerical Technologies, Inc.
1.2 Filing and Effectiveness. The Merger shall become effective when the
following actions shall have been completed:
(a) This Agreement and the Merger shall have been adopted and
approved by the shareholders of each Constituent Corporation in accordance with
the requirements of the Delaware General Corporation Law and the California
Corporations Code;
(b) All of the conditions precedent to the consummation of the Merger
specified in this Agreement shall have been satisfied or duly waived by the
party entitled to satisfaction thereof; and
(c) An executed Certificate of Merger or an executed, acknowledged
and certified counterpart of this Agreement meeting the requirements of the
Delaware General Corporation Law shall have been filed with the Secretary of
State of the State of Delaware.
The date and time when the Merger shall become effective, as aforesaid, is
herein called the "Effective Date of the Merger."
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
separate existence of Numerical Technologies California shall cease and
Numerical Technologies Delaware, as the Surviving Corporation, (i) shall
continue to possess all of its assets, rights, powers and property as
constituted immediately prior to the Effective Date of the Merger, (ii) shall be
subject to all actions previously taken by its and Numerical Technologies
California's Boards of Directors, (iii) shall succeed, without other transfer,
to all of the assets, rights, powers and property of Numerical
-2-
<PAGE>
Technologies California in the manner as more fully set forth in Section 259 of
the Delaware General Corporation Law, (iv) shall continue to be subject to all
of its debts, liabilities and obligations as constituted immediately prior to
the Effective Date of the Merger, and (v) shall succeed, without other transfer,
to all of the debts, liabilities and obligations of Numerical Technologies
California in the same manner as if Numerical Technologies Delaware had itself
incurred them, all as more fully provided under the applicable provisions of the
Delaware General Corporation Law and the California General Corporation Law.
II
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation of
Numerical Technologies Delaware as in effect immediately prior to the Effective
Date of the Merger shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.2 Bylaws. The Bylaws of Numerical Technologies Delaware as in effect
immediately prior to the Effective Date of the Merger shall continue in full
force and effect as the Bylaws of the Surviving Corporation until duly amended
in accordance with the provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of Numerical
Technologies California immediately prior to the Effective Date of the Merger
shall be the directors and officers of the Surviving Corporation until their
respective successors shall have been duly elected and qualified or until as
otherwise provided by law, or the Certificate of Incorporation of the Surviving
Corporation or the Bylaws of the Surviving Corporation.
III
MANNER OF CONVERSION OF STOCK
3.1 Numerical Technologies California Common Stock. Upon the Effective
Date of the Merger, each share of Numerical Technologies California Common Stock
issued and outstanding immediately prior thereto shall, by virtue of the Merger
and without any action by the Constituent Corporations, the holder of such
shares or any other person, be changed and converted into and exchanged for one
fully paid and nonassessable share of Common Stock, par value $0.0001 per share,
of the Surviving Corporation.
3.2 Numerical Technologies California Preferred Stock. Upon the Effective
Date of the Merger, each share of Numerical Technologies California Series A,
Series B, Series C, Series D and Series E Preferred Stock issued and outstanding
immediately prior thereto shall, by virtue of the Merger and without any action
by the Constituent Corporations, the holder of such shares or any other person,
be changed and converted into and exchanged for one fully paid and nonassessable
share of Series A, Series B, Series C, Series D and Series E Preferred Stock,
par value $0.0001 per share, of the Surviving Corporation, respectively.
-3-
<PAGE>
3.3 Numerical Technologies California Options, Warrants and Stock Purchase
Rights. Upon the Effective Date of the Merger, the Surviving Corporation shall
assume and continue the 1997 Stock Plan, the 2000 Stock Plan, the 2000 Employee
Stock Purchase Plan and all other employee benefit plans of Numerical
Technologies California. Each outstanding and unexercised option, warrant or
other right to purchase or security convertible into Numerical Technologies
California capital stock shall become a like option, warrant or right to
purchase or a security convertible into the Surviving Corporation's capital
stock on the basis of one share of the Surviving Corporation's capital stock for
each share of Numerical Technologies California capital stock issuable pursuant
to any such option, warrant, stock purchase right or convertible security, on
the same terms and conditions and at an exercise price per share equal to the
exercise price applicable to any such Numerical Technologies California option,
warrant, stock purchase right or convertible security at the Effective Date of
the Merger.
A number of shares of the Surviving Corporation's Common Stock shall be
reserved for issuance upon the exercise of options, warrants, stock purchase
rights or convertible securities equal to the number of shares of Numerical
Technologies California Common Stock so reserved immediately prior to the
Effective Date of the Merger.
3.4 Numerical Technologies Delaware Common Stock. Upon the Effective Date
of the Merger, each share of Numerical Technologies Delaware Common Stock, par
value $0.0001 per share, issued and outstanding immediately prior thereto shall,
by virtue of the Merger and without any action by Numerical Technologies
Delaware, the holder of such shares or any other person, be canceled and
returned to the status of authorized but unissued shares.
3.5 Exchange of Certificates. After the Effective Date of the Merger, each
holder of an outstanding certificate representing shares of Numerical
Technologies California Common Stock or Numerical Technologies California
Preferred Stock may, at such stockholder's option, surrender the same for
cancellation to Wilson Sonsini Goodrich & Rosati, as exchange agent (the
"Exchange Agent"), and each such holder shall be entitled to receive in exchange
therefor a certificate or certificates representing the number of shares of the
Surviving Corporation's Common Stock or Preferred Stock into which such holders'
shares of Numerical Technologies California Common Stock or Numerical
Technologies California Preferred Stock were converted as herein provided.
Unless and until so surrendered, each outstanding certificate theretofore
representing shares of Numerical Technologies California Common Stock or
Numerical Technologies California Preferred Stock shall be deemed for all
purposes to represent the number of whole shares of the Surviving Corporation's
Common Stock or Preferred Stock into which such shares of Numerical Technologies
California Common Stock or Numerical Technologies California Preferred Stock
were converted in the Merger.
The registered owner on the books and records of the Surviving Corporation
or the Exchange Agent of any shares of stock represented by such outstanding
certificate shall, until such certificate shall have been surrendered for
transfer or conversion or otherwise accounted for to the Surviving Corporation
or the Exchange Agent, have and be entitled to exercise any voting and other
rights with respect to and to receive dividends and other distributions upon the
shares of Common Stock or Preferred Stock of the Surviving Corporation
represented by such outstanding certificate as provided above.
-4-
<PAGE>
Each certificate representing Common Stock or Preferred Stock of the
Surviving Corporation so issued in the Merger shall bear the same legends, if
any, with respect to the restrictions on transferability as the certificates of
Numerical Technologies California so converted and given in exchange therefor,
unless otherwise determined by the Board of Directors of the Surviving
Corporation in compliance with applicable laws.
If any certificate for shares of Numerical Technologies Delaware stock is
to be issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of issuance thereof
that the certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer, that such transfer otherwise be proper and that the
person requesting such transfer pay to Numerical Technologies Delaware or the
Exchange Agent any transfer or other taxes payable by reason of the issuance of
such new certificate in a name other than that of the registered holder of the
certificate surrendered or establish to the satisfaction of Numerical
Technologies Delaware that such tax has been paid or is not payable.
IV
GENERAL
4.1 Covenants of Numerical Technologies Delaware. Numerical Technologies
Delaware covenants and agrees that it will, on or before the Effective Date of
the Merger:
(a) Qualify to do business as a foreign corporation in the State of
California and in connection therewith irrevocably appoint an agent for service
of process as required under the provisions of Section 2105 of the California
General Corporation Law;
(b) File any and all documents with the California Franchise Tax
Board necessary for the assumption by Numerical Technologies Delaware of all of
the franchise tax liabilities of Numerical Technologies California; and
(c) Take such other actions as may be required by the California
General Corporation Law.
4.2 Further Assurances. From time to time, as and when required by
Numerical Technologies Delaware or by its successors or assigns, there shall be
executed and delivered on behalf of Numerical Technologies California such deeds
and other instruments, and there shall be taken or caused to be taken by
Numerical Technologies Delaware and Numerical Technologies California such
further and other actions, as shall be appropriate or necessary in order to vest
or perfect in or conform of record or otherwise by Numerical Technologies
Delaware the title to and possession of all the property, interests, assets,
rights, privileges, immunities, powers, franchises and authority of Numerical
Technologies California and otherwise to carry out the purposes of this
Agreement, and the officers and directors of Numerical Technologies Delaware are
fully authorized in the name and on behalf of Numerical Technologies California
or otherwise to take any and all such action and to execute and deliver any and
all such deeds and other instruments.
-5-
<PAGE>
4.3 Abandonment. At any time before the filing of this Agreement (or
certificate in lieu thereof) with the Secretary of State of the State of
Delaware, this Agreement may be terminated and the Merger may be abandoned for
any reason whatsoever by the Board of Directors of either Numerical Technologies
California or Numerical Technologies Delaware, or both, notwithstanding the
approval of this Agreement by the shareholders of Numerical Technologies
California or by the sole stockholder of Numerical Technologies Delaware, or by
both.
4.4 Amendment. The Boards of Directors of the Constituent Corporations may
amend this Agreement at any time prior to the filing of this Agreement (or
certificate in lieu thereof) with the Secretaries of State of the States of
California and Delaware, provided that an amendment made subsequent to the
adoption of this Agreement by the shareholders of either Constituent Corporation
shall not: (1) alter or change the amount or kind of shares, securities, cash,
property and/or rights to be received in exchange for or on conversion of all or
any of the shares of any class or series thereof of such Constituent
Corporation, (2) alter or change any term of the Certificate of Incorporation of
the Surviving Corporation to be effected by the Merger, (3) alter or change any
of the terms and conditions of this Agreement if such alteration or change would
adversely affect the holders of any class of shares or series thereof of such
Constituent Corporation, or (4) alter or change any principal term of the
Merger.
4.5 Registered Office. The registered office of the Surviving Corporation
in the State of Delaware is located at Corporation Trust Center, 1209 Orange
Street, in the City of Wilmington, County of New Castle, Delaware 19801, and The
Corporation Trust Company is the registered agent of the Surviving Corporation
at such address.
4.6 Agreement. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 70 West Plumeria
Drive, San Jose, California 95134 and copies thereof will be furnished to any
shareholder of either Constituent Corporation, upon request and without cost.
4.7 Governing Law. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Delaware and, so far as applicable, the merger provisions of the
California General Corporation Law.
4.8 Counterparts. In order to facilitate the filing and recording of this
Agreement, the same may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same instrument.
(Signature page follows.)
-6-
<PAGE>
IN WITNESS WHEREOF, this Agreement, having first been approved by
resolutions of the Boards of Directors of Numerical Technologies Delaware and
Numerical Technologies California, is hereby executed on behalf of each of such
two corporations and attested by their respective officers thereunto duly
authorized.
NUMERICAL TECHNOLOGIES, INC.
a Delaware corporation
By: /s/ Yagyensh C. Pati
-------------------------
Yagyensh C. Pati,
President and Chief
Executive Officer
/s/ John V. Roos
- ------------------------
John V. Roos
Assistant Secretary
-7-
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
a California corporation
By: /s/ Yagyensh C. Pati
------------------------
Yagyensh C. Pati,
President and Chief
Executive Officer
/s/ John V. Roos
- ----------------------
John V. Roos
Assistant Secretary
-8-
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
(California Corporation)
OFFICERS' CERTIFICATE
Yagyensh C. Pati and John V. Roos certify that:
1. They are the President and the Assistant Secretary, respectively, of
Numerical Technologies, Inc., a corporation organized under the laws of the
State of California.
2. The corporation has authorized two classes of stock, designated "Common
Stock" and "Preferred Stock" has an authorized capital of 28,168,820 shares of
which 20,000,000 shares are designated "Common Stock," and 8,168,820 shares are
designated "Preferred Stock." Of the authorized shares of Preferred Stock,
1,500,005 shares are designated Series A Preferred Stock, 700,000 shares are
designated Series B Preferred Stock, 1,730,061 shares are designated Series C
Preferred Stock, 1,698,754 shares are designated Series D Preferred Stock and
2,540,000 shares are designated Series E Preferred Stock.
3. There were 7,848,426 shares of Common Stock, 1,500,005 shares of Series
A Preferred Stock, 700,000 shares of Series B Preferred Stock, 1,630,061 shares
of Series C Preferred Stock, 1,571,940 shares of Series D Preferred Stock and
2,540,000 shares of Series E Preferred Stock outstanding as of the date (the
"Record Date") of the Action by Written Consent of Shareholders pursuant to
which the Agreement and Plan of Merger attached hereto (the "Merger Agreement")
was approved. All shares of capital stock outstanding were entitled to vote on
the merger.
4. The principal terms of the Merger Agreement were approved by the Board
of Directors and by the vote of a number of shares of each class of stock which
equaled or exceeded the vote required.
5. The percentage vote required was more than 50% of the votes entitled to
be cast by holders of Common Stock and holders of Preferred Stock outstanding as
of the Record Date, voting separately.
(Signature page follows.)
-1-
<PAGE>
Yagyensh C. Pati and John V. Roos further declare under penalty of perjury
under the laws of the State of California that each has read the foregoing
certificate and knows the contents thereof and that the same is true of their
own knowledge.
Executed in San Jose, California on April 4, 2000.
/s/ Yagyensh C. Pati
--------------------------------
Yagyensh C. Pati, President
/s/ John V. Roos
---------------------------------
John V. Roos, Assistant Secretary
-2-
<PAGE>
NUMERICAL TECHNOLOGIES, INC.
(Surviving Corporation)
OFFICERS' CERTIFICATE
Yagyensh C. Pati and John V. Roos certify that:
1. They are the President and the Assistant Secretary, respectively, of
Numerical Technologies, Inc., a corporation organized under the laws of the
State of Delaware.
2. The corporation has an authorized capital of 28,168,820 shares, of
which 20,000,000 shares are designated "Common Stock, par value $0.0001 per
share" and 8,168,820 shares are designated "Preferred Stock, par value $0.0001
per share." Of the authorized shares of Preferred Stock, 1,500,005 shares are
designated Series A Preferred Stock, 700,000 shares are designated Series B
Preferred Stock, 1,730,061 shares are designated Series C Preferred Stock,
1,698,754 shares are designated Series D Preferred Stock and 2,540,000 shares
are designated Series E Preferred Stock.
3. There were 1,000 shares of Common Stock and no shares of Preferred
Stock outstanding as of the date (the "Record Date") of the Action by Written
Consent of Stockholders pursuant to which the Agreement and Plan of Merger
attached hereto (the "Merger Agreement") was approved. All shares of capital
stock outstanding were entitled to vote on the merger.
4. The principal terms of the Merger Agreement were approved by the Board
of Directors and by the vote of a number of shares of each class of stock which
equaled or exceeded the vote required.
5. The percentage vote required was a majority of the outstanding shares.
(Signature page follows.)
-1-
<PAGE>
Yagyensh C. Pati and John V. Roos further declare under penalty of perjury
under the laws of the State of California that each has read the foregoing
certificate and knows the contents thereof and that the same is true of their
own knowledge.
Executed in San Jose, California on April 4, 2000.
/s/ Yagyensh C. Pati
--------------------------------
Yagyensh C. Pati, President
/s/ John V. Roos
--------------------------------------
John V. Roos, Assistant Secretary
-2-
<PAGE>
EXHIBIT 10.4
NUMERICAL TECHNOLOGIES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock Purchase
Plan of Numerical Technologies, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company or any
committee thereof designated by the Board of Directors of the Company in
accordance with Section 14 of the Plan.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean Numerical Technologies, Inc. and any
-------
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings,
------------
bonuses, commissions, and overtime payments, but exclusive of incentive
compensation, incentive payments, and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company are at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each Purchase
-------------
Period.
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock prior
to the date of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately
----------------
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 15 and
November 15 of each year and terminating on the last Trading Day in the periods
ending twenty-four months later; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
May 14, 2002. The duration and timing of Offering Periods may be changed
pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 2000 Employee Stock Purchase Plan.
----
(m) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
(o) "Reserves" shall mean the number of shares of Common Stock covered
--------
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
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<PAGE>
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds twenty-five thousand dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 15 and November 15 of each year, or on such other
date as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
May 14, 2002. The Board shall have the power to change the duration of Offering
Periods (including the commencement dates thereof) with respect to future
offerings without shareholder approval if such change is announced at least five
(5) days prior to the scheduled beginning of the first Offering Period to be
affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
-3-
<PAGE>
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding fifteen percent (15%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 1,333
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of
-4-
<PAGE>
the Company's Common Stock an Employee may purchase during each Purchase Period
of such Offering Period. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The option shall expire on the last day of the Offering Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the number
of shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Exercise Date, the Board may in
its sole discretion (x) provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date, on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant
-5-
<PAGE>
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be two hundred thousand (200,000) shares plus an annual increase to be
added on the first day of the Company's fiscal year beginning in Year, equal to
the lesser of (i) 450,000 shares, (ii) 2% of the outstanding shares on such date
or (iii) a lesser amount determined by the Board.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
-6-
<PAGE>
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
- --------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of
-7-
<PAGE>
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and this Section 20 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount
-8-
<PAGE>
withheld during an Offering Period, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, permit payroll
withholding in excess of the amount designated by a participant in order to
adjust for delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied toward
the purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such other
limitations or procedures as the Board (or its committee) determines in its sole
discretion advisable which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
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<PAGE>
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
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<PAGE>
EXHIBIT A
---------
NUMERICAL TECHNOLOGIES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date:___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the Numerical
Technologies, Inc. Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common
Stock in accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 0 to 15%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
-
hereby agree to notify the Company in writing within 30 days after the date
---------------------------------------------------------------------------
of any disposition of my shares and I will make adequate provision for
----------------------------------------------------------------------
Federal, state or other tax withholding obligations, if any, which arise
------------------------------------------------------------------------
upon the
--------
<PAGE>
disposition of the Common Stock. The Company may, but will not be
-------------------------------
obligated to, withhold from my compensation the amount necessary to meet
any applicable withholding obligation including any withholding necessary
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year and
1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to
the extent of an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market
value of the shares on the first day of the Offering Period. The remainder
of the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)_____________________________________________________
(First) (Middle) (Last)
_________________________ _______________________________
Relationship
_______________________________
(Address)
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<PAGE>
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ _________________________________
Signature of Employee
__________________________________
Spouse's Signature
(If beneficiary other than spouse)
-3-
<PAGE>
EXHIBIT B
---------
NUMERICAL TECHNOLOGIES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Numerical
Technologies, Inc. Employee Stock Purchase Plan which began on ____________,
______ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:___________________________
<PAGE>
EXHIBIT 10.21
LICENSE AGREEMENT CONFIDENTIAL
-----------------
This License Agreement (the "Agreement") is entered into as of this 1st day
of October, 1999 (the "Effective Date"), by and between Cadence Design Systems,
Inc., a Delaware corporation with offices at 555 River Oaks Parkway, San Jose,
CA 95134 ("Cadence") and Numerical Technologies Inc., a California corporation
with offices at 70 West Plumeria Drive, San Jose, CA 95134-2134 ("NTI").
RECITAL
- -------
WHEREAS, Cadence develops and markets electronic design automation ("EDA")
software tools for integrated circuit design and NTI develops and markets
software design tools for subwavelength integrated circuit technologies. Cadence
desires to incorporate into its products certain of NTI's software design tool
modules for subwavelength integrated circuit technologies subject to the terms
and conditions of this Agreement.
In consideration of the foregoing and the mutual promises contained herein,
Cadence and NTI agree as follows:
1. DEFINITIONS.
1.1 "Agent" of Cadence or NTI means, an individual or
-----
entity who is authorized to act for or in place of and to bind Cadence or NTI,
as the case may be, with respect to dealings or contractual obligations with
third parties.
1.2 "Affiliate" of Cadence or NTI means, respectively, any entity
---------
that controls, is controlled by, or is under common control with such party,
where "control" means ownership of fifty percent (50%) or more of the
outstanding voting securities of the entity in question or the power to
otherwise control the voting or affairs of such entity.
1.3 "Cadence Combined Products" shall mean the Cadence software
-------------------------
products that are comprised of one or more Cadence Products and one or more NTI
Product Components.
1.4 "Cadence Products" shall mean the Cadence software products
----------------
listed in Exhibit A attached hereto and any other commercially released place-
and-route, physical design, and physical verification family of products offered
by Cadence or any of its Affiliates (other than products of Avant!, Mentor
Graphics, or Synopsys, should Candence or any of its Affiliates merge with,
acquire, or be acquired by any of these three companies) primarily for the same
intended uses as the products listed in Exhibit A.
1.5 "Critical Error" shall mean (i) an Error that stops, prevents
--------------
or hinders in a material and substantial way design work or production work;
(ii) an Error that causes design data corruption; or (iii) any other substantial
Error for which there is no reasonably acceptable work around.
1.6 "Derivative Work" shall mean a derivative work within the
---------------
meaning of the U.S. copyright law.
Numerical Technologies - CADENCE
[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
CONFIDENTIAL
1.7 "Documentation" shall mean the manuals and other documentation
-------------
that NTI generally makes available with the NTI Product Components to end users.
1.8 "Error Corrections" shall mean any Error corrections, patches,
-----------------
and bug fixes prepared by or for NTI to any portion of the NTI Product
Components.
1.9 "Error" means any failure of an NTI Product Component to
-----
conform to its specifications or the applicable Documentation or to provide
consistent and accurate results.
1.10 "Initial Term" means the period beginning on the Effective Date
------------
and ending on December 31, 2002.
1.11 "Intellectual Property Rights" shall mean (by whatever name or
----------------------------
term known or designated) copyrights, trade secrets, patents, and any other
intellectual and industrial property and proprietary rights (excluding
trademarks) including registrations, applications, renewals and extensions of
such rights.
1.12 "NTI Product Components" shall mean the NTI product components
----------------------
that are listed in Exhibit B attached hereto and all Updates thereto.
1.13 "Renewal Term" means the period beginning on January 1, 2003
------------
and ending on December 31, 2004.
1.14 "Update" shall mean any new release or version of the NTI
------
Product Components or Cadence Products, as the case may be, that is designated
by a different version number (e.g., 2.0 instead of 1.0, or 2.1 instead of 2.0)
and, with respect to the NTI Product Components, any new software product that
(i) uses the same methodology as the NTI Product Components and (ii) is designed
primarily for the same intended uses as the NTI Product Components. Moreover,
for the purpose of clarification and avoidance of doubt, to the extent that NTI
or Cadence integrates the source code for the NTI Product Components or Cadence
Products or portions thereof, with additional source to make new NTI or Cadence
products (other than the NTI Product Components or Cadence Products), such
additional source code shall not constitute Updates but any improvements to the
source code for the NTI Product Components or Cadence Products shall constitute
Updates. Also, any source code created by or for NTI in the course of creating
customized interfaces between the NTI Product Components and third party
products as permitted under this Agreement will not constitute Updates.
2. DELIVERY OF NTI LICENSED TECHNOLOGY.
NTI shall deliver the NTI Product Components and the Documentation to
Cadence promptly after the Effective Date in a mutually acceptable format and
manner and at a mutually acceptable place and time.
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<PAGE>
CONFIDENTIAL
3. LICENSE GRANTS.
3.1 Software License to Cadence. NTI hereby grants to Cadence
---------------------------
the following nonexclusive (subject to Section 4), worldwide licenses, under all
of NTI's Intellectual Property Rights in and to the NTI Product Components:
(a) to use, reproduce, perform and display the NTI Product
Components (in object code form only) for Cadence's internal purposes including
integration work (with Cadence Products only), testing, support, and
demonstrations,
(b) to use, reproduce, perform and display the NTI Product
Components with the Cadence Products (in object code form only) for the purpose
of providing Cadence design and methodology services to Cadence customers,
provided that Cadence may not provide optical proximity correction design
services using the NTI Product Components alone for Cadence customers not using
the Cadence Products for the product design at issue;
(c) to reproduce and distribute, and to make, have made,
offer for sale, import and sell, the NTI Product Components, in object code form
only, solely as incorporated or bundled with the Cadence Products and not on a
standalone basis; and
(d) to reproduce and distribute, and to make, have made,
offer for sale, import and sell, the NTI Product Components, in object code form
only, on a standalone basis only to those Cadence customers who, as of the
Effective Date, already have purchased a license for at least one (1) of the
Cadence Products ("Existing Customers"), solely for the purpose of allowing such
customers to use the NTI Product Components with Cadence Products.
Such licenses shall be subject to the restrictions set forth in Section
3.3. Cadence may sublicense the rights granted in this Section 3.1 only as
follows: (i) Cadence may sublicense the rights to use, reproduce and distribute
the NTI Product Components incorporated or bundled with the Cadence Products to
its distributors, resellers, OEM customers, VAR customer, and VAD customers; and
(ii) Cadence may sublicense the rights to use and reproduce the NTI Product
Components to its end-user customers, solely for the purpose of allowing such
end-user customers to use the NTI Product Components with Cadence Products.
3.2 Documentation License to Cadence. NTI grants to Cadence a
--------------------------------
nonexclusive (subject to Section 4), worldwide license, under all of NTI's
Intellectual Property Rights in and to the Documentation, to use, reproduce,
perform, display, distribute, and to make, have made, offer for sale, import and
sell the Documentation solely to the extent that the Documentation is to be used
in connection with the Cadence Combined Products or the NTI Product Components
on a stand-alone basis as permitted under Section 3.1(d) above. Cadence may
sublicense the right to reproduce and distribute the Documentation solely to the
extent that it is to be used in connection with the Cadence Combined Products
(or the NTI Product Components on a stand-alone basis as permitted under Section
3.1(d) above) to its distributors, resellers, OEM customers, VAR customers and
VAD customers.
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<PAGE>
CONFIDENTIAL
3.3 Restrictions. Cadence shall not itself, or through any
------------
Affiliate, Agent or third party: (a) sell, lease, license or sublicense the NTI
Product Components or the Documentation (except as expressly permitted in
Section 3.1 and 3.2), (b) decompile, disassemble, reverse engineer or otherwise
attempt to derive source code from the NTI Product Components, in whole or in
part, except to the extent such restriction is prohibited by applicable law; (c)
modify or create Derivative Works from the NTI Product Components; or (d) use
the NTI Product Components to provide processing services to third parties
(except as expressly permitted under Section 3.1) or otherwise use the NTI
Product Components on a service bureau basis.
3.4 Copyright Notices. Cadence agrees that it will not remove any
-----------------
copyright notices, proprietary markings, trademarks or tradenames from the NTI
Product Components or Documentation.
3.5 Software License Terms. Cadence shall use its then-current
----------------------
standard form software license terms for marketing and licensing the NTI Product
Components under this Agreement. Cadence shall include in its standard form
software license terms warranty disclaimer and limitation of liability
provisions for the benefit of NTI. NTI agrees that Cadence may refer to NTI as a
"third party" in the standard form license terms.
3.6 Trademark License to Cadence. Cadence shall display NTI's
----------------------------
trademarks and logos with any marketing, promotional or advertising literature
pertaining to the Cadence Combined Products. NTI grants to Cadence a
nonexclusive, worldwide license to use the NTI trade names, trademarks and logos
set forth in Exhibit C ("NTI's Trademarks") attached hereto during the term of
this Agreement solely in connection with the NTI Product Components as part of
the Cadence Combined Products, with the Documentation and in conjunction with
any other marketing, promotional or advertising literature pertaining to the
Cadence Combined Products. Cadence shall comply with any and all reasonable and
customary guidelines provided by NTI in writing concerning the use of NTI's
Trademarks. To enable NTI to monitor the use of NTI's Trademarks, Cadence shall
provide, as requested by NTI from time to time, samples of all items and
materials to which a NTI Trademark has been applied. Cadence shall obtain no
rights with respect to any of NTI's Trademarks, other than the rights set forth
herein. At NTI's written request, Cadence shall assign to NTI any such right,
title and interest exceeding the rights granted herein that it may obtain in
NTI's Trademarks and the associated goodwill. All goodwill arising out of any
uses of NTI's Trademarks will inure solely to the benefit of NTI.
3.7 ModelCal Distribution License. The license to the NTI Product
-----------------------------
Component referred to in Exhibit B as the ModelCal Software is subject to the
further license terms:
(a) Cadence agrees to list the ModelCal Software in its price
book as the "NTI Model Calibrator."
(b) Cadence agrees to put in place appropriate language and
controls to limit distribution of the ModelCal Software to single copy licenses
in conjunction with other licenses of the NTI Product Components under this
Agreement.
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<PAGE>
CONFIDENTIAL
(c) Cadence agrees to refer ModelCal Software customers
directly to NTI for purchases of additional ModelCal Software licenses.
(d) As between Cadence and NTI, NTI will provide any
maintenance, support, and consulting to end users of the ModelCal Software at
commercially reasonable prices. The ModelCal Software will be licensed to end
users either under Cadence's then-current standard form software license terms
in accordance with Section 3.5 or under a form of end user license agreement
supplied by NTI in which NTI is the licensor.
4. EXCLUSIVITY.
4.1 Limits on NTI's Activities. During the Initial Term of this
--------------------------
Agreement and any Renewal Term hereunder, subject to Section 4.2:
(a) NTI shall not, directly or through any of its Affiliates
or Agents, license, distribute, or otherwise provide any of the NTI Product
Components to Avant!, Mentor Graphics, or Synopsys without the express prior
written consent of Cadence, which Cadence may grant or withhold in its sole
discretion;
(b) NTI shall not, directly or through any of its Affiliates
or Agents, develop, or assist any third party in developing, or otherwise
participate in the development of, interfaces between, or an integrated
solution consisting of (in whole or in part), any of the NTI Product
Components and any Avant!, Mentor Graphics, or Synopsys product;
(c) NTI shall not, directly or through any of its Affiliates
or Agents, participate in, or assist any third party with, any marketing or
sales activities with Avant! Mentor Graphics, or Synopsis or the marketing or
distribution of interfaces between, or an integrated solution consisting of (in
whole or in part), any of the NTI Product Components and any Avant!, Mentor
Graphics, or Synopsys product; and
(d) NTI shall include in all agreements with third parties in
which the third party is licensed to redistribute the NTI Product Components
(including OEM, reseller, and distribution agreements) a provision that the
third party's license to redistribute the NTI Product Components will
automatically terminate (subject to reasonable sell-off terms that allow the
licensee, for up to ninety (90) days after the date of termination, to fulfill
customer orders accepted before the date of termination) if (i) Avant!, Mentor
Graphics, or Synopsys enters into an agreement to merge with, acquire the
material assets of, or acquire thirty percent (30%) or more of the outstanding
capital stock of, or purchase all or substantially all of the assets of a
specific business unit of, the third party that is utilizing the NTI Product
Components, (ii) the third party enters into an agreement to acquire the
material assets of, or to merge with or acquire thirty percent (30%) or more of
the outstanding capital stock of, Avant!, Mentor Graphics, or Synopsys and the
resulting combined entity distributes an EDA product (other than the Cadence
Combined Products) that incorporates any of the NTI Product Components, or (iii)
such third party distributes or licenses the NTI Components or any product
incorporating the NTI Components to Avant!, Mentor Graphics or Synopsys.
-5-
<PAGE>
CONFIDENTIAL
Permitted NTI Activities. Subject to Section 4.1, NTI shall have the right
------------------------
to license, distribute, OEM and sell the NTI Product Components to any third
party other than Avant!, Mentor Graphics, or Synopsys. Consistent with the
foregoing, NTI agrees that it will prohibit any third party who has the right to
distribute NTI Components from licensing or transmitting the NTI Components,
either on a stand-alone basis or as incorporated into any products, to Avant!,
Mentor Graphics, or Synopsys. Notwithstanding Section 4.1, if Cadence fails to
meet the Cadence Production Release Milestones set forth in Exhibit D, NTI shall
have the unrestricted right to enter into OEM or distribution license agreements
with Synposys for any or all of the NTI Product Components. NTI shall notify
Cadence in writing (a) if NTI believes that Cadence has failed to meet any of
the Cadence Production Release Milestones set forth in Exhibit D, and (b) within
two (2) business days after entering into such an agreement with Synopsys. If,
in response to any notice from NTI under clause (a) above, Cadence notifies NTI
in writing (within ten (10) days after receipt of NTI's notice) that Cadence
believes it has met the Cadence Production Release Milestones in question, the
parties will attempt to resolve the dispute in accordance with Section 13. NTI
will not enter into any OEM or distribution license agreement with Synopsys
until (i) it has given notice to Cadence as described in clause (a) above and
(ii) either Cadence has acknowledged in writing that it failed to meet one of
Cadence Production Release Milestones, or Cadence has failed to notify NTI
within ten (10) days as described above that Cadence believes it has met the
Cadence Production Release Milestones in question, or if Cadence does so notify
NTI, the dispute has been resolved in favor of NTI or the parties have been
unable to resolve the dispute in accordance with Section 13.
Notwithstanding Section 4.1, NTI will have the right to assist a particular
end user in integrating the NTI Product Components with any Avant!, Mentor
Graphics, or Synopsys product solely for such end user customer's internal use,
provided that neither NTI nor such end user customer markets such integration
services or markets or distributes any interfaces developed in connection with
such integration work. It is understood and agreed that it will not be
considered a breach of Section 4.1 by NTI if Avant!, Mentor Graphics, or
Synopsys gains access to the NTI Product Components through doing integration
work at a customer's facilities.
4.2 Limits on Cadence's Activities. During the Initial Term and any
------------------------------
Renewal Term, Cadence shall not, directly or through any of its Affiliates or
Agents, license, distribute, or otherwise provide any of the NTI Product
Components to Avant!, Mentor Graphics, or Synopsys without the express prior
written consent of NTI, which NTI may grant or withhold in its sole discretion,
and Cadence shall not develop, or participate in the development of, interfaces
between, or an integrated solution consisting of (in whole or in part), any of
the NTI Product Components and any Avant!, Mentor Graphics, or Synopsys product.
Cadence shall not be restricted from
---
developing, licensing, acquiring, marketing or distributing any technologies
which have substantially the same functionality as the NTI Product Components.
Cadence shall use commercially reasonable efforts to introduce and field the
Cadence Combined Products as the primary Cadence solution for design tools for
subwavelength integrated circuit technologies during the Initial Term. The
restrictions and obligations on Cadence in this Section 4.3 will apply only as
long as NTI has not materially breached its obligations under Sections 4.1 and
4.2.
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<PAGE>
CONFIDENTIAL
5. FEES.
5.1 Payment Amounts During Term. Subject to Section 5.4, Cadence
---------------------------
shall pay NTI a license fee for license of the NTI Product Components
("License Fee") in the amount of [***] and shall pay NTI a fee for training
and support regarding the NTI Product Components ("Service Fee") in the amount
of [***] during the Initial Term. The License Fee shall be paid in accordance
with the schedule set forth in Exhibit E attached hereto and Section 5.3
below. The specific Service Fees to be paid are set forth in Exhibit F and
shall be paid in accordance with the schedule set forth in Exhibit F and
Section 5.3 below. Other than the fees described in this Section 5.1 and
Exhibit B, no other royalties or payments shall be payable by Cadence to NTI
for the license of the NTI Product Components during the Initial Term or, to
the extent that Cadence's rights under this Agreement survive the expiration
or termination of this Agreement, after such expiration or termination.
5.2 Payments Amounts During Renewal Period. If Cadence exercises
--------------------------------------
its option to renew the term of this Agreement under Section 13.2 hereunder,
Cadence shall pay NTI an additional License Fee in the amount of [***] and an
additional Service Fee in the amount of [***] during the Renewal Term. The
License Fee shall be paid in accordance with the schedule set forth in Exhibit
E and the Service Fee shall be paid in accordance with a schedule to be
mutually agreed upon by the parties. Other than the fees described in this
Section 5.2 and Exhibit B, no other royalties or payments shall be payable by
Cadence to NTI for the license of the NTI Product Components during the
renewal term or, to the extent that Cadence's rights under this Agreement
survive the expiration or termination of this Agreement, after such expiration
or termination.
5.3 Payment Terms. Payments will be made as indicated on the Fee
-------------
Payment Schedule on Exhibits E and F.
5.4 Reduced Fees. If during the Initial Term or any Renewal Term
------------
NTI executes a distributor or OEM agreement with [***] as permitted under
Section 4.2, beginning on the effective date of such agreement, the amount of
the License Fees payable thereafter by Cadence under this Section 5 during the
Initial Term and any Renewal Term shall be reduced by [***]. For the purpose of
clarification, in no event shall Cadence be entitled to any refund of License
Fees or Service Fees hereunder .
5.5 No Withholding. Cadence understands and agrees that, in the
--------------
event of NTI's material breach of its training and support obligations, Cadence
shall not be entitled to withhold payment of License Fees hereunder.
6. PROPRIETARY RIGHTS.
6.1 Cadence Products. The parties agree that, as between the
----------------
parties, Cadence retains all right, title and interest in and to the Cadence
Products and in all Intellectual Property Rights therein.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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CONFIDENTIAL
6.2 NTI Products. The parties agree that, as between the parties,
------------
NTI retains all right, title and interest in and to the NTI Product Components
and in all Intellectual Property Rights therein.
7. TRAINING AND SALES SUPPORT.
7.1 Training of Cadence Employees. NTI will provide the following
-----------------------------
training regarding the NTI Product Components to Cadence employees:
(a) Model Calibration Training: one (1), two (2) day class
employing two (2) NTI trainers, each quarter during the Initial Term and any
Renewal Term; and
(b) Product Training for NOPC, SiDRC and ImagIC: one (1), two
(2) day class employing two (2) NTI trainers, each quarter during the Initial
Term and any Renewal Term.
All training classes shall be provided at locations to be mutually agreed
upon by the parties. Any additional training shall be provided to Cadence by NTI
at an additional charge to be mutually agreed upon by the parties. For purposes
of this Section 7, "days" do not include travel time to or from locations where
NTI provides training or support pursuant to this Section 7.
7.2 Joint Sales Calls. Two (2) NTI employees shall participate with
-----------------
Cadence in sales calls for up to three (3) weeks per quarter, made to
prospective customers for the Cadence Combined Products during the Initial Term
and any Renewal Term.
7.3 Model Calibration Service. NTI shall make available two (2)
-------------------------
specialists for a total of two (2) calendar days per quarter to support the
customer and/or Cadence to accomplish model calibration of processes and OPC
rule generation during the Initial Term and any Renewal Term.
7.4 Joint Marketing Efforts. NTI and Cadence agree to take
-----------------------
reasonable commercial steps to coordinate their respective efforts to market the
NTI Product Components and to create joint marketing collateral regarding the
NTI Product Components and Cadence Combined Products.
7.5 Training of Cadence End Users. Cadence shall have the sole
-----------------------------
responsibility for conducting end-user training for the Cadence Combined
Products.
7.6 Cadence End User Support. Cadence shall be solely responsible
------------------------
for providing product technical support to all end-users of the Cadence Combined
Products.
8. UPDATES AND SUPPORT OF CADENCE.
8.1 Updates. During the term of this Agreement, NTI shall deliver to
-------
Cadence any Updates to the NTI Product Components that NTI has prepared upon
commercial release thereof. NTI agrees that it will not rename the NTI Product
Components in order to avoid providing Cadence with Updates that Cadence is
entitled to under this Section 8.1.
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8.2 Back-Up Support and Error Corrections. During the term of this
-------------------------------------
Agreement, NTI shall provide to Cadence back-up support for the NTI Product
Components as follows:
(a) Error Correction. NTI will use reasonable commercial
----------------
efforts to provide an Update to correct any Errors in the NTI Product Components
reported by Cadence. Such efforts will include, as appropriate, (i) reviewing
the Error with Cadence, (ii) gathering additional information about the Error,
(iii) analyzing the Error to determine its cause, (iv) providing an Error
solution (which may be an Update or a workaround, if already known), and (v)
when required providing an Update that corrects the Error. When available,
Updates will be delivered promptly to Cadence at no additional cost. NTI will
provide Cadence with an estimate of how long it will take to correct the Errors
reported by Cadence (in accordance with Section 8.2(b)) and will keep Cadence
informed of the progress of the problem resolution.
(b) Error Classification and Response. Cadence and NTI will
---------------------------------
jointly classify Errors reported by Cadence as follows: "Fatal" means an Error
that prevents the product from performing any useful work; "Severe Impact" means
an Error that disables a major or essential function or functions (other than
Fatal Errors); "Degraded Operations" means an Error that disables one or more
non-essential functions; and "Minor" means all other Errors. NTI will use
reasonable commercial efforts to confirm receiving a report of an Error, provide
a workaround or temporary fix including Documentation changes, and provide an
Update correcting the Error as follows:
Severity Confirm Report Temporary Fix Update
Continued effort until
Fatal 1 business day corrected 6 days
Severe Impact 1 business day 5 business days 20 days
Degraded Operations 2 business day 15 business days 60 days
Minor 5 business day To be determined on a To be determined
case-by-case basis on a case-by-case
basis
NTI will provide to Cadence sufficient advance notice of any planned
Updates as soon as such plans are made by NTI so as to enable Cadence to adapt
its interfaces to the NTI Product Components in a timely manner.
9. RIGHT TO MATCH ACQUISITION OFFER.
9.1 Acquisition Offers. In the event that NTI receives a bona fide
------------------
offer to acquire NTI from Synopsys, Mentor Graphics or Avant! (whether by
merger, stock exchange, sale of substantially all of the assets or other
business combination) pursuant to which the shareholders of NTI would hold less
than 50% of the voting equity securities of the successor or acquiring
corporation following such acquisition (an "Acquisition Offer"), and the Board
of Directors of NTI, after review of such Acquisition Offer, determines that it
is in the best interests of NTI's shareholders to accept such offer, then NTI
shall provide written notice of such determination (the "Acquisition Offer
Notice") to Cadence and Cadence shall, subject to the terms and conditions of
Sections 9.2 and 9.3 below, have the right to match or exceed such Acquisition
Offer as described below.
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CONFIDENTIAL
9.2 Counter Acquisition Offer. The Acquisition Offer Notice shall
-------------------------
set forth the principal financial and other terms of the Acquisition Offer.
Cadence shall have thirty (30) calendar days following receipt of the
Acquisition Offer Notice to respond with a counter Acquisition Offer. The Board
(excluding any Board representative of Cadence should any such representative
exist) shall review all Acquisition Offers received and shall, in its sole
discretion consistent with its fiduciary duties under law and with the advice of
its investment advisors, if any, determine which Acquisition Offer is in the
best interests of NTI and its shareholders (taking into account which
Acquisition Offer is financially superior, which has the greatest likelihood of
consummation and other factors. During this thirty (30) day period NTI shall not
(i) publicly endorse or comment upon any other Acquisition Offer and (ii) shall
not allow any other prospective purchaser to have access to NTI's records,
facilities, or personnel for the purpose of conducting a due diligence review.
9.3 Assignability. The right to match under this Section 9 is not
-------------
assignable by Cadence without the prior written consent of NTI, except to
Affiliates of Cadence in connection with an assignment of this entire Agreement
as part of an internal restructuring or reorganization of Cadence not involving
any combination with any third party (other than third parties that either are
Affiliates of Cadence as of the Effective Date or are formed in connection with
such internal restructuring or reorganization).
9.4 Fiduciary Duties. Notwithstanding anything to the contrary
----------------
above, the Board shall review all Acquisition Offers in compliance with its
fiduciary duties under law and any other applicable laws.
9.5 Remedies. NTI acknowledges that any breach of this Section 9 by
--------
NTI would cause irreparable harm to Cadence for which monetary damages would be
inadequate and, therefore, Cadence will be entitled to immediate injunctive
relief, without the requirement of posting bond, to prevent any continuing or
threatened breach of this Section 9 by NTI.
9.6 Termination. The rights and obligations under this Section 9
-----------
shall terminate upon the earliest to occur of the events described in clauses
(i) or (ii) below (provided, in the case of clause (ii), that NTI shall have
complied with the provisions of this Section 9 prior to consummating the
transactions described in such clause (ii)). The events referred to above are:
(i) the closing of the initial public offering of NTI, and (ii) a sale of
substantially all of the assets of NTI or a merger or consolidation of NTI with
or into another corporation or entity pursuant to which the shareholders
immediately prior to such merger or consolidation hold less than fifty percent
(50%) of the voting equity securities of the surviving or acquiring entity
immediately following such merger or consolidation.
10. LIMITED WARRANTIES AND DISCLAIMER.
10.1 Limited Warranty for NTI Product Components. NTI warrants that,
-------------------------------------------
at the time of delivery to Cadence, the unmodified NTI Product Components will
be complete and functioning and that, for a period of eighteen (18) months from
the Effective Date or ninety (90) days
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CONFIDENTIAL
from the date of the first commercial shipment of the NTI Product Components by
Cadence (whichever is shorter) (the "Warranty Period"), the NTI Product
Components under normal use will have no Critical Errors. NTI's entire liability
and Cadences exclusive remedy under this warranty will be, at NTI's option, to
use reasonable commercial efforts to attempt to correct any Critical Errors or
to replace the NTI Product Components with functionally equivalent software. If
NTI is unable to correct any Critical Error in the initial version of the NTI
Product Components delivered to Cadence under Section 2 of this Agreement within
sixty (60) days after such Critical Error is reported to NTI by Cadence, Cadence
will have the right to terminate this Agreement by written notice to NTI,
provided that Cadence reports such Critical Error within the Warranty Period.
10.2 Exclusions. The warranties under Section 10.1 will not extend
----------
to problems that result from: (i) Cadence's failure to implement all Updates to
the NTI Product Components issued to Cadence by NTI; (ii) any alterations of or
additions to the NTI Product Components performed by or at the direction of
parties other than NTI; (iii) misuse of the NTI Product Components; or (iv) use
of the NTI Product Components in conjunction with products not supplied or
approved by NTI.
10.3 Necessary Rights. NTI represents and warrants to Cadence that
----------------
NTI has all rights necessary to grant to Cadence the licenses granted to Cadence
in this Agreement.
10.4 No Viruses. NTI represents and warrants to Cadence that the NTI
----------
Product Components, as delivered by NTI to Cadence under this Agreement, will
not contain any computer software code, routines, or devices (other than as set
forth in the documentation accompanying such software or code) designed to
alter, disable, damage, erase, or impair the use of software or data without the
user's knowledge and consent, and that NTI will use commercially reasonable
efforts, including the use of commercially available virus detection software,
to ensure that the media on which the NTI Product Components are delivered to
Cadence do not contain any such code.
10.5 Year 2000 Compliance. During the Warranty Period, NTI warrants
--------------------
that the NTI Product Components will accurately process and handle (including
calculating, comparing and sequencing) date and time data from, into, and
between the twentieth and twenty-first centuries, and the years 1999 and 2000,
including leap year calculations, to the extent that other information
technology used in combination with the NTI Product Components properly exchange
date and time data with it. NTI's entire liability and Cadence's exclusive
remedy under this warranty will be, at NTI's option, to use reasonable
commercial efforts to attempt to correct any failure of the NTI Product
Components to be Year 2000 compliant as described above, unless such failure
also constitutes a Critical Error, in which case Cadence will also have the
remedies available under Section 10.1.
10.6 Exclusive Warranties. Except for the express warranties stated
--------------------
in Section 10 above, NEITHER PARTY MAKES ANY OTHER WARRANTY OF ANY KIND, WHETHER
EXPRESS, IMPLIED OR, STATUTORY AND BOTH PARTIES DISCLAIM ANY AND ALL IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NTI
disclaims any warranty that the NTI Product Components delivered to Cadence
under this Agreement will be capable of productive use if not used with the
Cadence Products.
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CONFIDENTIAL
11. INDEMNIFICATION AND LIMITATION OF LIABILITY.
Indemnification. NTI agrees, at its own expense, to defend or at its
---------------
option settle, any third party claim, suit or proceeding (collectively,
"Action") brought against Cadence to the extent such Action results from actual
or alleged infringement (whether direct, contributory, by inducement, or
otherwise) by the NTI Product Components of any U.S. patent, any patent issued
in Japan or any European Union country, or any copyright, trade secret,
trademark, or other Intellectual Property Right worldwide; provided, that NTI
shall have sole control of any such Action or settlement negotiations, and NTI
agrees to indemnify and hold Cadence harmless from, subject to the limitations
hereinafter set forth, any settlement amounts or final judgment entered against
Cadence on such issue in any such Action (regardless of characterization of
types of damage). Cadence will (i) notify NTI promptly in writing of such an
Action, (ii) give NTI sole control and authority to proceed as contemplated
herein, and (iii) give NTI proper and full information and assistance to settle
and/or defend any such Action. Failure by Cadence to notify NTI promptly in
writing of such an Action will relieve NTI of its obligations under this Section
11.1 only to the extent that NTI's ability to defend the Action is prejudiced by
such lack of notice. NTI further agrees to indemnify and hold Cadence harmless
for Cadence's reasonable costs and expenses (including reasonable attorneys'
fees) incurred in analyzing and tendering to NTI any such Action, provided that
Cadence fulfills its obligations under clauses (i), (ii) and (iii) of this
Section 11.1. In addition, in the event that NTI fails to assume the defense of
any such Action, and provided that Cadence has fulfilled its obligations under
clauses (i), (ii) and (iii) above, then Cadence may give NTI written notice of
such failure and an opportunity to cure such failure within thirty (30) business
days. In the event that NTI does not assume the defense of such Action within
such cure period, then NTI shall further be obligated to indemnify and hold
Cadence harmless for Cadence's reasonable costs and expenses (including
reasonable attorneys' fees) incurred in the defense or settlement of such
action.
If it is adjudicatively determined, or if NTI reasonably believes that the NTI
Product Components or any part thereof infringe any patent, copyright, trade
secret, trademark or other Intellectual Property Right of a third party, then
NTI may, and if the sale, distribution, or use of the NTI Product Components by
Cadence is, as a result, enjoined, then NTI shall, at its option and expense:
(a) procure for Cadence the rights under such patent, copyright, trade secret,
trademark or other Intellectual Property Right needed for Cadence to exercise
all of its rights under this Agreement with respect to the NTI Product
Components, or such part thereof; or (b) replace the NTI Product Components, or
parts thereof, with non-infringing suitable NTI products or parts with the same
functionality (or better) as the infringing NTI Product Components or parts; or
(c) suitably modify the NTI Product Components, or part thereof, to become non-
infringing and have the same functionality or better; or (d) if none of the
foregoing is feasible and Cadence's continued use and distribution of the
infringing NTI Product Component (or part thereof) has been finally enjoined,
accept return of such NTI Product Component, or part thereof, terminate
distribution or sale thereof, and pay to Cadence an amount equal to a portion of
the License Fees previously paid (and reduce the License Fees still to be paid
by an amount) commensurate with the value of such NTI Product Component (or part
thereof) compared to the value of all the NTI Product Components. NTI will not
be liable for any costs or expenses incurred without its prior written
authorization, or for any installation costs of replaced NTI products. Any
settlement that restricts Cadence's ability to continue using or distributing
any NTI Product Components in accordance with this Agreement will not be binding
on Cadence unless approved in writing by an authorized officer of Cadence (which
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CONFIDENTIAL
approval will not be unreasonably withheld). If any settlement restricts
Cadence's ability to continue using or distributing any NTI Product Components
in accordance with this Agreement, the parties will negotiate in good faith a
commensurate reduction in the License Fees.
11.1 Limitation of Liability. EXCEPT WITH RESPECT TO BREACH OF
-----------------------
SECTIONS 12 (CONFIDENTIALITY), 3 (LICENSE GRANTS), 4 (EXCLUSIVITY) AND 9 (RIGHT
TO MATCH ACQUISITION OFFER) AND EXCEPT WITH RESPECT TO LIABILITY UNDER SECTION
11.1 (INDEMNIFICATION), NEITHER PARTY SHALL HAVE ANY LIABILITY TO THE OTHER
PARTY FOR LOST PROFITS OR BUSINESS OPPORTUNITIES, LOST DATA, OR ANY OTHER
INDIRECT, INCIDENTIAL, CONSEQUENTIAL, SPECIAL, OR RELIANCE DAMAGES, HOWEVER
CAUSED AND UNDER ANY THEORY OF LIABILITY, WHETHER BASED IN CONTRACT, TORT
(INCLUDING NEGLIGENCE), PRODUCT LIABILITY OR OTHERWISE. THESE LIMITATIONS SHALL
APPLY REGARDLESS OF WHETHER SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGE AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED
REMEDY. NTI'S TOTAL, CUMULATIVE LIABILITY UNDER SECTION 11.1 FOR ANY AND ALL
CLAIMS OF INFRINGEMENT OF PATENTS ISSUED IN JAPAN OR ANY EUROPEAN UNION COUNTRY
WILL BE LIMITED TO THE AGGREGATE AMOUNT PAID BY CADENCE TO NTI UNDER THIS
AGREEMENT.
12. CONFIDENTIALITY.
12.1 Definition. The term "Confidential Information" shall mean any
----------
information disclosed by one party to the other party in connection with this
Agreement which is disclosed in writing, electronically, orally or by inspection
and which a party has a reasonable basis to believe is treated as confidential
by the other party.
12.2 Obligation. Each party shall treat as confidential all
----------
Confidential Information received from the other party, shall not use such
Confidential Information except as expressly permitted under this Agreement, and
shall not disclose such Confidential Information to any third party without the
other party's prior written consent. Each party shall take reasonable measure to
prevent the disclosure and unauthorized use of Confidential Information of the
other party for a period from the time of disclosure until the later to occur of
(i) the date five (5) years after such disclosure, or (ii) the expiration or
termination of this Agreement.
12.3 Exceptions. Notwithstanding the above, the restrictions of this
----------
Section 12 shall not apply to information that:
(a) was independently developed by the receiving party
without any use of the Confidential Information of the other party and by
employees or other agents of (or independent contractors hired by) the receiving
party who have not been exposed to the Confidential Information as demonstrated
by written documentation;
(b) becomes known to the receiving party, without
restriction, from a third party without breach of this Agreement and who had a
right to disclose it;
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CONFIDENTIAL
(c) was in the public domain at the time it was disclosed or
becomes in the public domain through no act or omission of the receiving party;
or
(d) was rightfully known to the receiving party, without
restriction, at the time of disclosure.
12.4 Government Order. If a receiving party is required under an
----------------
order or requirement of a court, administrative agency, or other governmental
body to disclose any Confidential Information, then such receiving party shall
provide prompt notice thereof to the other party and shall use its reasonable
commercial efforts to obtain a protective order or otherwise prevent public
disclosure of such information.
12.5 Residuals. This Section 12 is not intended to prevent the
---------
receiving party from using Residual Knowledge, subject to any valid patents and
copyrights of the disclosing party. "Residual Knowledge" means ideas, concepts,
know-how, or techniques related to the disclosing party's technology or general
skill, knowledge, talent and expertise that are retained in the unaided memories
of the receiving party's employees who have had access to the Confidential
Information of the disclosing party, but in no event including Confidential
Information relating to the source code of the NTI Product Components to the
extent that Cadence employees gain access to such source code under Section 15
of this Agreement. An employee's memory is considered unaided if the employee
has not intentionally memorized the Confidential Information for the purpose of
retaining and subsequently using or disclosing it.
13. DISPUTE RESOLUTION.
If NTI and Cadence are unable to resolve any dispute, controversy or claim
arising out of this Agreement between them, then, prior to exercising its right
to terminate under any provision of this Agreement or (in the case of a dispute
over whether Cadence has met the Production Release Milestones set forth in
Exhibit D) prior to NTI entering into an OEM or distribution agreement with
Synopsys as permitted under Section 4.2, either NTI or Cadence shall, by written
notice to the other, first have such dispute referred to a Senior Vice President
(or equivalent) of NTI and Cadence, for attempted resolution by good faith
negotiations within ten (10) business days after such notice is received. If not
resolved within such ten (10) business day period, the parties shall escalate
the dispute to their respective Chief Operating Officers (or equivalent) for
resolution within thirty (30) business days after expiration of the initial ten
(10) day period. Unless otherwise mutually agreed, the negotiations between the
designated officers shall be conducted by face-to-face meetings within ten (10)
business days and at mutually convenient times within the period stated above.
14. TERM AND TERMINATION.
14.1 Term. The term of this Agreement shall commence on the
----
Effective Date and, unless terminated earlier as provided under Section 14.3 or
renewed as provided under Section 14.2, shall expire at the end of the Initial
Term.
14.2 Option to Renew. Cadence shall have the option of renewing this
---------------
Agreement for the "Renewal Term" by giving NTI written notice of its intent to
exercise such option on or
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before March 31, 2002. In the event Cadence opts to extend this Agreement for
the Renewal Term, the Agreement shall continue in full force and effect for a
term of two (2) years from January 1, 2003 through December 31, 2004.
14.3 Termination for Breach. If either party (the "Breaching Party")
----------------------
materially breaches any term or condition of this Agreement, the other party
(the "Non-Breaching Party") may give written notice of such breach to the
Breaching Party. The Breaching Party will then have ten (10) days to notify the
Non-Breaching Party if the Breaching Party believes it has not materially
breached this Agreement, in which case the parties will attempt to resolve the
dispute in accordance with Section 13. If the Breaching Party acknowledges in
writing that it has materially breached this Agreement or fails to provide such
notice to the Non-Breaching Party within this ten (10) day period, or if the
parties are unable to resolve the dispute in accordance with Section 13, then
the Breaching Party will have thirty (30) days to cure the breach. If the
Breaching Party is unable to cure the breach within this thirty (30) day period,
the Non-Breaching Party may terminate this Agreement by written notice to the
Breaching Party at any time within thirty (30) days following the end of such
thirty (30) day period.
14.4 Effect of Termination. Except as otherwise specifically set
---------------------
forth in this Agreement, the following sections shall survive the expiration or
termination, for any reason, of this Agreement: 1 (Definitions), 10 (Limited
Warranties and Disclaimer), 11 (Indemnification and Limitation of Liability), 12
(Confidentiality), 16 (Assignment), and 17 (Miscellaneous). All other Sections
and all licenses hereunder shall terminate upon the expiration or termination,
for any reason, of this Agreement except as provided in Sections 14.5, 14.6,
14.7 and 15.3 below.
14.5 Rights Upon Cadence Breach. In the event of termination of the
--------------------------
Agreement by NTI for a material breach by Cadence, the following shall apply
regarding Cadence's right to continue to ship the NTI Product Components and
Upgrades thereto after such termination:
(a) Non-Intellectual Property or Payment Related Breach. If
---------------------------------------------------
the material breach by Cadence is not related to NTI's Intellectual Property
rights or NTI's right to receive fees under the Agreement, then after
termination Cadence shall only have the right to ship the then-current version
of the NTI Product Components available at the time of the breach as part of
Updates to the Cadence Combined Products to Cadence customers who, prior to
breach, already purchased the Cadence Combined Product.
(b) Intellectual Property or Payment Related Breach. If the
-----------------------------------------------
Cadence breach is a material breach relating to NTI's Intellectual Property
rights or NTI's right to receive fees under the Agreement, then Cadence shall
have no right to continue shipping any NTI Product Components under any
circumstances.
14.6 Rights Upon NTI Breach. In the event of a material breach by
----------------------
NTI, Cadence shall have the right to either:
(a) terminate this Agreement in accordance with Section 14.3
and have the same rights as provided under Section 3 for the remainder of the
Initial Term and the Renewal Term (if (i) the termination took place before the
time for Cadence to make its election regarding the
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Renewal Term, or (ii) if termination took place after Cadence has elected to
renew the Agreement), or just for the remainder of the Initial Term if the time
for election had passed prior to termination and Cadence had not elected to
extend the Agreement into the Renewal Term; provided, however that except as
provided in Section 14.6(b), Cadence shall pay NTI a reduced License Fee in the
amount of [***] of the original License Fee (including the License Fee owed
for the Renewal Term, if Cadence elects to preserve its rights for the Renewal
Term) owed under this Agreement (any such additional payments will be due in
accordance with the schedule in Exhibit E); or
(b) if the NTI breach was a material breach of Section 4,
terminate this Agreement in accordance with Section 14.3 and have the same
rights as provided under Section 3 with no further payments of the License Fee
whatsoever for the remainder of the Initial Term and the Renewal Term (if (i)
the termination took place before the time for Cadence to make its election
regarding the Renewal Term, or (ii) if termination took place after Cadence has
elected to renew the Agreement), or just for the remainder of the Initial Term
if the time for election had passed prior to termination and Cadence had not
elected to extend the Agreement into the Renewal Term.
In any case of termination under this Agreement, after such termination NTI will
have no obligation under this Agreement to provide Updates to Cadence.
14.7 Rights upon Expiration. Upon the expiration of the Renewal Term
----------------------
(or, if none, the Initial Term), Cadence shall only have the right to ship the
then-current version of the NTI Product Components available at the time of such
expiration to the Cadence Combined Products to Cadence customers who, prior to
such expiration, already purchased the Cadence Combined Product; provided that,
Cadence shall only be permitted to continue such shipments until the end of life
of the release of the Cadence Combined Products which were being shipped at the
time of the expiration.
14.8 Return of Materials. Upon the expiration or termination of this
-------------------
Agreement for any reason, and except for copies of such items as may be
reasonably required by NTI to exercise any surviving rights or fulfill any
surviving obligations, NTI shall promptly (i) return to Cadence the originals
and all copies (in tangible form or stored in storage or memory devices) of all
Cadence Materials, all Confidential Information of Cadence and all other
material provided hereunder by Cadence in NTI's possession or control; and (ii)
provide Cadence with a written statement certifying that it has complied with
the foregoing obligations. Upon the termination of this Agreement for any
reason, and except for such items as may be reasonably required by Cadence to
exercise any surviving rights or fulfill any surviving obligations, Cadence
shall promptly (a) return to NTI the originals and all copies (in tangible form
or stored in storage or memory devices) of all Confidential Information of NTI
and all other material provided hereunder by NTI in Cadence's possession or
control; and (b) provide NTI with a written statement certifying that it has
complied with the foregoing obligations.
14.9 Remedies Cumulative. If Cadence elects to terminate this
-------------------
Agreement due to a material breach by NTI, such termination will be Cadence's
sole and exclusive remedy for such breach. Except as specifically set forth in
this Agreement, termination shall be in addition to all other legal or equitable
remedies available to either party.
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[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
CONFIDENTIAL
15. ESCROW.
15.1 Escrow Account. Within ninety (90) days of the Effective Date
--------------
of this Agreement, NTI agrees to place and maintain current in an escrow account
with an escrow agent in California selected by Cadence and reasonably acceptable
to NTI a complete copy of the source code for the NTI Product Components
hereunder and any Updates and related documentation thereto that Cadence is
licensed to use hereunder (collectively "Source Code"). Cadence shall have the
right at any time to contact the escrow agent for the purpose of confirming that
the Source Code is in the escrow account and verifying the instructions to the
escrow agent to release the Source Code under the circumstances specified in
Section 14.2 below. Cadence shall bear all fees, expenses and other charges of
the escrow agent to open and maintain such escrow account.
15.2 Release. The escrow agreement between Cadence, NTI and the
-------
escrow agent will provide that, if NTI (or its successors or assigns)
liquidates, makes general assignment for the benefit of creditors, or ceases
doing business as a going concern, or if NTI ceases to support the NTI Product
Components or commits a material and ongoing breach of its support obligations
under Section 8.2 above that is not cured within thirty (30) days of written
notice from Cadence, then, upon notice thereof by Cadence to NTI and the escrow
agent, the escrow agent shall deliver the Source Code to Cadence. If NTI
disputes Cadence's right to the Source Code, the matter shall be referred to
arbitration or a court of jurisdiction.
15.3 License. NTI hereby grants to Cadence a nonexclusive right to
-------
use, reproduce, and modify such Source Code solely to correct Errors in the NTI
Product Components, to maintain the compatibility of the NTI Product Components
with the Cadence Products and third party software used in conjunction with the
NTI Product Components, and to provide minor functionality enhancements to the
NTI Product Components consistent with the enhancements being made to the
Cadence Products. The object code derived from the Source Code so modified shall
be deemed to be NTI Product Components hereunder and subject to the same rights
and restrictions on use, reproduction, and disclosure that are contained in this
Agreement with respect to the NTI Product Components. Cadence shall not
distribute, sell or sublicense the Source Code. The Source Code shall be subject
to the confidentiality provisions set forth in this Agreement in Section 12. In
addition, Cadence shall restrict disclosure of the Source Code to those within
its organization who need to use it for the purposes set forth above, and shall
keep it in a secure, locked location when not in use. NTI shall retain all
right, title and interest in and to the Source Code. The license granted in this
Section shall survive termination of the Agreement in accordance with Section 14
if the escrow provisions were triggered prior to termination or expiration of
the Agreement, but Cadence may not trigger the escrow provisions post-
termination or expiration.
16. ASSIGNMENT.
Neither party may, by operation of law or otherwise, assign any of its
rights or delegate any of its obligations under this Agreement without the prior
express written consent of the other party. Notwithstanding the foregoing,
either party may assign all (but not part) of its rights and delegate all (but
not part) of its obligations under this Agreement to a third party as part of
any acquisition of such assigning party by such third party, provided that
notice of and details concerning such proposed assignment and delegation is
given to the non-assigning party, and Cadence may assign this
-17-
<PAGE>
CONFIDENTIAL
Agreement to any of its Affiliates; provided that, in no event, may Cadence
assign its rights or delegate duties under this Agreement to any third party
which Cadence has engaged or is working with to develop, license, acquire,
market or distribute any technologies which have substantially the same
functionality as the NTI Product Components as is permitted under Section 4.2 of
this Agreement. Subject to the foregoing, this Agreement will bind and inure to
the benefit of the parties, their respective successors and permitted assigns.
Any permitted assignment under this Section 16 shall be subject to the assignee
agreeing in writing to be bound by all the terms and conditions of this
Agreement.
17. MISCELLANEOUS.
17.1 Waivers. No waiver of any provision of this Agreement shall be
-------
effective unless in writing and signed by the party to be charged. No failure or
delay by either party in exercising any right, power, or remedy under this
Agreement, except as specifically provided herein, shall operate as a waiver of
any such right, power or remedy.
17.2 No Limitation. Use of the word "including" is meant to be
-------------
illustrative only and not limiting.
17.3 Descriptive Headings. The descriptive 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.
17.4 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California without
application of any choice of law principles. All disputes under this Agreement
shall be brought in the courts located in Santa Clara County, California.
17.5 Independent Contractors. The parties are independent
-----------------------
contractors. Neither party shall be deemed to be an employee, agent, partner or
legal representative of the other for any purpose and neither shall have any
right, power or authority to create any obligation or responsibility on behalf
of the other.
17.6 Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given when delivered in
person, by telecopy with answer back, by express or overnight mail delivered by
a nationally recognized air courier (delivery charges prepaid), or by registered
or certified mail (postage prepaid, return receipt requested) to the respective
parties at their addresses set forth on the first page of this Agreement or to
such other address as the party to whom notice is given may have previously
furnished to the others in writing in the manner set forth above. Any notice or
communication so delivered shall be deemed effective on delivery or when
delivery is refused. Any notice or communication to Cadence shall be addressed
to the attention of the General Counsel.
17.7 Severability. If any provision of this Agreement is held by a
------------
court of competent jurisdiction to be contrary to law, such provision shall be
changed and interpreted so as to
-18-
<PAGE>
CONFIDENTIAL
best accomplish the objectives of the original provision to the fullest extent
allowed by law and the remaining provisions of this Agreement shall remain in
full force and effect.
17.8 Entire Agreement. This Agreement, including all Exhibits
----------------
attached hereto, constitutes the final, complete and exclusive agreement between
the parties with respect to the subject matter hereof, and supersedes any prior
or contemporaneous agreement.
17.9 Amendment. No change or amendment will be made to this
---------
Agreement except by an instrument in writing signed on behalf of each of the
parties hereto.
17.10 Exhibits. Each Exhibit attached to this Agreement is deemed a
--------
part of this Agreement and incorporated herein wherever reference to it is made.
17.11 No Implied Licenses. No licenses are to be implied from any
-------------------
term of this Agreement other than the licenses expressly granted herein.
17.12 Counterparts. This Agreement may be executed in counterparts,
------------
each of which will be deemed an original.
IN WITNESS WHEREOF, the parties have caused this License Agreement to be
signed by their duly authorized representatives.
NUMERICAL TECHNOLOGIES, INC. CADENCE DESIGN SYSTEMS, INC.
By: /s/ Yagyensh C. Pati By: /s/ William Porter
-------------------- ------------------
Name: Yagyensh C. Pati Name: William Porter
---------------- --------------
Title: President & CEO Title: Chief Financial Officer
--------------- -----------------------
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<PAGE>
CONFIDENTIAL
EXHIBIT A: CADENCE PRODUCTS
Assura(TM) physical verification products: Consisting of DRC, LVS, RCX, and SI
(signal integrity) tools for both batch and interactive physical verification,
extraction and analysis.
Virtuoso(TM) physical design products: Consisting of products for custom
physical design, layout editing, and layout compaction.
Envisia cell-based design products: Consisting of products providing placement,
routing, interconnect parasitic extraction, timing and delay analysis
capabilities for digital, cell-based design.
<PAGE>
CONFIDENTIAL
EXHIBIT B: NTI PRODUCT COMPONENTS
Silicon Design Rule Check (SiDRC), Version 1.0: Silicon vs. Layout verification
software engine, in the form of binary shared libraries, that uses lithography
simulation to locate and flag areas of an integrated circuit layout design that
produce projected wafer patters outside the specified tolerance. This engine is
accompanied with a C header-file that allows the user to call the engine's API.
This will also include ModelGen (as described below), a complete mathematical
description of the semi-empirical component model, and description of the model
data file format.
ImagIC, Version 1.1: Software engine, in the form of binary code and the scripts
needed to link Virtuoso Layout Editor with NTI's simulation engines, that
generates real-time wafer image from layout data using lithography simulation.
This will also include ModelGen.
NumeriTech Optical Proximity Correction Tool (NOPC), Version 1.0: Rules-based
and simulation-based Optical Proximity Correction software engine, in the form
of binary shared libraries, that applies corrections based on the OPC rules (or
model information for the Simulation-based engine) to compensate for the
subwavelength lithographic effects. This engine is accompanied with a C
header-file that allows the user to call the engine's API.
NumeriTech Optical Proximity Correction GUI (NOPC-GUI), Version 3.1: Graphical
User Interface software, in the form of a binary application, that allows for
viewing and modifying OPC rules, as well as adding constraints and usage
options. This software will save the input from the user and will create a
command file, in TCL format, that will drive the operations of NOPC engine.
RuleGen, Version 1.3: Software, in the form of a binary application, that
automatically creates OPC rules from the calibrated optical/lithography process
models.
ModelGen, Version __: Software, in the form of a binary application, that
automatically creates a Model file from optical/lithography process models. The
Model file is read by several applications (e.g., Imagic and SiDRC).
ModelCalibrator, Version 2.1: Software, in the form of a binary
application, that inputs of results of test-chip measurements based on which it
then calibrates the optical/lithography process models used by NTI tools and
components.
<PAGE>
CONFIDENTIAL
EXHIBIT C: TRADEMARKS
NTI Trademarks: Registered Trademark: Virtual Stepper (R)
Corporate Trademarks: Numerical Technologies (TM), Inc.
NumeriTech (TM)
The Numerical Technologies logo.
Product Trademarks:
iN-Phase
TROPiC
N-Abled
SiVL
ImagIC
SiDRC
SiImage
Rule-Gen
Model-Gen
NOPC
IC Workbench
<PAGE>
CONFIDENTIAL
EXHIBIT D: CADENCE PRODUCTION RELEASE MILESTONES
Production Release Milestone #1
- -------------------------------
[***]
Production Released deadline by: June 30, 2000
Production Release Number: [***]
Production Release Milestone #2
- -------------------------------
[***]
Production Released deadline by: July 31, 2000
Production Release Number: [***]
[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
CONFIDENTIAL
EXHIBIT E: LICENSE FEES PAYMENT SCHEDULE
Fees During Initial Term
- ------------------------
1999
- ----
upon execution
of the Agreement [***]
2000
- ----
January 3 [***]
April 3 [***]
July 3 [***]
October 2 [***]
2001
- ----
January 2 [***]
April 2 [***]
July 2 [***]
October 1 [***]
2002
- ----
January 2 [***]
April 1 [***]
July 1 [***]
October 1 [***]
Total Fees
During Initial Term: [***]
Fees During Renewal Term
2003
- ----
January 2 [***]
April 1 [***]
July 1 [***]
October 1 [***]
2004
- ----
January 2 [***]
April 1 [***]
July 1 [***]
October 1 [***]
Total Fees
During Renewal Term: [***]
[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
DRAFT 12/15/99
EXHIBIT F: SERVICE FEES
Service Fee Payment Schedule
- ----------------------------
1999
- ----
Upon
execution of
the Agreement [***]
2000
- ----
January 3 [***]
April 3 [***]
July 3 [***]
October 2 [***]
2001
- ----
January 2 [***]
April 2 [***]
July 2 [***]
October 1 [***]
2002
- ----
January 2 [***]
April 1 [***]
July 1 [***]
October 1 [***]
Total Fees During Initial Term:
Fees During Renewal Term
2003 [***]
- ----
2004 [***]
- ----
Total Fees During Renewal Term: [***]
[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.22
OEM SOFTWARE LICENSE AGREEMENT
This OEM Software License Agreement (this "Agreement") is entered into as
of this 31st day, of December, 1997 (the "Effective Date") by and between
Numerical Technologies, Inc., a California corporation, having its principal
place of business at 333 West Maude Avenue, Suite 207, Sunnyvale, CA 94086
("NTI"), and Technical Instrument Company, a California corporation having its
principal place of business at 650 N. Mary Avenue, Sunnyvale, CA 94086 ("OEM").
WHEREAS, NTI is in the business of developing and marketing computer
software for application in the production of semiconductors, including certain
software designed for use in mask defect analysis as defined below; and
WHEREAS, OEM is in the business of developing and marketing optical
microscope based mask metrology and defect review systems and WHEREAS, OEM
desires to obtain from NTI and NTI is willing to grant to OEM, under the terms
and conditions set forth herein, the right to market such software directly to
end-users and to other mask defect review and mask metrology optical based
microscope vendors as part of a computer system for use in the Field (as defined
below).
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto agree as follows:
1. DEFINITIONS
-----------
1.1 "End-User" shall mean a customer to whom OEM or one of its
--------
Sublicensees permitted hereunder sublicenses a copy of an TVS System for
internal use by such customer in the regular course of such customer's business
and not for resale. In the case of OEM's distribution of the TVS System for its
own internal use, OEM shall be deemed to be an End-User.
1.2 "Field" shall mean the field of off-line mask defect review, analysis,
-----
and metrology, solely to the extent that each of the foregoing is performed in
conjunction with mask images obtained from an optical microscope system that is
distinct from and not a part of any on-line mask inspection system. As used
above, an on-line mask inspection system includes without limitation any system
that is used for the detection and/or location of mask defects and/or anomalies
before any other system is used for the detection and/or location of mask
defects and/or anomalies. In addition, as used above, an on-line mask inspection
system includes without limitation any system that is used to automatically
detect and/or locate mask defects and/or anomalies.
1.3 "Sublicensees" shall mean Other Vendors who contract with OEM to
------------
distribute the TVS System as permitted hereunder.
1.4 "Other Vendors" shall mean Carl Zeiss, GmbH (Jena, Germany), Nikon
-------------
Corp.
[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
(Tokyo, Japan), Leica GmbH (Wetzler, Germany), Olympus Corp. (Tokyo, Japan),
Lasertec Corporation (Yokohama, Japan), Mitutoyo, MTI Corp. (Aurora, Illinois),
SiScan Corp. (IHI (Tokyo, Japan), OAI, Inc. (Santa Clara, CA)) and any other
optical microscope vendors mutually agreed to by the parties in writing.
1.5 "TVS Software" shall mean NTI's TINT Virtual Stepper Software for mask
------------
defect analysis version 1.0, in object code format, as further described in
Exhibit A hereto, and Updates and Upgrades thereto provided to OEM under this
Agreement.
1.6 "TVS System" shall mean a mask defect analysis system that
----------
incorporates the TVS Software, certain computer hardware for connection to an
optical based microscope, as further described in Exhibit A hereto.
1.7 "Updates" shall mean minor enhancements (denoted by a change to the
-------
right of the decimal point (e.g. 3.1 to 3.2)), in object code format, to the TVS
Software and/or bug fixes to the TVS Software.
1.8 "Upgrades" shall mean new releases of the TVS Software, in object code
--------
format, that are not Updates.
2. GRANT OF RIGHTS
---------------
2.1 Direct Distribution License. Subject to the terms and conditions of
---------------------------
this Agreement, NTI grants to OEM during the term of this Agreement a
nontransferable, worldwide license to reproduce, market and distribute directly
to End-Users the TVS Software for use in the Field, solely as incorporated into
a TVS System.
2.2 Indirect Distribution License. Subject to the terms and conditions of
-----------------------------
this Agreement, NTI grants to OEM, for a period of one (1) year from the
Effective Date, a nontransferable, worldwide license to license to Other Vendors
the right to reproduce, market and distribute directly to End-Users the TVS
Software for use in the Field, solely as incorporated into a TVS System. OEM
shall enter into and execute written agreements with Sublicensees containing
provisions at least as protective of NTI as those set forth in this Agreement
("Sublicense Agreement"), including without limitation the provisions of
Sections 2.2-2.4, 2.6, 2.8-2.10, 3.1, 4.3, 5, 6.2, 7-9, 10.2, and 12 hereof. OEM
further agrees that each Sublicense Agreement will disclaim warranties on behalf
of NTI with respect to the TVS Software and limit NTI's liability with respect
to the TVS Software, to substantially the same degree as provided in Sections
4.2 and 11 hereof. NTI and its licensors shall be named as intended third party
beneficiaries of each Sublicense Agreement with the right to enforce the
provisions thereof directly against the Sublicensees. OEM will (i) use
commercially reasonable efforts to ensure that all Sublicensees abide by the
terms of the Sublicense Agreements, (ii) promptly notify NTI of the breach of
any Sublicense Agreement or the unauthorized copying or distribution of the TVS
Software by a Sublicensee, and (iii) keep NTI apprised of its activities to
enforce Sublicense Agreements with Sublicensees. OEM will provide NTI with
copies of Sublicense Agreements upon request.
<PAGE>
2.3 Demonstration License. Subject to the terms and conditions of this
---------------------
Agreement, NTI grants to OEM the right during the term of this Agreement to use
the TVS Software in the Field solely for the purpose of marketing and
distributing the TVS System. OEM may, during the term of the license granted in
Section 2.2 above and pursuant to Sublicense Agreements, sublicense to
Sublicensees the rights granted in this Section 2.3.
2.4 End-User Licenses. OEM shall ensure that each TVS System distributed
-----------------
to an End-User, whether directly by OEM or indirectly through Sublicensees,
shall be delivered to the End-User only after the End-User has entered into and
executed NTI's standard written end-user license agreement ("NTI EULA"), as may
be amended by NTI from time to time. A copy of NTI's current NTI EULA is
attached as Exhibit C hereto. Each copy of the TVS Software shall be used solely
for a single concurrent user on a single specified CPU, which may be transferred
to a different CPU ("Backup CPU"), for a period not to exceed 14 days, solely in
the event that the computer corresponding to the originally licensed CPU becomes
inoperable. NTI will provide OEM with an appropriate software "key" for each
such CPU. OEM agrees to use commercially reasonable efforts to enforce each NTI
EULA and to inform NTI immediately of any known breach of such obligations.
2.5 Delivery; Keys. NTI agrees to deliver to OEM, within a reasonable time
--------------
following the Effective Date, a golden master copy of the TVS Software. NTI will
provide OEM with an appropriate software "key" for each CPU licensed as provided
in Section 2.4. NTI will also provide OEM with an appropriate software "key"
that enables OEM's field service engineers to temporarily transfer a copy of the
TVS Software to a Backup CPU.
2.6 OEM Certification. OEM certifies that each copy of the TVS Software
-----------------
distributed under this Agreement will be distributed either directly to End-
Users or to Sublicensees as part of the TVS System assembled by OEM and will be
distributed in the regular course of OEM's business. Upon request, OEM shall
furnish to NTI evidence of compliance with this Section 2.6.
2.7 Exclusivity. During the term of the license granted in Section 2.2
-----------
above, NTI agrees not to license the TVS Software to Other Vendors to be
distributed for use in the Field. During the term of this Agreement, NTI agrees
that it will not directly distribute the TVS Software to End-Users for use in
the Field provided that, subject to the first sentence in this Section 2.7, the
foregoing shall not be construed from preventing NTI from distributing: (i) the
TVS Software to End-Users for use in the Field through third parties (including,
without limitation, VAR's, OEM's and other types of distributors); and/or (ii)
bug-fixes to the TVS Software for use in the Field directly to End-Users. Except
as otherwise provided above in this Section 2.7, the licenses set forth in
Sections 2.1 and 2.2 are nonexclusive. In no way limiting the other rights that
it retains, NTI reserves its right to license the TVS software to Other Vendors
for distribution to End-Users for use outside of the Field.
2.8 NTI Marks.
---------
(a) Ownership. All trademarks, service marks, trade names, logos or
---------
other words or symbols identifying the TVS Software or NTI, including without
limitation Virtual Stepper TM, (the
-3-
<PAGE>
"NTI Marks") are and shall remain the exclusive property of NTI or its
licensors, whether or not specifically recognized or perfected under the laws of
the jurisdiction in which they are used. OEM shall not acquire any rights in the
NTI Marks, except the limited use rights specified in Section 2.8(b) below. OEM
shall not, without NTI's prior written permission, register, directly or
indirectly, any trademark, service mark, trade name, company name or other
proprietary or commercial right which is identical or confusingly similar to the
NTI Marks or which constitute translations thereof.
(b) License and Use. Subject to the terms and conditions of this
---------------
Agreement, NTI hereby grants to OEM the right to use the NTI Marks exclusively
to advertise and promote the TVS System. All such use shall inure to the benefit
of NTI. OEM agrees to place prominently (i) on the outside packaging and on the
exterior of each TVS System (whether distributed to End-Users by OEM or
Sublicensees) and (ii) on all promotional materials and advertising related to
the TVS System, such NTI Marks as NTI may reasonably request. All advertisements
and promotional materials will (x) clearly identify NTI or its licensors as the
owners of the NTI Marks, (y) conform to NTI's then-current trademark and logo
guidelines and (z) otherwise comply with any local notice or marking requirement
contemplated under the laws of the applicable jurisdiction. Before distributing
any product or publishing or disseminating any advertisement or promotional
materials bearing an NTI Mark, OEM shall deliver a sample of the advertisement
or promotional materials to NTI for prior approval. If NTI notifies OEM that the
use of such NTI Mark is inappropriate, OEM will not publish or otherwise
disseminate the product, advertisement or promotional materials until the use of
the NTI Mark thereon has been modified to NTI's satisfaction.
(c) Infringement. If OEM has actual knowledge of an infringement of
------------
any NTI Mark by a third party or that use of the any NTI Mark within a
particular jurisdiction infringes the proprietary rights of a third party, it
will notify NTI in a reasonably prompt manner. NTI shall determine the steps to
be taken with respect to such infringement. OEM shall (i) provide NTI with
assistance that NTI may reasonably request and (ii) take no steps on its own
without NTI's prior written approval.
2.9 Restrictions. OEM may not copy the TVS Software, except as necessary
------------
to utilize the licenses granted hereunder and except for a reasonable number of
backup copies, and may not modify the TVS Software source code nor authorize or
permit any third party to do so. OEM agrees to reproduce all NTI Marks and
copyright notices contained on or in the TVS Software. OEM shall not decompile,
reverse-engineer TVS Software or otherwise attempt to derive or modify the
source code corresponding to the TVS Software and shall not authorize or permit
any third party to do so.
2.10 No Other Rights. Except as expressly granted hereunder, NTI grants no
---------------
license, by implication, estoppel or otherwise, to the TVS Software. All rights
not expressly granted to OEM are retained by NTI or its licensors.
2.11 Source Code Escrow. NTI agrees to deposit the computer software
------------------
programs identified in Exhibit A attached hereto, in source code form (the
"Source Materials"), into escrow with an escrow agent upon the terms and
conditions set forth in Exhibit E (the "Escrow Agreement"). OEM agrees to bear
all costs of the escrow as set forth in the Escrow Agreement.
-4-
<PAGE>
2.12 Source Code License and Grant Back. Subject to the terms and
----------------------------------
conditions of this Agreement, NTI hereby grants OEM a nonexclusive,
nontransferable license to use, modify and create derivative works of the Source
Materials solely for the purpose of exercising its rights to distribute object
code copies of the TVS System pursuant to the licenses granted under Section 2
above and supporting its Sublicensees and End-Users of the TVS Systems. OEM
agrees not to exercise this license unless and until the occurrence of a release
of the Source Materials from escrow. Title in all Source Materials will remain
in NTI. In case of exercise of the license granted to OEM in this Section 2.12,
OEM agrees to grant and does hereby grant NTI a non-exclusive, worldwide,
perpetual, irrevocable, royalty-free, fully paid right and license to copy, use,
modify, create derivative work of and distribute and sublicense all
modifications and derivative works of the Source Materials created by or for OEM
and modifications and derivative works thereof created by or for NTI. OEM will
use its best efforts to maintain the confidentiality of the Source Materials,
including all algorithms and ideas embodied therein, and shall be liable for any
unauthorized use or disclosure of the Source Materials, including all algorithms
and ideas embodied therein.
2.13 Diligent Efforts. OEM shall use diligent efforts to distribute the
----------------
TVS Software as provided in Section 2.1 to End-Users that desire to use the TVS
System with optical microscopes that are sold under a third party's trademark
3. MAINTENANCE
-----------
3.1 Support for TVS System. OEM agrees that it or Sublicensees shall be
----------------------
responsible for supporting End-Users of the TVS System. OEM shall ensure that
all questions regarding the use or operation of the TVS System are addressed to
and answered by OEM, and OEM will not represent to any third party that NTI is
available to answer any customer questions directly. NTI shall refer any
customer service questions relating to the TVS System to OEM.
3.2 Back-Up Support. For those copies of the TVS Software for which OEM
---------------
has paid the amounts set forth in Section 5 of Exhibit B ("Maintained Copies"),
NTI will provide technical support services ("Technical Support") to OEM for the
TVS Software as specified below:
(a) Error Corrections; Maintenance Releases. Upon identification of
---------------------------------------
any programming error in the TVS Software, OEM shall notify NTI of such error
and provide NTI with enough information to locate the error. NTI will provide to
OEM a response to such notification of error within one (1) business day
indicating the status of NTI's efforts to resolve the problem and an estimated
date of resolution of the problem. NTI shall use its commercially reasonable
efforts to correct any reproducible programming errors identified in the TVS
Software, and shall issue Updates that correct such defects in accordance with
NTI's published maintenance policies, as from time to time revised, provided
that NTI shall have no obligation to correct all errors in the TVS Software. One
copy of each Update shall be a replacement for (or a modification of) one
Maintained Copy and shall be licensed as if such Update were such Maintained
Copy (i.e. shall be licensed on the same CPU as the Maintained Copy for one
concurrent user). To the extent NTI makes Updates generally available to its
customers (as a bug fix as provided above or otherwise), it will make such
Updates available to OEM and Sublicensees from a password-protected location on
its Web site, and OEM and Sublicensees shall have responsibility for
distribution of Updates to End-Users subject to the
-5-
<PAGE>
provisions of Section 3.4.
(b) Telephone and Electronic Support. NTI shall provide OEM and
--------------------------------
Sublicensees with reasonable support both telephonically and electronically in
accordance with NTI's published Technical Support policies, as from time to time
revised, with regard to the use and operation of the TVS Software for the
purpose of assisting OEM to support the TVS System. Additional support,
including consultation with End-Users, may be made available upon request at
NTI's then current terms and rates.
3.3 Upgrades. NTI will negotiate in good faith to license Upgrades to OEM
--------
upon mutually agreeable terms and conditions.
3.4 Training. NTI will provide two man weeks of initial engineering,
--------
sales, and marketing training regarding the TVS Software to NTI personnel. Each
party shall bear its own costs with respect to such training. NTI will make
available to OEM and Sublicensees training, in addition to the training
described in the previous sentence, regarding the use and operation of the TVS
Software in accordance with NTI's then-current rates and policies for such
services.
4. LIMITED WARRANTY
----------------
4.1 Product Warranty. NTI warrants to OEM that, for a period of thirty
----------------
(30) days from the date of delivery of the TVS Software, the media on which the
TVS Software is furnished will, under normal use, be free from defects in
material and workmanship and the TVS Software will perform in substantial
accordance with the documentation supplied by NTI with such software. NTI's sole
liability and OEM's exclusive remedy for breach of the above warranties will be
for NTI, at its sole option, to repair or replace such media or provide a
Maintenance Release or replacement, as applicable.
4.2 Disclaimer. EXCEPT AS SPECIFICALLY WARRANTED IN SECTION 4.1 ABOVE, THE
----------
TVS SOFTWARE IS PROVIDED "AS IS," AND NTI MAKES NO OTHER WARRANTIES, EXPRESS,
IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO ANY SUCH MATERIALS, AND NTI
SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR NONINFRINGEMENT. NTI DOES NOT WARRANT THAT THE TVS
SOFTWARE WILL MEET OEM'S OR ITS END-USERS' REQUIREMENTS, THAT THE OPERATION OF
THE TVS SOFTWARE WILL BE UNINTERRUPTED OR ERROR FREE, OR THAT DEFECTS IN THE TVS
SOFTWARE WILL BE CORRECTED. FURTHERMORE, NTI DOES NOT WARRANT OR MAKE ANY
REPRESENTATIONS REGARDING RESULTS OF THE USE OF THE TVS SOFTWARE IN TERMS OF
CORRECTNESS, ACCURACY, RELIABILITY OR OTHERWISE.
4.3 No Unauthorized Warranties. Any representation, warranty or condition
--------------------------
with respect to the TVS Software or Technical Support as set forth in the NTI
EULA shall run from NTI to the End-User. OEM shall not make or offer any
representation or warranty to any End-User, potential
-6-
<PAGE>
End-User or Other Vendor with respect to the TVS Software and Technical Support
other than those representations and warranties made by NTI in the NTI EULA, and
OEM hereby agrees to indemnify and hold harmless NTI from and against any
expense (including reasonable attorneys' fees), cost, damage or liability
resulting from any representation or warranty made or offered by OEM in
violation of this Section 4.3.
5. COMPENSATION
------------
5.1 Royalties. OEM shall pay to NTI a royalty for each copy of the TVS
---------
Software distributed pursuant to this Agreement as set forth in Exhibit B
hereto.
5.2 Minimum Commitment. As consideration for two (2) copies of the TVS
------------------
Software (which may be distributed to third party End-Users or used by OEM as
an End-User), OEM agrees to pay to NTI [***] upon the Effective Date. OEM
agrees to pay NTI at least [***] during the 1998 calendar year as follows: (i)
on or before the end of the first three calendar quarters in 1998, OEM agrees to
pay NTI the excess (if any) of [***] over the amounts previously paid by OEM
hereunder during the applicable calendar quarter for copies distributed in such
quarter; and (ii) on or before December 31, 1998, OEM agrees to pay NTI (a) the
excess (if any) of [***] over the amounts previously paid by OEM hereunder
during the calendar quarter ending December 31, 1998 for copies distributed in
such quarter, and (b) the excess (if any) of [***] over the amounts previously
paid by OEM hereunder during the 1998 calendar year (including the amount paid
pursuant to subsection (a) above) for copies distributed in the 1998 calendar
year ("Shortfall"). Each payment set forth in this Section 5.2 shall be
nonrefundable provided that the Shortfall may be credited against copies of the
TVS Software distributed after the 1999 calendar year.
5.3 Reports and Audit Rights. OEM shall make written reports in a form
------------------------
reasonably acceptable to NTI of all copies of the TVS Software distributed
pursuant to this Agreement and grant audit rights to NTI as set forth in Exhibit
B hereto.
5.4 Maintenance Fees. As consideration for the provision by NTI of
----------------
Technical Support, OEM agrees to pay to NTI maintenance fees as set forth in
Exhibit B hereto.
5.5 Favored Licensee. The terms and conditions herein will be no less
----------------
favorable than the terms and conditions, when taken as a whole, that apply to
any third party that distributes the TVS Software in similar quantities under
similar circumstances (including but not limited to distribution channels).
OEM's sole remedy for any breach by NTI of the foregoing provision shall be to
substitute the more favorable terms and conditions as a whole for the terms and
conditions herein to the extent such more favorable terms and conditions should
have applied to such purchase according to the foregoing provision.
-7-
[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
6. MARKETING
---------
6.1 Publicity; Promotion. The parties agree within a reasonable period of
--------------------
time following the Effective Date to issue a joint press release concerning the
development and marketing of the TVS System and to cooperate in efforts to
promote the same, including without limitation promoting the TVS System on their
respective Web sites. TVS System promotional materials created by either NTI or
OEM will be reviewed and approved by both parties for accuracy and consistency
of content prior to final release.
6.2 OEM Obligations. OEM agrees to use its diligent efforts to market and
---------------
sell the TVS System and in all events OEM shall market and sell the TVS System
with efforts that are at least equivalent to the marketing and sales efforts
applied towards OEM's other products, including without limitation the use of
OEM's normal sales channels. OEM's sales and marketing efforts shall be directed
at both End-User customers and Sublicensees.
6.3 NTI Obligations. NTI shall provide support for the marketing and sales
---------------
of the TVS System through the provision of literature, presentations, and web
site announcements concerning the TVS Software and its use in the TVS System.
Upon request from OEM, NTI will place OEM's logo and company name within the
user interface of the TVS Software as set forth in Exhibit D.
7. TERM AND TERMINATION
--------------------
7.1 Term. This Agreement shall commence upon the Effective Date and shall
----
continue in force for a period of two (2) years and six (6) months unless
terminated earlier under the terms of this Section 7 or extended as provided
below in this Section 7.1. Technical Support and Updates shall continue only for
so long as OEM continues to pay the applicable fees therefor; provided, that NTI
may discontinue such services to OEM at the end of any year for which OEM has
paid such fees, so long as NTI gives OEM sixty (60) days' prior written notice
of its intention to discontinue such services. Unless earlier terminated under
the terms of this Section 7, OEM shall have the right to renew this Agreement
for a period of one year (ending with the third yearly anniversary of the
Effective Date) provided that OEM has paid for at least 100 copies of the TVS
Software during the period commencing with the Effective Date and ending
December 31, 1999. The parties will negotiate in good faith to attempt to reach
a written agreement, at least sixty (60) days prior to termination of the
initial one (1) year term set forth in Section 2.2, to extend the term of the
indirect distribution rights as granted in Section 2.2 for an additional period
of one (1) year beyond the termination of the initial one (1) year period. If
the parties fail to reach such a written agreement at least sixty (60) days
prior to termination of the initial one (1) year term set forth in Section 2.2,
the initial one (1) year period set forth in Section 2.2 shall not be extended.
7.2 Termination. This Agreement may be terminated by either party upon
-----------
notice if the other party (i) breaches any material term or condition of this
Agreement and fails to remedy the breach within thirty (30) days after being
given notice thereof, or, in the event such breach is not reasonably susceptible
of cure within thirty (30) days, such longer period as is reasonably necessary,
-8-
<PAGE>
or (ii) ceases to be actively engaged in business, unless it is succeeded by a
permitted assignee under this Agreement.
7.3 Effect of Termination. In the event this Agreement is terminated,
---------------------
OEM's rights under this Agreement and all Sublicense Agreements entered into by
OEM pursuant to this Agreement shall terminate, provided, however, that each
End-User's right to use the TVS Software previously licensed to it by OEM or
Sublicensees shall survive. Further, OEM and Sublicensees shall have the right
to distribute their inventory of TVS Systems in existence as of the date of
termination so long as OEM pays the applicable royalties set forth in Exhibit D,
and within thirty (30) days after the termination of its distribution rights
hereunder, OEM will return or destroy and ensure that Sublicensees return or
destroy, at NTI's option and direction, all copies of the TVS Software and any
other Confidential Information of NTI in the possession or control of OEM or
Sublicensees. NTI shall, within the same deadline, return or destroy, at OEM's
option and direction, all copies of Confidential Information of OEM which may
have been entrusted to NTI. Within thirty (30) days of the date of such return
or destruction of Confidential Information, an officer of each party shall
certify to the other party that all copies of the other party's Confidential
Information have been returned or destroyed. Notwithstanding the foregoing, OEM
and each Other Vendor may retain one (1) copy of the TVS Software licensed
hereunder and related documentation and may use such materials internally as is
necessary solely to support its installed End-User base.
7.4 Limitation. In the event of termination by either party in accordance
----------
with any of the provisions of this Agreement, neither party shall be liable to
the other because of such termination, for compensation, reimbursement or
damages on account of the loss of prospective profits or anticipated sales or on
account of expenditures, inventory, investment, leases or commitments in
connection with the business or goodwill of NTI or OEM. Termination shall not,
however, relieve either party of obligations incurred prior to the termination.
7.5 Survival of Provisions. The provisions of Sections 2.4, 2.6, 2.9,
----------------------
2.10, 3.1, 4, 5, 7.3-7.5, 8, 9, 10.2, 11 and 12 of this Agreement and of Exhibit
B shall survive the termination of this Agreement for any reason.
8. PROPERTY RIGHTS
---------------
8.1 NTI's Property Rights. OEM acknowledges and agrees that as between OEM
---------------------
and NTI, NTI owns all right, title, and interest in the TVS Software subject to
this Agreement, and in all of NTI's patents, copyrights and trade secrets
relating to the design, manufacture, marketing, operation or service of the TVS
Software.
8.2 Protection. OEM will do all things reasonably requested by NTI to
----------
protect NTI's intellectual property rights as those reasonably relate to OEM's
and its Sublicensees' reproduction, use and distribution of the TVS Software
under the terms of this Agreement, including without limitation patents,
trademarks, trade names, copyrights and trade secrets.
8.3 Proprietary Notices. OEM will ensure that all copies of the TVS
-------------------
Software
-9-
<PAGE>
reproduced or distributed by OEM or its Sublicensees, as applicable, will
incorporate copyright notices and NTI Marks in the same manner that NTI
incorporates such notices and NTI Marks in the TVS Software or in any other
manner reasonably requested by NTI.
9. CONFIDENTIAL INFORMATION.
------------------------
9.1 Definition. As used in this Agreement, the term "Confidential
----------
Information" shall mean any information disclosed by one party to the other
pursuant to this Agreement which is in written, graphic, machine readable or
other tangible form and is marked "Confidential", "Proprietary" or in some other
manner to indicate its confidential nature. Confidential Information may also
include oral information disclosed by one party to the other pursuant to this
Agreement, provided that such information is designated as confidential at the
time of disclosure and reduced to a written summary by the disclosing party,
within thirty (30) days after its oral disclosure, which is marked in a manner
to indicate its confidential nature and delivered to the receiving party.
Notwithstanding the foregoing, the TVS Software shall be deemed the Confidential
Information of NTI without the necessity of marking.
9.2 General. Each party shall treat as confidential all Confidential
-------
Information of the other party, shall not use such Confidential Information
except as expressly set forth herein or otherwise authorized in writing, shall
implement reasonable procedures to prohibit the disclosure, unauthorized
duplication, misuse or removal of the other party's Confidential Information and
shall not disclose such Confidential Information to any third party except as
may be necessary and required in connection with the rights and obligations of
such party under this Agreement, and subject to confidentiality and nonuse
obligations at least as protective as those set forth herein. Without limiting
the foregoing, each of the parties shall use at least the same procedures and
degree of care which it uses to prevent the disclosure of its own confidential
information of like importance to prevent the disclosure of Confidential
Information disclosed to it by the other party under this Agreement, but in no
event less than reasonable care. The parties further agree to keep confidential
the terms and conditions of this Agreement.
9.3 Exceptions. Notwithstanding the above, neither party shall have
----------
liability to the other with regard to any Confidential Information of the other
which: (i) was generally known and available in the public domain at the time it
was disclosed or becomes generally known and available in the public domain
through no fault of the receiver; (ii) was known to the receiver at the time of
disclosure as shown by the files of the receiver in existence at the time of
disclosure; (iii) is disclosed with the prior written approval of the discloser;
(iv) was independently developed by the receiver without any use of the
discloser's Confidential Information; or (v) becomes known to the receiver from
a source other than the discloser without breach of this Agreement by the
receiver and otherwise not in violation of the discloser's rights.
9.4 Employee Agreements. Each party shall obtain the execution of
-------------------
non-disclosure agreements with its employees, agents and consultants having
access to Confidential Information of the other party in accordance with the
standard practices of each such party, and shall diligently enforce such
agreements.
-10-
<PAGE>
9.5 Remedies. If either party breaches any of its obligations with
--------
respect to confidentiality and unauthorized use of Confidential Information
hereunder, the other party or its licensors shall be entitled to seek equitable
relief to protect its interest therein, including but not limited to injunctive
relief, as well as money damages.
10. INDEMNITY
---------
10.1 NTI Indemnification.
-------------------
(a) OEM agrees that NTI has the right to defend, or at its option to
settle, and NTI agrees, at its own expense, to defend or at its option to
settle, any claim, suit or proceeding brought against OEM, and NTI agrees to
pay, subject to the limitations hereinafter set forth, any final judgment
entered against OEM or any settlement entered into in good faith on such issue
in any such suit or proceeding, alleging that use of the TVS Software as
contemplated hereunder infringes any United States patent, copyright, trade
secret or trademark of any third party (collectively, "Intellectual Property
Rights"), subject to the limitations hereinafter set forth. OEM agrees that NTI,
at its sole option, will be relieved of the foregoing obligation unless OEM (i)
notifies NTI promptly in writing of such claim, suit or proceeding, (ii)
provides NTI with sole control of any such action or settlement negotiations (it
being understood that OEM may participate in such action at OEM's expense with
counsel of its own choosing), and (iii) gives NTI authority to proceed as
contemplated herein, and, at NTI's expense, gives NTI proper and full
information and assistance to settle and/or defend any such claim, suit or
proceeding. If it is adjudicatively determined, or if NTI believes it may be
determined, that the TVS Software infringes any of the Intellectual Property
Rights, then NTI may, at its option: (x) procure for OEM the right under such
Intellectual Property Rights to use or distribute such TVS Software as
contemplated herein; (y) replace the TVS Software with other functionally
equivalent software; or (z) modify the TVS Software so that it is no longer
infringing. NTI will not be liable for any costs or expenses incurred without
its prior written authorization.
(b) Limitation. Notwithstanding the provisions of subsection 10.1(a)
----------
above, NTI assumes no liability for (i) infringement claims covering combination
of the TVS Software with software or hardware not provided by NTI if the
infringement would have been avoided by use of the TVS Software alone; (ii) any
marking or branding not applied by NTI or applied at the request of an
authorized employee of OEM; or (iii) any modification of the TVS Software, or
any part thereof, unless such modification was made by NTI, if the infringement
would have been avoided in the absence of such modification.
(c) ENTIRE LIABILITY. THE FOREGOING PROVISIONS OF THIS SECTION 10.1
----------------
STATE THE ENTIRE LIABILITY AND OBLIGATIONS OF NTI, AND THE EXCLUSIVE REMEDY OF
OEM, WITH RESPECT TO THE INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADEMARK, TRADE
SECRET OR OTHER INTELLECTUAL PROPERTY RIGHT BY THE TVS SOFTWARE.
10.2 OEM Indemnification.
-------------------
-11-
<PAGE>
(a) Except for claims for which NTI is responsible under Section
10.1 above, NTI agrees that OEM has the right to defend, or at its option to
settle, and OEM agrees, at its own expense, to defend or at its option to
settle, any claim, suit or proceeding brought against NTI, and OEM agrees to
pay, subject to the limitations hereinafter set forth, any final judgment
entered against NTI or any settlement entered into in good faith on such issue
in any such suit or proceeding, arising out of the use or distribution of the
TVS System by OEM or alleging that use of the TVS System infringes any
Intellectual Property Rights, subject to the limitations hereinafter set forth.
NTI agrees that OEM, at its sole option, will be relieved of the foregoing
obligation unless NTI (i) notifies OEM promptly in writing of such claim, suit
or proceeding, (ii) provides OEM with sole control of any such action or
settlement negotiations (it being understood that NTI may participate in such
action at NTI's expense with counsel of its own choosing), and (iii) gives OEM
authority to proceed as contemplated herein, and, at OEM's expense, gives OEM
proper and full information and assistance to settle and/or defend any such
claim, suit or proceeding. OEM will not be liable for any costs or expenses
incurred without its prior written authorization.
(b) ENTIRE LIABILITY. THE FOREGOING PROVISIONS OF THIS SECTION 10.2
----------------
STATE THE ENTIRE LIABILITY AND OBLIGATIONS OF OEM, AND THE EXCLUSIVE REMEDY OF
NTI, WITH RESPECT TO THE INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADEMARK, TRADE
SECRET OR OTHER INTELLECTUAL PROPERTY RIGHT BY THE TVS SYSTEM.
11. LIMITED LIABILITY
-----------------
NTI'S LIABILITY ARISING OUT OF THIS AGREEMENT WILL BE LIMITED TO THE AMOUNT
PAID BY OEM HEREUNDER. EXCEPT FOR LIABILITY UNDER SECTIONS 2, 9, 10.1 and 10.2,
IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY OTHER ENTITY
FOR LOST PROFITS, LOSS OF DATA, COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR
SERVICES OR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES ARISING
OUT OF THIS AGREEMENT, UNDER ANY CAUSE OF ACTION, WHETHER FOR BREACH OF
CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, AND WHETHER OR NOT SUCH
PARTY OR ITS AGENTS HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THIS
LIMITATION WILL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY
LIMITED REMEDY PROVIDED HEREIN.
12. MISCELLANEOUS
-------------
12.1 Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the laws of California without reference to conflict of laws
principles.
12.2 Assignment. Neither party may assign or delegate this Agreement or
----------
any of its licenses, rights or duties under this Agreement, directly or
indirectly, by operation of law or
-12-
<PAGE>
otherwise, without the prior written consent of the other party. Notwithstanding
the foregoing, NTI shall not be required to obtain OEM's consent to assign this
Agreement in the case of a sale or other transfer of substantially all of NTI's
assets or equity, whether by sale of assets or stock or by merger or other
reorganization. Upon any such attempted prohibited assignment or delegation the
nonassigning party shall have the right to terminate this Agreement upon written
notice. Except as provided above, this Agreement shall inure to the benefit of
each party's successors and assigns.
12.3 Authority. Each party represents that all corporate action necessary
---------
for the authorization, execution and delivery of this Agreement by such party
and the performance of its obligations hereunder has been taken.
12.4 Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, or otherwise delivered by hand, by messenger or by
facsimile, addressed to the other party at the address first set forth above or
to such other address of which the other party has given notice in the manner
set forth herein. Such notices shall be deemed to have been served when
received.
12.5 Partial Invalidity. If any paragraph, provision, or clause in this
------------------
Agreement shall be found or be held to be invalid or unenforceable in any
jurisdiction in which this Agreement is being performed, the remainder of this
Agreement shall be valid and enforceable and the parties shall negotiate, in
good faith, a substitute, valid and enforceable provision which most nearly
effects the parties' intent in entering into this Agreement.
12.6 Counterparts. This Agreement may be executed in two (2) or more
------------
counterparts, all of which, taken together, shall be regarded as one and the
same instrument.
12.7 Waiver. The failure of either party to enforce at any time the
------
provisions of this Agreement shall in no way constitute a present or future
waiver of such provisions, nor in any way affect the right of either party to
enforce each and every such provision thereafter.
12.8 Independent Contractors. The relationship of NTI and OEM established
-----------------------
by this Agreement is that of independent contractors, and nothing contained in
this Agreement shall be construed to constitute the parties as partners, joint
venturers, co-owners or otherwise as participants in a joint or common
undertaking, or allow either party to create or assume any obligation on behalf
of the other party. All financial obligations associated with a party's business
are the sole responsibility of such party.
12.9 Indemnity. OEM agrees to defend, indemnify and hold NTI harmless from
---------
any liability, loss, cost, damages, claims or expense (including attorney's
fees) which NTI incurs to the extent caused by the acts or omissions of OEM or
its Sublicenses in distribution of the TVS System or performance of or failure
to perform any services related thereto for which OEM is responsible hereunder.
12.10 Import and Export Controls. Any and all obligations of NTI to provide
--------------------------
the TVS Software, as well as any technical assistance, will be subject in all
respects to such United States
-13-
<PAGE>
laws and regulations as will from time to time govern the license and delivery
of technology and products abroad by persons subject to the jurisdiction of the
United States, including the Export Administration Act of 1979, as amended, any
successor legislation, and the Export Administration Regulations issued by the
Department of Commerce, Bureau of Export Administration. OEM agrees that it will
not export or re-export the TVS Software unless it first complies with all such
export laws and regulations.
12.11 Entire Agreement. The terms and conditions herein contained,
----------------
including those in Exhibits A, B, C, D and E which are hereby incorporated
herein by reference, constitute the entire agreement between the parties and
supersede all previous agreements and understandings, whether oral or written,
between the parties hereto with respect to the subject matter hereof, and no
agreement or understanding varying or extending the same shall be binding upon
either party hereto unless in a written document signed by the party to be bound
thereby.
12.12 Force Majeure. Nonperformance of either party, except the payment of
-------------
money, shall be excused to the extent that performance is rendered impossible by
strike, fire, flood, governmental acts or orders or restrictions, failure of
suppliers, or any other reason where failure to perform is beyond the reasonable
control of and is not caused by the negligence of the nonperforming party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by duly authorized officers or representatives as of the date first above
written.
NUMERICAL TECHNOLOGIES, INC. TECHNICAL INSTRUMENT COMPANY
By: /s/ Yagyensh C. Pati By: /s/ FRANCIS E. LUNDY
-------------------- --------------------
Name: Yagyensh C. Pati Name: FRANCIS E. LUNDY
---------------- ----------------
Title: President Title: PRESIDENT
--------- ---------
Dec. 31, 1997 DEC. 31, 1997
-14-
<PAGE>
EXHIBIT A
TVS SOFTWARE AND
TVS System
----------
1. TVS Software V1.0:
NTI's TINT Virtual Stepper TM (TVS) Software is designed to facilitate accurate
assessment of the severity of defects located on photolithographic masks. The
TVS Software accepts as input, mask images captured from an optical microscope
used to view the mask, and utilizes simulation of optical lithography steppers
to analyze the impact of the defect upon the printed wafer pattern. The TVS
Software is incorporated with a graphical user interface and analysis tools that
are driven by NTI's stepper simulation package, SAINT TM. The TVS software is
designed to run on the Windows NT 4.0 operating system.
1.1 TVS Software Functionality
--------------------------
The functionality implemented within the TVS Software includes the following:
square Live display of mask images obtained through the frame
grabber from a square-pixel CCD camera connected to an
optical microscope.
square Software support for Matrox's Meteor and Pulsar frame
grabbers
square 8-bit digitization of the microscope mask images;
square Aerial image computation and display based on digitized mask
image
square Full-chip GDS-II layout format read
square Display and hierarchical navigation of GDS-II layout data,
including highlighting, zoom-in and zoom-out, and cell-based
traversal
square Aerial image computation and display based on GDS-II layout
data
square Input and output of microscope images in Windows' BMP format
square Output Aerial images in Windows' BMP format
square Model generation for aerial image computation
square Aerial image cross section and process window computation
for both GDS-II layout and digitized mask image at focus or
through multiple focal planes
square Critical Dimension (CD) measurement on aerial images as a
function of defocus distance
square Coordinate communication from TIC's KMS 400 series computer
module
square Multiple intensity contouring on aerial images
<PAGE>
square Ideal layer and contour overlays for GDS-II layout and its
aerial images
square Support for different mask types: Bright Field, Dark Field,
and Attenuated Phase-Shifting Mask simulation
square Direct difference comparison between layout's aerial image
and aerial image of microscope images
square Simple 1-level macro -- coordinate feed, locate coordinate
in database layout, simulate aerial image, digitize
microscope image, simulate microscope image's aerial image,
compare with database's, repeat
square Output of microscope image or aerial images onto Windows
NT/95 supported printers;
square Control panel like graphical user interface: on-line tool-
tips, dialogue-based file access, view manager, etc.
2. TVS System
The TVS System is a mask defect analysis system that incorporates the TVS
Software with certain computer hardware listed below for connection to an
optical microscope. The diagram below depicts a typical configuration of the TVS
System used for mask defect analysis
[CHART OMITTED]
2.1 TVS System Hardware Requirements
--------------------------------
1) Computer platform:
a) Preferred configuration: Pentium Pro 200MHz PC with 128MB of RAM
<PAGE>
b) Minimum configuration: 166 MHz Pentium with 96MB of RAM
c) A motherboard compatible with the supported frame grabbers.
2) Operating system: Windows NT 4.0
3) Graphics video card supporting 1280x1024 resolution and 16-bit color or
better.
4) A 640x480 pixel 8-bit frame grabber. (Currently supported models: Matrox
Meteor and Pulsar.)
5) Computer Monitor:
a) Preferred: 20" Color Monitor capable of supporting 1280x1024 pixel
resolution with 16-bit color
b) Minimum: 17" Color Monitor capable of supporting 1280x1024 pixel
resolution with 16-bit color
6) Cables and other hardware required to connect to a high resolution optical
microscope with a square pixel CCD camera.
<PAGE>
EXHIBIT A (OF END-USERS LICENSE AGREEMENT)
- ------------------------------------------
SOFTWARE
SOFTWARE FEES DESIGNATED CPU WARRANTY PERIOD TRAINING
TVS Software v.
1.0
<PAGE>
EXHIBIT B
ROYALTIES AND MAINTENANCE FEES
------------------------------
1. Royalties. For each copy of the TVS Software distributed by OEM hereunder,
---------
OEM shall pay to NTI the Royalty (as defined below). Payment for each copy shall
be due [along with the corresponding report specified in Section 2 below of this
Exhibit B]. The "royalty" shall be Twenty-Six Thousand Dollars ($26,000) per
copy provided that, after the first fifty copies of the TVS Software distributed
by OEM (including copies where OEM is an End-User), NTI shall have the right to
increase the Royalty upon ninety (90) days advance written notice to OEM. The
extent of any such increase shall be mutually agreed upon in writing by the
parties provided that either party shall have the right to promptly terminate
this Agreement in the event that the parties can not agree on the amount of an
increase.
2. Reports and Payment. OEM shall keep complete records of the number of
-------------------
copies of the TVS System made and distributed by OEM and its Sublicensees. On or
before the thirtieth day after the end of each calendar quarter during the term
of this Agreement, and thereafter until all copies that OEM has distributed have
been accounted for, OEM shall deliver to NTI a report detailing the number of
copies of the TVS System made by OEM and its Sublicensees during the previous
quarter.
4. Audit Rights. OEM agrees to maintain until two (2) years after the
------------
transactions to which they pertain, all records made by OEM related to copies of
the TVS Software distributed, as described above. OEM will permit NTI or its
designee and NTI's independent auditor the right to audit and examine such
records during OEM's normal business hours to verify the accuracy of the fees
paid hereunder. Such inspections shall not take place more frequently than once
each calendar year and shall be made upon reasonable notice.
5. Maintenance Fees. For the first fifty copies of the TVS Software
----------------
distributed by OEM (including copies where OEM is an End-User), the fee for
Technical Support for the TVS Software distributed by OEM hereunder and for
Updates thereof, which will be provided if and when available, will be four
thousand five hundred dollars ($4,500) per copy of the TVS Software per year
("Annual Maintenance Fee"). For each of such first fifty copies of the TVS
Software licensed hereunder, OEM shall pay NTI the Annual Maintenance Fee the
same day that the payment that is due for such copy pursuant to Section 1 above
in this Exhibit B. As used in this Section 5, "year" means, with respect to a
particular copy of the TVS Software, the one year period beginning with the date
OEM delivered such copy to the corresponding End-User (where OEM is an End-User,
the delivery date shall be deemed to be the date the copy is first installed on
its corresponding CPU).
[***]=Certain information in this Exhibit has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE>
EXHIBIT C
NTI'S END-USER LICENSE AGREEMENT
--------------------------------
NUMERICAL TECHNOLOGIES, INC.
----------------------------
SOFTWARE LICENSE AND SUPPORT AGREEMENT
This SOFTWARE LICENSE AND SUPPORT AGREEMENT (this "Agreement") is entered
into as of the _____ day of ___________, 1997 ("Effective Date") by and between
______________ _________________, ("Customer"), and Numerical Technologies, Inc.
("Numerical Technologies"); and describes the terms and conditions pursuant to
which Numerical Technologies shall license to Customer and support certain
Software (as defined below). In consideration of the mutual promises and upon
the terms and conditions set forth below, the parties agree as follows:
1. Definitions
-----------
1.1 "Concurrent Users" means all log-ons into the Software at any one time.
1.2 "Confidential Information" means this Agreement and all its Exhibits, any
addenda hereto signed by both parties, all Software listings, Documentation,
information, data, drawings, benchmark tests, specifications, trade secrets,
object code and machine-readable copies of the Software, source code relating to
the Software, and any other proprietary information supplied to Customer by
Numerical Technologies.
1.2 "Documentation" means any instructions manuals or other materials, and
on-line help files, regarding the Use of the Software.
1.3 "Maintenance and Support" means the services described in Section 6.2.
1.3 "Software" means the computer software programs specified in Exhibit A, in
object code form only.
1.4 "Update" means a release or version of the Software containing functional
enhancements, extensions, error corrections or fixes that is generally made
available free of charge (other than media and handling charges) to Numerical
Technologies' customers who have contracted for Maintenance and Support.
1.5 "Use" means utilization of the Software by Customer by no more than the
number of Concurrent Users set forth on Exhibit B, for its own internal
information processing services and computing needs, by copying or transferring
the same into Customer's computer equipment.
2. Grant of License
----------------
2.1 License Grant. Subject to the terms and conditions of this Agreement,
-------------
Numerical Technologies hereby grants to Customer a nonexclusive and
nontransferable license to (a) Use the Software, subject to the limitations set
forth below and in Section 3, and to make sufficient copies as necessary for
such Use, and (b) use the Documentation in connection with Use of the Software.
This license transfers to Customer neither title nor any proprietary or
intellectual property rights to the Software, Documentation, or any copyrights,
patents, or trademarks, embodied or used in connection therewith, except for the
rights expressly granted herein.
2.2 Delivery. Numerical Technologies shall issue to Customer, as soon as
--------
practicable, machine-readable copies of the Software as set forth in Exhibit A,
along with one (1) copy of the appropriate Documentation.
2.3 Copies. Customer will be entitled to make a reasonable number of
------
machine-readable copies of the Software for backup or archival purposes.
Customer may not copy the Software, except as permitted by this Agreement.
Customer shall maintain accurate and up-to-date records of the number and
location of all copies of the Software and inform Numerical Technologies in
writing of such location(s). All copies of the Software will be subject to all
terms and conditions of this Agreement. Whenever Customer is permitted to copy
-2-
<PAGE>
or reproduce all or any part of the Software, all titles, trademark symbols,
copyright symbols and legends, and other proprietary markings must be
reproduced.
3. License Restrictions
--------------------
3.1 Current Users; Designated CPU. Customer shall not allow access to each
-----------------------------
licensed copy of the Software by more than the number of Concurrent Users
indicated on Exhibit A. Customer shall not allow access to the Software by any
Concurrent User other than Customer's employees. Customer shall not use the
Software on any central processing unit other than the CPU designated on Exhibit
A.
3.2 Other Restrictions. Customer agrees that it will not itself, or through any
-------------------
parent, subsidiary, affiliate, agent or other third party:
(a) sell, lease, license or sublicense the Software or the Documentation;
(b) decompile, disassemble, or reverse engineer the Software, in whole or in
part;
(c) write or develop any derivative software or any other software program
based upon the Software or any Confidential Information;
(d) use the Software to provide processing services to third parties, or
otherwise use the Software on a 'service bureau' basis; or
(e) provide, disclose, divulge or make available to, or permit use of the
Software by any third party without Numerical Technologies' prior written
consent.
4. License Fee and Taxes
---------------------
4.1 In consideration of the license granted pursuant to Section 2.1, Customer
agrees to pay Numerical Technologies the License Fee specified in Exhibit A. The
License Fee is due and payable in full upon the Effective Date, unless otherwise
indicated.
4.2 All charges and fees provided for in this Agreement (including the
Maintenance Fees) are exclusive of and do not include any taxes, duties, or
similar charges imposed by any government. Customer agrees to pay or reimburse
Numerical Technologies for all federal, state, dominion, provincial, or local
sales, use, personal property, excise or other taxes, fees, or duties arising
out of this Agreement or the transactions contemplated by this Agreement (other
than taxes on the net income of Numerical Technologies).
5. Training
--------
Numerical Technologies shall provide initial training to Customer as set forth
in Exhibit A.
6. Maintenance and Support
-----------------------
For so long as Customer is current in the payment of all Maintenance Fees
(described below), Customer will be entitled to Maintenance and Support as
specified in this Section 6.
6.2 Term and Termination. Numerical Technologies' provision of Maintenance and
--------------------
Support to Customer will commence on the Effective Date and will continue for an
initial term of one (1) year. Maintenance and Support will automatically renew
at the end of the initial term and any subsequent term for a renewal term of one
(1) year unless Customer has provided Numerical Technologies with a written
termination notice of its intention not to renew the Maintenance and Support at
least ninety (90) days prior to the termination of the then-current term.
Termination of Maintenance and Support upon failure to renew will not affect the
license of the Software.
6.3 Maintenance and Support Services. Maintenance and Support means that
--------------------------------
Numerical Technologies will provide as set forth in Exhibit B: (a) Updates, if
any, and appropriate
<PAGE>
Documentation, and (b) error verification, analysis and correction to the extent
possible Maintenance and Support will be provided only with respect to versions
of the Software that, in accordance with Numerical Technologies' policy, are
then being supported by Numerical Technologies.
6.4 Eligibility of Software. Maintenance and Support will not include services
-----------------------
requested as a result of, or with respect to, the following, and any services
requested as a result thereof will be billed to Customer at Numerical
Technologies' then-current rates:
(a) accident; unusual physical, electrical or electromagnetic stress; neglect;
misuse; failure of electric power; operation of the Software with other media
not meeting or not maintained in accordance with the manufacturer's
specifications; or causes other than ordinary use;
(b) improper installation or operation by Customer or use of the Software that
deviates from any hardware, configuration, environmental or operating procedures
established by Numerical Technologies in the applicable Documentation;
-3-
<PAGE>
(c) modification, alteration or addition or attempted modification, alteration
or addition of the Software undertaken by persons other than Numerical
Technologies or Numerical Technologies' authorized representatives; or
(d) programs made by Customer.
6.5 Responsibilities of Customer. Numerical Technologies' provision of
----------------------------
Maintenance and Support to Customer is subject to the following:
(a) Customer shall provide Numerical Technologies with access to Customer's
personnel and computer equipment during normal business hours, as necessary or
appropriate for Numerical Technologies to perform Maintenance and Support
Services.
(b) Customer shall document and promptly report all errors or malfunctions of
the Software to Numerical Technologies. Customer shall take all steps necessary
to carry out procedures for the rectification of errors or malfunctions within a
reasonable time after such procedures have been received from Numerical
Technologies.
6.6 Maintenance Fee. The Maintenance Fee for standard service hours for each
---------------
one (1) year twelve (12) month period of Maintenance and Support will be a
percentage of the license fee for the Software, as set forth in Numerical
Technologies' price list in effect as of the date of invoice. The Maintenance
Fee is due and payable in full within thirty (30) days after the date of
Numerical Technologies' invoice. Any amounts not paid within thirty (30) days
will be subject to interest of 1.5% per month, which interest will be
immediately due and payable. The Maintenance Fee may be modified by Numerical
Technologies for each renewal term by written notice to Customer at least thirty
(30) days prior to the end of the then-current term. If Customer elects not to
renew Maintenance and Support, Customer may re-enroll only upon payment of the
annual Maintenance Fee for the coming year and all Maintenance Fees that would
have been paid had Customer not terminated Maintenance and Support.
7. Limited Warranty and Limitation of Liability.
--------------------------------------------
Numerical Technologies warrants that the Software will perform in substantial
accordance with the Documentation for the period of time set forth in Exhibit A
from the Effective Date ("Warranty Period"). If during this time period the
Software does not perform as warranted, Numerical Technologies shall respond to
such problems as set forth in Section 6. In addition, Numerical Technologies
warrants that the media on which the Software is distributed will be free from
defects in materials and workmanship under normal use for a period of ninety
(90) days from the Effective Date. Numerical Technologies will replace any
defective media returned to Numerical Technologies within the 90-day period.
7.1 The foregoing are Customer's sole and exclusive remedies for breach of
warranty. The warranty set forth above is made to and for the benefit of
Customer only. The warranty will apply only if:
(a) the Software has been properly installed and used at all times and in
accordance with the instructions for Use; and
(b) no modification, alteration or addition has been made to the Software by
persons other than Numerical Technologies.
EXCEPT AS SET FORTH ABOVE, NUMERICAL TECHNOLOGIES MAKES NO WARRANTIES, WHETHER
EXPRESS, IMPLIED, OR STATUTORY REGARDING OR RELATING TO THE SOFTWARE OR THE
DOCUMENTATION, OR ANY MATERIALS OR SERVICES FURNISHED OR PROVIDED TO CUSTOMER
UNDER THIS AGREEMENT, INCLUDING MAINTENANCE AND SUPPORT. NUMERICAL TECHNOLOGIES
SPECIFICALLY DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE AND NON-INFRINGEMENT WITH RESPECT TO THE SOFTWARE AND
DOCUMENTATION.
IN NO EVENT WILL NUMERICAL TECHNOLOGIES BE LIABLE FOR ANY LOSS OF PROFITS, LOSS
OF USE, BUSINESS INTERRUPTION, LOSS OF DATA, COST OF COVER OR INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND IN CONNECTION WITH OR ARISING
OUT OF THE FURNISHING, PERFORMANCE OR USE OF THE SOFTWARE OR SERVICES PERFORMED
HEREUNDER, WHETHER ALLEGED
-4-
<PAGE>
AS A BREACH OF CONTRACT OR TORTUOUS CONDUCT, INCLUDING NEGLIGENCE, EVEN IF
NUMERICAL TECHNOLOGIES HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
NUMERICAL TECHNOLOGIES' LIABILITY UNDER THIS AGREEMENT FOR DAMAGES WILL NOT, IN
ANY EVENT, EXCEED THE LICENSE FEE PAID BY CUSTOMER TO NUMERICAL TECHNOLOGIES
UNDER THIS AGREEMENT.
8. Indemnification for Infringement
--------------------------------
Numerical Technologies shall, at its expense, defend or settle any claim, action
or allegation brought against Customer that the Software infringes any
copyright, trade secret or trademark right of any third party and shall pay any
final judgments awarded or settlements entered into; provided that Customer
gives prompt written notice to Numerical Technologies of any such claim, action
or allegation of infringement and gives Numerical Technologies the authority to
proceed as contemplated herein. Numerical Technologies will have the exclusive
right to defend any such claim, action or allegation and make settlements
thereof at its own discretion, and Customer may not settle or compromise such
claim, action or allegation, except with prior written consent of Numerical
Technologies. Customer shall give such assistance and information as Numerical
Technologies may reasonably require to settle or oppose such claims. In the
event any such infringement, claim, action or allegation is brought or
threatened, Numerical Technologies may, at its sole option and expense:
(a) procure for Customer the right to continue Use of the Software or
infringing part thereof; or
(b) modify or amend the Software or infringing part thereof, or replace the
Software or infringing part thereof with other software having substantially the
same or better capabilities; or, if neither of the foregoing is commercially
practicable,
(c) terminate this Agreement and repay to Customer a portion, if any, of the
License Fee equal to the amount paid by Customer less one-thirty-sixth (1/36)
thereof for each month or portion thereof that this Agreement has been in
effect. Numerical Technologies and Customer will then be released from any
further obligation to the other under this Agreement, except for the obligations
of indemnification provided for above and such other obligations that survive
termination.
The foregoing obligations shall not apply to the extent the infringement arises
as a result of modifications to the Software made by any party other than
Numerical Technologies.
THE FOREGOING STATES THE ENTIRE LIABILITY OF NUMERICAL TECHNOLOGIES WITH RESPECT
TO INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADE SECRET OR OTHER PROPRIETARY
RIGHT.
9. Confidential Information
------------------------
9.1 Customer acknowledges that the Confidential Information constitutes
valuable trade secrets and Customer agrees that it shall use Confidential
Information solely in accordance with the provisions of this Agreement and will
not disclose, or permit to be disclosed, the same, directly or indirectly, to
any third party without Numerical Technologies' prior written consent. Customer
agrees to exercise due care in protecting the Confidential Information from
unauthorized use and disclosure. However, Customer bears no responsibility for
safeguarding information that is publicly available, already in Customer's
possession and not subject to a confidentiality obligation, obtained by Customer
from third parties without restrictions on disclosure, independently developed
by Customer without reference to Confidential Information, or required to be
disclosed by order of a court or other governmental entity.
9.2 In the event of actual or threatened breach of the provisions of Section
9.1, Numerical Technologies will have no adequate remedy at law and will be
entitled to immediate and injunctive and other equitable relief, without bond
and without the necessity of showing actual money damages.
10. Term and Termination
--------------------
10.1 Term. This Agreement will take effect on the Effective Date and will remain
----
in force until terminated in accordance with this Agreement.
10.2 Termination by Customer. This Agreement may be terminated by Customer upon
-----------------------
thirty (30)
<PAGE>
days' prior written notice to Numerical Technologies, with or without cause,
provided that no such termination will entitle Customer to a refund of any
portion of the License Fee or Maintenance Fee.
10.3 Termination by Numerical Technologies.
-------------------------------------
Numerical Technologies may, by written notice to Customer, terminate this
Agreement if any of the following events ("Termination Events") occur:
-5-
<PAGE>
(a) Customer fails to pay any amount due Numerical Technologies within thirty
(30) days after Numerical Technologies gives Customer written notice of such
nonpayment; or
(b) Customer is in material breach of any nonmonetary term, condition or
provision of this Agreement, which breach, if capable of being cured, is not
cured within thirty (30) days after Numerical Technologies gives Customer
written notice of such breach; or
(c) Customer (i) terminates or suspends its business, (ii) becomes insolvent,
admits in writing its inability to pay its debts as they mature, makes an
assignment for the benefit of creditors, or becomes subject to direct control of
a trustee, receiver or similar authority, or (iii) becomes subject to any
bankruptcy or insolvency proceeding under federal or state statutes.
If any Termination Event occurs, termination will become effective immediately
or on the date set forth in the written notice of termination. Any termination
of this Agreement will not affect Sections 1, 7, 8, 9, 11, 12 and 13, which
shall survive the termination or expiration of this Agreement.
10.4 Return of Materials. Within thirty (30) days after the date of termination
-------------------
or discontinuance of this Agreement for any reason whatsoever, Customer shall
return the Software and all copies, in whole or in part, all Documentation
relating thereto, and any other Confidential Information in its possession that
is in tangible form.
11. Nonassignment/Binding Agreement
-------------------------------
Neither this Agreement nor any rights under this Agreement may be assigned or
otherwise transferred by Customer, in whole or in part, whether voluntary or by
operation of law, including by way of sale of assets, merger or consolidation,
without the prior written consent of Numerical Technologies, which consent will
not be unreasonably withheld. Subject to the foregoing, this Agreement will be
binding upon and will inure to the benefit of the parties and their respective
successors and assigns.
12. Notices
-------
Any notice required or permitted under the terms of this Agreement or required
by law must be in writing and must be (a) delivered in person, (b) sent by first
class registered mail, or air mail, as appropriate, or (c) sent by overnight air
courier, in each case properly posted and fully prepaid to the appropriate
address set forth below. Notices will be considered to have been given at the
time of actual delivery in person, three (3) business days after deposit in the
mail as set forth above, or one (1) day after delivery to an overnight air
courier service.
13. Miscellaneous
-------------
13.1 Force Majeure. Neither party will incur any liability to the other party
-------------
on account of any loss or damage resulting from any delay or failure to perform
all or any part of this Agreement if such delay or failure is caused, in whole
or in part, by events, beyond the control of the parties, including without
limitation acts of God, strikes, lockouts, riots, acts of war, earthquake, fire
and explosions, but the inability to meet financial obligations is expressly
excluded.
13.2 Waiver. Any waiver of a party's rights or remedies under this Agreement
------
must be in writing to be effective. Failure, neglect, or delay by a party to
enforce the provisions of this Agreement or its rights or remedies at any time,
will not be construed and will not be deemed to be a waiver of such party's
rights under this Agreement.
13.3 Severability. If any term, condition, or provision in this Agreement is
------------
found to be invalid, unlawful or unenforceable to any extent, such invalid term,
condition or provision will be severed from the remaining terms, conditions and
provisions, which will continue to be valid and enforceable to the fullest
extent permitted by law.
13.4 Integration. This Agreement (including the Exhibits) contains the entire
-----------
agreement of
<PAGE>
the parties with respect to the subject matter of this Agreement and supersedes
all previous agreements, either oral or written, between the parties with
respect to said subject matter. This Agreement may not be amended, except by a
writing signed by both parties.
13.5 Export. Customer may not export or re-export the Software without the
------
prior written consent of Numerical Technologies or without the appropriate
United States and foreign government licenses.
13.6 Publicity. Customer acknowledges that Numerical Technologies may desire to
---------
use its name in press releases, product brochures and financial reports
indicating that Customer is a customer of Numerical Technologies, and Customer
agrees that Numerical Technologies may use its name in such a manner, subject to
Customer's consent, which consent shall not be unreasonably withheld.
-6-
<PAGE>
13.7 Counterparts. This Agreement may be executed in counterparts, each of
------------
which so executed will be deemed to be an original and such counterparts
together will constitute one and the same agreement.
13.8 Governing Law. This Agreement will be interpreted and construed in
-------------
accordance with the laws of the State of California, without regard to conflict
of law principles.
13.9 Jurisdiction. Any dispute arising out of this Agreement shall be resolved
------------
in the state and federal courts of Santa Clara County, California, and each
party hereby agrees to the exclusive jurisdiction
IN WITNESS WHEREOF, the parties have executed this Agreement.
(Customer) NUMERICAL TECHNOLOGIES, INC.
By: ______________________________ By: ______________________________
__________________________________
(print name and title) (print name and title)
Date: _______________ Date: _______________
Address: Address:
__________________________________
-7-
<PAGE>
EXHIBIT D
PLACEMENT OF OEM LOGO AND COMPANY NAME WITHIN TVS SOFTWARE
----------------------------------------------------------
[to be provided by TIC]
<PAGE>
EXHIBIT E
PREFERRED REGISTRATION
TECHNOLOGY ESCROW AGREEMENT
Account Number _______________
This Agreement is effective ____________________, 1997 ("Escrow Agreement
Date"), among Data Securities International, Inc. ("DSI"), Numerical
Technologies, Inc., ("Depositor"), and Technical Instrument Company ("Preferred
Registrant"), who collectively may be referred to in this Agreement as "the
parties."
A. Depositor and Preferred Registrant have entered or will enter into a
license agreement regarding certain proprietary technology of Depositor (the
"License Agreement"). Terms not defined herein are as defined in the License
Agreement.
B. Depositor desires to avoid disclosure of its proprietary technology except
under certain limited circumstances.
C. The availability of the proprietary technology of Depositor is important to
Preferred Registrant in the conduct of its business and, therefore, Preferred
Registrant needs access to the proprietary technology under limited
circumstances.
D. Depositor and Preferred Registrant desire to establish an escrow with DSI
to provide for the retention, administration and controlled access of the
proprietary technology materials of Depositor.
E. The parties desire this Agreement to be supplementary to the license
agreement pursuant to Section 365(n) of the U.S. Bankruptcy Codes.
SECTION 1. DEPOSITS
1.1 Obligation to Make Deposit. Depositor shall deliver to DSI the
--------------------------
proprietary information ("Deposit Materials") identified on Attachment A.
1.2 Identification of Tangible Media. Prior to the delivery of the
--------------------------------
Deposit Materials to DSI, Depositor shall conspicuously label for identification
each document, magnetic tape, disk, or other tangible media upon which the
Deposit Materials are written or stored. Additionally, Depositor shall complete
an Attachment B to list each such tangible media by the item label description,
the type of media and the quantity. The Attachment B must be signed by Depositor
and delivered to DSI with the Deposit Materials. Unless and until Depositor
makes the initial deposit with DSI, DSI shall have no obligation with respect to
this Agreement, except the obligation to notify the parties regarding the status
of the deposit account as required in Section 2.2 below.
1.3 Deposit Inspection. When DSI receives the deposit materials and the
------------------
Attachment B, DSI will conduct a deposit inspection by visually matching the
labeling of the tangible media containing the Deposit Materials to the item
descriptions and quantity listed on the Attachment B. In addition to the deposit
inspection, Preferred Registrant may elect to cause a verification of the
Deposit Materials in accordance with Section 1.5 below.
<PAGE>
1.4 Acceptance of Deposit. At completion of the deposit inspection, if
---------------------
DSI determines that the labeling of the tangible media matches the item
descriptions and quantity on Attachment B, DSI will sign the Attachment B and
mail a copy thereof to Depositor and Preferred Registrant. If DSI determines the
labeling does not match the item descriptions or quantity on the Attachment B,
DSI will (a) note the discrepancies in writing on the Attachment B; (b) sign the
Attachment B with the exceptions noted; and (c) provide a copy of the Attachment
B to Depositor and Preferred Registrant. DSI's acceptance of the deposit occurs
upon the signing of the Attachment B by DSI. Delivery of the signed Attachment B
to Preferred Registrant is Preferred Registrant's notice that the Deposit
Materials have been received and accepted by DSI.
1.5 Verification. Preferred Registrant shall have the right, at
------------
Preferred Registrant's expense, to cause a verification of any Deposit
Materials. A verification determines, in different levels of detail, the
accuracy, completeness, sufficiency and quality of the deposit materials. If a
verification is elected after the Deposit Materials have been delivered to DSI,
then only DSI, or at DSI's election an independent person or company selected
and supervised by DSI, may perform the verification.
1.6 Deposit Updates. Depositor shall update the deposit materials from
---------------
time to time to conform to the most current release of the TVS Software that is
licensed pursuant to the License Agreement. Such updates will be added to the
existing deposit. All deposit updates shall be listed on a new Attachment B and
the new Attachment B shall be signed by Depositor. The processing of all deposit
updates shall be in accordance with Sections 1.2 through 1.4 above. All
references in this Agreement to the Deposit Materials shall include the initial
deposit materials and any updates.
1.7 Removal of Deposit Materials. The Deposit Materials may be removed
----------------------------
and/or exchanged only on written instructions signed by Depositor and Preferred
Registrant, or as otherwise provided in this Agreement.
SECTION 2. CONFIDENTIALITY AND RECORD KEEPING
2.1 Confidentiality. DSI shall maintain the Deposit Materials in a
---------------
secure, environmentally safe, locked receptacle which is accessible only to
authorized employees of DSI. DSI shall have the obligation to reasonably protect
the confidentiality of the Deposit Materials. Except as provided in this
Agreement, DSI shall not disclose, transfer, make available, or use the Deposit
Materials. DSI shall not disclose the content of this Agreement to any third
party. If DSI receives a subpoena or other order of a court or other judicial
tribunal pertaining to the disclosure or release of the Deposit Materials, DSI
will immediately notify the parties to this Agreement. It shall be the
responsibility of Depositor and/or Preferred Registrant to challenge any such
order; provided, however, that DSI does not waive its rights to present its
position with respect to any such order. DSI will not be required to disobey any
court or other judicial tribunal order.
2.2 Status Reports. DSI will issue to Depositor and Preferred Registrant
--------------
a report profiling the account history at least semi-annually. DSI may provide
copies of the account history pertaining to this Agreement upon the request of
any party to this Agreement.
2.3 Audit Rights. During the term of this Agreement, Depositor and
------------
Preferred Registrant
-4-
<PAGE>
shall each have the right to inspect the written records of DSI pertaining to
this Agreement. Any inspection shall be held during normal business hours and
following reasonable prior notice.
2.4 Right to Make Copies. DSI shall have the right to make copies of the
--------------------
Deposit Materials as reasonably necessary to perform this Agreement. DSI shall
copy all copyright, nondisclosure, and other proprietary notices and titles
contained on the original Deposit Materials onto any copies made by DSI.
SECTION 3. RELEASE OF DEPOSIT
3.1 Release Conditions. As used in this Agreement, "Release Conditions"
------------------
shall mean the liquidation, wind up or dissolution of Depositor.
3.2 Filing For Release. If Preferred Registrant believes in good faith
------------------
that a Release Condition has occurred, Preferred Registrant may provide to DSI
written notice of the occurrence of the Release Condition and a request for the
release of the Deposit Materials. Upon receipt of such notice, DSI shall provide
a copy of the notice to Depositor, by certified mail, return receipt requested,
or by Federal Express or equivalent.
3.3 Contrary Instructions. From the date DSI mails the notice requesting
---------------------
release of the Deposit Materials, Depositor shall have fifteen business days to
deliver to DSI Contrary Instructions. "Contrary Instructions" shall mean the
written representation by Depositor that a Release Condition has not occurred or
has been cured. Upon receipt of Contrary Instructions, DSI shall send a copy to
Preferred Registrant by registered or certified mail, return receipt requested,
or by Federal Express or equivalent. Additionally, DSI shall notify both
Depositor and Preferred Registrant that there is a dispute to be resolved
pursuant to the Dispute Resolution section of this Agreement. Subject to Section
4.2, DSI will continue to store the Deposit Materials without release pending
(a) joint instructions from Depositor and Preferred Registrant, (b) resolution
pursuant to the Dispute Resolution provisions, or (c) order of a court.
3.4 Release of Deposit. If DSI does not receive Contrary Instructions
------------------
from the Depositor, DSI is authorized to release the Deposit Materials to the
Preferred Registrant. However, DSI is entitled to receive any fees due DSI
before making the release. This Agreement will terminate upon the release of the
Deposit Materials held by DSI.
3.5 Use License Following Release. Upon release of the Deposit Materials
-----------------------------
in accordance with this Article 3, Preferred Registrant shall have a non-
exclusive, non-transferrable license as described in Section 2.12 of the License
Agreement.
SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. This Agreement shall remain in force until the
-----------------
termination or expiration of the License Agreement, provided that DSI shall be
paid for at least one year of services regardless of whether this Agreement
terminates before one year has elapsed. This Agreement will terminate earlier
than as described above if (a) Preferred Registrant instructs DSI in writing at
any time that the Agreement is terminated; or (b) the Agreement is terminated by
DSI for nonpayment in
-5-
<PAGE>
accordance with Section 4.2.
4.2 Termination for Nonpayment. In the event of the nonpayment of fees
--------------------------
owed to DSI, DSI shall provide written notice of delinquency to all parties to
this Agreement. Any party to this Agreement shall have the right to make the
payment to DSI to cure the default. If the past-due payment is not received in
full by DSI within one month of the date of such notice, then DSI shall have the
right to terminate this Agreement any time thereafter by sending written notice
of termination to all parties. DSI shall have no obligation to take any other
action under this Agreement so long as any payment due to DSI remains unpaid.
4.3 Disposition of Deposit Materials Upon Termination. Upon any
-------------------------------------------------
termination of this Agreement other than for nonpayment, DSI shall return the
Deposit Materials to Depositor. Upon any termination for nonpayment, DSI may, at
its sole discretion, destroy the Deposit Materials or return them to Depositor.
DSI shall have no obligation to return or destroy the Deposit Materials if the
Deposit Materials are subject to another escrow agreement with DSI.
4.4 Survival of Terms Following Termination. Upon any termination of
---------------------------------------
this Agreement, the following provisions of this Agreement shall survive:
a. The obligations of confidentiality with respect to the Deposit
Materials.
b. The obligation to pay DSI any fees and expenses due.
c. The provisions of Articles 7 and 8.
SECTION 5. DSI'S FEES
5.1 Fee Schedule. Preferred Registrant shall pay DSI its standard fees
------------
and expenses applicable to the services provided. DSI shall notify Preferred
Registrant at least 90 days prior to any increase in fees. For any service not
listed on DSI's standard fee schedule, DSI will provide a quote prior to
rendering the service, if requested.
5.2 Payment Terms. DSI shall not be required to perform any service
-------------
unless the payment for such service and any outstanding balances owed to DSI are
paid in full. All other fees are due upon receipt of invoice. If invoiced fees
are not paid, DSI may terminate this Agreement in accordance with Section 4.2.
Late fees on past due amounts shall accrue at the rate of one and one-half
percent per month (18% per annum) from the date of the invoice.
SECTION 6. LIABILITY AND DISPUTES
6.1 Right to Rely on Instructions. DSI may act in reliance upon any
-----------------------------
instruction, instrument, or signature reasonably believed by DSI to be genuine.
DSI may assume that any employee of a party to this Agreement who gives any
written notice, request, or instruction has the authority to do so. DSI shall
not be responsible for failure to act as a result of causes beyond the
reasonable control of DS I.
6.2 Indemnification. DSI shall be responsible to perform its obligations
---------------
under this
-6-
<PAGE>
Agreement and to act in a reasonable and prudent manner with regard to this
escrow arrangement. Provided DSI has acted in the manner stated in the preceding
sentence, Depositor and Preferred Registrant each agree to indemnify, defend and
hold harmless DSI from any and all claims, actions, damages, arbitration fees
and expenses, costs, attorney's fees and other liabilities incurred by DSI
relating in any way to this escrow arrangement.
6.3 Dispute Resolution. Any dispute relating to or arising from this
------------------
Agreement shall be resolved by arbitration under the Commercial Rules of the
American Arbitration Association. Unless otherwise agreed by Depositor and
Preferred Registrant, arbitration will take place in San Francisco, California,
U.S.A. Any court having jurisdiction over the matter may enter judgment on the
award of the arbitrator(s). Service of a petition to confirm the arbitration
award may be made by First Class mail or by Federal Express or equivalent, to
the attorney for the party or, if unrepresented, to the party at the last known
business address.
6.4 Controlling Law. This Agreement is to be governed and construed in
---------------
accordance with the laws of the state of California, without regard to its
conflict of law provisions.
6.5 Notice of Requested Order. If any party intends to obtain an order
-------------------------
from the arbitrator or any court of competent jurisdiction which may direct DSI
to take, or refrain from taking any action, that party shall:
a. Give DSI at least two business days' prior notice of the hearing;
b. Include in any such order that, as a precondition to DSI's
obligation, DSI be paid in full for any past due fees and be paid
for the reasonable value of the services to be rendered pursuant to
such order; and
c. Ensure that DSI not be required to deliver the original (as opposed
to a copy) of the Deposit Materials if DSI may need to retain the
original in its possession to fulfill any of its other escrow
duties.
SECTION 7. GENERAL PROVISIONS
7.1 Entire Agreement. This Agreement, which includes the Attachments
----------------
described herein, embodies the entire understanding between all of the parties
with respect to its subject matter and supersedes all previous communications,
representations or understandings, either oral or written. No amendment or
modification of this Agreement shall be valid or binding unless signed by all
the parties hereto, except Attachment A need not be signed by DSI and Attachment
B need not be signed by Preferred Registrant.
7.2 Notices. All notices, invoices, payments, deposits and other
-------
documents and communications shall be given to the parties at the addresses
specified in the attached Attachment C. It shall be the responsibility of the
parties to notify each other as provided in this Section in the event of a
change of address. The parties shall have the right to rely on the last known
address of the other parties. Unless otherwise provided in this Agreement, all
documents and communications may be delivered by First Class Mail.
-7-
<PAGE>
7.3 Severability. In the event any provision of this Agreement is found
------------
to be invalid, voidable or unenforceable, the parties agree that unless it
materially affects the entire intent and purpose of this Agreement, such
invalidity, voidability or unenforceability shall affect neither the validity of
this Agreement nor the remaining provisions herein, and the provision in
question shall be deemed to be replaced with a valid and enforceable provision
most closely reflecting the intent and purpose of the original provision.
7.4 Successors. This Agreement shall be binding upon and shall inure to
----------
the benefit of the successors and assigns of the parties. However, DSI shall
have no obligation in performing this Agreement to recognize any successor of
Depositor or Preferred Registrant unless DSI receives clear, authoritative and
conclusive written evidence of the change of parties.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereby execute this Agreement.
Preferred Registrant Depositor
By: /s/ Francis E. Lundy By: /s/ Yagyensh C. Pati
-------------------- --------------------
Name: FRANCIS E. LUNDY Name: Yagyensh C. Pati
---------------- ----------------
Title: PRESIDENT Title: President
--------- ---------
Date: DEC. 31, 1997 Date: Dec. 31, 1997
------------- -------------
Data Securities International, Inc.
By: __________________________________________
Name: ________________________________________
Title: _______________________________________
Date: ________________________________________
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<PAGE>
Attachment A
DEPOSIT MATERIALS
All of the existing TVS Software (as defined in the License Agreement).
<PAGE>
Attachment B
DESCRIPTION OF DEPOSIT MATERIAL
Deposit Account Number____________________________________________
Depositor Company Name______________________________________________
DEPOSIT TYPE: __________ Initial __________ Supplemental
ENVIRONMENT:
Host System CPU/OS____________ Version__________Backup_____________Source System
CPU/OS___________ Version_____________Compiler____________
Special Instructions:___________________________________________________________
________________________________________________________________________________
DEPOSIT MATERIAL:
Attachment B Name_________________________________ Version____________________
Item label description Media Quantity
For Depositor, I certify that the above For DSI, I certify that the deposit
described Deposit Materials have been inspection has been completed
transmitted to DSI: (any exceptions are noted above):
By_______________________________ By: ___________________
Print Name__________________________ Print Name:______________________
Date________________________ Date of Acceptance________________
ISE__________ EX. B#______________
<PAGE>
Attachment C
DESIGNATED CONTACT
Account Number _____________________________
Notices, Deposit Material returns and Invoices to Depositor should be
communication, including delinquencies addressed to:
to Depositor should be addressed to:
Company Name:_________________________ Company Name:__________________________
Address: _____________________________ Address: ______________________________
Designated Contact: __________________ Designated Contact: ___________________
Contact: _____________________________ Contact: ______________________________
Telephone: ___________________________ Telephone: ____________________________
Facsimile: ___________________________ Facsimile: ____________________________
State of Incorporation: ______________ State of Incorporation: _______________
Notices and communications, including Invoices to Preferred Registrant should
delinquencies to Preferred Registrant be should addressed to:
be addressed to:
Company Name:_________________________ Company Name:__________________________
Address: _____________________________ Address: ______________________________
Designated Contact: __________________ Designated Contact: ___________________
Contact: _____________________________ Contact: ______________________________
Telephone: ___________________________ Telephone: ____________________________
Facsimile: ___________________________ Facsimile: ____________________________
Requests from Depositor or Preferred Registrant to change the Designated Contact
should be given in writing by the Designated Contact or an authorized employee
of Depositor or Preferred Registrant.
Invoice inquiries and fee
Contracts, Deposit Material and notices to remittances to DSI should be
DSI should be addressed to: addressed to:
DSI DSI
Contract Administration Accounts Receivable
Suite 200, 9555 Chesapeake Drive Suite 1450,425 California Street
San Diego, CA 92123 San Francisco, CA 94104
Telephone: (619) 694-1900 (415) 398-7900
Facsimile: (619) 694-1919 (415) 398-7914
Date:_______________________________________
<PAGE>
EXHIBIT 10.24
SOFTWARE PRODUCTION
AND
DISTRIBUTION AGREEMENT
BETWEEN
KLA TENCOR
AND
NUMERICAL TECHNOLOGIES, INC. (NTI)
JANUARY 9, 1998
1
KLA TENCOR CONFIDENTIAL
NTI CONFIDENTIAL
[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
SOFTWARE PRODUCTION AND DISTRIBUTION AGREEMENT
This Software Production and Distribution Agreement (this "AGREEMENT"),
effective as of January 9, 1998 (the "EFFECTIVE DATE"), is entered into by and
between Numerical Technologies, Inc., a California corporation with its primary
place of business at 333 West Maude Avenue, Suite 207, Sunnyvale, California
94086 ("NTI"), and KLA-Tencor Corporation, a Delaware corporation with its
primary place of business at 160 Rio Robles, San Jose, California 95134 ("KLA-
TENCOR").
RECITALS
A. KLA-Tencor, among other things, develops and sells hardware used to
perform quality inspection and analysis of photomasks used in the manufacture of
integrated circuits.
B. NTI, among other things, develops, markets, and distributes software
tools for manipulating integrated circuit designs for application in the
production of semiconductors, including certain software designed for reticle
defect analysis.
C. KLA-Tencor desires to have NTI produce certain software tools
(based, in part, on certain of NTI's proprietary software tools and libraries)
for use in connection with KLA-Tencor's photomask quality inspection and
analysis hardware, and to have NTI grant KLA the right to market and distribute
such software tools for use in connection with KLA-Tencor's quality inspection
and analysis hardware.
D. KLA-Tencor also desires to distribute one or more of NTI's existing
software tools.
E. NTI desires to produce such tools and grant to KLA-Tencor such
distribution rights, all in accordance with the terms and conditions of this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration for the mutual covenants contained
herein, the parties agree as follows:
1. DEFINITIONS
1.1 "VIRTUAL STEPPER" means NTI's existing software tool marketed under
the name "Virtual Stepper" or "TINT" used for simulation of photolithography,
and accompanying documentation.
1.2 "RAPID VIRTUAL STEPPER" means the version of the Virtual Stepper
adapted under this Agreement to execute in conjunction with KLA Tencor reticle
equipment.
1.3 "VIRTUAL STEPPER LIBRARIES" mean the software and existing
intellectual property underlying NTI's Virtual Stepper software.
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NTI CONFIDENTIAL
2
<PAGE>
1.4 "VIRTUAL STEPPER MODULES" or "MODULES" mean the software to be
produced under this Agreement based on the Virtual Stepper Libraries that
includes a printable coefficient module (the "PRINT MODULE"), a two dimensional
image module (the "2-D IMAGE MODULE"), and a process window module (the "WINDOW
MODULE"). Modules include all error corrections and Upgrades thereto provided by
NTI in accordance with the terms of this Agreement.
1.5 "PRODUCT(S)" means the RAPID Virtual Stepper and the Modules,
individually or collectively.
1.6 "DEVELOPMENT SCHEDULE" means the schedule according to which NTI
shall adapt the Virtual Stepper and the Modules, to be attached as EXHIBIT A
hereto. Such schedule may be amended from time to time upon written agreement of
the parties.
1.7 "END USER" means a direct or indirect customer of KLA-Tencor that
is authorized to use the Products for the End User's internal business purposes
in accordance with the terms of Section 4.4(a).
1.8 "FEASIBILITY STUDY" means a review and assessment of the technical
requirements for the production of the Products to be undertaken jointly by KLA
Tencor and NTI, set forth in writing and attached thereafter as EXHIBIT A
hereto.
1.9 "INTELLECTUAL PROPERTY RIGHTS" means patent rights (including
patent applications and disclosures), rights of priority, mask work rights,
copyrights, trade secrets, know-how and any other intellectual property rights
recognized in any country or jurisdiction in the world.
1.10 "KLA-TENCOR DATA" means the data that KLA-Tencor will make available
to NTI to enable NTI to produce and test the Products, in accordance with the
terms of this Agreement, and any other data as KLA-Tencor may provide from time
to time hereunder.
1.11 "KLA-TENCOR MATERIALS" means, collectively, a market requirements
document, the KLA-Tencor Data and any other Intellectual Property Rights
developed by KLA-Tencor in the course of performing under this Agreement as
listed in EXHIBIT F.
1.12 "NUMERICAL MATERIALS" means the software, libraries, data, and any
other Intellectual Property Rights developed by NTI in the course of performing
under this Agreement and other materials as listed in EXHIBIT G.
1.13 "SPECIFICATIONS" means the functional specifications and performance
requirements for the Products, respectively, to be agreed upon by the parties
and attached thereafter as EXHIBIT C hereto. The parties may amend EXHIBIT C
from time to time upon written agreement in accordance with the terms and
conditions of Section 2.1(c).
KLA TENCOR CONFIDENTIAL
NTI CONFIDENTIAL
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<PAGE>
1.14 "SUB-DISTRIBUTOR" means a company that is authorized to market,
distribute and sub-license the Products to End Users or other Sub-distributors
in accordance with the terms of Section 4.4(b).
1.15 "UPGRADES" means separately-priced enhancements to the Products
produced by NTI under this Agreement. "Upgrades" includes without limitation any
enhancements produced by NTI under this Agreement pursuant to Section 1(c) of
EXHIBIT E to correct Severity Level 3, Severity Level 4, and Severity Level 5
errors in the Products.
2. DEVELOPMENT AND ACCEPTANCE.
2.1 FEASIBILITY STUDY AND SPECIFICATIONS.
(a) KLA Tencor will provide a Feasibility Study plan to NTI, and NTI
and KLA Tencor will diligently conduct the Feasibility Study in accordance with
the Development Schedule. Within ten (10) business days following the conclusion
of the Feasibility Study, the parties will discuss in good faith whether to
proceed with development of the Specifications or terminate the Agreement.
Either party may terminate this Agreement at the conclusion of the Feasibility
Study upon written notice to the other party. Termination of this Agreement by
the parties in accordance with the terms of this subsection (a) will, in no
event, be deemed a termination for cause or material breach. Upon termination of
this Agreement by either party at the end of the Feasibility Study, NTI will
refund all product fees prepaid by KLA Tencor, less 20% of such pre-paid fees
for each month (or part thereof) which has passed since February 28, 1998.
(b) If the parties decide to have NTI proceed with development of the
Specifications, NTI will use its diligent efforts to develop the Specifications
for the Products. NTI will deliver the Specifications to KLA-Tencor in
accordance with the Development Schedule. Within ten (10) business days
following such delivery, KLA-Tencor will provide NTI with a written notice of
approval of the Specifications or a written statement that specifically
identifies any material deficiencies in the Specifications (a "STATEMENT OF
DEFICIENCIES"). If KLA-Tencor provides NTI with a Statement of Deficiencies, NTI
will revise the Specifications thirty (30) days and re-deliver the
Specifications to KLA-Tencor for review. The foregoing procedure will repeat
until KLA-Tencor provides NTI with a written notice of approval of the
Specifications or the process has been repeated two (2) times. In that case,
either both parties can mutually agree to extend the number of iterations beyond
two (2), or KLA Tencor will be entitled to terminate this Agreement in
accordance with section 15.2. If KLA-Tencor fails to provide NTI with a written
notice of approval of the Specifications or a Statement of Deficiencies within
thirty (30) days of any delivery or re-delivery of the Specifications to KLA-
Tencor hereunder, then the Specifications will be deemed accepted by KLA-Tencor.
(c) If KLA-Tencor desires to materially modify the Specifications
(after approval thereof under Section 2.1(b) above, KLA-Tencor will present to
NTI a written request describing such modification in reasonable detail (a
"CHANGE ORDER"). KLA-Tencor expressly acknowledges and agrees that NTI's
performance of such Change Orders may result in increased costs and/or delays in
the
KLA TENCOR CONFIDENTIAL
NTI CONFIDENTIAL
4
<PAGE>
Development Schedule. NTI will promptly determine, in NTI's reasonable
discretion, whether such Change Order can be accomplished, and within thirty
(30) days of receipt thereof, will provide KLA-Tencor with a written statement
that describes the impact of the Change Order on NTI's development efforts
hereunder, including without limitation any additional compensation and changes
to the Development Schedule. If, after receipt of such written statement from
NTI, KLA-Tencor desires NTI to perform such Change Order, then KLA-Tencor will
provide NTI with written confirmation thereof, and the Specifications,
Development Schedule and payment terms, as applicable, will be deemed amended by
the terms and conditions of such Change Order.
2.2 PRODUCT DEVELOPMENT. Following acceptance of the Specifications by
KLA-Tencor in accordance with Section 2.1, NTI will produce the Products in
accordance with the Specifications, and will deliver both a prototype version
and the final, completed version of each of the Products (each a "DELIVERABLE")
to KLA-Tencor in accordance with the Development Schedule.
2.3 TECHNICAL CONTACTS. KLA-Tencor and NTI will each designate primary
and alternate technical contacts (collectively, the "TECHNICAL CONTACTS") as the
primary individuals responsible for facilitating communication between
KLA-Tencor and NTI regarding all technical matters and for coordinating the
design, production, and testing of the Products. Each party may change its
respective Technical Contact at any time by providing the other party with no
less than five (5) days' advance notice.
2.4 ASSISTANCE BY KLA-TENCOR. KLA-Tencor will provide the KLA-Tencor
Materials to NTI in accordance with the Development Schedule. In addition,
KLA-Tencor agrees to provide such technical cooperation and assistance as NTI
may reasonably require to produce the Products and to make the Products
compatible with other KLA-Tencor products.
2.5 ACCEPTANCE PROCEDURE. NTI will promptly deliver each Deliverable to
KLA-Tencor as soon as it is completed and ready for acceptance testing in
accordance with this Section. Following each such delivery, KLA-Tencor will test
such Deliverable to ensure that the Deliverable conforms in all material
respects with the applicable portion of the Specifications.
Within twenty (20) days after delivery of each such Deliverable, KLA-Tencor will
provide NTI with a written notice of acceptance of the Deliverable or a written
statement that specifically identifies any material failure of the Deliverable
to comply with the relevant portion of the Specifications (a "STATEMENT OF
ERRORS"). If KLA-Tencor provides NTI with a Statement of Errors, NTI must
correct such deficiencies so that the Deliverable will conform to the relevant
portion of the Specifications within thirty (30) days and redeliver such
Deliverable to KLA-Tencor for re-testing.
The foregoing procedure may be repeated until KLA-Tencor provides NTI with a
written notice of acceptance of the Deliverables or the process has been
repeated two (2) times. In that case, either both parties can either mutually
agree to extend the number of iterations beyond two (2), or KLA Tencor will have
the right to terminate all or any portion of this Agreement pursuant to section
15.2.
KLA TENCOR CONFIDENTIAL
NTI CONFIDENTIAL
5
<PAGE>
2.6 ADDITIONAL AND FUTURE DEVELOPMENT WORK. Any additional or future
development work proposed by KLA-Tencor or KLA-Tencor customers to be performed
by NTI, and not required by this Agreement, shall be separately negotiated and
subject to the mutual agreement of the parties on the terms under which such
work will be performed.
3. INTERNAL USE LICENSE GRANT BY NTI FOR OTHER NUMERICAL TECHNOLOGIES TOOLS.
Subject to the terms and conditions of this Agreement, NTI grants to
KLA-Tencor in accordance with the terms and conditions of NTI's standard
software license agreement, attached hereto as EXHIBIT I (the "NTI SOFTWARE
LICENSE AGREEMENT"), a single user license for the Virtual Stepper. KLA-Tencor
agrees to pay NTI a license fee of [***] within thirty (30) days of the
Effective Date in consideration for (i) the licenses granted under this
Section 3; (ii) training to be provided by NTI to KLA-Tencor personnel
pursuant Section 12.1(a); and (iii) one (1) year of NTI's standard maintenance
and support for the Virtual Stepper. Any standard maintenance and support for
the Virtual Stepper provided by NTI to KLA-Tencor after such one (1) year
period will be provided at NTI's then-current rates.
4. LICENSE GRANTS AND COVENANTS BY NTI.
4.1 RAPID VIRTUAL STEPPER DISTRIBUTION LICENSE. Subject to the terms
and conditions of this Agreement (including without limitation Section 4.4(a)),
NTI hereby grants to KLA-Tencor a perpetual, worldwide, nonexclusive,
nontransferable, irrevocable license to market, distribute and sublicense (both
directly and through Sub-distributors) the RAPID Virtual Stepper, in object code
form, solely to End Users who are customers of KLA-Tencor. In no event may
KLA-Tencor market or distribute the RAPID Virtual Stepper to any company or
other entity that is not a customer of KLA-Tencor products.
4.2 INTERNAL USE AND DISTRIBUTION LICENSE FOR THE MODULES.
(a) Subject to the terms and conditions of this Agreement (including
without limitation Section 4.4(b)), NTI hereby grants to KLA-Tencor a
nontransferable, perpetual, worldwide, irrevocable license under all
Intellectual Property Rights in the Modules: (i) to market, distribute, and
sublicense (directly and through Sub-distributors) the Products, in object code
form, to End Users; provided, that KLA-Tencor may only market, distribute and
sublicense the Products bundled with or for use in connection with other KLA-
Tencor products; (ii) to perform and display the Products in connection with
marketing and demonstrating the Products to current and prospective End Users
and (iii) to provide installation support to End Users; and (iv) to copy the
Products as necessary to exercise the rights set forth in the foregoing clauses
(i), (ii), and (iii). KLA Tencor will have the right to prepare authorization
keys that allow the licensed End Users to use the Products.
4.3 RESTRICTIONS ON LICENSES. KLA-Tencor has no right to transfer,
sub-license or otherwise distribute the Products to any third party except as
expressly set forth in this Agreement. KLA-Tencor shall not, and shall not allow
any third party to:
KLA TENCOR CONFIDENTIAL
NTI CONFIDENTIAL
6
[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
(a) decompile, disassemble, reverse engineer or modify any portion of
the Products, except to the extent permitted by law;
(b) copy or otherwise reproduce the Products except for the purpose
of making an archival backup copy or as expressly authorized by this Agreement;
and
(c) use the Products to provide service bureau, time sharing, or
other computer services to third parties.
4.4 AGREEMENT WITH END USERS.
(a) KLA-Tencor will not distribute the RAPID Virtual Stepper to any
End User unless and until each such End User has first executed a written end
user software license agreement with NTI that: (i) contains the terms and
conditions set forth in EXHIBIT J (the "RAPID VIRTUAL STEPPER TERMS"); (ii)
makes no representations or warranties on behalf of NTI; and (iii) does not
grant any rights to such End User beyond the scope of the RAPID Virtual Stepper
Terms. Any material changes to the RAPID Virtual Stepper Terms requires NTI's
prior written approval.
(b) KLA-Tencor will not distribute the Products to End Users unless
and until each such End User is subject to the terms and conditions of a
supplemental license agreement in addition to KLA Tencor's normal Terms and
Conditions. This agreement will contain terms which comply with those set forth
in EXHIBIT K (the "MODULE TERMS").
(c) KLA-Tencor may not distribute the Products to any Sub-distributor
unless each such Sub-distributor has executed a written sub-distributor license
agreement with KLA-Tencor that: (i) protects NTI and its proprietary rights in
the Products to at least the same degree as the terms and conditions of this
Agreement; (ii) makes no representations or warranties on behalf of NTI; and
(iii) does not permit distribution of the Products beyond the scope of this
Agreement (including without limitation an express prohibition on distribution
of the Products except bundled with or for use in connection with other KLA-
Tencor products.
4.5 SOURCE CODE ESCROW. NTI agrees, at KLA-Tencor's expense, to enter into
an escrow agreement ("ESCROW AGREEMENT") with respect to the source code of the
Products with Data Securities International, Inc., in the form set forth in
EXHIBIT L hereto within sixty (60) days of signing this Agreement. NTI will
deposit into escrow copies of the source code for the Products, respectively,
within thirty (30) days of receipt of payment for each such Product. The parties
agree that the conditions for release of such source code shall be solely as set
forth in the Escrow Agreement. From time to time, NTI will also deposit into the
escrow account the source code for any error corrections and Upgrades thereto,
if any, provided by NTI to KLA-Tencor pursuant to this Agreement. At KLA-
Tencor's request and sole expense, NTI will also deposit into the escrow account
the information and materials specified in EXHIBIT L. (The parties may amend
EXHIBIT L from time to time by written agreement.) In any case, a breach of the
contract by KLA Tencor will not be a release condition under the Escrow
Agreement.
KLA TENCOR CONFIDENTIAL
NTI CONFIDENTIAL
7
<PAGE>
4.6 NUMERICAL TECHNOLOGIES COVENANT. Numerical Technologies agrees that
it will not use or disclose the Feasibility Study and Products (exclusive of the
Numerical Materials) except for the benefit of KLA Tencor.
4.7 RESERVATION BY NUMERICAL TECHNOLOGIES. KLA Tencor has no rights in
the Numerical Materials except as set forth herein. NTI and its suppliers
reserve all rights in the Numerical Materials not expressly granted to KLA
Tencor in this Agreement.
5. TRADEMARK LICENSE GRANT BY NTI.
Subject to the terms and conditions of this Agreement, NTI grants KLA-
Tencor a worldwide, non-exclusive, non-transferable royalty-free license for the
term of this Agreement to use NTI's applicable trademarks, service marks, and
logos identified in EXHIBIT H (the "MARKS") solely in connection with KLA-
Tencor's marketing of the Products. (The parties may amend EXHIBIT H from time
to time by written agreement.) Nothing in this Agreement grants KLA-Tencor any
ownership or any rights in or to use the Marks except in accordance with this
license, and all goodwill or value inuring to the Marks shall belong exclusively
to NTI. KLA-Tencor will comply with NTI's guidelines regarding use and placement
of such Marks. The rights granted to KLA-Tencor in this license will terminate
upon any termination of this Agreement. Upon such termination, KLA-Tencor will
no longer make any use of any Marks. NTI will have the exclusive right to own,
use, hold, apply for registration for, and register the Marks during the term
of, and after the termination of, this Agreement. KLA-Tencor will neither take
nor authorize any activity inconsistent with such exclusive rights.
6. KLA-TENCOR MATERIALS LICENSE.
6.1 LICENSE GRANT. Subject to the terms and conditions of this Agreement,
KLA-Tencor hereby grants to NTI a nonexclusive, nontransferable, limited license
under all of KLA-Tencor's Intellectual Property Rights in the KLA-Tencor
Materials to use, copy, modify and make derivative works based on the KLA-Tencor
Materials solely for the purpose of producing the Products and for developing
any other products, programs or technology hereunder, as mutually agreed in
writing by the parties, in the form of an amendment to this Agreement executed
by duly authorized representatives of each party. NTI will not use the KLA-
Tencor Materials for any purpose, except in accordance with the license rights
set forth in section 6.1.
6.2 RESERVATION BY KLA-TENCOR. NTI has no rights in the KLA-Tencor
Materials except as set forth herein. KLA-Tencor and its suppliers reserve all
rights in the KLA-Tencor Materials not expressly granted to NTI herein.
7. PRODUCT CONFIGURATION.
7.1 BUNDLING OPTIONS. The parties acknowledge that the Modules which are
produced in the course of this Agreement may be deemed by KLA Tencor to have a
variety of packaging configurations, and KLA Tencor retains complete freedom to
configure the Modules in any product offering or
KLA TENCOR CONFIDENTIAL
NTI CONFIDENTIAL
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configuration it sees fit. Notwithstanding the foregoing, KLA Tencor
acknowledges that in any configuration it selects to use the Modules, NTI's name
and marks will be made available and obvious to the End User if the Module is
used.
8. PROPRIETARY MARKING AND OWNERSHIP.
8.1 NTI OWNERSHIP. As between KLA-Tencor and NTI, subject to the rights
granted in this Agreement, NTI will own all worldwide right, title and interest
in and to the Numerical Materials, and all worldwide Intellectual Property
Rights therein.
8.2 NTI PROPRIETARY RIGHTS LEGENDS. KLA-Tencor will not delete or alter in
any manner the Intellectual Property Rights legends of NTI and its suppliers
appearing in the Products and any accompanying documentation, and will reproduce
such legends in all copies of KLA-Tencor may make of the Products.
8.3 KLA-TENCOR OWNERSHIP. As between NTI and KLA-Tencor, KLA-Tencor will
own all worldwide right, title and interest in and to the KLA-Tencor Materials,
and the Specifications (subject to NTI's underlying rights and ownership of the
Numerical Materials), and all worldwide Intellectual Property Rights therein.
8.4 JOINT OWNERSHIP. As between NTI and KLA-Tencor, KLA-Tencor and
Numerical Technologies will jointly own all worldwide right, title and interest
in and to the Feasibility Study and the Products (subject to NTI's underlying
rights and ownership of the Numerical Materials and KLA Tencor's underlying
rights and ownership of the KLA Tencor Materials).
9. ORDER AND DELIVERY OF PRODUCTS.
9.1 ORDERS. KLA Tencor is not obligated to order any additional quantity
of the Products from NTI unless the final, complete version has been accepted,
pursuant to section 2.5. KLA-Tencor's acceptance of the RAPID Virtual Stepper
pursuant to Section 2.5 shall be deemed an order for [***] licenses for the
RAPID Virtual Stepper. NTI will ship to KLA-Tencor copies of RAPID Virtual
Stepper in accordance with delivery schedules specified in any purchase order
in compliance with this Agreement received by NTI. Any terms and conditions of
any such purchase order which are in addition to or inconsistent with the
terms and conditions of this Agreement will be deemed stricken from such
purchase order. KLA Tencor will order licenses for the Products from NTI by
purchase order and pay royalties as described in EXHIBIT D within thirty (30)
days of delivery of the license(s) in advance of sale to customers until
December 31, 1998. After that time, payments to NTI will be in arrears, as
described in section 10.4 below.
9.2 SHIPMENT. For any copies of the Products that NTI ships to KLA-Tencor
hereunder, NTI will ship such copies F.O.B. NTI's site, and risk of loss or
damage will pass to KLA-Tencor on delivery of such copies to KLA Tencor. All
master copies of Deliverables shall be delivered to KLA Tencor electronically.
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[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
10. PAYMENTS.
10.1 PRICING FREEDOM. KLA-Tencor is, and will remain, entirely free to set
its own End User and Sub-distributor prices.
10.2 PRODUCT FEES. For delivery of master copy of the Virtual Stepper and
the Products, KLA-Tencor shall pay NTI [***] in fees as follows:
(a) [***] for an internal use license of the Virtual Stepper,
pursuant to section 3;
(b) [***] for a master copy of the prototype of the RAPID Virtual
Stepper, payable within thirty (30) days of KLA Tencor's acceptance pursuant
to section 2.5;
(c) [***] for a master copy of the prototype of the three Modules,
with ten (10) licenses for each for internal use only, payable within thirty
(30) days of KLA-Tencor's acceptance of all the Modules pursuant to Section
2.5.
10.3 REFUNDS. All of the payments described in section 10.3(b) and 10.3(c)
above are fully refundable and will be refunded by NTI if the agreement is
terminated at the end of the Feasibility Study, pursuant to section 2.1 (a).
10.4 ROYALTIES. KLA Tencor will agree to pay to NTI the royalties specified
in Exhibit D for each copy of the Products distributed to an End User pursuant
to section 4.2 of this Agreement. Royalties will be payable, in arrears, within
thirty (30) days following the close of each calendar quarter for all such
distributions to End Users made within the immediately proceeding quarter. Each
royalty will be accompanied by a written report detailing the number of copies
distributed and the amount of royalties owed, both for the immediately
proceeding quarter and in the aggregate from the Effective Date.
10.5 TAXES. KLA-Tencor shall be responsible for and shall pay all sales,
use, and other taxes and fees, duties and tariffs imposed on or in connection
with KLA-Tencor's use and distribution of the Products, other than taxes based
on NTI's net income.
10.6 RIGHT TO AUDIT. NTI will have the right to have an independent
certified public accountant, acceptable to KLA Tencor, inspect the books and
records of KLA Tencor on which the reports furnished to NTI under section 10.3
have been based. All such audits will be conducted during normal business hours,
and no more frequently than once every six (6) months, and no more than one (1)
time for any given quarter. If as the result of such an audit it is determined
that KLA Tencor has underpaid NTI by more than eight (8) percent of the current
amount owed to NTI for the period audited, KLA Tencor will reimburse NTI for all
reasonable costs of the audit and will make all required payments within thirty
(30) days of notice of underpayment from NTI.
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[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
11. REPRESENTATIONS AND WARRANTIES
11.1 WARRANTY OF RIGHTS BY NTI. NTI represents and warrants that:
(a) NTI has sufficient rights to grant to KLA-Tencor the rights set
forth in this Agreement; and
(b) NTI has full power to enter into this Agreement, to carry out its
obligations hereunder, and to grant the rights herein granted to KLA-Tencor.
11.2 LIMITED MEDIA WARRANTY BY NTI. As to any copy of Products that NTI
delivers to KLA-Tencor hereunder, NTI warrants that during the ninety (90) days
following delivery thereof to KLA-Tencor, the storage media containing Products,
as applicable, will be free of defects in materials and workmanship. As
KLA-Tencor's sole and exclusive remedy for any breach of this limited warranty,
NTI will, at its option and without charge to NTI, repair or replace the
defective storage media, provided that the nonconforming item is returned to NTI
within the 90-day warranty period.
11.3 WARRANTY OF RIGHTS BY KLA-TENCOR. KLA-Tencor represents and warrants
that:
(a) KLA-Tencor has sufficient rights to grant to NTI the rights set
forth in this Agreement; and
(b) KLA-Tencor has full power to enter into this Agreement, to carry
out its obligations hereunder, and to grant the rights herein granted to NTI.
11.4 NO OTHER WARRANTIES. EXCEPT FOR NTI'S OBLIGATIONS LISTED UNDER EXHIBIT
E, THE WARRANTIES SET FORTH IN THIS SECTION 11 ARE THE SOLE AND EXCLUSIVE
WARRANTIES MADE BY EACH PARTY HEREUNDER AND EACH PARTY HEREBY DISCLAIMS ALL
OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
12. TRAINING, MAINTENANCE, AND TECHNICAL SUPPORT.
12.1 TRAINING AND MARKETING SUPPORT.
(a) NTI will provide, at no additional charge, eighty (80) person-
hours of training on the Virtual Stepper to KLA-Tencor personnel at a NTI or
KLA-Tencor facility in or near the San Jose area. Any additional training with
respect to the Virtual Stepper for KLA-Tencor personnel will be provided at a
facility as may be agreed in writing by the parties, in accordance with NTI's
then current standard training terms and conditions and subject to payment by
KLA-Tencor of the prices specified in Section 5 of EXHIBIT E. (The parties may
amend EXHIBIT E from time to time by written agreement.)
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(b) During the term of this Agreement, NTI will provide, at no
additional charge, a one-half or full-day (as mutually agreed by the parties)
product marketing presentation per calendar quarter to KLA-Tencor personnel with
respect to the Products. NTI will also provide reasonable support to KLA-
Tencor's marketing efforts for the Products by making available, at no
additional charge, one (1) individual from NTI's research and development group
for a total of two (2) business weeks every six (6) months for KLA-Tencor's
promotional "roadshows" and/or on-site beta test support.
12.2 TECHNICAL SUPPORT. All technical support and maintenance for the
Products will be provided according to the terms and conditions set forth in
EXHIBIT E attached hereto.
13. INDEMNIFICATION
13.1 INDEMNIFICATION BY NTI.
(a) Subject to the conditions set forth in Section 13.3 below, NTI
will defend KLA-Tencor from and against any suit or proceeding brought against
KLA-Tencor to the extent that it is based on a claim that the Products
(exclusive of any KLA-Tencor Materials incorporated therein) (the "NTI
INDEMNIFIED TECHNOLOGY") infringes any or copyright or misappropriates the trade
secrets or any other intellectual property right of any third party, and will
indemnify and hold harmless KLA-Tencor from any damages, costs and expenses
(including but not limited to reasonable attorneys' fees), awarded in any such
suit or proceeding or paid in settlement; provided, that NTI will not enter into
any settlement that involves a remedy other than the payment of money, without
KLA-Tencor's prior written consent, which consent shall not be unreasonably
withheld; provided, further, that NTI shall have no obligation under this
Section 13.1(a) with respect to any claim of infringement or misappropriation
based upon: (i) the combination of the NTI Indemnified Technology with products,
programs or data not furnished by NTI, if such claim would have been avoided by
use of the NTI Indemnified Technology alone; (ii) any modification of the
Products not performed by NTI, if such claim would have been avoided by use of
the unmodified NTI Indemnified Technology; (iii) compliance by NTI with KLA-
Tencor requirements or specifications; or (iv) failure of KLA-Tencor to use
replacement NTI Indemnified Technology provided by NTI to KLA-Tencor to avoid
such claim of infringement or misappropriation. (The foregoing clauses (i) to
(iv) are collectively referred to hereafter as the "KLA-TENCOR-GENERATED
CLAIMS.")
(b) If the exercise by KLA-Tencor of any of its rights in the NTI
Indemnified Technology is enjoined as a result of a claim of infringement or
misappropriation of the type specified in Section 13.1(a) or, in the opinion of
NTI, is likely to be so enjoined, NTI at its option and expense will: (i)
procure for KLA-Tencor the right to continue to exercise all rights granted
under this Agreement with respect to the NTI Indemnified Technology; (ii) modify
the affected portion of the NTI Indemnified Technology to avoid the claim of
infringement or misappropriation, without materially altering the conformance of
the NTI Indemnified Technology with the Specifications or (iii) if neither (i)
nor (ii) can be accomplished despite NTI's reasonable efforts, NTI may terminate
this Agreement and KLA-Tencor's rights and NTI's obligations hereunder with
respect to the affected portion of the NTI Indemnified Technology, and refund to
KLA-Tencor the applicable fees paid for the NTI Indemnified
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Technology, amortized over a seven (7) year period commencing as of the date of
acceptance by KLA-Tencor of the Products pursuant to Section 2.5.
(c) THE PROVISIONS OF THIS SECTION 13.1 SET FORTH NTI'S SOLE AND
EXCLUSIVE OBLIGATIONS AND KLA-TENCOR'S SOLE AND EXCLUSIVE REMEDIES WITH RESPECT
TO INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS OF ANY KIND.
13.2 INDEMNIFICATION BY KLA-TENCOR. Subject to the conditions set forth in
Section 13.3 below:
(a) KLA-Tencor will defend NTI from and against any suit or
proceeding brought against NTI: (i) to the extent that it is based on a claim
that the KLA-Tencor Materials infringe any patent or copyright or
misappropriates the trade secrets or any intellectual property right of any
third party; (ii) to the extent that it is based on a KLA-Tencor-Generated
Claim; or (iii) arising out of any actions or omissions of KLA-Tencor in
connection with the distribution of the Products under this Agreement; and
(b) KLA Tencor will indemnify and hold harmless NTI from any damages,
costs and expenses (including but not limited to reasonable attorneys' fees),
awarded in any suit or proceeding as specified in subsection (a) above or paid
in final settlement; provided, that KLA-Tencor will not enter into any
settlement that involves a remedy other than the payment of money, without NTI's
prior written consent, which consent shall not be unreasonably withheld.
(c) KLA-Tencor shall have no obligation under this Section 13.2: (i)
for any action for which NTI is required to indemnify KLA-Tencor under Section
13.1; (ii) for any modification of the KLA-Tencor Materials (exclusive of any
modifications made by NTI pursuant to Section 2.2) not made by or at the written
request of KLA-Tencor, if such claim would have been avoided by use of the
unmodified KLA-Tencor Materials or (iii) failure of NTI to use replacement KLA-
Tencor Materials provided by KLA-Tencor to NTI to avoid a claim of infringement
or misappropriation.
(d) THE PROVISIONS OF THIS SECTION 13.1 SET FORTH KLA TENCOR'S SOLE
AND EXCLUSIVE OBLIGATIONS AND NTI'S SOLE AND EXCLUSIVE REMEDIES WITH RESPECT TO
INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS OF ANY KIND.
13.3 INDEMNITY CONDITIONS. A party requested to indemnify the other under
this Section 13 ("INDEMNITOR") shall have no obligation to so indemnify the
party seeking indemnity ("INDEMNITEE") unless Indemnitee: (i) provides
Indemnitor with prompt written notification of the claim; (ii) provides
Indemnitor with all reasonable information and assistance, at Indemnitor's
expense, to defend or settle such a claim; and (iii) grants Indemnitor authority
and sole control of the defense or settlement of such claim. Indemnitee reserves
the right to retain counsel, at Indemnitee's expense, to participate in the
defense and settlement of any such claim.
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14. CONFIDENTIALITY
14.1 CONFIDENTIAL INFORMATION. "CONFIDENTIAL INFORMATION" means: (i) the
source code and the documentation for the Products, the Feasibility Study and
the Specifications; (ii) the KLA-Tencor Data and the KLA-Tencor Materials; (iii)
the Numerical Materials, (iv) any business or technical information of NTI or
KLA-Tencor that is designated by the disclosing party as "confidential" or
"proprietary" at the time of disclosure or, if orally disclosed, is identified
as "confidential" or "proprietary" at the time of disclosure and reduced to
writing by the disclosing party within thirty (30) days of such disclosure; (v)
notwithstanding clause (iv) above, any information of NTI or KLA-Tencor
regarding a party's respective business plans, financial information, personnel
data, or customer data; and (vi) the specific terms and conditions of this
Agreement.
14.2 EXCLUSIONS. Confidential Information shall not include information
that: (i) is or becomes generally known or available by publication, commercial
use or otherwise through no fault of the receiving party; (ii) is known to the
receiving party at the time of disclosure without violation of any
confidentiality restriction and without any restriction on the receiving party's
further use or disclosure; (iii) is independently developed by the receiving
party; or (iv) is permitted for release or disclosure to any third party by the
written prior consent of disclosing party.
14.3 USE AND DISCLOSURE RESTRICTIONS. Each party will refrain from using
the other party's Confidential Information except as permitted herein for a
period ending five (5) years from the date of expiration or termination of this
Agreement. Not withstanding the foregoing, either party may designate longer
periods of confidentiality pertaining to particular disclosures by stating so in
writing at the time of disclosure. Each party will use the same level of care to
prevent disclosure of the other party's Confidential Information that it uses
with its own information of similar sensitivity and importance, but in any event
will not use less than reasonable care to prevent disclosure of the other
party's Confidential Information.
Without limiting the foregoing, each party will disclose Confidential
Information of the other party only to its employees and consultants with a
"need to know," and only subject to written use and nondisclosure restrictions
at least as protective as those set forth herein which have been executed by
such employees and consultants. In addition, each party will promptly report to
the other party any violation of the restrictions set forth herein of which a
party becomes aware. However, each party may disclose Confidential Information
of the other party: (i) pursuant to the order or requirement of a court,
administrative agency, or other governmental body, provided that the disclosing
party gives reasonable notice to the other party to contest such order or
requirement; and (ii) on a confidential basis to legal or financial advisors.
14.4 INDEPENDENT DEVELOPMENT. Except as expressly set forth in this
Agreement, nothing in this Agreement will limit either party's right to acquire,
license, develop for itself, or have others develop for it, and offer products
that have the same or similar functionality as the Products at any time;
provided, however, that this provision does not grant to either party any rights
under the other party's Intellectual Property Rights.
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15. TERM AND TERMINATION
15.1 TERM. This Agreement shall commence on the Effective Date and shall
continue in full force and effect for two (2) years after the date of acceptance
by KLA-Tencor of the Products pursuant to Section 2.5, and shall be
automatically renewed for one (1) year terms thereafter unless: (i) either party
gives at least sixty (60) days written notice of non-renewal prior to any such
automatic renewal, in which case this Agreement will automatically expire at the
end of the then-current term; or (ii) earlier terminated in accordance with the
terms of this Agreement.
15.2 TERMINATION FOR CAUSE. Either party shall have the right to terminate
this Agreement if the other party breaches any material term or condition of
this Agreement and fails to cure such breach within thirty (30) days after
written notice. A notice of termination issued by KLA-Tencor to NTI hereunder
will not extend the time for delivery of any of the Deliverables as set forth in
the Development Schedule.
15.3 TERMINATION FOR FINANCIAL CONDITIONS. Either party shall have the
right to terminate this Agreement if: (i) the other party becomes the subject of
a voluntary petition in bankruptcy or any voluntary proceeding relating to
insolvency, receivership, liquidation, or composition for the benefit of
creditors; or (ii) the other party becomes the subject of an involuntary
petition in bankruptcy or any involuntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of creditors, if such
petition or proceeding is not dismissed within sixty (60) days of filing.
15.4 EFFECT OF TERMINATION OR EXPIRATION. Except as may be otherwise
provided herein, upon any termination or expiration of this Agreement, each
party shall, within thirty (30) days after such expiration or termination,
return or destroy all copies of any Confidential Information of the other party
provided hereunder and, upon request, an officer of each party shall certify in
writing that such delivery or destruction has been fully effected; provided,
however, that each party shall have the right to retain Confidential Information
of the other party solely to the extent and for the period necessary to exercise
its surviving rights and fulfill its surviving obligations.
15.5 NONEXCLUSIVE REMEDY. Termination of this Agreement by either party
will be a non-exclusive remedy for breach and will be without prejudice to any
other right or remedy of such party.
15.6 NO DAMAGES FOR TERMINATION. Neither party will be liable to the other
for damages of any type solely as a result of terminating this Agreement in
accordance with its terms.
15.7 SURVIVAL. The rights and obligations of the parties under Sections
1,4, 7.1, 8, 10, 11, 12.2, 13, 14, 15.4, 15.5, 15.6, 16 and 17 will survive any
termination or expiration of this Agreement.
16. LIMITATIONS OF LIABILITY
16.1 GENERAL LIMITATION OF DAMAGES. REGARDLESS OF WHETHER ANY REMEDY SET
FORTH HEREIN FAILS OF ITS ESSENTIAL PURPOSE, IN NO EVENT SHALL EITHER PARTY
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BE LIABLE TO THE OTHER PARTY OR TO ANY THIRD PARTY FOR ANY INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING WITHOUT LIMITATION,
LOSS OF PROFIT, REVENUE, DATA OR USE, WHETHER IN AN ACTION IN CONTRACT, TORT
(INCLUDING NEGLIGENCE), BREACH OF WARRANTY, PRODUCT LIABILITY OR OTHERWISE, EVEN
IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. The foregoing
limitations will not apply: (i) to the parties' respective obligations under
Section 13; or (ii) to any material breach by a party of its obligations under
Section 14, in which case such a party's liability will, in no event, exceed one
million dollars ($1,000,000).
16.2 SPECIFIC LIMITATION OF DAMAGES. IN NO EVENT SHALL NTI'S AGGREGATE
LIABILITY FOR ANY CLAIMS ARISING OUT OF THIS AGREEMENT, FROM ALL CAUSES OF
ACTION OF ANY KIND, WHETHER IN AN ACTION IN CONTRACT, TORT (INCLUDING
NEGLIGENCE), BREACH OF WARRANTY, PRODUCT LIABILITY OR OTHERWISE, EXCEED THE
ACTUAL AMOUNTS PAID BY KLA-TENCOR TO NTI UNDER THIS AGREEMENT. The foregoing
limitations will not apply: (i) to the parties' respective obligations under
Section 13; or (ii) to any material breach by a party of its obligations under
Section 14, in which case such a party's liability will, in no event, exceed one
million dollars ($1,000,000).
17. GENERAL
17.1 COMPLIANCE WITH LAWS. Both parties will comply in all material
respects with all laws and regulations applicable to their activities under this
Agreement. Without limiting the foregoing, both parties will comply with all
United States Department of Commerce and other United States export control laws
and regulations (collectively, "Export Laws") to ensure that neither the
Products nor any direct product thereof is exported or re-exported, directly or
indirectly, in violation of Export Laws.
17.2 GOVERNING LAW AND DISPUTES. This Agreement and all disputes arising
from or related to this Agreement will be governed by and construed in
accordance with the laws of the United States and the State of California,
without regard to or application of provisions relating to conflicts of law.
17.3 WAIVER AND MODIFICATION. Failure by either party to enforce any
provision of this Agreement will not be deemed a waiver of future enforcement of
that or any other provision. Any waiver, amendment or other modification of any
provision of this Agreement will be effective only if in writing and executed by
duly authorized representatives of the parties.
17.4 SEVERABILITY. If for any reason a court of competent jurisdiction
finds any provision of or obligation under this Agreement to be unenforceable,
that provision of the Agreement will be enforced to the maximum extent
permissible so as to effect the intent of the parties, and the remainder of this
Agreement shall remain valid and enforceable.
17.5 NOTICES. All notices required or permitted under this Agreement will
be in writing and delivered by confirmed facsimile transmission, by courier or
overnight delivery service, or by certified
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mail, and in each instance will be deemed given upon receipt. All communications
will be sent to the addresses set forth below or to such other address as may be
specified by either party to the other in accordance with this Section.
To KLA-Tencor: To NTI:
KLA-Tencor Corporation Numerical Technologies, Inc.
160 Rio Robles 333 West Maude Avenue, Suite 207
San Jose, California 95134 Sunnyvale, California 94086
Telephone: (408) 875-4200 Telephone: (408) 732-4391
Facsimile: (408) 434-4262 Facsimile: (408) 736-8605
Attention: Frank Schellenberg Attention: Larry Gletzer
17.6 ASSIGNMENT. Neither party may assign its rights or delegate its
obligations hereunder, either in whole or in part, without the prior written
consent of the other party, except that either party, may, without the consent
of the other party, assign this Agreement to a successor to such party by merger
or consolidation or by any operation of law, or to any entity that controls, is
controlled by, or us under common control with, such party. Any other attempted
assignment or delegation without such consent will be void. Subject to the
foregoing, the rights and liabilities of the parties under this Agreement will
bind and inure to the benefit of the parties' respective successors and
permitted assigns.
17.7 FORCE MAJEURE. Except for the payment of money, neither party will
be responsible for any failure or delay in its performance under this Agreement
due to causes beyond its reasonable control, including, but not limited to, acts
of God, war, riot, embargoes, acts of civil or military authorities, fire,
floods, earthquakes, accidents, strikes, fuel crises, or governmental action.
17.8 RELATIONSHIP OF PARTIES. The parties to this Agreement are
independent contractors and this Agreement will not establish any relationship
of partnership, joint venture, employment, franchise, or agency between the
parties. Neither party will have the power to bind the other or incur
obligations on the other's behalf without the other's prior written consent.
17.9 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which will be deemed an original, but both of which together will constitute
one and the same instrument.
17.10 ENTIRE AGREEMENT. This Agreement, including all exhibits, and the
Letter Agreement Regarding Deliverables, dated January 9, 1998, constitute the
full and complete agreement and understanding between the parties with respect
to the subject matter hereof, and supersedes and replaces all prior and
contemporaneous representations or understandings, written or oral, regarding
such subject matter. Notwithstanding the foregoing, the Mutual Non Disclosure
Agreements between the parties,
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dated September 11, 1997 will be effective as to the subject matter of this
Agreement until the Effective Date.
17.12 HEADINGS. The headings and titles used in this Agreement are for
informational purposes only, and in the event of conflict, the provisions of the
Agreement control.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date set forth above by their respective duly authorized
representatives.
NUMERICAL TECHNOLOGIES, INC. KLA-TENCOR CORPORATION
By: /s/ Yagyensh C. Pati By: /s/ Edward C. Grady
-------------------- -------------------
Name: Yagyensh C. Pati Name: EDWARD C GRADY
---------------- --------------
Title: President & CEO Title: V. P. GM RAPID
--------------- --------------
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SOFTWARE PRODUCTION
AND
DISTRIBUTION AGREEMENT
EXHIBITS
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TABLE OF EXHIBITS
Exhibit A Development Schedule
Exhibit B Feasibility Study
Exhibit C Specifications
Exhibit D Royalties for the Products
Exhibit E Product Maintenance, Support, and Training Terms
Exhibit F KLA Tencor Materials
Exhibit G Numerical Materials
Exhibit H NTI Trademarks
Exhibit I NTI Software License Agreement
Exhibit J RAPID Virtual Stepper License Terms and Conditions
Exhibit K Module License Terms and Conditions
Exhibit M Escrow Deposit Information and DSI Escrow Agreement
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EXHIBIT A
DEVELOPMENT SCHEDULE
THIS EXHIBIT MAY BE AMENDED AT ANY TIME BY MUTUAL WRITTEN AGREEMENT EXECUTED
BY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES.
TASK COMPLETION DATE
---- ---------------
[TO BE ATTACHED]
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EXHIBIT B
FEASIBILITY STUDY
THIS EXHIBIT MAY BE AMENDED AT ANY TIME BY MUTUAL WRITTEN AGREEMENT EXECUTED
BY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES.
The Feasibility Study will consist of:
1) The creation of a test reticle that has certain programmed defects;
2) Inspecting the test reticle in a KLA Tencor reticle inspection
system;
3) Gathering images from the KLA Tencor inspection system that
correspond to the programmed defect locations;
4) Processing the images using the Virtual Stepper to produce estimates of
the results expected from a wafer exposure of this reticle;
5) Assigning a printibility "score" for each of these defects based on the
metrics proposed for the Products in this Agreement; and also
6) Using this reticle to expose a silicon wafer in a well characterized
lithography stepper and processing system;
7) Gathering microscope images of the wafer locations corresponding to
the programmed defects;
8) Comparing the printability "score" predicted by the NTI simulation with
the actual printed wafer results;
9) Generating a comparison list that allows the confidence level in the
"score" to be assessed; and
10) Determining whether the work estimated in this Agreement to automate
the simulation and "scoring" tasks as necessary to improve the
confidence level is accurate.
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<PAGE>
EXHIBIT C
SPECIFICATIONS
THIS EXHIBIT MAY BE AMENDED AT ANY TIME BY MUTUAL WRITTEN AGREEMENT EXECUTED
BY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES.
[TO BE ATTACHED]
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<PAGE>
EXHIBIT D
ROYALTIES FOR THE PRODUCTS
THIS EXHIBIT MAY BE AMENDED AT ANY TIME BY MUTUAL WRITTEN AGREEMENT EXECUTED
BY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES.
1. ROYALTIES FOR PRODUCT LICENSES.
(a) For licenses for the Products sold to End Users by KLA-Tencor pursuant
to Section 9.1 and until December 30, 1999, the royalty to be paid to NTI shall
be as set forth below:
Product Royalty
------- -------
RAPID Virtual [***] per license
Stepper:
Print Module [***] per license
2-D Module [***] per license
Window Module: [***] per license
NTI states that royalty listed above for all Products are at [***].
KLA shall also receive a product fee recovery rebate for RAPID Virtual Stepper
licenses sales to End Users as follows:
square Licenses 31 through 80 shall receive an immediate [***] rebate per
license.
square Licenses 81 through 100 shall receive an immediate [***] rebate per
license.
KLA-Tencor states that it projects purchase from NTI and subsequent sales to
KLA-Tencor end-users of thirty-five (35) RAPID Virtual Stepper Systems in 1998.
Additionally, KLA-Tencor states that projects purchase from NTI and subsequent
sales to KLA-Tencor end-users of twenty (20) Print Coefficient Modules in 1998
(b) If this Agreement expires or terminates, and the parties cannot reach
mutual agreement on the royalties for the Products at that time, the royalties
for licenses of the expired or terminated items shall be equal to the GREATER
of:
1. the per-license royalty most recently agreed-to by the parties in
accordance with Section 10.4 prior to the date of expiration; or
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[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
2. an amount equal to KLA-Tencor's list price for the Product(s) as of
the date of a sale by KLA-Tencor multiplied a by royalty rate calculated as the
ratio of the royalty due to NTI for a Product and KLA-Tencor's list price as of
the date of expiration for that Product.
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<PAGE>
EXHIBIT E
PRODUCT MAINTENANCE, SUPPORT, AND TRAINING TERMS
THIS EXHIBIT MAY BE AMENDED AT ANY TIME BY MUTUAL WRITTEN AGREEMENT EXECUTED
BY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES.
1. TECHNICAL SUPPORT DURING TERM OF AGREEMENT.
During the term of this Agreement, NTI will provide KLA-Tencor with
technical support for the Products in accordance with the terms and conditions
set forth in this Section E-1.
(a) KLA-Tencor will be responsible for providing first-line technical
support for the Products to End Users and to Sub-distributors. Except as
otherwise agreed in writing by the parties, NTI will have no responsibility for
providing such first-line technical support.
(b) NTI personnel will be available to work with KLA-Tencor field
engineers to resolve problems reported by KLA-Tencor to NTI regarding the
performance of the Products in accordance with the terms and conditions set
forth in this Exhibit E. All questions and problems regarding the Framework or
the Modules reported to KLA-Tencor from End Users shall be directed by
telephone, facsimile, or email to the Applications Group at NTI through one
central source at KLA-Tencor. KLA-Tencor shall assign a Severity Level (as
defined in Section E-3 below) to each such problem in its initial report to NTI.
KLA-Tencor and NTI may, by mutual agreement, assign a different Severity Level
to a problem than the Severity Level initially assigned by KLA-Tencor.
(c) For Severity Level 1 or Severity Level 2 problems reported by
KLA-Tencor, NTI will, at no additional charge, use its diligent efforts to
provide a correction for any Severity Level 1 or Severity Level 2 problem that
NTI diagnoses as an error in the Products, within twenty-four (24) hours of
receipt by NTI of a report from KLA-Tencor of such a problem, but NTI makes no
warranty of any kind that it will be able to provide a correction in accordance
with such time frame. For Severity Level 3, Severity Level 4, or Severity Level
5 problems reported by KLA-Tencor, corrections for such problems will be
provided as Upgrades to the Framework or the Modules, subject to payment by
KLA-Tencor of the applicable fees in accordance with the terms of Section 10.3
of the Agreement. For any service provided by NTI at an End User's site, at
KLA-Tencor's request, regardless of the Severity Level, KLA-Tencor will pay NTI
the fees and expenses specified in Section 4 below.
2. TECHNICAL SUPPORT FOLLOWING EXPIRATION OF AGREEMENT.
Following the expiration of this Agreement with regard to a Product, NTI
will provide KLA-Tencor with technical support for that Product in accordance
with the terms and conditions set forth in this Section E-2.
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<PAGE>
(a) KLA-Tencor will be responsible for providing first-line technical
support for the Products to End Users and to Sub-distributors. Except as
otherwise agreed in writing by the parties, NTI will have no responsibility for
providing such first-line technical support.
(b) For Severity Level 1 or Severity Level 2 problems reported by
KLA-Tencor, NTI will make best efforts to provide a correction for any Severity
Level 1 or Severity Level 2 problem that NTI diagnoses as an error in the
Products, within twenty-four (24) hours of receipt by NTI of a report from
KLA-Tencor of such a problem, but NTI makes no warranty of any kind that it will
be able to provide a correction in accordance with such time frame.
3. SEVERITY LEVELS.
System problem reports are classified in multiple levels of severity.
Severity levels 1 through 5 are defined as follows:
1. A catastrophic defect causes total failure of the system or
unrecoverable data loss. There is no work around. In general a severity
1 defect would prevent the product from being released.
2. Defect results in severely impaired functionality. A work around may
exist but its use is unsatisfactory. In general, you would not release
the product with such a defect.
3. Defect causes failure of non-critical aspects of the system. There is a
reasonably satisfactory work around. The product may be released if the
defect is documented, but the existence of the defect may cause
customer dissatisfaction.
4. Defect of minor significance. A work around exists or the impairment is
slight. Generally, the product could be released and most customers
would be unaware of the defect's existence or only slightly
dissatisfied.
5. Minor Defect. A work around exists or the problem can be ignored. The
product can be shipped with such a problem.
4.
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<PAGE>
EXHIBIT F
KLA-TENCOR MATERIALS
THIS EXHIBIT MAY BE AMENDED AT ANY TIME BY MUTUAL WRITTEN AGREEMENT EXECUTED
BY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES.
[TO BE ATTACHED]
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<PAGE>
EXHIBIT G
NUMERICAL MATERIALS
THIS EXHIBIT MAY BE AMENDED AT ANY TIME BY MUTUAL WRITTEN AGREEMENT EXECUTED
BY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES.
[TO BE ATTACHED]
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<PAGE>
EXHIBIT H
NTI TRADEMARKS
THIS EXHIBIT MAY BE AMENDED AT ANY TIME BY WRITTEN NOTICE TO KLA TENCOR
EXECUTED BY AUTHORIZED REPRESENTATIVES OF NTI.
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<PAGE>
EXHIBIT I
NTI SOFTWARE LICENSE AGREEMENT
THIS EXHIBIT MAY BE AMENDED AT ANY TIME BY WRITTEN NOTICE TO KLA TENCOR
EXECUTED BY AUTHORIZED REPRESENTATIVES OF NTI.
NUMERICAL TECHNOLOGIES, INC.
----------------------------
SOFTWARE LICENSE AND SUPPORT AGREEMENT
THIS SOFTWARE LICENSE AND SUPPORT AGREEMENT (THIS "AGREEMENT") IS ENTERED
INTO AS OF THE_____DAY OF __________,1997 ("EFFECTIVE DATE") BY AND
BETWEEN___________________,("CUSTOMER"), AND NUMERICAL TECHNOLOGIES, INC.
("NUMERICAL TECHNOLOGIES"), AND DESCRIBES THE TERMS AND CONDITIONS PURSUANT TO
WHICH NUMERICAL TECHNOLOGIES SHALL LICENSE TO CUSTOMER AND SUPPORT CERTAIN
SOFTWARE (AS DEFINED BELOW). IN CONSIDERATION OF THE MUTUAL PROMISES AND UPON
THE TERMS AND CONDITIONS SET FORTH BELOW, THE PARTIES AGREE AS FOLLOWS:
I. DEFINITIONS
-----------
1.1 "CONCURRENT USERS" MEANS ALL LOG-ONS INTO THE SOFTWARE AT ANY ONE TIME.
1.2 "CONFIDENTIAL INFORMATION" MEANS THIS AGREEMENT AND ALL ITS EXHIBITS, ANY
ADDENDA HERETO SIGNED BY BOTH PARTIES, ALL SOFTWARE LISTINGS, DOCUMENTATION,
INFORMATION, DATA, DRAWINGS, BENCHMARK TESTS, SPECIFICATIONS, TRADE SECRETS,
OBJECT CODE AND MACHINE-READABLE COPIES OF THE SOFTWARE, SOURCE CODE RELATING TO
THE SOFTWARE, AND ANY OTHER PROPRIETARY INFORMATION SUPPLIED TO CUSTOMER BY
NUMERICAL TECHNOLOGIES.
1.2 "DOCUMENTATION" MEANS ANY INSTRUCTIONS MANUALS OR OTHER MATERIALS, AND
ON-LINE HELP FILES, REGARDING THE USE OF THE SOFTWARE.
1.3 "MAINTENANCE AND SUPPORT" MEANS THE SERVICES DESCRIBED IN SECTION 6.2.
1.3 "SOFTWARE" MEANS THE COMPUTER SOFTWARE PROGRAMS SPECIFIED IN EXHIBIT A, IN
OBJECT CODE FORM ONLY.
1.4 "UPDATE" MEANS A RELEASE OR VERSION OF THE SOFTWARE CONTAINING FUNCTIONAL
ENHANCEMENTS, EXTENSIONS, ERROR CORRECTIONS OR FIXES THAT IS GENERALLY MADE
AVAILABLE FREE OF CHARGE. (OTHER THAN MEDIA AND HANDLING CHARGES) TO NUMERICAL
TECHNOLOGIES' CUSTOMERS WHO HAVE CONTRACTED FOR MAINTENANCE AND SUPPORT.
1.5 "USE" MEANS UTILIZATION OF THE SOFTWARE BY CUSTOMER BY NO MORE THAN THE
NUMBER OF CONCURRENT USERS SET FORTH ON EXHIBIT B, FOR ITS OWN INTERNAL
INFORMATION PROCESSING SERVICES AND COMPUTING NEEDS, BY COPYING OR TRANSFERRING
THE SAME INTO CUSTOMER'S COMPUTER EQUIPMENT.
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<PAGE>
2. GRANT OF LICENSE
----------------
2.1 LICENSE GRANT. SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT,
-------------
NUMERICAL TECHNOLOGIES HEREBY GRANTS TO CUSTOMER A NONEXCLUSIVE AND
NONTRANSFERABLE LICENSE TO (A) USE THE SOFTWARE, SUBJECT TO THE LIMITATIONS SET
FORTH BELOW AND IN SECTION 3, AND TO MAKE SUFFICIENT COPIES AS NECESSARY FOR
SUCH USE, AND (B) USE THE DOCUMENTATION IN CONNECTION WITH USE OF THE SOFTWARE.
THIS LICENSE TRANSFERS TO CUSTOMER NEITHER TITLE NOR ANY PROPRIETARY OR
INTELLECTUAL PROPERTY RIGHTS TO THE SOFTWARE, DOCUMENTATION, OR ANY COPYRIGHTS,
PATENTS, OR TRADEMARKS, EMBODIED OR USED IN CONNECTION THEREWITH, EXCEPT FOR THE
RIGHTS EXPRESSLY GRANTED HEREIN.
2.2 DELIVERY. NUMERICAL TECHNOLOGIES SHALL ISSUE TO CUSTOMER, AS SOON AS
--------
PRACTICABLE, MACHINE-READABLE COPIES OF THE SOFTWARE AS SET FORTH IN EXHIBIT A,
ALONG WITH ONE (1) COPY OF THE APPROPRIATE DOCUMENTATION.
2.3 COPIES. CUSTOMER WILL BE ENTITLED TO MAKE A REASONABLE NUMBER OF MACHINE-
------
READABLE COPIES OF THE SOFTWARE FOR BACKUP OR ARCHIVAL PURPOSES. CUSTOMER MAY
NOT COPY THE SOFTWARE, EXCEPT AS PERMITTED BY THIS AGREEMENT. CUSTOMER SHALL
MAINTAIN ACCURATE AND UP-TO-DATE RECORDS OF THE NUMBER AND LOCATION OF ALL
COPIES OF THE SOFTWARE AND INFORM NUMERICAL TECHNOLOGIES IN WRITING OF SUCH
LOCATION(S). ALL COPIES OF THE SOFTWARE WILL BE SUBJECT TO ALL TERMS AND
CONDITIONS OF THIS AGREEMENT. WHENEVER CUSTOMER IS PERMITTED TO COPY OR
REPRODUCE ALL OR ANY PART OF THE SOFTWARE, ALL TITLES, TRADEMARK SYMBOLS,
COPYRIGHT SYMBOLS AND LEGENDS, AND OTHER PROPRIETARY MARKINGS MUST BE
REPRODUCED.
3. LICENSE RESTRICTIONS
--------------------
3.1 CURRENT USERS; DESIGNATED CPU. CUSTOMER SHALL NOT ALLOW ACCESS TO EACH
-----------------------------
LICENSED COPY OF THE SOFTWARE BY MORE THAN THE NUMBER OF CONCURRENT USERS
INDICATED ON EXHIBIT A. CUSTOMER SHALL NOT ALLOW ACCESS TO THE SOFTWARE BY ANY
CONCURRENT USER OTHER THAN CUSTOMER'S EMPLOYEES. CUSTOMER SHALL NOT USE THE
SOFTWARE ON ANY CENTRAL PROCESSING UNIT OTHER THAN THE CPU DESIGNATED ON EXHIBIT
A.
3.2 OTHER RESTRICTIONS. CUSTOMER AGREES THAT IT WILL NOT ITSELF, OR THROUGH ANY
-------------------
PARENT, SUBSIDIARY, AFFILIATE, AGENT OR OTHER THIRD PARTY:
(A) SELL, LEASE, LICENSE OR SUBLICENSE THE SOFTWARE OR THE DOCUMENTATION;
(B) DECOMPILE, DISASSEMBLE, OR REVERSE ENGINEER THE SOFTWARE, IN WHOLE OR IN
PART;
(C) WRITE OR DEVELOP ANY DERIVATIVE SOFTWARE OR ANY OTHER SOFTWARE PROGRAM
BASED UPON THE SOFTWARE OR ANY CONFIDENTIAL INFORMATION;
(D) USE THE SOFTWARE TO PROVIDE PROCESSING SERVICES TO THIRD PARTIES, OR
OTHERWISE USE THE SOFTWARE ON A 'SERVICE BUREAU' BASIS; OR
(E) PROVIDE, DISCLOSE, DIVULGE OR MAKE AVAILABLE TO, OR PERMIT USE OF THE
SOFTWARE BY ANY THIRD PARTY WITHOUT NUMERICAL TECHNOLOGIES' PRIOR WRITTEN
CONSENT.
4. LICENSE FEE AND TAXES
---------------------
4.1 IN CONSIDERATION OF THE LICENSE GRANTED PURSUANT TO SECTION 2.1, CUSTOMER
AGREES TO PAY NUMERICAL TECHNOLOGIES THE LICENSE FEE SPECIFIED IN EXHIBIT A. THE
LICENSE FEE IS DUE AND PAYABLE IN FULL UPON THE EFFECTIVE DATE, UNLESS OTHERWISE
INDICATED.
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<PAGE>
4.2 ALL CHARGES AND FEES PROVIDED FOR IN THIS AGREEMENT (INCLUDING THE
MAINTENANCE FEES) ARE EXCLUSIVE OF AND DO NOT INCLUDE ANY TAXES, DUTIES, OR
SIMILAR CHARGES IMPOSED BY ANY GOVERNMENT. CUSTOMER AGREES TO PAY OR REIMBURSE
NUMERICAL TECHNOLOGIES FOR ALL FEDERAL, STATE, DOMINION, PROVINCIAL, OR LOCAL
SALES, USE, PERSONAL PROPERTY, EXCISE OR OTHER TAXES, FEES, OR DUTIES ARISING
OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (OTHER
THAN TAXES ON THE NET INCOME OF NUMERICAL TECHNOLOGIES).
5. TRAINING
--------
NUMERICAL TECHNOLOGIES SHALL PROVIDE INITIAL TRAINING TO CUSTOMER AS SET FORTH
IN EXHIBIT A.
6. MAINTENANCE AND SUPPORT
-----------------------
FOR SO LONG AS CUSTOMER IS CURRENT IN THE PAYMENT OF ALL MAINTENANCE FEES
(DESCRIBED BELOW), CUSTOMER WILL BE ENTITLED TO MAINTENANCE AND SUPPORT AS
SPECIFIED IN THIS SECTION 6.
6.2 TERM AND TERMINATION. NUMERICAL TECHNOLOGIES' PROVISION OF MAINTENANCE AND
--------------------
SUPPORT TO CUSTOMER WILL COMMENCE ON THE EFFECTIVE DATE AND WILL CONTINUE FOR AN
INITIAL TERM OF ONE (1) YEAR. MAINTENANCE AND SUPPORT WILL AUTOMATICALLY RENEW
AT THE END OF THE INITIAL TERM AND ANY SUBSEQUENT TERM FOR A RENEWAL TERM OF ONE
(1) YEAR UNLESS CUSTOMER HAS PROVIDED NUMERICAL TECHNOLOGIES WITH A WRITTEN
TERMINATION NOTICE OF ITS INTENTION NOT TO RENEW THE MAINTENANCE AND SUPPORT AT
LEAST NINETY (90) DAYS PRIOR TO THE TERMINATION OF THE THEN-CURRENT TERM.
TERMINATION OF MAINTENANCE AND SUPPORT UPON FAILURE TO RENEW WILL NOT AFFECT THE
LICENSE OF THE SOFTWARE.
6.3 MAINTENANCE AND SUPPORT SERVICES. MAINTENANCE AND SUPPORT MEANS THAT
--------------------------------
NUMERICAL TECHNOLOGIES WILL PROVIDE AS SET FORTH IN EXHIBIT B: (A) UPDATES, IF
ANY, AND APPROPRIATE DOCUMENTATION, AND (B) TELEPHONE, FAX-BACK AND EMAIL
ASSISTANCE WITH RESPECT TO THE SOFTWARE, INCLUDING, AS APPROPRIATE (I)
CLARIFICATION OF FUNCTIONS AND FEATURES OF THE SOFTWARE; (II) CLARIFICATION OF
DOCUMENTATION PERTAINING TO THE SOFTWARE; (III) GUIDANCE IN THE OPERATION OF THE
SOFTWARE; AND (IV) ERROR VERIFICATION, ANALYSIS AND CORRECTION TO THE EXTENT
POSSIBLE BY TELEPHONE. MAINTENANCE AND SUPPORT WILL BE PROVIDED ONLY WITH
RESPECT TO VERSIONS OF THE SOFTWARE THAT, IN ACCORDANCE WITH NUMERICAL
TECHNOLOGIES' POLICY, ARE THEN BEING SUPPORTED BY NUMERICAL TECHNOLOGIES.
6.4 ELIGIBILITY OF SOFTWARE. MAINTENANCE AND SUPPORT WILL NOT INCLUDE SERVICES
-----------------------
REQUESTED AS A RESULT OF, OR WITH RESPECT TO, THE FOLLOWING, AND ANY SERVICES
REQUESTED AS A RESULT THEREOF WILL BE BILLED TO CUSTOMER AT NUMERICAL
TECHNOLOGIES' THEN-CURRENT RATES:
(A) ACCIDENT; UNUSUAL PHYSICAL ELECTRICAL OR ELECTROMAGNETIC STRESS; NEGLECT;
MISUSE; FAILURE OF ELECTRIC POWER; OPERATION OF THE SOFTWARE WITH OTHER MEDIA
NOT MEETING OR NOT MAINTAINED IN ACCORDANCE WITH THE MANUFACTURER'S
SPECIFICATIONS; OR CAUSES OTHER THAN ORDINARY USE;
(B) IMPROPER INSTALLATION OR OPERATION BY CUSTOMER OR USE OF THE SOFTWARE THAT
DEVIATES FROM ANY HARDWARE, CONFIGURATION, ENVIRONMENTAL OR OPERATING PROCEDURES
ESTABLISHED BY NUMERICAL TECHNOLOGIES IN THE APPLICABLE DOCUMENTATION;
(C) MODIFICATION, ALTERATION OR ADDITION OR ATTEMPTED MODIFICATION, ALTERATION
OR ADDITION OF THE SOFTWARE UNDERTAKEN BY PERSONS OTHER THAN NUMERICAL
TECHNOLOGIES OR NUMERICAL TECHNOLOGIES' AUTHORIZED REPRESENTATIVES; OR
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<PAGE>
(D) PROGRAMS MADE BY CUSTOMER.
6.5 RESPONSIBILITIES OF CUSTOMER. NUMERICAL TECHNOLOGIES' PROVISION OF
----------------------------
MAINTENANCE AND SUPPORT TO CUSTOMER IS SUBJECT TO THE FOLLOWING:
(A) CUSTOMER SHALL PROVIDE NUMERICAL TECHNOLOGIES WITH ACCESS TO CUSTOMER'S
PERSONNEL AND COMPUTER EQUIPMENT DURING NORMAL BUSINESS HOURS, AS NECESSARY OR
APPROPRIATE FOR NUMERICAL TECHNOLOGIES TO PERFORM MAINTENANCE AND SUPPORT
SERVICES.
(B) CUSTOMER SHALL DOCUMENT AND PROMPTLY REPORT ALL ERRORS OR MALFUNCTIONS OF
THE SOFTWARE TO NUMERICAL TECHNOLOGIES. CUSTOMER SHALL TAKE ALL STEPS NECESSARY
TO CARRY OUT PROCEDURES FOR THE RECTIFICATION OF ERRORS OR MALFUNCTIONS WITHIN A
REASONABLE TIME AFTER SUCH PROCEDURES HAVE BEEN RECEIVED FROM NUMERICAL
TECHNOLOGIES.
6.6 MAINTENANCE FEE. THE MAINTENANCE FEE FOR STANDARD SERVICE HOURS FOR EACH
---------------
ONE (1) YEAR TWELVE (12) MONTH PERIOD OF MAINTENANCE AND SUPPORT WILL BE A
PERCENTAGE OF THE LICENSE FEE FOR THE SOFTWARE, AS SET FORTH IN NUMERICAL
TECHNOLOGIES' PRICE LIST IN EFFECT AS OF THE DATE OF INVOICE. THE MAINTENANCE
FEE IS DUE AND PAYABLE IN FULL WITHIN THIRTY (30) DAYS AFTER THE DATE OF
NUMERICAL TECHNOLOGIES' INVOICE. ANY AMOUNTS NOT PAID WITHIN THIRTY (30) DAYS
WILL BE SUBJECT TO INTEREST OF 1.5% PER MONTH, WHICH INTEREST WILL BE
IMMEDIATELY DUE AND PAYABLE. THE MAINTENANCE FEE MAY BE MODIFIED BY NUMERICAL
TECHNOLOGIES FOR EACH RENEWAL TERM BY WRITTEN NOTICE TO CUSTOMER AT LEAST THIRTY
(30) DAYS PRIOR TO THE END OF THE THEN-CURRENT TERM. IF CUSTOMER ELECTS NOT TO
RENEW MAINTENANCE AND SUPPORT, CUSTOMER MAY RE-ENROLL ONLY UPON PAYMENT OF THE
ANNUAL MAINTENANCE FEE FOR THE COMING YEAR AND ALL MAINTENANCE FEES THAT WOULD
HAVE BEEN PAID HAD CUSTOMER NOT TERMINATED MAINTENANCE AND SUPPORT.
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<PAGE>
7. LIMITED WARRANTY AND LIMITATION OF LIABILITY
--------------------------------------------
NUMERICAL TECHNOLOGIES WARRANTS THAT THE SOFTWARE WILL PERFORM IN SUBSTANTIAL
ACCORDANCE WITH THE DOCUMENTATION FOR THE PERIOD OF TIME SET FORTH IN EXHIBIT A
FROM THE EFFECTIVE DATE ("WARRANTY PERIOD"). IF DURING THIS TIME PERIOD THE
SOFTWARE DOES NOT PERFORM AS WARRANTED, NUMERICAL TECHNOLOGIES SHALL RESPOND TO
SUCH PROBLEMS AS SET FORTH IN SECTION 6. IN ADDITION, NUMERICAL TECHNOLOGIES
WARRANTS THAT THE MEDIA ON WHICH THE SOFTWARE IS DISTRIBUTED WILL BE FREE FROM
DEFECTS IN MATERIALS AND WORKMANSHIP UNDER NORMAL USE FOR A PERIOD OF NINETY
(90) DAYS FROM THE EFFECTIVE DATE. NUMERICAL TECHNOLOGIES WILL REPLACE ANY
DEFECTIVE MEDIA RETURNED TO NUMERICAL TECHNOLOGIES WITHIN THE 90-DAY PERIOD.
7.1 THE FOREGOING ARE CUSTOMER'S SOLE AND EXCLUSIVE REMEDIES FOR BREACH OF
WARRANTY. THE WARRANTY SET FORTH ABOVE IS MADE TO AND FOR THE BENEFIT OF
CUSTOMER ONLY. THE WARRANTY WILL APPLY ONLY IF:
(A) THE SOFTWARE HAS BEEN PROPERLY INSTALLED AND USED AT ALL TIMES AND IN
ACCORDANCE WITH THE INSTRUCTIONS FOR USE; AND
(B) NO MODIFICATION, ALTERATION OR ADDITION HAS BEEN MADE TO THE SOFTWARE BY
PERSONS OTHER THAN NUMERICAL TECHNOLOGIES.
EXCEPT AS SET FORTH ABOVE, NUMERICAL TECHNOLOGIES MAKES NO WARRANTIES, WHETHER
EXPRESS, IMPLIED, OR STATUTORY REGARDING OR RELATING TO THE SOFTWARE OR THE
DOCUMENTATION, OR ANY MATERIALS OR SERVICES FURNISHED OR PROVIDED TO CUSTOMER
UNDER THIS AGREEMENT, INCLUDING MAINTENANCE AND SUPPORT. NUMERICAL TECHNOLOGIES
SPECIFICALLY DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE AND NON-INFRINGEMENT WITH RESPECT TO THE SOFTWARE AND
DOCUMENTATION.
IN NO EVENT WILL NUMERICAL TECHNOLOGIES BE LIABLE FOR ANY LOSS OF PROFITS, LOSS
OF USE, BUSINESS INTERRUPTION, LOSS OF DATA, COST OF COVER OR INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND IN CONNECTION WITH OR ARISING
OUT OF THE FURNISHING, PERFORMANCE OR USE OF THE SOFTWARE OR SERVICES PERFORMED
HEREUNDER, WHETHER ALLEGED AS A BREACH OF CONTRACT OR TORTUOUS CONDUCT,
INCLUDING NEGLIGENCE, EVEN IF NUMERICAL TECHNOLOGIES HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. NUMERICAL TECHNOLOGIES' LIABILITY UNDER THIS
AGREEMENT FOR DAMAGES WILL NOT, IN ANY EVENT, EXCEED THE LICENSE FEE PAID BY
CUSTOMER TO NUMERICAL TECHNOLOGIES UNDER THIS AGREEMENT.
8. INDEMNIFICATION FOR INFRINGEMENT
--------------------------------
NUMERICAL TECHNOLOGIES SHALL, AT ITS EXPENSE, DEFEND OR SETTLE ANY CLAIM, ACTION
OR ALLEGATION BROUGHT AGAINST CUSTOMER THAT THE SOFTWARE INFRINGES ANY
COPYRIGHT, TRADE SECRET OR TRADEMARK RIGHT OF ANY THIRD PARTY AND SHALL PAY ANY
FINAL JUDGMENTS AWARDED OR SETTLEMENTS ENTERED INTO; PROVIDED THAT CUSTOMER
GIVES PROMPT WRITTEN NOTICE TO NUMERICAL TECHNOLOGIES OF ANY SUCH CLAIM, ACTION
OR ALLEGATION OF INFRINGEMENT AND GIVES NUMERICAL TECHNOLOGIES THE AUTHORITY TO
PROCEED AS CONTEMPLATED HEREIN. NUMERICAL TECHNOLOGIES WILL HAVE THE EXCLUSIVE
RIGHT TO DEFEND ANY SUCH CLAIM, ACTION OR ALLEGATION AND MAKE SETTLEMENTS
THEREOF AT ITS OWN DISCRETION, AND CUSTOMER MAY NOT SETTLE OR COMPROMISE SUCH
CLAIM, ACTION OR ALLEGATION, EXCEPT WITH PRIOR WRITTEN CONSENT OF NUMERICAL
TECHNOLOGIES. CUSTOMER SHALL GIVE SUCH ASSISTANCE AND INFORMATION AS NUMERICAL
TECHNOLOGIES MAY REASONABLY REQUIRE TO
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<PAGE>
SETTLE OR OPPOSE SUCH CLAIMS. IN THE EVENT ANY SUCH INFRINGEMENT, CLAIM, ACTION
OR ALLEGATION IS BROUGHT OR THREATENED, NUMERICAL TECHNOLOGIES MAY, AT ITS SOLE
OPTION AND EXPENSE:
(A) PROCURE FOR CUSTOMER THE RIGHT TO CONTINUE USE OF THE SOFTWARE OR
INFRINGING PART THEREOF; OR
(B) MODIFY OR AMEND THE SOFTWARE OR INFRINGING PART THEREOF, OR REPLACE THE
SOFTWARE OR INFRINGING PART THEREOF WITH OTHER SOFTWARE HAVING SUBSTANTIALLY THE
SAME OR BETTER CAPABILITIES; OR, IF NEITHER OF THE FOREGOING IS COMMERCIALLY
PRACTICABLE,
(C) TERMINATE THIS AGREEMENT AND REPAY TO CUSTOMER A PORTION, IF ANY, OF THE
LICENSE FEE EQUAL TO THE AMOUNT PAID BY CUSTOMER LESS ONE-THIRTY-SIXTH (1/36)
THEREOF FOR EACH MONTH OR PORTION THEREOF THAT THIS AGREEMENT HAS BEEN IN
EFFECT. NUMERICAL TECHNOLOGIES AND CUSTOMER WILL THEN BE RELEASED FROM ANY
FURTHER OBLIGATION TO THE OTHER UNDER THIS AGREEMENT, EXCEPT FOR THE OBLIGATIONS
OF INDEMNIFICATION PROVIDED FOR ABOVE AND SUCH OTHER OBLIGATIONS THAT SURVIVE
TERMINATION.
THE FOREGOING OBLIGATIONS SHALL NOT APPLY TO THE EXTENT THE INFRINGEMENT ARISES
AS A RESULT OF MODIFICATIONS TO THE SOFTWARE MADE BY ANY PARTY OTHER THAN
NUMERICAL TECHNOLOGIES.
THE FOREGOING STATES THE ENTIRE LIABILITY OF NUMERICAL TECHNOLOGIES WITH RESPECT
TO INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADE SECRET OR OTHER PROPRIETARY
RIGHT.
9. CONFIDENTIAL INFORMATION
------------------------
9.1 CUSTOMER ACKNOWLEDGES THAT THE CONFIDENTIAL INFORMATION CONSTITUTES
VALUABLE TRADE SECRETS AND CUSTOMER AGREES THAT IT SHALL USE CONFIDENTIAL
INFORMATION SOLELY IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT AND WILL
NOT DISCLOSE, OR PERMIT TO BE DISCLOSED, THE SAME, DIRECTLY OR INDIRECTLY, TO
ANY THIRD PARTY WITHOUT NUMERICAL TECHNOLOGIES' PRIOR WRITTEN CONSENT. CUSTOMER
AGREES TO EXERCISE DUE CARE IN PROTECTING THE CONFIDENTIAL INFORMATION FROM
UNAUTHORIZED USE AND DISCLOSURE. HOWEVER, CUSTOMER BEARS NO RESPONSIBILITY FOR
SAFEGUARDING INFORMATION THAT IS PUBLICLY AVAILABLE, ALREADY IN CUSTOMER'S
POSSESSION AND NOT SUBJECT TO A CONFIDENTIALITY OBLIGATION, OBTAINED BY CUSTOMER
FROM THIRD PARTIES WITHOUT RESTRICTIONS ON DISCLOSURE, INDEPENDENTLY DEVELOPED
BY CUSTOMER WITHOUT REFERENCE TO CONFIDENTIAL INFORMATION, OR REQUIRED TO BE
DISCLOSED BY ORDER OF A COURT OR OTHER GOVERNMENTAL ENTITY.
9.2 IN THE EVENT OF ACTUAL OR THREATENED BREACH OF THE PROVISIONS OF SECTION
9.1, NUMERICAL TECHNOLOGIES WILL HAVE NO ADEQUATE REMEDY AT LAW AND WILL BE
ENTITLED TO IMMEDIATE AND INJUNCTIVE AND OTHER EQUITABLE RELIEF, WITHOUT BOND
AND WITHOUT THE NECESSITY OF SHOWING ACTUAL MONEY DAMAGES.
10. TERM AND TERMINATION
--------------------
10.1 TERM. THIS AGREEMENT WILL TAKE EFFECT ON THE EFFECTIVE DATE AND WILL REMAIN
----
IN FORCE UNTIL TERMINATED IN ACCORDANCE WITH THIS AGREEMENT.
10.2 TERMINATION BY CUSTOMER. THIS AGREEMENT MAY BE TERMINATED BY CUSTOMER UPON
-----------------------
THIRTY (30) DAYS' PRIOR WRITTEN NOTICE TO NUMERICAL TECHNOLOGIES, WITH OR
WITHOUT CAUSE, PROVIDED THAT NO SUCH TERMINATION WILL ENTITLE CUSTOMER TO A
REFUND OF ANY PORTION OF THE LICENSE FEE OR MAINTENANCE FEE.
10.3 TERMINATION BY NUMERICAL TECHNOLOGIES. NUMERICAL TECHNOLOGIES MAY, BY
-------------------------------------
WRITTEN NOTICE TO CUSTOMER, TERMINATE THIS AGREEMENT IF ANY OF THE
KLA TENCOR CONFIDENTIAL
NTI CONFIDENTIAL
36
<PAGE>
FOLLOWING EVENTS ("TERMINATION EVENTS") OCCUR:
(A) CUSTOMER FAILS TO PAY ANY AMOUNT DUE NUMERICAL TECHNOLOGIES WITHIN THIRTY
(30) DAYS AFTER NUMERICAL TECHNOLOGIES GIVES CUSTOMER WRITTEN NOTICE OF SUCH
NONPAYMENT; OR
(B) CUSTOMER IS IN MATERIAL BREACH OF ANY NONMONETARY TERM, CONDITION OR
PROVISION OF THIS AGREEMENT, WHICH BREACH, IF CAPABLE OF BEING CURED, IS NOT
CURED WITHIN THIRTY (30) DAYS AFTER NUMERICAL TECHNOLOGIES GIVES CUSTOMER
WRITTEN NOTICE OF SUCH BREACH; OR
(C) CUSTOMER (I) TERMINATES OR SUSPENDS ITS BUSINESS, (II) BECOMES INSOLVENT,
ADMITS IN WRITING ITS INABILITY TO PAY ITS DEBTS AS THEY MATURE, MAKES AN
ASSIGNMENT FOR THE BENEFIT OF CREDITORS, OR BECOMES SUBJECT TO DIRECT CONTROL OF
A TRUSTEE, RECEIVER OR SIMILAR AUTHORITY, OR (III) BECOMES SUBJECT TO ANY
BANKRUPTCY OR INSOLVENCY PROCEEDING UNDER FEDERAL OR STATE STATUTES.
IF ANY TERMINATION EVENT OCCURS, TERMINATION WILL BECOME EFFECTIVE IMMEDIATELY
OR ON THE DATE SET FORTH IN THE WRITTEN NOTICE OF TERMINATION. ANY TERMINATION
OF THIS AGREEMENT WILL NOT AFFECT SECTIONS 1, 7, 8, 9, 11, 12 AND 13, WHICH
SHALL SURVIVE THE TERMINATION OR EXPIRATION OF THIS AGREEMENT.
10.4 RETURN OF MATERIALS. WITHIN THIRTY (30) DAYS AFTER THE DATE OF TERMINATION
-------------------
OR DISCONTINUANCE OF THIS AGREEMENT FOR ANY REASON WHATSOEVER, CUSTOMER SHALL
RETURN THE SOFTWARE AND ALL COPIES, IN WHOLE OR IN PART, ALL DOCUMENTATION
RELATING THERETO, AND ANY OTHER CONFIDENTIAL INFORMATION IN ITS POSSESSION THAT
IS IN TANGIBLE FORM.
11. NONASSIGNMENT/BINDING AGREEMENT
-------------------------------
NEITHER THIS AGREEMENT NOR ANY RIGHTS UNDER THIS AGREEMENT MAY BE ASSIGNED OR
OTHERWISE TRANSFERRED BY CUSTOMER, IN WHOLE OR IN PART, WHETHER VOLUNTARY OR BY
OPERATION OF LAW, INCLUDING BY WAY OF SALE OF ASSETS, MERGER OR CONSOLIDATION,
WITHOUT THE PRIOR WRITTEN CONSENT OF NUMERICAL TECHNOLOGIES, WHICH CONSENT WILL
NOT BE UNREASONABLY WITHHELD. SUBJECT TO THE FOREGOING, THIS AGREEMENT WILL BE
BINDING UPON AND WILL INURE TO THE BENEFIT OF THE PARTIES AND THEIR RESPECTIVE
SUCCESSORS AND ASSIGNS.
12. NOTICES
-------
ANY NOTICE REQUIRED OR PERMITTED UNDER THE TERMS OF THIS AGREEMENT OR REQUIRED
BY LAW MUST BE IN WRITING AND MUST BE (A) DELIVERED IN PERSON, (B) SENT BY FIRST
CLASS REGISTERED MAIL, OR AIR MAIL, AS APPROPRIATE, OR (C) SENT BY OVERNIGHT AIR
COURIER, IN EACH CASE PROPERLY POSTED AND FULLY PREPAID TO THE APPROPRIATE
ADDRESS SET FORTH BELOW. NOTICES WILL BE CONSIDERED TO HAVE BEEN GIVEN AT THE
TIME OF ACTUAL DELIVERY IN PERSON, THREE (3) BUSINESS DAYS AFTER DEPOSIT IN THE
MAIL AS SET FORTH ABOVE, OR ONE (1) DAY AFTER DELIVERY TO AN OVERNIGHT AIR
COURIER SERVICE.
13. MISCELLANEOUS
-------------
13.1 FORCE MAJEURE. NEITHER PARTY WILL INCUR ANY LIABILITY TO THE OTHER PARTY ON
-------------
ACCOUNT OF ANY LOSS OR DAMAGE RESULTING FROM ANY DELAY OR FAILURE TO PERFORM ALL
OR ANY PART OF THIS AGREEMENT IF SUCH DELAY OR FAILURE IS CAUSED, IN WHOLE OR IN
PART, BY EVENTS, BEYOND THE CONTROL OF THE PARTIES, INCLUDING WITHOUT LIMITATION
ACTS OF GOD, STRIKES, LOCKOUTS, RIOTS, ACTS OF WAR, EARTHQUAKE, FIRE AND
EXPLOSIONS, BUT THE INABILITY TO MEET FINANCIAL OBLIGATIONS IS EXPRESSLY
EXCLUDED.
13.2 WAIVER. ANY WAIVER OF A PARTY'S RIGHTS OR REMEDIES UNDER THIS AGREEMENT
------
MUST BE IN WRITING TO BE EFFECTIVE. FAILURE, NEGLECT, OR DELAY BY A PARTY TO
ENFORCE THE PROVISIONS OF THIS AGREEMENT
KLA TENCOR CONFIDENTIAL
NTI CONFIDENTIAL
37
<PAGE>
OR ITS RIGHTS OR REMEDIES AT ANY TIME, WILL NOT BE CONSTRUED AND WILL NOT BE
DEEMED TO BE A WAIVER OF SUCH PARTY'S RIGHTS UNDER THIS AGREEMENT.
13.3 SEVERABILITY. IF ANY TERM, CONDITION, OR PROVISION IN THIS AGREEMENT IS
------------
FOUND TO BE INVALID, UNLAWFUL OR UNENFORCEABLE TO ANY EXTENT, SUCH INVALID TERM,
CONDITION OR PROVISION WILL BE SEVERED FROM THE REMAINING TERMS, CONDITIONS AND
PROVISIONS, WHICH WILL CONTINUE TO BE VALID AND ENFORCEABLE TO THE FULLEST
EXTENT PERMITTED BY LAW.
13.4 INTEGRATION. THIS AGREEMENT (INCLUDING THE EXHIBITS) CONTAINS THE ENTIRE
-----------
AGREEMENT OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT
AND SUPERSEDES ALL PREVIOUS AGREEMENTS, EITHER ORAL OR WRITTEN, BETWEEN THE
PARTIES WITH RESPECT TO SAID SUBJECT MATTER. THIS AGREEMENT MAY NOT BE AMENDED,
EXCEPT BY A WRITING SIGNED BY BOTH PARTIES.
13.5 EXPORT. CUSTOMER MAY NOT EXPORT OR RE-EXPORT THE SOFTWARE WITHOUT THE PRIOR
------
WRITTEN CONSENT OF NUMERICAL TECHNOLOGIES OR WITHOUT THE APPROPRIATE UNITED
STATES AND FOREIGN GOVERNMENT LICENSES.
13.6 PUBLICITY. CUSTOMER ACKNOWLEDGES THAT NUMERICAL TECHNOLOGIES MAY DESIRE TO
---------
USE ITS NAME IN PRESS RELEASES, PRODUCT BROCHURES AND FINANCIAL REPORTS
INDICATING THAT CUSTOMER IS A CUSTOMER OF NUMERICAL TECHNOLOGIES, AND CUSTOMER
AGREES THAT NUMERICAL TECHNOLOGIES MAY USE ITS NAME IN SUCH A MANNER, SUBJECT TO
CUSTOMER'S CONSENT, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD.
13.7 COUNTERPARTS. THIS AGREEMENT MAY BE EXECUTED IN COUNTERPARTS, EACH OF WHICH
------------
SO EXECUTED WILL BE DEEMED TO BE AN ORIGINAL AND SUCH COUNTERPARTS TOGETHER WILL
CONSTITUTE ONE AND THE SAME AGREEMENT.
13.8 GOVERNING LAW. THIS AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICT
OF LAW PRINCIPLES.
13.9 JURISDICTION. ANY DISPUTE ARISING OUT OF THIS AGREEMENT SHALL BE RESOLVED
------------
IN THE STATE AND FEDERAL COURTS OF SANTA CLARA COUNTY, CALIFORNIA, AND EACH
PARTY HEREBY AGREES TO THE EXCLUSIVE JURISDICTION
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS AGREEMENT.
(CUSTOMER) NUMERICAL TECHNOLOGIES, INC.
BY:______________________________
BY:_____________________________________
_________________________________
(PRINT NAME AND TITLE) (PRINT NAME AND TITLE)
DATE: _______________ DATE:
KLA TENCOR CONFIDENTIAL
NTI CONFIDENTIAL
38
<PAGE>
ADDRESS: ADDRESS:
____________________________________
____________________________________
KLA TENCOR CONFIDENTIAL
NTI CONFIDENTIAL
39
<PAGE>
EXHIBIT A
---------
SOFTWARE
SOFTWARE FEES DESIGNATED WARRANTY TRAINING
CPU PERIOD
NUMERITECH IC
WORKBENCH V.
1.0
EXHIBIT B
- ---------
SUPPORT
* TELEPHONE SUPPORT: TELEPHONE SUPPORT PROVIDED 9 A.M. TO 5:30 P.M. (PST)
MONDAY-FRIDAY.
* FAX-BACK SERVICE: WRITTEN RESPONSES PROVIDED TO SPECIFIC QUESTIONS,
PROBLEMS AND RECOMMENDATIONS FROM LICENSEES.
* EMAIL: EMAILED RESPONSES PROVIDED TO SPECIFIC QUESTIONS, PROBLEMS AND
RECOMMENDATIONS FROM LICENSEES.
KLA TENCOR CONFIDENTIAL
NTI CONFIDENTIAL
40
<PAGE>
EXHIBIT J
RAPID VIRTUAL STEPPER LICENSE TERMS AND CONDITIONS
THIS EXHIBIT MAY BE AMENDED AT ANY TIME BY MUTUAL WRITTEN AGREEMENT EXECUTED
BY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES.
All license agreements for the Products granted by KLA Tencor will:
1. State that third-parties have intellectual property rights in the Products;
2. Prohibit the use of the Products except with hardware and software supplied
by KLA Tencor;
3. Prohibit copying of the Products except for backup purposes;
4. Prohibit reverse engineering, decompilation, or other derivation of the
source code of the Products (except as permitted by law);
5. Specify that no title to the Products passes to the End User;
6. Disclaim all third-party liability for performance of the Products;
7. Specify that the End User must return or destroy all copies of the
Products upon termination of the End User license;
8. Specify that the End User has no right to transfer its license to the
software except in connection with the sale of all or substantially all
its assets.
KLA TENCOR CONFIDENTIAL
NTI CONFIDENTIAL
41
<PAGE>
EXHIBIT K
MODULE LICENSE TERMS AND CONDITIONS
THIS EXHIBIT MAY BE AMENDED AT ANY TIME BY MUTUAL WRITTEN AGREEMENT EXECUTED
BY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES.
All license agreements for the Products granted by KLA Tencor will:
1. State that third-parties have intellectual property rights in the Products;
2. Prohibit the use of the Products except with hardware and software supplied
by KLA Tencor;
3. Prohibit copying of the Products except for backup purposes;
4. Prohibit reverse engineering, decompilation, or other derivation of the
source code of the Products (except as permitted by law);
5. Specify that no title to the Products passes to the End User;
6. Disclaim all third-party liability for performance of the Products;
7. Specify that the End User must return or destroy all copies of the
Products upon termination of the End User license;
8. Specify that the End User has no right to transfer its license to the
software except in connection with the sale of all or substantially all
its assets.
KLA TENCOR CONFIDENTIAL
NTI CONFIDENTIAL
42
<PAGE>
EXHIBIT L
ESCROW DEPOSIT INFORMATION AND DSI ESCROW AGREEMENT
THIS EXHIBIT MAY BE AMENDED AT ANY TIME BY MUTUAL WRITTEN AGREEMENT EXECUTED
BY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES.
1. ESCROW DEPOSIT INFORMATION. This section describes the information that NTI
will deposit into the escrow account (in addition to the source code for the
Products) pursuant to the terms and conditions of Section 4.5.
A. Detailed class diagrams showing the relationships of all classes
implemented in the source code generated as part of the deliverable product.
These class diagrams should show the following information:
The names of all classes used in the libraries.
The inheritance relationships among all classes.
The invocation relationships among all classes.
B. An operational description of the sequence of class/method
invocations that occur in response to execution of a framework filled with the
integrated modules. An invocation sequence should provide the following
information.
Begin with execution of an integrated module.
List the sequence of primary class/method calls performed in the
immediate body of the framework to access the integrated module.
Trace each of the primary class/method calls in the framework to a
sufficient depth within the integrated module to provide useful
guidance information for programmer's debugging problems or making
changes to the source code of the framework or the integrated module.
Define the purpose of each of the calls in the above calling sequence
so that a programmer's debugging code changes and enhancements can
understand what is happening during execution.
2. DSI ESCROW AGREEMENT
[TO BE ATTACHED].
KLA TENCOR CONFIDENTIAL
NTI CONFIDENTIAL
43
<PAGE>
LETTER AGREEMENT REGARDING DELIVERABLES
January 9, 1998
Re: Software Production and Distribution Agreement between KLA Tencor and
Numerical Technologies, dated 1/9/98
In the Software Production and Distribution Agreement, dated 1/9/98, it is
stated in section 2.2 that Numerical Technologies will deliver Deliverables
which represent the "prototype" of the RAPID Virtual Stepper and the Modules.
This letter confirms that both parties understand a "prototype" to mean a
version of the software which meets basic conditions outlined in the
Specifications but does not meet all the Specifications. For the RAPID Virtual
Stepper, this is understood to mean a version of the existing Virtual Stepper
which functions in a UNIX environment like that of the KLA 90 product series.
For the Modules, these are understood to be software programs which execute the
functions described in the Specifications and whose features are limited in
scope to only those functions.
In the Software Production and Distribution Agreement, dated 1/9/98, it is
stated in section 2.2 that Numerical Technologies will deliver Deliverables
which represent the "final, completed version" of the RAPID Virtual Stepper and
the Modules. This letter confirms that both parties understand this to mean a
version of the software which meets all the conditions outlined in the
Specifications but has not been refined or improved to a version suitable for
final End User acceptance. This corresponds to what KLA Tencor would typically
refer to as the delivery of an "Engineering Alpha" version to KLA Tencor. This
corresponds to what NTI would typically call a "Customer Ready Beta Version",
which means that the version is ready for delivery to a beta customer for
evaluation, and that some further refinement and improvement is still expected
to be implemented after this evaluation.
/s/ Edward C. Grady 1-9-98 /s/ Yagyensh C. Pati 1-9-98
- --------------------------- ------ --------------------------- ------
Ed Grady Date Yagyensh Pati Date
General Manager, RAPID Division Numerical Technologies CEO
KLA Tencor Vice President
/s/ Frank Schellenberg 1/9/98 /s/ L. Gletzer 1/9/98
- --------------------------- ------ --------------------------- ------
Frank Schellenberg Date Larry Gletzer Date
Analysis Product Manager, Numerical Technologies V.P. Sales
RAPID Division, KLA Tencor
Cc: Mark Merrill KLA Tencor
Lisa Berry KLA Tencor
Janice Fall Wilson Sonsini Goodrich and Rosati
<PAGE>
EXHIBIT B
DESCRIPTION OF DEPOSIT MATERIALS
Depositor Company Name: NUMERICAL TECHNOLOGIES, INC.
----------------------------
Account Number 1421007-00001
-------------
Product Name: VIRTUAL STEPPTER SYSTEM Version: 1.0B3
----------------------- -----
(Product Name will appear on Account History report)
DEPOSIT MATERIAL DESCRIPTION:
Quantity Media Type & Size Label Description of Each Separate Item
(Please use other side if additional space is needed)
_____ Disk 3.5" or _____
1 DAT tape 4mm VIRTUAL STEPPER SYSTEM
- - -
_____ CD-ROM FILENAME: DRWBSRC.TAR 10,181KB 3-4-99
_____ Data cartridge tape _____ VSSLIBKLA.ZIP 284KB 3-4-99
_____ TK 70 or _____ tape Date: 3-4-99 For KLA-Tencor
_____ Magnetic tape _____ NUMERICAL TECHNOLOGIES, INC.
_____ Documentation
_____ Other ________________________
PRODUCT DESCRIPTION:
Operating System: SUN SOLARIS V2.51
-----------------
Hardware Platform: ULTRA SPARC
-----------
DEPOSIT COPYING INFORMATION:
Is the media encrypted? Yes/No If yes, please include any passwords and the
decryption tools.
Encryption tool name _____________________________ Version ____________________
Hardware required __________________________________________________
Software required __________________________________________________
I certify for DEPOSITOR that the above described DSI has inspected and accepted
the above. deposit materials have been transmitted to DSI: materials (any
exceptions are noted above):
Signature _______________________ Signature /s/ Christie Woodward
Print Name ______________________ Print Name Christie Woodward
-----------------
Date ____________________________ Date Accepted 3-25-99
-------
Exhibit B# 1
-
Send materials to: DSI, 9555 Chesapeake Dr. #200, San Diego, CA 92123 (619) 694-
1900
Page 10
<PAGE>
EXHIBIT B
DESCRIPTION OF DEPOSIT MATERIALS
Depositor Company Name _________________________________________________________
Account Number _________________________________________________________________
Product Name _____________________________________ Version _____________________
(Product Name will appear on Account History report)
DEPOSIT MATERIAL DESCRIPTION:
Quantity Media Type & Size Label Description of Each Separate Item
(Please use other side if additional space is needed)
______ Disk 3.5" or ________
______ DAT tape _____ mm
______ CD-ROM
______ Data cartridge tape _____
______ TK 70 or _____ tape
______ Magnetic tape _____
______ Documentation
______ Other _________________
PRODUCT DESCRIPTION:
Operating System ______________________________________________________________
Hardware Platform _____________________________________________________________
DEPOSIT COPYING INFORMATION:
Is the media encrypted? Yes/No If yes, please include any passwords and the
decryption tools.
Encryption tool name_______________________________ Version ___________________
Hardware required______________________________________________________________
Software required _____________________________________________________________
I certify for DEPOSITOR that the above described DSI has inspected and accepted
the above Deposit Materials have been transmitted to DSI: materials (any
exceptions are noted above):
Signature __________________________ Signature_____________________________
Print Name _________________________ Print Name ___________________________
Date _______________________________ Date Accepted ________________________
Exhibit B#____________________________
Send materials to: DSI, 9555 Chesapeake Dr. #200, San Diego, CA 92123 (619) 694-
1900
(c) 1983, 1999 DSI
DSI TECHNOLOGY ESCROW SERVICES
An Iron Mountain Company
<PAGE>
DSI TECHNOLOGY ESCROW SERVICES
9555 CHESAPEAKE DRIVE, SUITE 200
SAN DIEGO, CA 92123
TELEPHONE: 619 694-1900
FAX: 619 694-1919
www.dsiescrow.com
DSI TECHNOLOGY ESCROW SERVICES(R)
An Iron Mountain Company
March 25, 1999
Yagyensh C. Pati
Numerical Technologies, Inc.
2630 Walsh Avenue
San Jose, CA 95051-0905
Re: Escrow Documents and Initial Deposit
Account Number: 1421007-00001
Dear Yagyensh C. Pati:
DSI has received Numerical Technologies' Escrow Agreement with KLA-Tencor
Corporation as well as the initial deposit, thank you. A copy of the executed
Agreement and Exhibit B are enclosed. Also enclosed for your future use are
blank Exhibit B's. Please reference the above account number on any Exhibit B
you submit.
An Account History report will be sent to you periodically to help you stay in
compliance with your contractual commitments.
Thank you for trusting DSI to protect your software assets. If you need further
assistance, please contact Jennifer J. Buckloh, Account Representative, who may
be reached at (415) 398-7900.
Yours very truly,
/s/Christie Woodward
Christie Woodward
Senior Contract Administrator
Enclosures
cc: Lisa C. Polli-Benbow, DSI
<PAGE>
EXHIBIT 10.26
DEVELOPMENT AND DISTRIBUTION AGREEMENT
This Agreement (the "Agreement") is entered into as of this 1st day of
October 1991 (the "Effective Date"), by and between KLA Instruments Corporation,
a Delaware corporation, having its principal place of business at 160 Rio
Robles, P.O. Box 49055, San Jose, California 95161 ("KLA"), and Transcription
Enterprises Limited, a California corporation, having a place of business at 101
Albright Way, Los Gatos, California 95030 ("TEL").
RECITALS
--------
A. TEL has developed certain software, known as CATS Software, which
converts semiconductor databases into different formats.
B. KLA has developed a new database format for its next generation
semiconductor inspection equipment named the Falcon Format.
C. KLA desires to have TEL develop software to support the Falcon Format.
D. KLA desires to have the exclusive right to distribute the developed
software on the terms and conditions set forth herein.
AGREEMENT
---------
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS.
The terms used in this Agreement shall have the following definitions:
1.1 CATS Falcon Driver shall mean the object code version of the CATS
------------------
Software developed by TEL pursuant to this Agreement which runs on a central
processing unit embedded within or directly connected to semiconductor
inspection equipment ("Embedded") and converts Pattern Files only to the Falcon
Format under the direction of the Falcon Inspection Process Program. The CATS
Falcon Driver also includes any modifications to the CATS Falcon Driver
developed by TEL or KLA during the term of this Agreement.
1.2 CATS Falcon Formatter shall mean a new Option to the CATS
---------------------
Software developed by TEL which is not embedded within or directly connected to
semiconductor inspection equipment ("Non-embedded") and which converts Pattern
Files to the Falcon Format. The CATS Falcon Formatter also includes any
modifications to the CATS Falcon Formatter developed by TEL during the term of
this Agreement.
1
<PAGE>
1.3 CATS Falcon Graphics shall mean the CATS Falcon Option which
--------------------
allows the End User to view, pick, and measure objects within specified Pattern
Files. The CATS Falcon Graphics shall also include any modifications made by TEL
or KLA to the CATS Falcon Graphics during the term of this Agreement.
1.4 CATS Falcon Jobdeck Viewing shall mean the CATS Falcon Option
---------------------------
developed by TEL which allows the End User to view, pick and measure objects
within and between Pattern Files referenced within a jobdeck. The CATS Falcon
Jobdeck Viewing shall also include any modifications made by TEL or KLA to the
CATS Falcon Jobdeck Viewing during the term of this Agreement.
1.5 CATS Falcon Option shall mean the object code version of the
------------------
software program or the software modules developed by TEL to be used in
conjunction with the CATS Falcon Formatter or the CATS Falcon Driver. The CATS
Falcon Graphics, CATS Falcon Jobdeck Viewing, CATS Falcon Inspection Process
Program Editor and all other options developed by TEL during the term of this
Agreement specifically for use in conjunction with the CATS Falcon Formatter or
the CATS Falcon Driver are CATS Falcon Options. The versions of the CATS Falcon
Options which are designed to be used in conjunction with the CATS Falcon Driver
are hereinafter referred to as "Embedded CATS Falcon Options" and the versions
of the CATS Falcon Options which are designed to be used in conjunction with the
CATS Falcon Formatter are hereinafter referred to as "Non-embedded CATS Falcon
Options."
1.6 CATS Falcon Inspection Process Program Editor shall mean the
---------------------------------------------
CATS Falcon Option developed by TEL which allows the End User to read,
graphically edit and output files in the Falcon Inspection Process Program
Format. The CATS Falcon Inspection Process Program Editor shall also include any
modifications made by TEL or KLA to the CATS Falcon Inspection Process Program
Editor during the term of this Agreement.
1.7 CATS Falcon Software shall mean collectively the CATS Falcon
--------------------
Driver and the Embedded CATS Falcon Options.
1.8 CATS Include File Format shall mean the file format developed by
------------------------
TEL which describes the processing steps necessary to create a Falcon Format
Database from Pattern Files. The CATS Include File Format shall also include any
modifications to the CATS Include File Format which are made by TEL or KLA
during the term of this Agreement.
1.9 CATS Jobdeck Format shall mean the file format describing the
-------------------
placement of Pattern Files and other operators typically used by E-beam
lithography systems. The CATS Jobdeck Format shall also include any
modifications to the CATS Jobdeck Format which are made by TEL or KLA during the
term of this Agreement.
1.10 CATS Software shall mean the software developed by TEL for the
-------------
conversion of semiconductor databases into different formats, including, but not
limited
2
<PAGE>
to the CATS Falcon Driver, the CATS Falcon Formatter and the CATS Falcon
Options. The CATS Software shall also include any modifications to the CATS
Software which are made by TEL or KLA during the term of this Agreement.
1.11 End User Documentation shall mean the manuals and other
----------------------
documentation, including but not limited to the documentation for the TEL
Formats, developed by TEL for end users and relating to the CATS Falcon
Software; provided, however that any modifications to the End User Documentation
made by KLA pursuant to its rights under Section 3.2.4 shall not be considered
to be End User Documentation.
1.12 End User shall mean any third party licensed by KLA to use the
--------
CATS Falcon Driver and/or the Embedded CATS Falcon Options.
1.13 Falcon Format shall mean the semiconductor inspection equipment
-------------
database format developed by KLA and described in greater detail in Exhibit A,
---------
and all modifications thereto which KLA shall make during the term of this
Agreement.
1.14 Falcon Format Database shall mean the files which describe the
----------------------
placement of polygons and groups of polygons according to the Falcon Format.
1.15 Falcon Format Specifications shall mean the specifications set
----------------------------
forth on Exhibits A, B, C and D.
----------------------
1.16 Falcon Inspection Process Program Format shall mean the file
----------------------------------------
format developed by KLA which contains the parameters necessary to create a
Falcon Format Database from Pattern Files and which is described in greater
detail in Exhibit B, and all modifications thereto which KLA shall make during
---------
the term of this Agreement.
1.17 Falcon Swath Constraints shall mean the requirements which must
------------------------
be met by the swaths of the Falcon Format Database in order to ensure that the
proper area as specified by the Falcon Inspection Process Program Format is
covered by the inspection system, and all modifications thereto which KLA shall
make during the term of this Agreement. The Falcon Swath Constraints are
described in greater detail in Exhibit C.
---------
1.18 Falcon Swath Map Format shall mean the file format developed by
-----------------------
KLA which provides a description of the placement of the swaths used during a
particular inspection and which is described in greater detail in Exhibit D, and
---------
all modifications thereto which KLA shall make during the term of this
Agreement. The CATS Falcon Driver will generate the Falcon Swath Map; however,
the Falcon Swath Map may also be input to the CATS Falcon Driver.
1.19 Falcon Swath Map shall mean the file which describes the
----------------
placement of swaths used during an inspection according to the Falcon Swath Map
Format.
3
<PAGE>
1.20 KLA Base Technology shall mean collectively, the Falcon Format,
-------------------
the Falcon Inspection Process Program Format, the Falcon Swath Map Format and
the Falcon Swath Constraints and all modifications thereto which KLA shall make
during the term of this Agreement.
1.21 Pattern Files shall mean the files which describe the placement
-------------
of polygons and groups of polygons within a specific format.
1.22 TEL Formats shall mean collectively, the CATS Include File
-----------
Format and the CATS Jobdeck Format.
2. DEVELOPMENT AND ACCEPTANCE OF THE CATS FALCON SOFTWARE.
2.1 Acceptance of the Deliverables.
-------------------------------
TEL shall use all commercially reasonable efforts to deliver the
CATS Falcon Driver, CATS Falcon Graphics, CATS Falcon Jobdeck Viewing and the
CATS Falcon Inspection Process Program Editor (collectively, the "Deliverables")
to KLA for testing on or before November 15, 1991. KLA shall test the
Deliverables to assure that they comply with the Falcon Format Specifications
and that they pass the acceptance test criteria set forth on Exhibit E to this
---------
Agreement (the "Acceptance Criteria"). KLA shall use its best efforts to test
the Deliverables and to provide TEL with notice of the results of its testing
within thirty (30) days of its receipt of the Deliverables. If the Deliverables
conform to the Acceptance Criteria, KLA shall give notice to TEL of such
compliance and the Deliverables shall be deemed accepted (the "Acceptance"). In
the event that KLA discovers any nonconformities with the Falcon Format
Specifications in the Deliverables or the Deliverables do not meet the
Acceptance Criteria, KLA will notify TEL in writing and TEL shall use all
commercially reasonable efforts to correct such nonconformities and to conform
the Deliverables to the Acceptance Criteria within thirty (30) days from the
date of notice. If TEL fails to correct the Deliverables so that they comply
with the Falcon Format Specifications and the Acceptance Criteria, then KLA may,
at its discretion, either (a) give notice to TEL of the nonconformities in the
Deliverables or of the failure to meet the Acceptance Criteria and provide TEL
with a period of time to correct such nonconformities and conform to the
Acceptance Criteria; provided, however, that such period of time shall not
exceed eight (8) months; (b) cancel this Agreement, pursuant to Section 17.5
below, by providing notice to TEL or (c) negotiate with TEL to reduce the
royalty payments (as set forth in Section 6 below) by an amount to be mutually
determined by the parties.
2.2 Acceptance of Major Updates.
---------------------------
KLA shall use its best efforts to test the Major Updates, as
defined in Exhibit I, delivered by TEL and to provide TEL with notice of its
---------
testing results within thirty (30) days of receipt of the Major Update. This
test will determine whether the Major Update complies with the End User
Documentation prepared by TEL for such
4
<PAGE>
Major Update. If the Major Update does not comply with the End User
Documentation prepared by TEL for such Major Update, KLA shall give TEL written
notice of such noncompliance. A Major Update shall be deemed accepted by KLA on
the earlier of (i) thirty (30) days after KLA's receipt of such Major Update,
provided that KLA has not delivered to TEL a written notice of noncompliance
during such thirty (30) day period or (ii) upon written notice to TEL of KLA's
acceptance.
3. SCOPE OF RIGHTS.
3.1 License Grant to TEL. KLA hereby grants to TEL, and TEL accepts,
--------------------
a world-wide, non-exclusive, royalty-free, non-transferrable license to use the
KLA Base Technology internally as necessary to (i) develop, support and maintain
the CATS Software and (ii) develop, maintain, reproduce, distribute and license
the CATS Falcon Formatter and the Non-embedded CATS Falcon Options to TEL's end
users for use in inputting and outputting Falcon Format Databases for use with
KLA's semiconductor inspection equipment.
3.2 License Grants to KLA. In consideration of the payment of
---------------------
royalties as set forth in Section 6 below, TEL hereby grants to KLA the
following licenses.
3.2.1 TEL Formats. TEL hereby grants to KLA, and KLA accepts, a
-----------
world-wide, non-exclusive, royalty-free, non-transferrable license to:
(i) Use the TEL Formats only internally as necessary
for KLA's performance hereunder;
(ii) Prior to Acceptance, sublicense up to an aggregate
-----------------------------
of three (3) copies of the TEL Formats to End Users for a term of up to six (6)
- -------------------------------------------------------------------------------
months for the limited purpose of creating process programs within their own
- ------
programming environment; and
(iii) Effective upon Acceptance, sublicense the TEL
Formats to End Users for the limited purpose of creating process programs within
their own programming environment.
3.2.2 CATS Falcon Driver License. Except as set forth in
--------------------------
Sections 4, 7 and 21.1, TEL hereby grants, and KLA accepts a world-wide,
exclusive, non-transferrable license during the term of this Agreement, to do
the following:
(i) Reproduce and embed the CATS Falcon Driver for use
on semiconductor inspection equipment;
(ii) Test the CATS Falcon Driver as a part of
semiconductor inspection equipment;
5
<PAGE>
(iii) Prior to Acceptance, distribute and sublicense up to
an aggregate of three (3) copies of the CATS Falcon Driver to End Users for a
term of up to six (6) months for the purpose of evaluation and testing; and
(iv) Effective upon Acceptance, distribute and sublicense
to End Users solely for their own personal or business purposes the CATS Falcon
Driver for use on semiconductor inspection equipment.
3.2.3 Embedded CATS Falcon Option License. Except as set forth
-----------------------------------
in Sections 4, 7 and 21.1 TEL hereby grants, and KLA accepts a world-wide,
exclusive, non-transferable license during the term of this Agreement, to do the
following:
(i) Reproduce and embed the Embedded CATS Falcon Options
(individually, or in any combination) for use on semiconductor inspection
equipment;
(ii) Test the Embedded CATS Falcon Options (individually,
or in any combination) as a part of semiconductor inspection equipment;
(iii) Prior to Acceptance, distribute and sublicense up to
----------------------------------------------------
an aggregate of three (3) copies of the Embedded CATS Falcon Options
- --------------------------------------------------------------------
(individually, or in any combination) to End Users for a term of up to six (6)
months for the purpose of evaluation and testing; and
(iv) Effective upon acceptance, distribute and sublicense
----------------------------------------------------
to End User solely for their own personal or business purposes the Embedded CATS
- --------------------------------------------------------------------------------
Falcon Options (individually, or in any combination) for use on semiconductor
- --------------
inspection equipment; provided, however, that KLA may only sublicense the
Embedded CATS Falcon Options to those End Users who have licensed or are
simultaneously licensing a CATS Falcon Driver for use within the same site.
3.2.4 Documentation. TEL grants to KLA a non-exclusive, world-
-------------
wide, royalty-free license to use the End User Documentation for its own
internal purposes and to reproduce, distribute and sublicense the unmodified End
User Documentation to its End Users. In addition, TEL grants to KLA a non-
exclusive, world-wide, royalty-free license to extract portions of and modify as
necessary the End User Documentation associated with the CATS Falcon Software in
order to create supplements of such End User Documentation for distribution to
End Users.
3.2.5 Internal Use License. Effective upon Acceptance and upon
--------------------
TEL's receipt of a list identifying up to six (6) designated Central Processing
Units ("CPUs"), TEL grants to KLA a non-exclusive, world-wide, royalty-free
license to reproduce the CATS Falcon Driver and those CATS Falcon Options which
KLA licenses pursuant to Section 7 for use internally for support and
demonstration purposes on up to six (6) designated CPUs. KLA shall have the
right to transfer these copies internally only after KLA has identified for TEL
the CPU to which it intends to transfer a copy and has
6
<PAGE>
received TEL's consent to such transfer. TEL may, in its sole discretion, permit
KLA to reproduce additional copies of the CATS Falcon Software for use
internally for support and demonstration purposes.
3.2.6 Proprietary Rights Notice. Each copy of the CATS Falcon
-------------------------
Driver, the CATS Falcon Options, and the End User Documentation made by KLA
shall contain and bear a proprietary rights notice in the form which they appear
in the CATS Falcon Driver, the CATS Falcon Options and the End User
Documentation transferred to KLA.
3.2.7 Demonstration of KLA Semiconductor Inspection Equipment.
-------------------------------------------------------
TEL understands that KLA may need to demonstrate its semiconductor inspection
equipment which utilizes the CATS Falcon Software from time to time at its
production facilities. Except as set forth in Sections 4, 7 and 21.1, TEL hereby
grants and KLA accepts a world-wide, exclusive, non-transferable license to
demonstrate production copies of the CATS Falcon Software operating on KLA
semiconductor inspection equipment at KLA's production facilities. Such
demonstration shall not, in any way, include running of production data of the
potential customer for whom the demonstration is conducted.
3.2.8 Restriction on KLA's Rights. Notwithstanding anything to
---------------------------
the contrary set forth in Sections 3.2.2 and 3.2.3 above, KLA agrees that,
unless it obtains prior written authorization from TEL, it will distribute and
sublicense the CATS Falcon Driver and the Embedded CATS Falcon Options only for
use on or with semiconductor inspection equipment manufactured by or for KLA.
4. END OF EXCLUSIVITY.
If KLA directly or indirectly distributes a product, whether embedded
or non-embedded, which provides substantially equivalent functionality as and
would directly compete with the CATS Falcon Driver or any of the Embedded CATS
Falcon Options, KLA's exclusive right to distribute the corresponding TEL
product shall, upon written notice from TEL, become nonexclusive.
5. END USER LICENSING.
KLA will take all steps necessary to protect TEL's proprietary rights
in the CATS Falcon Software and to ensure that each End User has entered into an
End User agreement containing the minimum terms set forth in Exhibit F, attached
---------
hereto, prior to KLA,'s distribution of the CATS Falcon Software. In addition,
KLA will not distribute the CATS Falcon Software to End Users in countries other
than those listed on Schedule F-1, without the prior written authorization of
------------
TEL. KLA agrees to follow all software copy protection procedures developed by
TEL and conveyed to KLA to restrict the End User's use of the CATS Falcon
Software to a designated CPU. KLA agrees to license its End Users to use the
CATS Falcon Software only to create a Falcon Format Database for subsequent use
on either (i) a system which contains a CATS Falcon Driver or (ii) a
7
<PAGE>
system which does not contain a CATS Falcon Driver, provided that such End User
has licensed from TEL a CATS Falcon Formatter for use within the same site.
6. PAYMENT OF ROYALTIES.
6.1 Amount of Royalties. In connection with KLA's sublicense of the
-------------------
CATS Falcon Software to an End User, KLA shall pay TEL a royalty equal to
[***] of the List Price (as defined below) for each module of the CATS Falcon
Software sublicensed by KLA to such End User.
6.2 List Price. The royalty payments which KLA shall be required to
----------
pay pursuant to Section 6.1 above shall be based upon TEL's list price of the
particular module of the CATS Falcon Software which is sublicensed by KLA (the
"List Price"). The List Price shall be used solely to calculate the royalty
payments. KLA shall be entitled to independently determine the fees it will
charge the End Users for the CATS Falcon Software. Throughout the term of this
Agreement, the List Price of the CATS Falcon Driver shall be as follows-
(i) [***] for use with CPUs on a system rated at 15 MIPS or
less;
(ii) [***] for use with CPUs on a system rated at greater than
15 but less than 75 MIPS; and
(iii) [***] for use with CPUs on a system rated at 75 MIPS or
more.
TEL will deliver to KLA a list setting forth its non-discounted published
price for each Non-embedded CATS Falcon Option (the Standard Prices ). This list
shall also specifically state the discount offered by TEL to a licensee for the
license of a particular CATS Falcon Option if such licensee has previously
licensed one or more copies of the same CATS Falcon Option for use at the same
or a different site (the "Discount"). The List Price which KLA will use to
calculate the royalty payments due under Section 6.1 for its license of an
Embedded CATS Falcon Option will be equal to the Standard Price for the
corresponding Non-embedded CATS Falcon Option discounted as follows: if TEL
credits copies of Embedded CATS Falcon Options previously licensed by KLA to a
prospective customer for the purposes of calculating its Discount, the reduction
to the Standard Price to determine the List Price shall be calculated in the
same manner as TEL's calculation of its list price to its prospective customer.
If TEL does not provide such a credit for copies of Embedded CATS Falcon
Options, the reduction of the Standard Price shall be calculated as if each copy
of the Embedded CATS Falcon Option previously licensed to the prospective
customer is a Non-embedded CATS Falcon Option. Thus, the applicable Discount
will be based upon the sum of all Embedded CATS Falcon Options and Non-embedded
CATS Falcon Options previously licensed to the prospective customer from either
TEL or KLA. For example, if the prospective customer has licensed two Embedded
CATS Falcon Options and three Non-embedded
8
[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
CATS Falcon Options, the reduction in the Standard Price will be the Discount
TEL would give to a prospective customer who has licensed five Non-embedded CATS
Falcon Options. The Standard Price used to calculate the List Price shall be
that which is delivered in writing to KLA by TEL and in effect at the time KLA
provides a written quote to a potential customer, regardless of the fact that a
new Standard Price may be sent to KLA by TEL after KLA has provided the
prospective customer with a quote and before the prospective customer has
accepted the quote. Provided, however, that unless a quote is accepted by the
potential customer within ninety (90) clays of its delivery by KLA, the quote
shall expire and any licenses granted pursuant to a new quote will be subject to
a royalty calculated from a List Price which shall be equal to the new Standard
Price, discounted as appropriate. TEL may revise its Standard Prices no more
than two (2) times per calendar year. In addition, TEL may increase a particular
Standard Price by an annual amount which is no more than the greater of (i)
fifteen percent (15%) of the existing Standard Price and (ii) the percentage
change in the San Francisco-Oakland-San Jose, California, All Urban Consumers
Price Index as reported on December 31 of the previous year. A Discount shall be
applied to reduce the Standard Price and KLA's royalty obligation if KLA or TEL
has accepted a purchase order for the particular CATS Falcon Option
notwithstanding the fact that the CATS Falcon Option is not shipped to or
installed at the licensee's site prior to the prospective customer's license of
the additional CATS Falcon Option from KLA. In order to enable KLA to calculate
its royalty obligation for consideration when preparing quotes for its potential
customers, KLA and TEL shall adhere to the following procedure: (i) KLA shall
request information from the licensee regarding which, if any, Embedded CATS
Falcon Options or Non-embedded CATS Falcon Options the prospective customer has
previously licensed from either KLA or TEL; (ii) KLA shall use the information
received from the prospective customer to calculate its potential royalty
payment based upon the Standard Price and the appropriate Discount and shall
prepare a customer quote; (iii) at the time KLA delivers the quote to the
prospective customer, KLA shall send to TEL, via facsimile during normal
business hours addressed to President and Vice President, a request for
confirmation that the Discount which KLA has applied in calculating the royalty
payment (the "Determined Discount") is correct for the prospective customer;
(iv) TEL shall respond, via facsimile within five (5) business days of KLA's
request with confirmation that the Determined Discount KLA applied to calculate
the royalty payment is correct or with information regarding the correct
Discount; (v) if TEL does not respond to KLA's request within three (3) business
days of such request, KLA shall then notify TEL, via facsimile, in the same
manner set forth above, that if KLA does not receive a response to its initial
request within two (2) business days, then KLA may use the Determined Discount
to calculate the royalty payment, and TEL agrees that it will not dispute the
Determined Discount used by KLA to calculate the royalty payment.
6.3 Payment of Royalties. All royalties due in accordance with the
--------------------
terms of this Agreement with respect to the CATS Falcon Software which the End
User accepts at KLA's facility, shall be due and payable within thirty (30) days
after the End User has accepted the CATS Falcon Software at KLA's facility. All
royalties due in accordance with the terms of this Agreement with respect to the
Embedded CATS Falcon Options for which there is no End User acceptance procedure
at KLA's facility,
9
<PAGE>
shall be due and-payable within sixty (60) days after KLA has completed the
installation of the particular Embedded CATS Falcon Option at the End User's
facility. With each royalty payment, KLA shall include (i) the name and location
of the End User; (ii)a description of the system on which the CATS Falcon
Software will be used, including the CPU type, CPU serial number, system
identification number, host identification number or equivalent identification
number, network or cluster name and the KLA semiconductor inspection equipment
identification number on which the CATS Falcon Software will be used; (iii) the
List Price used by KLA to calculate the royalty payment and (iv) whether a
portion of the royalty due is being offset by a credit due KLA pursuant to
Section 6.4 below.
6.4 Refunds. In the event KLA semiconductor inspection equipment
-------
containing CATS Falcon Software is returned to KLA for a full refund prior to
the End User's acceptance of the KLA semiconductor inspection equipment at the
End User's facility, the amount of the royalty paid TEL in connection with the
sublicense of such CATS Falcon Software shall be credited by KLA against
royalties due TEL pursuant to this Section 6.
6.5 Right of Audit. KLA shall maintain a complete, clear and accurate
--------------
record of the number of copies of CATS Falcon Software sublicensed by KLA and
the number of copies of the CATS Falcon Software returned for a refund to KLA as
set forth above. At TEL's request, KLA shall provide TEL with a report of all
sublicenses which KLA has entered into for the CATS Falcon Software; provided,
however, that KLA shall not be obligated to provide such report more than once
per quarter. Such report shall also include a list of all End Users who have
contracted with KLA to receive Standard Maintenance. In addition, to ensure
compliance with the terms of this Agreement, TEL shall have the right to have an
inspection and audit of all the relevant accounting books and records of KLA
conducted by an independent certified public accountant reasonably acceptable to
both parties. The audit shall be conducted during regular business hours at
KLA's offices and in such a manner as not to interfere with KLA's normal
business activities. In no event shall audits be made hereunder more frequently
than once every twelve (12) months. The fee for the audit shall be paid by TEL,
unless the audit reveals that KLA has underpaid TEL by at least ten percent
(10%) of the amount of royalties accrued to TEL since the last audit, in which
case the audit fee will be paid by KLA. KLA shall pay to TEL any royalties which
the audit reveals are owing to TEL within thirty (30) days of its receipt of the
report from the accountant indicating the amounts owing TEL.
6.6 Royalty Free Copies. No royalty shall be due on copies of the
-------------------
CATS Falcon Software delivered to KLA or reproduced by KLA pursuant to Section
3.2.5 and used internally by KLA for support and demonstration purposes.
10
<PAGE>
7. KLA'S PURCHASE OF A CATS FALCON SOFTWARE LICENSE AND KLA'S SUPPORT AND
DEMONSTRATION COPIES.
7.1 Delivery of the First Copy of CATS Falcon Software. Within five
--------------------------------------------------
(5) days after KLA has both (i) signed TEL's standard Software License Agreement
and (ii) issued a purchase order which includes the identification of the
designated CPU as required by such agreement, TEL agrees to deliver to KLA one
(1) copy of the CATS Falcon Software in its present form (the "First Copy"). TEL
shall upgrade the First Copy as the CATS Falcon Software is developed so that
KLA may ensure that TEL is meeting the milestones set forth in the Development
Schedule attached hereto as Exhibit G. Upon Acceptance, TEL shall ensure that
---------
the First Copy shall be identical to the CATS Falcon Software accepted by KLA.
KLA shall receive Standard Maintenance (as defined below) on the First Copy free
of charge for a period of one year following Acceptance. In the event there are
any discrepancies between the terms of this Agreement and the terms of TEL's
standard Software License Agreement regarding the First Copy, the terms of this
Agreement shall prevail.
7.2 KLA's License of the First Copy. KLA agrees to license the First
-------------------------------
Copy for a total price of [***] plus any applicable sales taxes (the "License
Fee"). The License Fee shall be allocated as follows:
CATS Falcon Driver (Basic Fracture and [***]
Falcon Output)
CATS Falcon Graphics [***]
CATS Falcon Jobdeck Viewing [***]
CATS Falcon Inspection Process
Program Editor [***]
-------
[***]
The License Fee shall be paid in two equal installments. The first
installment of [***] shall be due and payable upon TEL's completion, to KLA's
satisfaction, of milestones 5 and 6 set forth in the Development Schedule
attached hereto as Exhibit G. The second installment of [***] shall be due and
---------
payable upon Acceptance.
7.3 Support and Demonstration Copies. Within five (5) days after
--------------------------------
Acceptance and after KLA has provided TEL with a list of the designated CPUs in
accordance with Section 3.2.5, TEL shall deliver to KLA one (1) copy of the
Deliverables which KLA may reproduce and use in accordance with its license
grant set forth in Section 3.2.5. If TEL so requests, KLA shall return all
copies of the CATS Falcon Driver which KLA has received from TEL pursuant to
this Section 7.3 or which KLA has made pursuant to its reproduction rights under
Section 3.2.5 (collectively, the "Support Copies") in the event that KLA
directly or indirectly distributes software which provides substantially
equivalent functionality as and would compete directly with the CATS Falcon
Driver. In addition, if TEL so requests, KLA shall return all copies of the
particular CATS Falcon Option which KLA has received from TEL pursuant to this
11
[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Section 7.3 or which KLA has made pursuant to its reproduction rights under
Section 3.2.5 in the event that KLA directly or indirectly distributes software
which provides substantially equivalent functionality as and would compete
directly with such particular CATS Falcon Option.
8. TRAINING.
8.1 TEL Initial Training. TEL agrees to provide, at no charge, three
--------------------
(3) months of training for one KLA programmer (the "Designated Programmer") who
is to be involved in the development of the Falcon Format and the CATS Falcon
Software. The training is scheduled to begin within five (5) clays after the
Effective Date. TEL agrees to expose the Designated Programmer to the entire
CATS Software system. KLA acknowledges that the CATS Software may include
support of certain file formats which TEL has licensed from third parties. Prior
to exposing the Designated Programmer to such portions of the CATS Software
containing support of each such file format, TEL shall have the right to require
confirmation from the Designated Programmer that KLA is licensed to have access
to such file format. The Designated Programmer may, at KLA's option, return to
TEL for one (1) month every six (6) months throughout the term of this Agreement
for additional training with the CATS Software, for no fee. Should the
Designated Programmer leave the employ of KLA or transfer from the Falcon Format
project team, KLA may designate another programmer to replace the Designated
Programmer. Prior to exposure to the CATS Software pursuant to this Section 8.1,
the Designated Programmer shall execute an Invention Agreement in the form
attached hereto as Exhibit H.
---------
8.2 Additional Training. In addition to the training provided
-------------------
pursuant to Section 8.1, KLA may choose to send an additional programmer (the
"Additional Programmer") to train with TEL for one three (3) month period after
January 1, 1993. If KLA exercises the option to receive additional training, KLA
will pay TEL a one time fee of [***] upon completion of the training. Following
the three (3) month training program, the Additional Programmer shall be
entitled to return to TEL for one (1) month of additional training every six (6)
months throughout the term of this Agreement for no additional fee; provided
however, that if the Additional Programmer and the Designated Programmer both
choose to return to TEL for additional training, they must do so in the same
month of the six-month period. Prior to exposure to the CATS Software pursuant
to this Section 8.2, the Additional Programmer shall execute an Invention
Agreement in the form attached hereto as Exhibit H.
---------
8.3 KLA Training. KLA shall be responsible for the installation of
------------
the CATS Falcon Software which it sublicenses pursuant to this Agreement. KLA
will also be responsible for the initial customer training at the customer site
and for the distribution and installation of any Updates to the CATS Falcon
Software, as defined in the description of Standard Maintenance attached hereto
as Exhibit I.
---------
12
[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
8.4 TEL Customer Training. TEL agrees to provide basic initial
---------------------
customer training, free of charge, for all End Users at TEL's facilities
pursuant to TEL's then-current training policies. In addition, TEL shall
provide, at KLA's Santa Clara County facility, at least five (5) hours of
training for a group of up to six (6) of KLA's field service support employees
upon Acceptance and following delivery to KLA of each Major Update, as defined
in the description of Standard Maintenance set forth in Exhibit I.
---------
9. MAINTENANCE.
9.1 End User Maintenance. TEL shall provide each End User with
--------------------
standard maintenance for the CATS Falcon Software distributed by KLA. Such
standard maintenance is described more fully in Exhibit I hereto and shall be
---------
referred to hereinafter as the "Standard Maintenance". Each End User shall
receive Standard Maintenance from TEL, free of any charge, for the CATS Falcon
Software which the End User accepts at KLA's facility, for a period of one (1)
year following the End User's acceptance of the CATS Falcon Software at the End
User's facility; provided however, that such acceptance of the CATS Falcon
Software at the End User's facility shall be evidenced in writing and shall be
obtained no later than the time the End User accepts the KLA semiconductor
inspection equipment on which the CATS Falcon Software is embedded. In addition,
each End User shall receive Standard Maintenance from TEL, free of charge, for
any Embedded CATS Falcon Options for which there is no End User acceptance
procedure at KLA's facility, for a period of one (1) year following KLA's
completion of the installation of the Embedded CATS Falcon Option at the End
User's facility. Thereafter, End Users of the CATS Falcon Software shall
contract with KLA to continue to receive Standard Maintenance from TEL;
provided, however, an End User may only receive Standard Maintenance on the
Embedded CATS Falcon Options for so long as it has contracted to receive
Standard Maintenance on the CATS Falcon Driver. TEL shall continue to provide
Standard Maintenance to those End Users who have so contracted with KLA.
9.2 KLA's Maintenance. KLA shall receive Standard Maintenance for the
-----------------
First Copy and the Support Copies free of charge, for a period of one (1) year
following Acceptance. Thereafter, should KLA desire to continue to receive the
Standard Maintenance for all or a portion of the First Copy, KLA shall pay the
Standard Maintenance Fees set forth in Section 9.3 for the CATS Falcon Driver
and each of the CATS Falcon Options for which KLA wishes to continue
maintenance. KLA shall continue to receive Standard Maintenance for the modules
of the Support Copies, free of charge, for as long as KLA is purchasing Standard
--------------
Maintenance for those modules of the First Copy. The maintenance which TEL shall
provide pursuant to this Section 9.2 shall be identical to Standard Maintenance,
except that, as part of the maintenance provided to KLA pursuant to this Section
9.2, TEL will provide First Line Support, as defined below.
9.3 Maintenance Fees. The annual standard maintenance fee (the
----------------
"Standard Maintenance Fee") which KLA shall pay to TEL for each End User with
13
<PAGE>
which it has entered into a contract for extended Standard Maintenance shall be
twelve percent (12%) for domestic sites and fifteen percent (15%) for foreign
sites of the List Price (as defined above), of the module of the CATS Falcon
Software for which the End User desires to continue to receive Standard
Maintenance; provided, if the End User does not contract with KLA to continue to
receive Standard Maintenance at least thirty (30) days prior to the lapse of its
right to receive Standard Maintenance and, the End User wishes to reinstate
Standard Maintenance, KLA shall pay to TEL a one-time reinstatement fee equal to
two hundred percent (200%) of the amount of the Standard Maintenance Fee which
KLA would have paid TEL if the End User had not allowed its receipt of Standard
Maintenance to lapse; and provided further, that should KLA contract with an End
User for less than a full year of Standard Maintenance in order to effectively
coordinate the collection of maintenance fees from the End User, KLA shall pay
to TEL a portion of the Standard Maintenance Fee prorated for such shorter
maintenance period.
9.4 Payment of Standard Maintenance Fees. KLA agrees that it will pay
------------------------------------
to TEL the Standard Maintenance Fee within thirty (30) days after entering into
the contract for extended Standard Maintenance with the End User.
9.5 KLA's Support Fees. KLA shall provide First Line Support in
------------------
connection with the End User's receipt of the Standard Maintenance for the CATS
Falcon Software distributed by KLA As consideration for providing such First
Line Support, KLA shall be entitled to receive a fee equal to twenty percent
(20%) of the Standard Maintenance Fee KLA is required to pay to TEL for such End
User. First Line Support shall include the operation of a telephone support
line, field training, initial contact for bug reports and enhancements, and the
installation of Updates as defined in Exhibit I. KLA shall have the right to
---------
deduct this amount from the Standard Maintenance Fees owing TEL for such End
User pursuant to Section 9.3.
9.6 TEL Priority Support. TEL agrees that as a part of its Standard
--------------------
Maintenance, it will assign at least one full time programmer with at least one
(1) year of experience working with the CATS Software to work on a full-time
basis to correct any bugs reported by KLA or its End Users which have no
workarounds and cause the inspection system to fail to meet its sensitivity,
false defect or throughput specifications.
9.7 KLA's Support Options.
---------------------
9.7.1 Support of the CATS Falcon Driver. The parties agree that
---------------------------------
(i) if KLA believes, in its sole discretion, that TEL has failed to provide
support and Standard Maintenance to the End Users and/or to KLA, such that the
End Users' or KLA's productivity with the CATS Falcon Driver or the CATS Falcon
Inspection Process Program Editor is substantially affected or (ii) if pursuant
to a request by an End User, KLA requests that TEL develop a particular update
or enhancement relating to the End User's productivity with the CATS Falcon
Driver or the CATS Falcon Inspection Process Program Editor and after discussion
KLA and TEL are unable to agree upon whether such update or enhancement shall be
part of Standard Maintenance or are unable to
14
<PAGE>
arrive at a mutually acceptable schedule for such development by TEL, then KLA
may send up to two (2) programmers (at least one of which must be the Designated
Programmer or the Additional Programmer) (the "Falcon Driver Support
Programmers") to TEL to work on modifying, enhancing and supporting the CATS
Falcon Driver output modules. KLA agrees that the Falcon Driver Support
Programmers will use their best efforts to avoid modifying the CATS Software so
that it adversely affects the existing users of the CATS Software. TEL agrees
that if KLA exercises this support option, that TEL will provide the Falcon
Driver Support Programmers with reasonable support as necessary to enable them
to modify, enhance and support the CATS Falcon Driver or the CATS Falcon
Inspection Process Program Editor. KLA agrees to reimburse TEL for any
reasonable out-of-pocket expenses incurred by TEL as a direct result of
providing this support to the Falcon Driver Support Programmers.
9.7.2 Additional Support of the CATS Falcon Software. If KLA
----------------------------------------------
believes that an End User's productivity with the Embedded CATS Falcon Options
or the CATS Falcon Driver is substantially affected by TEL's lack of support for
such CATS Falcon Options and/or CATS Falcon Driver, KLA may request
authorization to, and TEL may, in its sole discretion, permit KLA to, send up to
two (2) programmers (at least one of which must be the Designated Programmer or
the Additional Programmer) (the "Option Support Programmers) to TEL to work,
under the supervision of TEL employees, on modifying, enhancing and supporting
the CATS Falcon Options and the CATS Falcon Driver modules relating directly to
Falcon Format applications and not covered by KLA's support option set forth in
Section 9.7.1; provided, however, that TEL shall retain the right at all times
to approve any and all modifications which the Option Support Programmers shall
make, pursuant to this Section 9.7.2, to the CATS Falcon Options and the CATS
Falcon Driver and provided further, that KLA shall reimburse TEL for any
reasonable out-of-pocket expenses incurred by TEL as a direct result of
providing support to the Option Support Programmers.
9.8 Maintenance Reduction Option. At any time following Acceptance,
----------------------------
KLA shall have an option, exercisable once during the term of this Agreement, to
require TEL to maintain two versions of the CATS Falcon Driver. One version
shall be enhanced and upgraded as usual (the "Enhanced Version") and the other
shall be modified only as required to fix bugs (the "Bug Fix Version"). Upon
KLA's exercise of this option, End Users may choose to maintain the CATS Falcon
Driver as either an Enhanced Version or as a Bug Fix Version. Those End Users
who elect to maintain their CATS Falcon Driver as a Bug Fix Version shall only
be entitled to receive bug fix support from TEL. The Standard Maintenance Fee
which KLA is required to pay for those End Users who elect to maintain their
CATS Falcon Driver as a Bug Fix Version shall be reduced by sixty percent (60%).
Those End Users who elect to maintain their CATS Falcon Driver as an Enhanced
Version shall continue to receive Standard Maintenance from TEL and KLA shall
continue to be obligated to deliver Standard Maintenance Fees set forth in
Section 9.3 to TEL for such End Users. An End User shall be entitled to reverse
the exercise of its option by providing written notice to KLA of its intention
to do so. If an End User elects to reverse its election to maintain a Bug Fix
Version, the End User shall again be entitled to receive Standard Maintenance as
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<PAGE>
described in such Section 9.1, provided that KLA pays TEL a one time
reinstatement fee equal to one hundred and fifty percent (150%) of the
difference between the Standard Maintenance Fee which would have been paid had
the End User continually maintained its CATS Falcon Driver as an Enhanced
Version and the maintenance fee paid for the Bug Fix Version (including any
deductions for fees paid to KLA for acting as First Line Support). The one
hundred and fifty percent (150%) fee shall be in addition to the reduced
maintenance fees paid to maintain the CATS Falcon Driver as a Bug Fix Version.
10. ENHANCEMENTS TO THE CATS FALCON FORMATTER.
TEL agrees that it will release to KLA enhancements to the CATS Falcon
Driver prior to or simultaneously with its release of inspection specific
enhancements to the CATS Software and CATS Falcon Formatter. TEL will release
enhancements to the Embedded CATS Falcon Options prior to or simultaneously with
its release of enhancements to the corresponding Non-embedded CATS Falcon
Options. Additionally, TEL agrees that the enhancements to the CATS Falcon
Driver and the Embedded CATS Falcon Options will be at least functionally
equivalent to the inspection specific enhancements to the CATS Software
configured with the CATS Falcon Formatter and to the Non-embedded CATS Falcon
Options, respectively.
11. PROPRIETARY RIGHTS.
11.1 TEL Ownership. TEL is and shall remain the sole and exclusive
-------------
owner of all right, title and interest in the TEL Formats, the CATS Software,
the CATS Falcon Software, and the End User Documentation. In the event that KLA
exercises its support options set forth in Section 9.7, TEL shall be the sole
and exclusive owner of all right, title and interest in any modifications which
the Falcon Driver Support Programmers and the Option Support Programmers make to
the CATS Software.
11.2 KLA Ownership. KLA is and shall remain the sole and exclusive
-------------
owner of all right, title and interest in the KLA Base Technology.
12. LIMITED WARRANTY.
TEL warrants to KLA that the First Copy and the CATS Falcon Software
accepted by KLA pursuant to Section 2 and that each Major Update (as such terms
are defined on Exhibit I) will, during the "Warranty Period", perform in
---------
accordance with the End User Documentation and in accordance with the Falcon
Format Specifications. The "Warranty Period" for the First Copy and the CATS
Falcon Software shall commence on Acceptance and shall terminate one (1) year
after such date. The "Warranty Period" for each Major Update shall commence upon
KLA's acceptance of such Major Update and shall terminate one (1) year after
such date. TEL warrants that the End User Documentation is free of material
errors on the date of Acceptance. KLA agrees to report in writing any failure to
meet this warranty ("Error"). TEL will use all commercially reasonable efforts,
at its own expense, to correct any Error. Errors will be
16
<PAGE>
reported to TEL in a form and with supporting information reasonably requested
by TEL to enable it to verify, diagnose and correct the Error. If TEL is unable
to correct the Error, KLA and TEL may agree upon a reduction in the royalty
payments for the sublicensing of future copies and may agree upon a credit
against future royalties due TEL for the copies previously sublicensed to End
Users to reflect the reduced performance. THIS IS A LIMITED WARRANTY AND IT IS
THE ONLY WARRANTY MADE BY TEL. TEL DOES NOT WARRANT THAT THE USE OF THE CATS
FALCON SOFTWARE WILL BE UNINTERRUPTED OR THAT THE OPERATION OF THE CATS FALCON
SOFTWARE WILL BE ERROR FREE. TEL MAKES NO OTHER EXPRESS OR IMPLIED WARRANTY AND
EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY, INFRINGEMENT AND FITNESS
FOR A PARTICULAR PURPOSE. NO TEL DEALER, AGENT OR EMPLOYEE IS AUTHORIZED TO MAKE
ANY MODIFICATION, EXTENSION OR ADDITION TO THIS WARRANTY.
13. KLA'S LIMITATION OF WARRANTY.
TEL AND KLA AGREE THAT THE KLA BASE TECHNOLOGY PROVIDED TO TEL
PURSUANT TO THIS AGREEMENT IS PROVIDED TO TEL "AS IS". KLA DISCLAIMS ALL OTHER
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE KLA BASE TECHNOLOGY,
INCLUDING THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE
AND NON-INFRINGEMENT OF ANY THIRD PARTY RIGHTS.
14. INDEMNIFICATION.
14.1 TEL's Indemnity. TEL agrees to indemnify and hold harmless KLA,
---------------
its officers, directors, employees and agents against any claims, actions or
demands, including reasonable attorneys' fees, by third parties (i) alleging
that the use, reproduction or distribution of the CATS Falcon Software and the
TEL Formats infringe any patents, copyrights, trade secrets, mask work rights or
other proprietary rights of any third parties, (ii) alleging a breach of any
warranty, representation or agreement made by TEL with respect to the CATS
Software, TEL Formats and/or the KLA Base Technology or (iii) alleging a failure
of performance to the extent that TEL has promised such performance of the CATS
Software and/or TEL Formats in any warranty, representation or agreement made
herein by TEL. (This Section 14.1(iii) is meant to provide indemnity for
nonperformance claims brought by third parties against KLA for the
nonperformance of the CATS Software and/or the TEL Formats to the extent the
performance thereof is promised by the warranties, representations and
agreements provided to KLA by TEL hereunder.) TEL shall have no liability under
this Section 14.1, however, to the extent that such claim, action or demand is
based on the use of any CATS Falcon Software or the TEL Formats in combination
with any hardware or software not provided by TEL, or modification to the CATS
Software not made by or authorized in writing by TEL. KLA shall give prompt
written notice to TEL of any such claim, action or demand. If TEL believes that
the CATS Falcon Software and/or the TEL Formats are likely to become
17
<PAGE>
the subject of a claim of infringement, then TEL may, at its option and at its
expense, obtain a commercially reasonable license for KLA which would give KLA
the same rights it currently has under this Agreement or modify the CATS Falcon
Software and/or TEL Formats so that they are functionally equivalent but non-
infringing. If, after using its best efforts, TEL is unable to either obtain a
license for KLA or modify the CATS Falcon Formatter and/or TEL Formats so that
they are functionally equivalent but non-infringing, then TEL may restrict KLA's
future distribution of the infringing product in the territory where
infringement exists. Notwithstanding the above, TEL shall continue to be
obligated to indemnify KLA, as set forth above, against any claims, actions or
demands arising from KLA's prior distribution of the infringing product.
14.2 KLA's Indemnity. KLA agrees to indemnify and hold harmless TEL,
---------------
its officers, directors, employees and agents against any claims, actions, or
demands, including reasonable attorneys' fees, by third parties alleging (i)
that the KLA Base Technology infringes any patents, copyrights, trade secrets,
masks work rights or other proprietary rights of any third parties, or (ii) a
breach of any warranty, representation or agreement made by KLA to any such
third party which is a warranty, representation or agreement for which KLA is
not entitled to receive indemnity from TEL pursuant to Section 14.1(iii) above.
TEL shall give prompt written notice to KLA of any claim, action or demand.
15. LIMITATION OF LIABILITY.
NEITHER KLA NOR TEL WILL BE LIABLE OR OBLIGATED IN ANY MANNER FOR ANY
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, EVEN IF INFORMED OF THE
POSSIBILITY THEREOF IN ADVANCE. IN NO EVENT SHALL TEL'S LIABILITY HEREUNDER TO
KLA (EXCEPT PURSUANT TO SECTIONS 14.1 AND 9) EXCEED THE AMOUNTS PAID TO TEL BY
KLA HEREUNDER
16. CONFIDENTIALITY.
16.1 KLA Confidential Information. TEL agrees to maintain in
----------------------------
confidence all information which is disclosed to TEL by KLA either in written
form and marked "Confidential", or orally, if KLA has sent a written summary of
such information to TEL within ten (10) business days of disclosure and marked
such summary "Confidential."
16.2 TEL Confidential Information. KLA agrees to maintain in
----------------------------
confidence all information which is disclosed to the Designated Programmer,
Additional Programmer, Falcon Driver Support Programmer, Option Support
Programmer or to KLA by TEL either in written form and marked "Confidential", or
orally, if TEL has sent a written summary of such information to KLA within ten
(10) business days of disclosure and marked such summary "Confidential".
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16.3 Limitations on Use. The party receiving Confidential Information
------------------
(the "Receiving Party") will use the Confidential Information solely to
accomplish the purpose of this Agreement. The Receiving Party shall keep all
Confidential Information on its premises and shall limit access to such
Confidential Information to those employees having a need to use such
Confidential Information within the license of rights hereunder. The Receiving
Party agrees that the Confidential Information will be disclosed or made
available only to full-time employees of the Receiving Party who have agreed in
writing to receive it under terms at least as restrictive as those specified in
this Agreement and only to those full-time employees to whom it is necessary to
disclose the Confidential Information to fulfill the purposes of this Agreement.
The Receiving Party shall keep a record of the location of all copies of the
Confidential Information and a list of all employees who have had access to the
Confidential Information. The Receiving Party will use its best efforts to
maintain the confidentiality of the Confidential Information, but not less than
the measures it uses for its own confidential information of similar type. The
Receiving Party will immediately give notice to the party providing the
Confidential Information (the "Providing Party") of any unauthorized use or
disclosure of the Confidential Information. The Receiving Party will assist, at
no cost, the Providing Party in remedying any such unauthorized use or
disclosure.
16.4 Limitations. These obligations will not apply to the extent that
-----------
the Receiving Party can demonstrate that:
(i) the disclosed information at the time of disclosure is part
of the public domain;
(ii) the disclosed information became part of the public domain,
by publication or otherwise, except by breach of the provisions of this
Agreement;
(iii) the disclosed information was received from a third party
without similar restrictions and without breach of this Agreement;
(iv) the disclosed information was independently developed by
the Receiving Party without reference to the Confidential Information; or
(v) the disclosed information was disclosed to others by the
Providing Party without restriction.
17. TERMINATION.
17.1 TEL Change of Control. For purposes of this section, A
---------------------
"Competitive Ownership Change" shall be deemed to have occurred if any of the
following events occur with respect to TEL:
(1) the direct or indirect sale or exchange of the stock of TEL
such that the shareholders of TEL before such sale or exchange do not retain,
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of TEL and that such majority beneficial ownership rests in a
company or companies, other than KLA, which manufacture reticle inspection
equipment, wafer inspection equipment or printed circuit board inspection
equipment (a "Competitor"); or
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<PAGE>
(2) a merger between TEL and a Competitor; or
(3) the sale, exchange or transfer of all or substantially all
of TEL's assets to a Competitor.
17.2 Cause. This Agreement shall terminate:
-----
(a) on the sixtieth (60th) day after KLA gives TEL notice of a
material breach by TEL of any term or condition of this Agreement, unless the
breach is cured before that day;
(b) on the sixtieth (60th) day after TEL gives KLA notice of a
material breach by KLA of any term or condition of this Agreement, unless the
breach is cured before that day; or
(c) if TEL experiences a Competitive Ownership Change and an
officer of KLA makes a good faith determination that such Competitive Ownerhip
Change would have a negative impact on KLA's ability to continue to support and
sublicense the CATS Falcon Software, and KLA gives TEL notice that such a
determination has been made.
17.3 Without Cause. This Agreement may be terminated by either party,
-------------
without cause, upon ninety (90) days written notice to the other party at any
time after this Agreement has been in effect for five (5) years.
17.4 Bankruptcy. This Agreement may be terminated immediately by
----------
either party, upon prior written notice to the other party, if: (i) a receiver
is appointed for the other party or its property; (ii) the other party becomes
insolvent or unable to pay its debts as they mature in the ordinary course of
business or makes an assignment for the benefit of its creditors; or (iii) any
proceedings are commenced against the other party under any bankruptcy,
insolvency or debtor's relief law and such proceedings are not vacated or set
aside within sixty (60) days from the date of commencement thereof.
17.5 Termination by KLA. KLA may terminate this Agreement at any time
------------------
prior to Acceptance.
17.6 Effect of Termination. After expiration, termination or
---------------------
cancellation (all hereafter collectively referred to as "termination") of this
Agreement:
(a) for any reason, other than as set forth in Section 17.2(c)
and 17.5, (i) all licenses granted pursuant to Section 3 shall terminate; (ii)
KLA will erase,
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<PAGE>
destroy or return to TEL all copies of the Support Copies, End User
Documentation, and TEL Confidential Information in its possession or control,
except for one copy of the most recent version of the End User Documentation
which it may retain solely to provide maintenance services to its End Users who
have purchased CATS Falcon Software from KLA; and (iii) TEL shall return all
copies of the KLA Base Technology and KLA Confidential Information in its
possession or control, except for one copy of the most recent version of the KLA
Base Technology which it may retain solely to provide maintenance services to
its end users and KLA's End Users. The termination of this Agreement shall not
affect the rights of KLA's End Users to use the CATS Falcon Software or the
right of KLA to use the First Copy. TEL will continue to provide Standard
Maintenance to KLA and its End Users as set forth in Section 9 following the
termination of this Agreement.
(b) pursuant to the terms of Section 17.2(c), (i) all licenses
granted to TEL pursuant to Section 3.1 shall terminate and TEL shall return all
copies of the KLA Base Technology and KLA Confidential Information in its
possession or control, except for one copy of the most recent version of the KLA
Base Technology which it may retain solely to provide maintenance services to
its end users; (ii) KLA shall receive a full refund of all royalties paid to TEL
pursuant to Section 6 during the two (2) year period immediately preceding the
effective date of the Competitive Ownership Change; and (iii) upon the effective
date of the Competitive Ownership Change, KLA's license grants pursuant to
Section 3.2 shall automatically become perpetual and royalty-free and Section 4
shall terminate.
(c) pursuant to the terms of Section 17.5, (i) TEL shall refund
all monies paid to TEL by KLA pursuant to this Agreement; (ii) all licenses
granted pursuant to this Agreement shall terminate; (iii) TEL will destroy or
erase all copies of the KLA Base Technology and KLA Confidential Information in
its possession and control and (iv) KLA will destroy or return to TEL the First
Copy, along with any End User Documentation and TEL Confidential Information;
provided, however, that KLA shall not be obligated to destroy or return the
First Copy, End User Documentation or TEL Confidential Information until KLA has
received a refund of all monies it has paid to TEL pursuant to this Agreement.
18. TERM OF THIS AGREEMENT.
This Agreement will commence on the Effective Date and will continue
Until terminated by either party as provided for herein.
19. ARBITRATION.
Any claim, dispute or controversy arising out of or in connection with
or relating to this Agreement or the breach or alleged breach thereof will be
submitted by the parties to arbitration by the American Arbitration Association
in the City of San Jose, State of California, United States of America, under
the commercial rules then in effect for that Association, except as provided
herein. A transcribed record will be
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<PAGE>
prepared. One neutral arbitrator will be selected by the Association. The
parties will be entitled to discovery as provided in Sections 1283.05 and 1283.1
of the Code of Civil Procedure of the State of California, or any successor
provision, whether or not the California Arbitration Act is deemed to apply to
the arbitration. The award rendered by the arbitrator will include costs of
arbitration, reasonable attorneys' fees and reasonable costs for expert and
other witnesses, and judgment on such award may be entered in any court having
jurisdiction thereof. Nothing in this Agreement will be deemed as preventing
either party from seeking injunctive relief (or any other provisional remedy)
from any court having jurisdiction over the parties and the subject matter of
the dispute as necessary to protect either party's name, proprietary
information, trade secrets, know-how or any other proprietary rights.
20. COMMUNICATIONS AND PUBLIC ANNOUNCEMENTS.
Neither TEL nor KLA shall furnish any press release or formal written
communication to the public with respect to the transactions contemplated by
this Agreement without the prior approval of the other party as to the content
thereof, which approval should not be unreasonably withheld, provided that the
foregoing shall not be deemed to prohibit any disclosure which a party
reasonably believes is required by applicable law or by any competent
governmental authority.
21. GENERAL PROVISIONS.
21.1 Assignment. KLA shall have the right to assign its rights and
----------
obligations under this Agreement to a corporation or entity which is a successor
in interest to KLA or to any corporation or entity which becomes, directly or
indirectly, the owner of the division of KLA which makes use of the rights
granted pursuant to this Agreement; provided, however, that if KLA assigns this
Agreement, voluntarily or by operation of law, to a party which directly markets
a product that directly competes with the CATS Software, then the exclusive
distribution rights set forth in Sections 3.2.2 and 3.2.3 shall become non-
exclusive for such time as the competitive product is marketed by the party to
which this Agreement is assigned. TEL may not assign, voluntarily, by operation
of law, or otherwise, any rights or delegate any duties under this Agreement
(other than the right to receive payments) without KLA's prior written consent.
Any attempt to do so without that consent will be void. This Agreement will bind
and inure to the benefit of the parties and their respective successors and
permitted assigns.
21.2 Choice of Law. This Agreement will be governed by and construed
-------------
in accordance with the laws of the United States and the State of California as
applied to agreements entered into and to be performed entirely within
California between California residents.
21.3 Choice of Forum. The parties hereby submit to the jurisdiction
---------------
of, and waive any venue objections against, the United States District Court for
the Northern District of California, San Jose Branch and the Superior and
Municipal Courts of the State of California, Santa Clara County, in any
litigation arising out of the Agreement.
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21.4 Amendment. This Agreement may be amended or supplemented only by
---------
a writing that is signed by duly authorized representatives of both parties.
21.5 Injunctive Relief. Since breach of this Agreement by either
-----------------
party may cause the non-breaching party to suffer irreparable damage for which
the recovery of money damages would be inadequate, the non-breaching party shall
be entitled to obtain equitable relief to protect its interests therein,
including but not limited to injunctive relief, as well as money damages.
21.6 Waiver. No term or provision hereof will be considered waived by
------
either party, and no breach excused by either party, unless such waiver or
consent is in writing signed by both parties. No consent by either party to, or
waiver of, a breach by either party, whether express or implied, will constitute
a consent to, waiver of, or excuse of any other, different or subsequent breach
by either party.
21.7 Force Majeure. Neither party will be liable for any failure or
-------------
delay in performance under this Agreement which might be due, in whole or in
part, directly or indirectly, to any contingency, delay, failure or cause of any
nature beyond the reasonable control of such party (not arising out of breach by
such party of this Agreement). In the event of the happening of such a cause,
the party whose performance is so affected will give prompt, written notice to
the other party, stating the period of time the same is expected to continue.
Such delay will not be excused under this Section for more than one hundred
eighty (180) days.
21.8 Severability. If any part of this Agreement is found invalid or
------------
unenforceable that part will be amended to achieve as nearly as possible the
same economic effect as the original provision and the remainder of this
Agreement will remain in full force.
21.9 Notice. Any notice provided for or permitted under this
------
Agreement will be treated as having been given when (a) delivered personally,
(b) sent by confirmed telex or telecopy, (c) sent by commercial overnight
courier with written verification of receipt, or (d) mailed postage prepaid by
certified or registered mail, return receipt requested, to the party to be
notified, at the address set forth below, or at such other place of which the
other party has been notified in accordance with the provisions of this Section.
If to KLA: KLA Instruments Corporation
160 Rio Robles
P.O. Box 49055
San Jose, California 95161-9055
Attn: President
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<PAGE>
If to TEL: Transcription Enterprises Limited
101 Albright Way
Los Gatos, California 95030
Attn: President
21.10 Relationship of Parties. The parties to this Agreement are
-----------------------
independent contractors. There is no relationship of agency, partnership, joint
venture, employment or franchise between the parties. Neither party has the
authority to bind the other or to incur any obligation on its behalf.
21.11 Counterparts. This Agreement may be executed simultaneously in
------------
two or more counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
21.12 Entire Agreement. This Agreement, including all Exhibits to
----------------
this Agreement, constitutes the entire agreement between the parties relating to
this subject matter and supersedes all prior or simultaneous representations,
discussions, negotiations and agreements, whether written or oral.
21.13 Survival. Sections 11, 12, 13, 14, 15, 16, 17.6, 19, 21.2,
--------
21.3, and 21.5 will survive the termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
"KLA" "TEL"
KLA Instruments Corporation Transcription Enterprises Limited
By: /s/ John W. Mathews By: /s/ Roger Sturgeon
-------------------- ------------------------
Name: John W. Mathews Name: Roger Sturgeon
------------------ ----------------------
Title: V.P. & Gen. Mgr. Title: President
----------------- ---------------------
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<PAGE>
EXHIBIT 10.27
ADDENDUM NUMBER ONE
TO
DEVELOPMENT AND DISTRIBUTION AGREEMENT
BETWEEN
KLA-TENCOR CORPORATION
AND
TRANSCRIPTION ENTERPRISES INC.
This Addendum Number One (the "Addendum") to the Development and Distribution
Agreement between KLA Instruments Corporation and Transcription Enterprises
Limited, dated October 1, 1991 (the "Agreement") is entered into by KLA-Tencor
Corporation, a Delaware corporation that is the successor in interest to KLA
Instruments Corporation, and whose principal place of business is 160 Rio
Robles, San Jose, California 95134-1809 ("K-T"), and Transcription Enterprises
Inc., a Delaware corporation that is the successor in interest to Transcription
Enterprises Limited, a California corporation whose principal place of business
is 101 Albright Way, Los Gatos, California 95030 ("TEL"). This Addendum will be
effective as of October 1, 1999 (the "Effective Date").
RECITALS
A. Pursuant to the Agreement, TEL has previously developed for K-T an enhanced
version of its proprietary CATS software that supports K-T's proprietary
database format known as the "Falcon Format."
B. K-T would like TEL to develop a new version of TEL's CATS software that
will continue to support the Falcon Format as well as the new database
format K-T has developed for its forthcoming inspection systems (the "CATS
5xx Software"). K-T would also like to redistribute two modules of TEL's
CATS software that are not specific to K-T.
C. The parties have agreed to provide for the development of the new software
as set forth in this Addendum and to incorporate the terms of this Addendum
into the terms of the Agreement.
AGREEMENT
1. DEFINITIONS
Except as expressly otherwise defined herein, all definitions set forth in the
Agreement shall likewise be used to interpret this Addendum, except that each
such definition when read into this Addendum shall have the term "5xx"
substituted for the word "Falcon." The following additional definitions shall
also be used to interpret this Addendum.
1.1 "CATS K-T Graphics Extension" shall mean the CATS software which allows the
End-User to view, pick, and measure objects within specified Pattern Files and
which also allows the user to view, pick and measure objects within and between
Pattern Files referenced within a
[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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CATS Jobdeck file. The CATS K-T Graphics Extension will also include any
modifications made by TEL or K-T to the CATS K-T Graphics Extension during the
term of the Agreement.
1.2 "Deliverables" shall mean those testable prototype versions of the CATS 5xx
Software, as more fully described in Attachment I.
1.3 "Schedule" shall mean the table of milestones for delivery by TEL of the
Deliverables as set forth in Attachment II.
2. DEVELOPMENT, DELIVERY AND ACCEPTANCE OF THE CATS 5xx SOFTWARE
TEL agrees to use all commercially reasonable efforts to develop the
Deliverables and deliver them in as set forth in Section 2 of the Agreement,
except that the Deliverables shall be delivered in accordance with the Schedule,
and not the dates set forth in Section 2 of the Agreement.
3. SCOPE OF RIGHTS
3.1 Rights to Develop, Distribute, Use Internally the CATS 5xx Software. K-T
-------------------------------------------------------------------
grants to TEL the same rights in the KLA Base Technology for purposes of
developing the CATS 5xx software as it granted under Section 3 of the Agreement
with respect to the CATS Falcon Software. Similarly, TEL grants to K-T the same
rights with respect to the TEL Formats and the resulting CATS 5xx Software as it
previously granted in Section 3 of the Agreement in the TEL Formats and the CATS
Falcon Software, except that the restriction to 6 (six) designated CPU's in
Section 3.2.5 of the Agreement shall not apply to the internal use license TEL
grants to K-T in this Addendum.
3.2 Distribution of CATS K-T Graphics Extension. TEL grants to K-T the same
-------------------------------------------
rights in the CATS K-T Graphics Extension as it previously granted in the CATS
Falcon Options, as specified in Section 3.2.3 of the Agreement.
3.4 TEL Distribution of CATS 5xx Software. TEL shall have the same rights to
-------------------------------------
distribute the CATS 5xx Formatter and non-embedded CATS 5xx Options as it had
with respect to the CATS Falcon Formatter and non-embedded CATS Falcon Options,
respectively. TEL understands and acknowledges that K-T shall have no obligation
to TEL to support TEL software products or TEL customers, or to provide TEL with
information or assistance to ensure that TEL software products based on the CATS
5xx Formatter or the non-embedded CATS 5xx Options will operate successfully
with any K-T semiconductor inspection equipment.
3.5 License Keys. TEL authorizes K-T to create and issue license keys for K-T
------------
customers to all software developed or delivered under this Addendum as well as
to the software previously delivered under the Agreement, and TEL agrees to
deliver to K-T the license management software necessary to create such license
keys.
4. END OF EXCLUSIVITY
The provisions of Section 4 of the Agreement shall not apply to the CATS 5xx
Software developed pursuant to this Addendum. in addition, TEL acknowledges and
agrees that K-T shall have the right to develop software products that compete
with the CATS 5xx Software independent of TEL, provided that K-T does not use
TEL Confidential Information to do so.
5. PAYMENT OF ROYALTIES
2
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5.1 CATS K-T Graphics Extension. With respect to the CATS K-T Graphics
---------------------------
Extension, K-T agrees to pay TEL a royalty of [***] for each license of the CATS
K-T Graphics Extension to an End User. This royalty shall apply to KT
sublicenses to End Users with the understanding that such licenses will
authorized End Users to operate no more than five (5) simultaneous graphical
sessions per license while remotely logged on to the workstation incorporated in
the KT Inspection System.
5.2. CATS 5xx Software. With respect to the CATS 5xx Software, K-T shall pay the
-----------------
following royalties for each module of the CATS 5xx Software licensed to an End-
User:
Royalty per Module Licensed Aggregate No. of Modules Licensed to Date
- --------------------------- -----------------------------------------
1. [***] [***]
2. [***] [***]
3. [***] [***]
5.3 Discounts and Payment Terms. The terms and conditions concerning discounts,
---------------------------
credits and payment of royalties in Section 6 of the Agreement shall apply
equally to the calculation and payment of royalties to be made by K-T under this
Addendum.
6. K-T's PURCHASE of a CATS K-T GRAPHICS EXTENSION LICENSE and a CATS 5XX
SOFTWARE LICENSE, AND K-T'S SUPPORT AND DEMONSTRATION COPIES
K-T shall purchase a first license of the CATS K-T Graphics Extension and the
CATS 5xx Software under the same terms as those set forth in Section 7.1 and 7.2
of the Agreement except that: (i) the period that K-T receives Standard
Maintenance under Section 7.1 for the First Copy shall be two (2) years
following acceptance by K-T of the final Deliverables; and (ii) the license fee
payable under Section 7.2 shall be [***] in the case of the CATS K-T Graphics
Extension and [***] in the case of the CATS 5xx Software, payable upon
acceptance by K-T of the final Deliverables. The provisions of Section of the
Agreement 7.3 shall not apply to this Addendum.
7. TRAINING.
TEL shall make training available to K-T for the CATS 5xx Software on the same
terms and conditions as set forth in Section 8 of the Agreement, except that for
purposes of this Addendum, the date specified in section 8.2 shall be read as
February 15, 2000.
[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
3
<PAGE>
8. ADDENDUM INCORPORATED INTO AGREEMENT.
The provisions of Sections 9-21 of the Agreement shall apply equally to the
terms of this Addendum, and this Addendum is hereby incorporated and made a part
of the Agreement with this reference.
IN WITNESS WHEREOF, authorized representatives of the parties have executed this
Addendum to the Agreement as of the Effective Date.
KLA-Tencor Corporation Transcription Enterprises Limited
By: /s/Shuah-Teh Juang By: /s/Kevin MacLean
------------------------ --------------------------
(signature) (signature)
Name:Shuah-Teh Juang Name: Kevin MacLean
----------------------- ------------------------
(print or type name) (print or type name)
Title: VP of Engineering Title: VP
---------------------- ----------------------
Date Signed: 12/27/99 Date Signed: 12/27/99
---------------- -----------------
4
<PAGE>
ATTACHMENT I
DESCRIPTION OF DELIVERABLES
The deliverables are described as follows:
The Transcription-Enterprise CATS software suite which supports the database
format as specified in 5XX Database Format Specification.
The software package shall contain:
- - Readfile module
- - CATS module with direct output capabilities which supports input format such
as MEBES, MEBES mode V, GDSlI, JEOL, JEOL bitmap, HL700, HL800, Toshiba, IBM,
and other formats supported by the TE-CATS
- - Writefile module
There shall be a software module which can generate TE-CATS license.
The deliverable software shall run on SGI O200 platform. The software package
shall run under IRIX 64 bit operating system.
There shall be a current CATS reference manual with the software delivery. The
reference manual shall describe how the software can be used.
Delivery can be made via Transcription Enterprise FTP site (with notification),
tape, CD-ROM or other current storage medium.
5
<PAGE>
ATTACHMENT II
DELIVERY SCHEDULE
The delivery schedule shall be as follows:
Full feature prototype 11/30/99
(CATS, advanced features, flat, fracture, job smash, Readfile, Writefile,
Readtape, 5XX)
Interim delivery 2/13/2000
(Full feature software suite with no severity 1 and at most 5 severity 2
defects reported)
Final delivery 3/13/2000
(Full feature software suite with no severity 1 and severity 2 defects reported)
6
<PAGE>
EXHIBIT 10.37
PSM SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT
This PSM Software Development and License Agreement (this "Agreement") is
entered into as of March 10, 2000 (the "Effective Date"), by and between Cadence
Design Systems, Inc., a Delaware corporation with offices at 555 River Oaks
Parkway, San Jose, CA 95134 ("Cadence"), and Numerical Technologies Inc., a
California corporation with offices at 70 West Plumeria Drive, San Jose, CA
95134-2134 ("NTI").
RECITAL
-------
Cadence develops and markets electronic design automation ("EDA") software
tools for integrated circuit design and NTI develops and markets phase shifting
software design tools for subwavelength integrated circuit technologies. Cadence
and NTI desire to develop the ("PSM") design methodology ("PSM") jointly, using
each company's relevant expertise, technology, and industry experience, to
create an integrated design solution in the industry for creating full chip,
phase shifting mask. In addition, Cadence desires to receive from NTI, and NTI
desires to grant to Cadence, certain licenses to NTI's PSM software to
facilitate the marketing and distribution of this solution.
In consideration of the mutual promises herein, Cadence and NTI agree as
follows:
AGREEMENT
1. DEFINITIONS. As used in this Agreement:
1.1 "Agent" of Cadence or NTI means, an individual or entity who is
-----
authorized to act for or in place of and to bind Cadence or NTI, as the case may
be, with respect to dealings or contractual obligations with third parties .
1.2 "Affiliate" of Cadence or NTI means, respectively, any entity that
---------
controls, is controlled by, or is under common control with such party, where
"control" means ownership of fifty percent (50%) or more of the outstanding
voting securities of the entity in question or the power to otherwise control
the voting or affairs of such entity.
1.3 "Cadence Combined Products" means the Cadence software products that
-------------------------
are comprised of one or more Cadence Products and one or more NTI Product
Components and may also include Developed Software.
1.4 "Cadence Developed Software" means those portions of the Developed
--------------------------
Software that are developed solely by Cadence.
1.5 "Cadence Products" means the Cadence software products listed in
----------------
Exhibit A attached hereto and any other commercially released place-and-route,
- ---------
physical design, and physical verification family of products offered by Cadence
or any of its Affiliates (other than products of Avant/1/, Mentor Graphics, or
Synopsys, should Cadence or any of its Affiliates merge with, acquire, or be
acquired by any of these three companies)
[***]=CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
primarily for the same intended uses as the products listed in Exhibit A.
---------
1.6 "Critical Error" means (i) an Error that stops, prevents or hinders
--------------
in a material and substantial way design work or production work; (ii) an Error
that causes design data corruption; or (iii) any other substantial Error for
which there is no reasonably acceptable work around.
1.7 "Deliverable" means a component of the Developed Software, or any
-----------
other item, identified as such in the Statement of Work.
1.8 "Derivative Work" means a derivative work within the meaning of the
---------------
U.S. copyright law.
1.9 "Developed Software" means the new code (which may include, without
------------------
limitation, new features of the NTI Product Components and interfaces between
the Cadence Products and the NTI Product Components) to be developed by NTI and
Cadence jointly or individually as described in the Statement of Work and
Specifications or elsewhere in this Agreement.
1.10 "Development Milestone" means any of the development milestones set
---------------------
forth in Exhibit B attached hereto or agreed upon by the parties for the
---------
Renewal Term pursuant to Section 14.2.
1.11 "Documentation" means the manuals and other documentation that NTI
-------------
generally makes available with the NTI Product Components to end users.
1.12 "Error Corrections" means any Error corrections, patches, and bug
-----------------
fixes prepared by or for NTI to any portion of the NTI Product Components or
Developed Software.
1.13 "Error" means any failure of an NTI Product Component or the Developed
-----
Software to conform to its specifications or the applicable Documentation or to
provide consistent and accurate results.
1.14 "Initial Term" means the period beginning on the Effective Date and
------------
ending three (3) years after the Effective Date.
1.15 "Intellectual Property Rights" means (by whatever name or term known
----------------------------
or designated) copyrights, trade secrets, patents, and any other intellectual
and industrial property and proprietary rights (excluding trademarks) including
registrations, applications, renewals and extensions of such rights.
1.16 "NTI Developed Software" means those portions of the Developed
----------------------
Software that are developed solely by NTI.
-2-
<PAGE>
1.17 "NTI Product Components" means the NTI product components that are
----------------------
listed in Exhibit C attached hereto (including any Derivative Works thereof
---------
developed pursuant to the Statement of Work and Specifications) and all Updates
thereto.
1.18 "NTI Trademarks" means the NTI trade names, trademarks, and logos set
--------------
forth in Exhibit D attached hereto.
---------
1.19 "Production Release Milestone" means any of the Cadence production
----------------------------
release milestones set forth in Exhibit E attached hereto.
---------
1.20 "Renewal Term" means the period beginning on the expiration of the
------------
Initial Term and ending two (2) years after the expiration of the Initial Term.
1.21 "Source Code Materials" means, with respect to a software program, the
---------------------
human-readable source code for such software program that can be compiled into
machine-executable object code, annotated source code listings, flow charts,
decision tables, schematics, design details, instructions, and other related
technical documentation necessary to understand the design, structure, and
implementation of the software program such that a third party programmer
reasonably skilled in the programming language used for such source code could
maintain, support, and modify the software program without further assistance or
references to other materials.
1.22 "Specifications" means the technical specifications for the Developed
--------------
Software set forth in Exhibit B, as such specifications may be revised pursuant
---------
to Section 2.5.
1.23 "Statement of Work" means the description of the work to be done by
-----------------
the parties in connection with their joint development of the Developed Software
set forth in Exhibit B, as such description may be revised pursuant to
---------
Section 2.5.
1.24 "Update" means any new release or version of the NTI Product
------
Components or Cadence Products, as the case may be, that is designated by a
different version number (e.g., 2.0 instead of 1.0, or 2.1 instead of 2.0) and,
with respect to the NTI Product Components, any new software product that (i)
uses the same methodology as the NTI Product Components and (ii) is designed
primarily for the same intended uses as the NTI Product Components. Moreover,
for the purpose of clarification and avoidance of doubt, to the extent that NTI
or Cadence integrates the source code for the NTI Product Components or Cadence
Products or portions thereof, with additional source code to make new NTI or
Cadence products (other than the NTI Product Components or Cadence Products),
such additional source code shall not constitute Updates but any improvements to
the source code for the NTI Product Components or Cadence Products shall
constitute Updates. Also, any source code created by or for NTI in the course of
creating customized interfaces between the NTI Product Components and third
party products as permitted under this Agreement will not constitute Updates.
2. DEVELOPMENT AND DELIVERY OF NTI LICENSED TECHNOLOGY.
2.1 In General. NTI and Cadence shall work together to jointly develop
----------
the Developed Software. NTI and Cadence shall use all commercially reasonable
efforts to develop the
-3-
<PAGE>
Developed Software in accordance with the schedule set forth in the Statement of
Work, the Specifications, and the Development Milestones. Any failure to conform
to the schedule set forth in the Statement of Work shall not be deemed to be a
material breach of this Agreement upon which a party may exercise termination
rights under Section 14.3 (Termination for Breach), unless a party fails to use
all commercially reasonable efforts to meet such schedule.
2.2 Project Managers. Each party shall appoint a project manager to act
----------------
as liaison with the other party with respect to the development of the Developed
Software. Project managers shall participate in review meetings as set forth in
the Statement of Work or otherwise by mutual agreement. The project managers
shall have primary responsibility for coordinating all major decisions related
to joint development of the Developed Software. Each party may replace its
project manager from time to time as it deems necessary or appropriate upon
written notice to the other party.
2.3 Engineering Resources; Access to Facilities. NTI and Cadence shall
-------------------------------------------
each devote sufficient engineering resources to fulfill its respective
obligations under Section 2.1. Each party shall provide the other party with
access to its facilities as reasonably necessary in the course of development of
the Developed Software. Each party will cause its employees and contractors to
comply with the other party's workplace safety and security rules and policies
when they are on the other party's premises.
2.4 Software Tools and Technology. Each party will have a nonexclusive,
-----------------------------
royalty-free license until the termination of this Agreement or until
development of the Developed Software is complete, whichever occurs first, to
use, reproduce, and modify the other party's software products and tools (in
object code form and, as mutually agreed by the parties in each instance, in
source code form) and other technology as may be reasonably necessary solely for
the purpose of fulfilling its specific development obligations under the
Statement of Work. Each party's use of the other party's software products and
tools and other technology will be subject to the confidentiality provisions in
Section 12.
2.5 Change Requests. The parties recognize and acknowledge that the
---------------
Statement of Work or the Specifications (or both) may need to be revised as the
work described therein continues. The parties shall cooperate and work in good
faith to adapt any such revisions as needed in accordance with the procedure set
forth in this Section 2.5. Nothing in this Section 2.5 is intended to require
NTI to accept any revisions to the Statement of Work or the Specifications if
such revisions would require NTI to devote substantially greater resources or
incur substantially greater costs than those required under the original
Statement of Work or Specifications.
(a) Request Procedure. If either party requests a change to the
-----------------
Statement of Work or Specifications, it shall submit such request in writing to
the other party's project manager. The other party shall respond to the request
within five (5) business days, either approving, disapproving, or proposing an
alternative to the requested change. If the responding party disapproves of the
change, it shall set forth the reasons for its disapproval. The requesting party
shall then reply, again within five (5) business days.
-4-
<PAGE>
(b) Escalation Procedure. If the parties are unable to agree upon
-------------------
all aspects of the requested change within the earlier of fifteen (15) business
days after the original request for change or the exchange of two sets of
requests and responses, then the parties shall, in order to reach agreement,
implement the escalation procedure set forth below.
(i) Within five (5) business days after the most recent
response under Section 2.5(a), the requesting party shall again submit a written
request to the other party. Such a request, however, must be the joint work of
the project manager and at least two other people: one business person and one
technical person. Likewise, the responding party shall respond to such change
request only after a consultation among the project manager and at least two
other people: one business person and one technical person. Such response shall
be made within five (5) business days.
(ii) If the parties do not agree after following the procedure
set forth in Section 2.5(b)(i), then the requesting party shall arrange, again
within five (5) business days after the latest response, a meeting or conference
call, which shall be held at a mutually convenient time but in no event more
than ten (10) business days from the completion of the procedure in Section
2.5(b)(i). The project manager and at least one technical and one business
person of each party shall participate.
(iii) If the parties do not agree after following the procedure
set forth in Section 2.5(b)(ii), then the requesting party shall arrange, within
ten (10) business days after the meeting or conference call in Section
2.5(b)(ii), a face-to-face meeting, which shall be held at a mutually convenient
time and location, but in no event later than twenty (20) business days from the
completion of the procedure in Section 2.5(b)(ii). A Senior Executive Officer of
each party, in addition to its project manager and business and technical
people, shall attend such a meeting.
(iv) In addition to the escalation procedures set forth above,
the parties remain free to negotiate, and may come to agreement independently
from the escalation procedures.
2.6 Deliverables. Each party shall deliver to the other party the
------------
Deliverables for which it is responsible under the Statement of Work, in the
format and manner specified in the Statement of Work (or, if none is specified,
in a mutually acceptable format and manner).
2.7 Testing and Acceptance. Upon delivery of a Deliverable by one party
---------------------
to the other in accordance with the Statement of Work, the parties will jointly
test such Deliverable for conformance to the Specifications and for the absence
of Critical Errors. If the results of such testing indicate, to the reasonable
satisfaction of both parties, that the Deliverable conforms to the
Specifications in all material respects and contains no Critical Errors, such
Deliverable will be deemed accepted by the party not obligated to deliver such
Deliverable and any Milestone based upon acceptance of such Deliverable will be
deemed to have been met.
2.8 Further Developments. The parties' project managers will meet
--------------------
periodically to discuss further improvements to the Developed Software. In
addition, either party may suggest additional development efforts to be
undertaken regarding the Developed Software. In such
-5-
<PAGE>
instances, the parties will discuss in good faith applicable development
schedules, technology contributions, allocation of expenses, ownership, and
rights of use. However, neither party will be bound by any such discussions
unless the parties agree in writing to amend this Agreement or to enter into a
new agreement regarding such additional development work.
3. LICENSE GRANTS.
3.1 Software License to Cadence. NTI hereby grants to Cadence the
---------------------------
following nonexclusive (subject to Section 4), worldwide licenses, under all of
NTI's Intellectual Property Rights in and to the NTI Product Components:
(a) to use, reproduce, perform and display the NTI Product Components
(in object code form only) for Cadence's internal purposes including integration
work (with Cadence Products only), testing, support, and demonstrations;
(b) to use, reproduce, perform and display the NTI Product Components
with the Cadence Products (in object code form only) for the purpose of
providing Cadence design and methodology services to Cadence customers, provided
that Cadence may not provide optical proximity correction design services using
the NTI Product Components alone for Cadence customers not using the Cadence
Products for the product design at issue.
(c) to reproduce and distribute, and to make, have made, offer for
sale, import and sell, the NTI Product Components, in object code form only,
solely as incorporated or bundled with the Cadence Products and not on a
standalone basis; and
(d) to reproduce and distribute, and to make, have made, offer for
sale, import and sell, the NTI Product Components, in object code form only, on
a standalone basis only to those Cadence customers who, as of the Effective
Date, already have purchased a license for at least one (1) of the Cadence
Products solely for the purpose of allowing such customers to use the NTI
Product Components with Cadence Products.
Such licenses shall be subject to the restrictions set forth in Section
3.3. Cadence may sublicense the rights granted in this Section 3.1 only as
follows: (i) Cadence may sublicense the rights to use, reproduce and distribute
the NTI Product Components incorporated or bundled with the Cadence Products to
its distributors, resellers, OEM customers, VAR customer, and VAD customers; and
(ii) Cadence may sublicense the rights to use and reproduce the NTI Product
Components to its end-user customers, solely for the purpose of allowing such
end-user customers to use the NTI Product Components with Cadence Products.
3.2 Documentation License to Cadence. NTI grants to Cadence a
--------------------------------
nonexclusive (subject to Section 4), worldwide license, under all of NTI's
Intellectual Property Rights in and to the Documentation, to use, reproduce,
perform, display, distribute, and to make, have made, offer for sale, import and
sell the Documentation solely to the extent that the Documentation is to be used
in connection with the Cadence Combined Products or the NTI Product Components
on a stand-alone basis as permitted under Section 3.1(d) above. Cadence may
sublicense the right to reproduce and distribute the Documentation solely to the
extent that it is to be used in connection with the
-6-
<PAGE>
Cadence Combined Products (or the NTI Product Components on a stand-alone basis
as permitted under Section 3.1(d) above) to its distributors, resellers, OEM
customers, VAR customers and VAD customers.
3.3 Restrictions. Cadence shall not itself, or through any Affiliate,
------------
Agent, or third party: (a) sell, lease, license, or sublicense the NTI Product
Components or the Documentation (except as expressly permitted in Section 3.1
and 3.2), (b) decompile, disassemble, reverse engineer, or otherwise attempt to
derive source code from the NTI Product Components, in whole or in part, except
to the extent such restriction is prohibited by applicable law; (c) modify or
create Derivative Works from the NTI Product Components (except as may be
expressly allowed under Sections 2.4 and 15); or (d) use the NTI Product
Components to provide processing services to third parties (except as expressly
permitted under Section 3.1) or otherwise use the NTI Product Components on a
service bureau basis.
3.4 Copyright Notices. Cadence agrees that it will not remove any
-----------------
copyright notices, proprietary markings, trademarks, or trade names from the NTI
Product Components or Documentation.
3.5 Software License Terms. Cadence shall use its then-current standard
----------------------
form software license terms for marketing and licensing the NTI Product
Components under this Agreement. Cadence shall include in its standard form
software license terms warranty disclaimer and limitation of liability
provisions for the benefit of NTI. Cadence acknowledges and agrees that the
licenses granted to Cadence under this Agreement and by Cadence to its customers
pursuant to such licenses do not include a license under any NTI patents to make
or have made products made of silicon or other semiconductor materials and
Cadence agrees to include the text message set forth below in the log file of
the NTI Product Components or otherwise to implement procedures reasonably
calculated to ensure that no express or implied licenses are granted to its
customers to make or have made products made of silicon or other semiconductor
materials. NTI agrees that Cadence may refer to NTI as a "third party" in the
standard form license terms. The message to be inserted in the log file is:
"Please be advised that your license to use this software does not give you a
license under any patents of Numerical Technologies, Inc. to make or have made
products made of silicon or other semiconductor materials."
3.6 Trademark License to Cadence. Cadence shall display NTI Trademarks
----------------------------
with any marketing, promotional, or advertising literature pertaining to the
Cadence Combined Products. NTI grants to Cadence a nonexclusive, worldwide
license to use the NTI Trademarks during the term of this Agreement solely in
connection with the NTI Product Components as part of the Cadence Combined
Products, with the Documentation and in conjunction with any other marketing,
promotional, or advertising literature pertaining to the Cadence Combined
Products. Cadence shall comply with any and all reasonable and customary
guidelines provided by NTI in writing concerning the use of the NTI Trademarks.
To enable NTI to monitor the use of the NTI Trademarks, Cadence shall provide,
as requested by NTI from time to time, samples of all items and materials to
which an NTI Trademark has been applied. Cadence shall obtain no rights with
respect to any of the NTI Trademarks, other than the rights set forth herein. At
NTI's written request, Cadence shall assign to NTI any such right, title, and
interest exceeding the rights granted herein
-7-
<PAGE>
that it may obtain in the NTI Trademarks and the associated goodwill. All
goodwill arising out of any uses of the NTI Trademarks will inure solely to the
benefit of NTI.
4. EXCLUSIVITY.
4.1 Limits on NTI's Activities. During the Initial Term of this Agreement
--------------------------
and any Renewal Term hereunder, subject to Section 4.2:
(a) NTI shall not, directly or through any of its Affiliates or Agents,
license, distribute, or otherwise provide any of the NTI Product Components or
Developed Software to Avant!, Mentor Graphics, or Synopsys without the express
prior written consent of Cadence, which Cadence may grant or withhold in its
sole discretion.
(b) NTI shall not, directly or through any of its Affiliates or Agents,
develop, or assist any third party in developing, or otherwise participate in
the development of, interfaces between, or an integrated solution consisting of
(in whole or in part), any of the NTI Product Components or Developed Software
and any Avant!, Mentor Graphics, or Synopsys product;
(c) NTI shall not, directly or through any of its Affiliates or Agents,
participate in, or assist any third party with, any marketing or sales
activities with Avant!, Mentor Graphics, or Synopsys or the marketing or
distribution of interfaces between, or an integrated solution consisting of (in
whole or in part), any of the NTI Product Components or Developed Software any
Avant!, Mentor Graphics, or Synopsys product;
(d) NTI shall not assist any end user in integrating the NTI Product
Components or Developed Software with any Avant!, Mentor Graphics, or Synopsys
product (however, it is understood and agreed that it will not be considered a
breach of this Section 4.1 by NTI if Avant!, Mentor Graphics, or Synopsys gains
access to the NTI Product Components or Developed Software through doing
integration work at a customer's facilities); and
(e) NTI shall include in all agreements with third parties in which the
third party is licensed to redistribute the NTI Product Components or Developed
Software (including OEM, reseller, and distribution agreements) a provision that
the third party's license to redistribute the NTI Product Components or
Developed Software will automatically terminate (subject to reasonable sell-off
terms that allow the licensee, for up to ninety (90) days after the date of
termination, to fulfill customer orders accepted before the date of termination)
if (i) Avant!, Mentor Graphics, or Synopsys enters into an agreement to merge
with, acquire the material assets of, or acquire thirty percent (30%) or more of
the outstanding capital stock of, or purchase all or substantially all of the
assets of a specific business unit of, the third party that is utilizing the NTI
Product Components or Developed Software, (ii) the third party enters into an
agreement to acquire the material assets of, or to merge with or acquire thirty
percent (30%) or more of the outstanding capital stock, of Avant!, Mentor
Graphics, or Synopsys and the resulting combined entity distributes an EDA
product (other than the Cadence Combined Products) that incorporates any of the
NTI Product Components or Developed Software, or (iii) such third party
distributes or licenses the NTI Components or Developed Software or any product
incorporating the NTI Components or Developed Software to Avant!, Mentor
Graphics, or Synopsys.
-8-
<PAGE>
4.2 Permitted NTI Activities. Subject to Section 4.1, NTI shall have the
------------------------
right to license, distribute, OEM, and sell the NTI Product Components and
Developed Software to any third party other than Avant!, Mentor Graphics, or
Synopsys. Consistent with the foregoing, NTI agrees that it will prohibit any
third party who has the right to distribute NTI Components or Developed Software
from licensing or transmitting the NTI Components or Developed Software (or
both), either on a stand-alone basis or as incorporated into any products, to
Avant!, Mentor Graphics, or Synopsys. Notwithstanding Section 4.1, if Cadence
fails to meet the Production Release Milestones, NTI shall have the unrestricted
right to enter into OEM or distribution license agreements with Synopsys for any
or all of the NTI Product Components. NTI shall notify Cadence in writing (a) if
NTI believes that Cadence has failed to meet any of the Production Release
Milestones, and (b) within two (2) business days after entering into such an
agreement with Synopsys. If, in response to any notice from NTI under clause (a)
above, Cadence notifies NTI in writing (within ten (10) days after receipt of
NTI's notice) that Cadence believes it has met the Production Release Milestones
in question, the parties will attempt to resolve the dispute in accordance with
Section 13. NTI will not enter into any OEM or distribution license agreement
with Synopsys until (i) it has given notice to Cadence as described in clause
(a) above and (ii) either Cadence has acknowledged in writing that it failed to
meet one of Production Release Milestones, or Cadence has failed to notify NTI
within ten (10) days as described above that Cadence believes it has met the
Production Release Milestones in question, or if Cadence does so notify NTI, the
dispute has been resolved in favor of NTI or the parties have been unable to
resolve the dispute in accordance with Section 13. Nothing in this Section 4
prevents NTI from granting patent licenses to any third parties provided that
NTI does not also license the NTI Product Components or Developed Software to
such third parties in violation of Section 4.1.
4.3 Limits on Cadence's Activities. During the Initial Term and any
------------------------------
Renewal Term, Cadence shall not, directly or through any of its Affiliates or
Agents, license, distribute, or otherwise provide any of the NTI Product
Components or Developed Software to Avant!, Mentor Graphics, or Synopsys,
without the express prior written consent of NTI, which NTI may grant or
withhold in its sole discretion, and Cadence shall not (a) develop, or
participate in the development of, interfaces between, or an integrated solution
consisting of (in whole or in part), any of the NTI Product Components or
Developed Software and any Avant!, Mentor Graphics, or Synopsys product or (b)
assist any end user in integrating the NTI Product Components or Developed
Software with any Avant!, Mentor Graphics or Synopsis product (however, it is
understood and agreed that it will not be considered a breach of this Section
4.3 by Cadence if Avant!, Mentor Graphics, or Synopsys gains access to the NTI
Product Components or Developed Software through doing integration work at a
customer's facilities). Cadence shall not be restricted from developing,
---
licensing, acquiring, marketing, or distributing any technologies which have
substantially the same functionality as the NTI Product Components or Developed
Software. Cadence shall use commercially reasonable efforts to introduce and
field the Cadence Combined Products as the primary Cadence phase-shift mask
solution for design tools for subwavelength integrated circuit technologies
during the Initial Term. The restrictions and obligations on Cadence in this
Section 4.3 will apply only as long as NTI has not materially breached its
obligations under Sections 4.1 and 4.2.
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5. FEES.
5.1 Payment Amounts During Initial Term. Subject to Section 5.4,
-----------------------------------
Cadence shall pay NTI a license fee for license of the NTI Product Components
("License Fee") in the amount of [***] and shall pay NTI a fee for training and
support regarding the NTI Product Components ("Service Fee") in the amount of
[***] during the Initial Term. During the Initial Term, the License Fee and
Service Fee shall be paid in accordance with the schedule set forth in Exhibit F
---------
attached hereto and Section 5.3 below. Other than the fees described in this
Section 5.1, no other royalties or payments shall be payable by Cadence to NTI
for the license of the NTI Product Components during the Initial Term or, to the
extent that Cadence's rights under this Agreement survive the expiration or
termination of this Agreement, after such expiration or termination.
5.2 Payments Amounts During Renewal Term. If Cadence exercises its
------------------------------------
option to renew the term of this Agreement under Section 14.2, Cadence shall pay
NTI an additional License Fee in the amount of [***] and an additional Service
Fee in the amount of [***] during the Renewal Term. During the Renewal Term, the
License Fee and the Service Fee shall be paid in accordance with a schedule to
be mutually agreed upon by the parties before the commencement of the Renewal
Term. Other than the fees described in this Section 5.2, no other royalties or
payments shall be payable by Cadence to NTI for the license of the NTI Product
Components during the Renewal Term or, to the extent that Cadence's rights under
this Agreement survive the expiration or termination of this Agreement, after
such expiration or termination.
5.3 Payment Terms. Payments will be made as indicated in Exhibit F,
------------- ---------
provided that all Development Milestones scheduled to be completed on or before
the dates of such payments have in fact been completed. If any one or more of
such Development Milestones have not been completed before a scheduled payment
date and the failure to complete such Development Milestones was not caused
directly and primarily by Cadence's failure to perform its obligations under the
Statement of Work, Cadence may withhold the scheduled payment (or payments)
until all such Development Milestones have been completed. If any one or more
such Development Milestones have not been completed before a scheduled payment
date and the failure to complete such Development Milestones was caused directly
and primarily by Cadence's failure to perform its obligations under the
Statement of Work, Cadence will make the scheduled payment (or payments) in
accordance with Exhibit F.
---------
5.4 Reduced Fees. If during the Initial Term or any Renewal Term NTI
------------
executes a distributor or OEM agreement with Synopsys as permitted under Section
4.2, beginning on the effective date of such agreement, the amount of the
License Fees payable thereafter by Cadence under this Section 5 during the
Initial Term and any Renewal Term shall be reduced by [***]. For the purpose of
clarification, in no event shall Cadence be entitled to any refund of License
Fees or Service Fees hereunder.
[***]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
5.5 No Withholding. Cadence understands and agrees that, in the event
--------------
of NTI's material breach of its training and support obligations, Cadence shall
not be entitled to withhold payment of License Fees hereunder.
6. PROPRIETARY RIGHTS.
6.1 Cadence Products. The parties agree that, as between the parties,
----------------
Cadence retains all right, title, and interest in and to the Cadence Products
and in all Intellectual Property Rights therein.
6.2 NTI Products. The parties agree that, as between the parties, NTI
------------
retains all right, title, and interest in and to the NTI Product Components and
Derivative Works thereof and in all Intellectual Property Rights therein.
6.3 IC Design Methodology. The parties agree that Cadence will have the
---------------------
right to use through its Design Services Methodology arm (or any successor
thereto), any integrated circuit design methodologies created in the course of
the joint development work to be undertaken pursuant to Section 2, regardless of
which party's employees or contractors participated in such creation. As used in
this Section 6.3, "integrated circuit design methodology" means the unique and
specific organization of the physical design flow for integrated circuit design
using Cadence Combined Products, and the method of operating these Cadence
Combined Products in a step-by-step, specific, repeatable, and documented
fashion including expert guidance, experimental methods, or other procedures
used to achieve a certain integrated circuit design goals. In any event,
"integrated circuit design methodology" shall not include patentable inventions
or copyrightable software which is covered by Sections 6.1, 6.2 and 6.4 of this
Agreement. Cadence shall have no obligation to account for or compensate NTI for
use of such integrated circuit design methodology.
6.4 Developed Software. Except to the extent that Developed Software is
------------------
covered by Section 6.1, 6.2 or 6.3:
(a) Joint Ownership. Except as set forth in this Section 6.4, the
---------------
parties intend that each party hereto will have an equal and undivided one-half
(1/2) joint ownership interest in the Developed Software and all Intellectual
Property Rights related thereto. Each party shall have the right to use and
exploit such jointly owned Developed Software subject to the provisions of
Section 4 and subject to each party's obligation to keep the source code of such
jointly owned Developed Software confidential according to the terms of Section
10. Neither party shall have any duty of accounting to the other party with
respect to such joint ownership interest. Notwithstanding the foregoing
provisions of this Section 6.4, the parties further agree that with respect to
any current or future patents on inventions which are embodied in the Developed
Software or portions thereof for which NTI personnel are the sole inventors or
for which Cadence personnel are the sole inventors, then NTI or Cadence, as the
case may be, shall retain sole ownership of and shall have the exclusive right
to apply for and register such patents. Each party hereby grants to the other
party a nonexclusive, nontransferable (except as set forth in Section 16)
license under such patents to make, have made, use, sell, offer for sale and
import the Developed Software solely as permitted under this Section 6.4 and
subject to the restrictions set forth in this Section 6.4 with respect to the
Developed Software, including the right to grant sublicenses under such patents
within the scope of such party's
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<PAGE>
rights with respect to the Developed Software hereunder, provided that such
patent sublicenses may only be granted in conjunction with a sublicense to the
Developed Software and shall be of the same scope as the sublicense to the
Developed Software. Each party will give the other party reasonable prior notice
in writing of any patent applications based upon the Developed Software for
which such party believes it is entitled to exclusive ownership under this
Section 6.4(a); the parties will attempt to resolve any disputes regarding such
claims of exclusive ownership in accordance with Section 13.
(b) Assignment. Each party hereby unconditionally and irrevocably
----------
assigns to the other party the joint ownership interest set forth in Section
6.4(a) with respect to the portions of the Developed Software developed by such
party.
(c) Applications and Registrations. To the extent that an
------------------------------
application, registration, or other governmental procedure (collectively, a
"Procedure") is required to obtain, perfect, or protect any Intellectual
Property Right that the parties may jointly own pursuant to Section 6.4(a) (for
example, registering a copyright on any software included in the Developed
Software) and either party desires to pursue such Procedure, such party shall
first consult with the other party. If the other party desires to participate in
such Procedure, the parties shall then jointly and cooperatively pursue such
Procedure, in which event they shall bear all costs equally and jointly own any
rights thereby obtained. If a party declines to participate in such Procedure,
the other party shall then have the right to pursue such Procedure alone, in
which case such other party shall bear all costs of and, notwithstanding Section
6.4(a), exclusively own all rights resulting from, such Procedure.
Notwithstanding the foregoing, each party will notify the other party before
filing any patent application for any portion of the Developed Software,
regardless of whether such portion of the Developed Software is jointly owned or
is exclusively owned by one party pursuant to Section 6.4(a). Such notice will
be subject to the confidentiality provisions in Section 12.
(d) Actions Against Third Party Infringers. Each party shall
--------------------------------------
promptly notify the other party if such former party becomes aware of any
possible infringement or misappropriation by a third party of any of the
Developed Software or Intellectual Property Rights in which the parties share a
joint ownership interest under Section 6.4(a). If either party desires to take
any action against such an infringing or misappropriating third party, such
party shall first notify the other party hereto and consult with such other
party regarding such action. If the other party desires to participate in such
action, the parties will then jointly and cooperatively pursue such action, in
which event they will bear all costs equally and share in any damages or other
recoveries equally. Either party may at any time decide not to participate
further in any such action, in which case any further costs will be born by and
all damages and other recoveries shall be received by the party that continues
to pursue such action. If a party declines to participate in any such action,
the other party will then have the right to pursue such action alone, and will
bear all costs of and receive all damages and other recoveries from such action.
Notwithstanding the foregoing, if a party declines to participate in such an
action or withdraws from such an action, such party will nevertheless, at the
request of the other party, cooperate with the other party, at the cost of the
other party and subject to any reasonable conditions (including indemnification
against counterclaims by the third party), to the extent necessary to enable the
other party to pursue such action effectively.
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<PAGE>
6.5 Cooperation. Each party shall execute all documents and take such
-----------
further actions as may be reasonably required to evidence, perfect, or enforce
any assignment of rights set forth in this Section 6.
7. TRAINING AND SALES SUPPORT.
7.1 Training of Cadence Employees. During the Initial Term and any
-----------------------------
Renewal Term, NTI will provide to Cadence employees up to two training classes
(one for development engineers and one for application engineers) for a total of
seven (7) days per quarter regarding the NTI Product Components and Developed
Software. All training classes shall be provided at locations to be mutually
agreed upon by the parties. Any additional training shall be provided to Cadence
by NTI at an additional charge to be mutually agreed upon by the parties. For
purposes of this Section 7, "days" do not include travel time to or from
locations where NTI provides training or support pursuant to this Section 7.
7.2 Joint Sales Calls. Two (2) NTI employees shall participate with
-----------------
Cadence in sales calls for up to three (3) weeks per quarter, made to
prospective customers for the Cadence Combined Products during the Initial Term
and any Renewal Term.
7.3 [***].
7.4 Joint Marketing Efforts. NTI and Cadence agree to take reasonable
-----------------------
commercial steps to coordinate their respective efforts to market the NTI
Product Components and to create joint marketing collateral regarding the NTI
Product Components and Cadence Combined Products.
7.5 Training of Cadence End Users. Cadence shall have the sole
-----------------------------
responsibility for conducting end-user training for the Cadence Combined
Products.
7.6 Cadence End User Support. Cadence shall be solely responsible for
------------------------
providing product technical support to all end-users of the Cadence Combined
Products.
8. UPDATES AND SUPPORT OF CADENCE.
8.1 Updates. During the Initial and Renewal Terms, NTI shall deliver to
-------
Cadence any Updates to the NTI Product Components that NTI has prepared upon
commercial release thereof. NTI agrees that it will not rename the NTI Product
Components in order to avoid providing Cadence with Updates that Cadence is
entitled to under this Section 8.1. During the Renewal Term (if any), NTI will
use commercially reasonable efforts to furnish Cadence with Updates containing
specific enhancements reasonably requested by Cadence or a customer of Cadence,
if NTI can develop such enhancements without devoting substantial additional
resources or incurring substantial additional costs.
[***]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTION.
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<PAGE>
8.2 Back-Up Support and Error Corrections. During the Initial and Renewal
-------------------------------------
Terms, NTI shall provide to Cadence back-up support for the NTI Product
Components and Developed Software as follows:
(a) Error Correction. NTI will use reasonable commercial efforts
----------------
to provide an Update to correct any Errors in the NTI Product Components or
Developed Software reported by Cadence. Such efforts will include, as
appropriate, (i) reviewing the Error with Cadence, (ii) gathering additional
information about the Error, (iii) analyzing the Error to determine its cause,
(iv) providing an Error solution (which may be an Update or a workaround, if
already known), and (v) when required providing an Update that corrects the
Error. When available, Updates will be delivered promptly to Cadence at no
additional cost. NTI will provide Cadence with an estimate of how long it will
take to correct the Errors reported by Cadence (in accordance with Section
8.2(b)) and will keep Cadence informed of the progress of the problem
resolution.
(b) Error Classification and Response. Cadence and NTI will jointly
---------------------------------
classify Errors reported by Cadence as follows: "Fatal" means an Error that
prevents the product from performing any useful work; "Severe Impact" means an
Error that disables a major or essential function or functions (other than Fatal
Errors); "Degraded Operations" means an Error that disables one or more non-
essential functions; and "Minor" means all other Errors. NTI will use reasonable
commercial efforts to confirm receiving a report of an Error, provide a
workaround or temporary fix including Documentation changes, and provide an
Update correcting the Error as follows:
<TABLE>
<CAPTION>
Severity Confirm Report Temporary Fix Update
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fatal 1 business day Continued effort until 6 days
corrected
- -----------------------------------------------------------------------------------------------------
Severe Impact 1 business day 5 business days 20 days
- -----------------------------------------------------------------------------------------------------
Degraded Operations 2 business day 15 business days 60 days
- -----------------------------------------------------------------------------------------------------
Minor 5 business day To be determined on a To be determined on a
case-by-case basis case-by-case basis
- -----------------------------------------------------------------------------------------------------
</TABLE>
NTI will provide to Cadence sufficient advance notice of any planned Updates as
soon as such plans are made by NTI so as to enable Cadence to adapt its
interfaces to the NTI Product Components and Developed Software in a timely
manner.
9. RIGHT TO MATCH ACQUISITION OFFER.
9.1 Acquisition Offers. In the event that NTI receives a bona fide offer
------------------
to acquire NTI from Synopsys, Mentor Graphics, or Avant! (whether by merger,
stock exchange, sale of substantially all of the assets, or other business
combination) pursuant to which the shareholders of NTI would hold less than
50% of the voting equity securities of the successor or acquiring corporation
following such acquisition (an "Acquisition Offer"), and the Board of
Directors of NTI, after review of such Acquisition Offer, determines it is in
the best interests of NTI's shareholders to accept such offer, then NTI shall
provide written notice of such determination (the "Acquisition Offer Notice")
to Cadence and Cadence shall, subject to the terms and conditions of Sections
9.2 and 9.3 below, have the right to match or exceed such Acquisition Offer as
described below.
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<PAGE>
[***].
9.2 Counter Acquisition Offer. The Acquisition Offer Notice shall set
-------------------------
forth the principal financial and other terms of the Acquisition Offer.
Cadence shall have thirty (30) calendar days following receipt of the
Acquisition Offer Notice to respond with a counter Acquisition Offer. The
Board (excluding any Board representative of Cadence should any such
representative exist) shall review all Acquisition Offers received and shall,
in its sole discretion consistent with its fiduciary duties under law and with
the advice of its investment advisors, if any, determine which Acquisition
Offer is in the best interests of NTI and its shareholders (taking into
account which Acquisition Offer is financially superior, which has the
greatest likelihood of consummation and other factors). During this thirty
(30) day period NTI shall not (i) publicly endorse or comment upon any other
Acquisition Offer and (ii) shall not allow any other prospective purchaser to
have access to NTI's records, facilities, or personnel for the purpose of
conducting a due diligence review.
9.3 Assignability. The right to match under this Section 9 is not
-------------
assignable by Cadence without the prior written consent of NTI, except to
Affiliates of Cadence in connection with an assignment of this entire Agreement
as part of an internal restructuring or reorganization of Cadence not involving
any combination with any third party (other than third parties that either are
Affiliates of Cadence as of the Effective Date or are formed in connection with
such internal restructuring or reorganization).
9.4 Fiduciary Duties. Notwithstanding anything to the contrary above, the
----------------
Board shall review all Acquisition Offers in compliance with its fiduciary
duties under law and any other applicable laws.
9.5 Remedies. NTI acknowledges that any breach of this Section 9 by NTI
--------
would cause irreparable harm to Cadence for which monetary damages would be
inadequate and, therefore, Cadence will be entitled to immediate injunctive
relief, without the requirement of posting bond, to prevent any continuing or
threatened breach of this Section 9 by NTI.
9.6 Termination. The rights and obligations under this Section 9 shall
-----------
terminate upon the earliest to occur of the events described in clauses (i) or
(ii) below (provided, in the case of clause (ii), that NTI shall have complied
with the provisions of this Section 9 prior to consummating the transactions
described in such clause (ii)). The events referred to above are: (i) the
closing of the initial public offering of NTI, and (ii) a sale of substantially
all of the assets of NTI or a merger or consolidation of NTI with or into
another corporation or entity pursuant to which the shareholders immediately
prior to such merger or consolidation hold less than fifty percent (50%) of the
voting equity securities of the surviving or acquiring entity immediately
following such merger or consolidation.
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10. LIMITED WARRANTIES AND DISCLAIMER.
10.1 Limited Warranty. NTI warrants that, at the time of delivery to
----------------
Cadence, the unmodified NTI Product Components (including any and all Updates),
and the Developed Software (excluding any Cadence Developed Software)
(collectively defined for the purposes of this Article 10 as the "NTI Warranted
Software") and delivered to Cadence will be complete and functioning and that,
for a period of six (6) months from the date of delivery or ninety (90) days
from the date of the first commercial shipment by Cadence of such NTI Warranted
Software (whichever is shorter) (the "Warranty Period"), the NTI Warranted
Software delivered to Cadence will have no Critical Errors under normal use.
NTI's entire liability and Cadence's exclusive remedy under this warranty will
be, at NTI's option, to use reasonable commercial efforts to attempt to correct
any Critical Errors or to replace the NTI Warranted Software with functionally
equivalent software. If NTI is unable to correct any Critical Error in the NTI
Warranted Software and delivered to Cadence within sixty (60) days after such
Critical Error is reported to NTI by Cadence, then (a) in the case of a Critical
Error in the initial version of the NTI Warranted Software delivered to Cadence
under this Agreement, Cadence will have the right to terminate this Agreement by
written notice to NTI and NTI will pay to Cadence an amount equal to the sum of
License Fee and Service Fee payments made by Cadence prior to such termination,
or (b) in the case of a Critical Error in an Update to the NTI Product
Components delivered to Cadence under this Agreement, Cadence will have the
right to terminate Section 8 of this Agreement and NTI will pay to Cadence an
amount equal to Service Fee payments made by Cadence since the last Update
delivered but at least the most recent payment, in each case provided that
Cadence reports such Critical Error to NTI within the applicable Warranty
Period. If a Critical Error is caused by the portions of the Cadence Developed
Code, Cadence will provide NTI with engineering resources as necessary to
correct the Critical Error, and (a) NTI will not be responsible for any failure
to correct the Critical Error within sixty (60) days if Cadence fails to provide
such engineering resources and (b) shall be relieved of any obligations under
this Section 10.1 to the extent failure to fulfill the obligation is caused
directly and primarily by such Critical Error.
10.2 Exclusions. The warranties under Section 10.1 will not extend to
----------
problems that result from: (i) Cadence's failure to implement all Updates to the
NTI Product Components issued to Cadence by NTI (unless such Update causes or
contains the Critical Error); (ii) any alterations of or additions to the NTI
Warranted Software performed by or at the direction of parties other than NTI;
(iii) misuse of the NTI Warranted Software; or (iv) use of the NTI Warranted
Software in conjunction with products not supplied or approved by NTI.
10.3 Necessary Rights. NTI represents and warrants to Cadence that NTI
----------------
has all rights necessary to grant to Cadence the licenses granted to Cadence in
this Agreement.
10.4 No Viruses. NTI represents and warrants to Cadence that the NTI
----------
Warranted Software delivered to Cadence under this Agreement, will not contain
any computer software code, routines, or devices (other than as set forth in the
documentation accompanying such software or code) designed to alter, disable,
damage, erase, or impair the use of software or data without the user's
knowledge and consent, and that NTI will use commercially reasonable efforts,
including the
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use of commercially available virus detection software, to ensure that the media
on which the NTI Warranted Software are delivered to Cadence do not contain any
such code.
10.5 Year 2000 Compliance. During the applicable Warranty Period, NTI
--------------------
warrants that the NTI Warranted Software will accurately process and handle
(including calculating, comparing and sequencing) date and time data from, into,
and between the twentieth and twenty-first centuries, and the years 1999 and
2000, including leap year calculations, to the extent that other information
technology used in combination with the NTI Warranted Software properly exchange
date and time data with it. NTI's entire liability and Cadence's exclusive
remedy under this warranty will be, at NTI's option, to use reasonable
commercial efforts to attempt to correct any failure of the NTI Warranted
Software to be Year 2000 compliant as described above, unless such failure also
constitutes a Critical Error, in which case Cadence will also have the remedies
available under Section 10.1.
10.6 Exclusive Warranties. Except for the express warranties stated in
--------------------
Section 10 above, NEITHER PARTY MAKES ANY OTHER WARRANTY OF ANY KIND, WHETHER
EXPRESS, IMPLIED, OR STATUTORY AND BOTH PARTIES DISCLAIM ANY AND ALL IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NTI
disclaims any warranty that the NTI Warranted Software delivered to Cadence
under this Agreement will be capable of productive use if not used with the
Cadence Products.
11. INDEMNIFICATION AND LIMITATION OF LIABILITY.
11.1 Indemnification.
---------------
(a) NTI and Cadence (the "Indemnifying Party"), as the case may
be, agrees, at its own expense, to defend or at its option settle, any
third party claim, suit or proceeding (collectively, "Action") brought
against the other party (the "Indemnified Party") to the extent such
Action results from actual or alleged infringement (whether direct,
contributory, by inducement, or otherwise) by (a) in the case of NTI or
those portions of the Developed Software which were (for the purposes of
patent infringement claims) designed or implemented solely by NTI
employees or independent contractors (unless there was no non-infringing
way to design or implement such portions of the Developed Software and
still meet the Specifications) or (for the purposes of copyright, trade
secret, and other Intellectual Property Right infringement or
misappropriation) coded solely by NTI employees or independent
contractors during the course of development under Article 2 of this
Agreement and delivered to Cadence (collectively defined for the purposes
of this Section 11.1 as the "NTI Indemnified Software"); and (b) in the
case of Cadence those portions of the Developed Software which were (for
the purposes of patent infringement claims) designed or implemented
solely by Cadence employees or independent contractors (unless there was
no non-infringing way to design or implement such portions of the
Developed Software and still meet the Specifications) or (for the
purposes of copyright, trade secret, and other Intellectual Property
Right infringement or misappropriation) coded solely by Cadence employees
or independent contractors during the course of development under Article
2 of this Agreement and delivered to NTI of any U.S. patent, any patent
issued in Japan or any European Union country, or any copyright, trade
secret, trademark, or other Intellectual Property Right worldwide;
provided, that the Indemnifying
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Party shall have sole control of any such Action or settlement negotiations, and
the Indemnifying Party agrees to indemnify and hold the Indemnified Party
harmless from, subject to the limitations hereinafter set forth, any settlement
amounts or final judgment entered against the Indemnified Party on such issue in
any such Action (regardless of characterization of types of damage). The
Indemnified Party will (i) notify the Indemnifying Party promptly in writing of
such an Action, (ii) give the Indemnifying Party sole control and authority to
proceed as contemplated herein, and (iii) give the Indemnifying Party proper and
full information and assistance to settle and/or defend any such Action. Failure
by the Indemnified Party to notify the Indemnifying Party promptly in writing of
such an Action will relieve the Indemnifying Party of its obligations under this
Section 11.1 only to the extent that the Indemnifying Party's ability to defend
the Action is prejudiced by such lack of notice. The Indemnifying Party further
agrees to indemnify and hold the Indemnified Party harmless for the Indemnified
Party's reasonable costs and expenses (including reasonable attorneys' fees)
incurred in analyzing and tendering to the Indemnifying Party any such Action,
provided that the Indemnified Party fulfills its obligations under clauses (i),
(ii) and (iii) of this Section 11.1. In addition, in the event that the
Indemnifying Party fails to assume the defense of any such Action, and provided
that the Indemnified Party has fulfilled its obligations under clauses (i), (ii)
and (iii) above, then the Indemnified Party may give the Indemnifying Party
written notice of such failure and an opportunity to cure such failure within
thirty (30) business days. In the event that the Indemnifying Party does not
assume the defense of such Action within such cure period, then the Indemnifying
Party shall further be obligated to indemnify and hold the Indemnified Party
harmless for the Indemnified Party's reasonable costs and expenses (including
reasonable attorneys' fees) incurred in the defense or settlement of such
action.
(b) If it is adjudicatively determined, or if NTI reasonably
believes, that the NTI Indemnified Software or any part thereof infringes any
patent, copyright, trade secret, trademark or other Intellectual Property Right
of a third party, then NTI may, and if the sale, distribution, or use of the NTI
Indemnified Software by Cadence is, as a result, enjoined, then NTI shall, at
its option and expense: (a) procure for Cadence the rights under such patent,
copyright, trade secret, trademark or other Intellectual Property Right needed
for Cadence to exercise all of its rights under this Agreement with respect to
the NTI Indemnified Software, or such part thereof; or (b) replace the NTI
Indemnified Software, or parts thereof, with non-infringing suitable products or
parts with the same functionality (or better) as the infringing NTI Indemnified
Software or parts; or (c) suitably modify the NTI Indemnified Software, or part
thereof, to become non-infringing and have the same functionality or better; or
(d) if none of the foregoing is feasible and Cadence's continued use and
distribution of the infringing NTI Indemnified Software (or part thereof) has
been finally enjoined, accept return of such NTI Indemnified Software, or part
thereof, terminate distribution or sale thereof, and pay to Cadence an amount
equal to a portion of the License Fees previously paid (and reduce the License
Fees still to be paid by an amount) commensurate with the value of such NTI
Indemnified Software (or part thereof) compared to the value of all the NTI
Product Components and Developed Software. NTI will not be liable for any costs
or expenses incurred without its prior written authorization, or for any
installation costs of replaced NTI products. Any settlement that restricts
Cadence's ability to continue using or distributing any NTI Indemnified Software
in accordance with this Agreement will not be binding on Cadence unless approved
in writing by an authorized officer of Cadence (which approval will not be
unreasonably withheld). If any settlement restricts Cadence's ability to
continue using or distributing any NTI
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Indemnified Software in accordance with this Agreement, the parties will
negotiate in good faith a commensurate reduction in the License Fees.
11.2 Limitation of Liability. EXCEPT WITH RESPECT TO BREACH OF SECTIONS
-----------------------
12 (CONFIDENTIALITY), 3 (LICENSE GRANTS), 4 (EXCLUSIVITY) AND 9 (RIGHT TO MATCH
ACQUISITION OFFER) AND EXCEPT WITH RESPECT TO LIABILITY UNDER SECTION 11.1
(INDEMNIFICATION), NEITHER PARTY SHALL HAVE ANY LIABILITY TO THE OTHER PARTY FOR
LOST PROFITS OR BUSINESS OPPORTUNITIES, LOST DATA, OR ANY OTHER INDIRECT,
INCIDENTAL, CONSEQUENTIAL, SPECIAL, OR RELIANCE DAMAGES, HOWEVER CAUSED AND
UNDER ANY THEORY OF LIABILITY, WHETHER BASED IN CONTRACT, TORT (INCLUDING
NEGLIGENCE), PRODUCT LIABILITY OR OTHERWISE. THESE LIMITATIONS SHALL APPLY
REGARDLESS OF WHETHER SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGE AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED
REMEDY. NTI'S TOTAL, CUMULATIVE LIABILITY UNDER SECTION 11.1 FOR ANY AND ALL
CLAIMS OF INFRINGEMENT OF PATENTS ISSUED IN JAPAN OR ANY EUROPEAN UNION COUNTRY
WILL BE LIMITED TO THE AGGREGATE AMOUNT PAID BY CADENCE TO NTI UNDER THIS
AGREEMENT AND CADENCE'S TOTAL, CUMULATIVE LIABILITY UNDER SECTION 11.1 FOR ANY
AND ALL CLAIMS OF INFRINGEMENT OF PATENTS ISSUED IN JAPAN OR ANY EUROPEAN UNION
COUNTRY WILL BE LIMITED TO ONE HALF THE AGGREGATE AMOUNT PAID BY CADENCE TO NTI
UNDER THIS AGREEMENT.
12. CONFIDENTIALITY.
12.1 Definition. The term "Confidential Information" shall mean any
----------
information disclosed by one party to the other party in connection with this
Agreement which is disclosed in writing, electronically, orally or by inspection
and which a party has a reasonable basis to believe is treated as confidential
by the other party.
12.2 Obligation. Each party shall treat as confidential all Confidential
----------
Information received from the other party, shall not use such Confidential
Information except as expressly permitted under this Agreement, and shall not
disclose such Confidential Information to any third party without the other
party's prior written consent. Each party shall take reasonable measure to
prevent the disclosure and unauthorized use of Confidential Information of the
other party for a period from the time of disclosure until the later to occur of
(i) the date five (5) years after such disclosure, or (ii) the expiration or
termination of this Agreement.
12.3 Exceptions. Notwithstanding the above, the restrictions of this
----------
Section 12 shall not apply to information that:
(a) was independently developed by the receiving party without any
use of the Confidential Information of the other party and by employees or
other agents of (or independent contractors hired by) the receiving party
who have not been exposed to the Confidential Information as demonstrated
by written documentation;
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<PAGE>
(b) becomes known to the receiving party, without restriction, from a
third party without breach of this Agreement and who had a right to disclose it;
(c) was in the public domain at the time it was disclosed or becomes
in the public domain through no act or omission of the receiving party; or
(d) was rightfully known to the receiving party, without restriction,
at the time of disclosure.
12.4 Government Order. If a receiving party is required under an order or
----------------
requirement of a court, administrative agency, or other governmental body to
disclose any Confidential Information, then such receiving party shall provide
prompt notice thereof to the other party and shall use its reasonable commercial
efforts to obtain a protective order or otherwise prevent public disclosure of
such information.
12.5 Residuals. This Section 12 is not intended to prevent the receiving
---------
party from using Residual Knowledge, subject to any valid patents and copyrights
of the disclosing party. "Residual Knowledge" means ideas, concepts, know-how,
or techniques related to the disclosing party's technology or general skill,
knowledge, talent and expertise that are retained in the unaided memories of the
receiving party's employees who have had access to the Confidential Information
of the disclosing party, but in no event including Confidential Information
relating to the Source Code Materials of the NTI Product Components to the
extent that Cadence employees gain access to such Source Code Materials under
this Agreement or of the Cadence Products to the extent that NTI employees gain
access to such Source Code Materials under this Agreement. An employee's memory
is considered unaided if the employee has not intentionally memorized the
Confidential Information for the purpose of retaining and subsequently using or
disclosing it.
13. DISPUTE RESOLUTION.
If NTI and Cadence are unable to resolve any dispute, controversy, or claim
arising from this Agreement between them, then, prior to exercising its right to
terminate under any provision of this Agreement or (in the case of a dispute
over whether Cadence has met the Production Release Milestones) prior to NTI
entering into an OEM or distribution agreement with Synopsys as permitted under
Section 4.2, either NTI or Cadence shall, by written notice to the other, first
have such dispute referred to a Senior Vice President (or equivalent) of NTI and
Cadence, for attempted resolution by good faith negotiations within ten (10)
business days after such notice is received. If not resolved within such ten
(10) business day period, the parties shall escalate the dispute to their
respective Chief Operating Officers (or equivalent) for resolution within thirty
(30) business days after expiration of the initial ten (10) day period. Unless
otherwise mutually agreed, the negotiations between the designated officers
shall be conducted by face-to-face meetings within ten (10) business days and at
mutually convenient times within the period stated above.
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14. TERM AND TERMINATION.
14.1 Term. The term of this Agreement shall commence on the Effective
----
Date and, unless terminated earlier as provided under Section 14.3 or renewed as
provided under Section 14.2, shall expire at the end of the Initial Term.
14.2 Option to Renew. Cadence shall have the option of renewing this
---------------
Agreement for the Renewal Term by giving NTI written notice of its intent to
exercise such option on or before the date that is 270 days before the
expiration of the Initial Term.
14.3 Termination for Breach. If either party (the "Breaching Party")
----------------------
materially breaches any term or condition of this Agreement, the other party
(the "Non-Breaching Party") may give written notice of such breach to the
Breaching Party. The Breaching Party will then have ten (10) days to notify the
Non-Breaching Party if the Breaching Party believes it has not materially
breached this Agreement, in which case the parties will attempt to resolve the
dispute in accordance with Section 13. If the Breaching Party acknowledges in
writing that it has materially breached this Agreement or fails to provide such
notice to the Non-Breaching Party within this ten (10) day period, or if the
parties are unable to resolve the dispute in accordance with Section 13, then
the Breaching Party will have thirty (30) days to cure the breach. If the
Breaching Party is unable to cure the breach within this thirty (30) day period,
the Non-Breaching Party may terminate this Agreement by written notice to the
Breaching Party at any time within thirty (30) days following the end of such
thirty (30) day period.
14.4 (a) Failure to Achieve a Development Milestone. If any Development
------------------------------------------
Milestone is not met by the corresponding completion date set forth in Exhibit B
---------
and such failure was not caused directly and primarily by Cadence's failure to
perform its obligations under the Statement of Work, Cadence may notify NTI in
writing of such failure. NTI will then have thirty (30) days to meet the
Development Milestone in question. If NTI meets such Development Milestone
within this thirty (30) day period, this Agreement will remain in full force and
effect. If NTI does not meet such Development Milestone within this thirty (30)
day period, then Cadence may either, at its option, (a) require NTI to deliver
to Cadence the Source Code Materials for that portion of the NTI Product
Components needed to complete or correct the development work necessary to
achieve the Development Milestone that had not been met, or (b) terminate this
Agreement by written notice to NTI. If Cadence elects to receive the Source Code
Materials needed to complete or correct the development work rather than
terminate this Agreement, then (i) NTI shall retain all right, title, and
interest in and to the Source Code Materials initially delivered to Cadence;
(ii) Cadence will have will have a non-exclusive, nontransferable, fully-paid
and royalty-free license to use, reproduce, modify, and create derivative works
from such Source Code Materials solely for the purpose of completing or
correcting the development work necessary to achieve the Development Milestone
that had not been met; (iii) ownership of the Developed Software will be as set
forth in Section 6.4; (iv) Cadence will be entitled to deduct from its next
payment of the License Fee its fully burdened costs of completing or correcting
the development work necessary to achieve the Development Milestone but in no
event shall such deduction exceed the full amount of that particular Development
Milestone payment; (v) Cadence shall not distribute, sell, or sublicense the
Source Code Materials; (vi) the Source Code Materials shall be subject to the
confidentiality provisions set forth in Section 12; and (vii) Cadence shall
restrict disclosure of the Source Code Materials to those within its
organization who need to use it for the purposes allowed under the above
license, and shall keep it in a secure, locked location when not in use. If
Cadence terminates pursuant to Section 14.4(b), Cadence will have the same
rights as provided under Section 3 with respect to the Developed Software for
which development under this Agreement is complete as of the termination date,
and will be obliged to make future payments of License Fees reduced by seventy-
five percent (75%) (and no further payments whatsoever of Service Fees) for
either (a) the remainder of the Initial Term and the Renewal Term (if (i) the
termination took place before the time for Cadence to make its election
regarding the Renewal Term, or (ii) the termination took place after Cadence had
elected to renew the Agreement), or (b) just the remainder of the Initial Term
(if the time for election had passed prior to termination and Cadence had not
elected to extend the Agreement into the Renewal Term).
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[***]
14.5 Termination for Force Majeure. Each party will have the right to
-----------------------------
terminate this Agreement pursuant to Section 17.8.
14.6 Effect of Termination. Except as otherwise specifically set forth in
---------------------
this Agreement, the following sections shall survive the expiration or
termination, for any reason, of this Agreement: 1 (Definitions), 6 (Proprietary
Rights), 10 (Limited Warranties and Disclaimer), 11 (Indemnification and
Limitation of Liability), 12 (Confidentiality), 16 (Assignment), and 17
(Miscellaneous). All other Sections and all licenses hereunder shall terminate
upon the expiration or termination, for any reason, of this Agreement except as
provided in Sections 14.4 (only with respect to the portion relating to
termination pursuant to Section 14.4(b)), 14.6, 14.7, 14.8, 14.9, 14.10, 14.11,
15.3 and 15.4 below.
14.7 Rights Upon Cadence Breach. In the event of termination of the
--------------------------
Agreement by NTI for a material breach by Cadence, the following shall apply
regarding Cadence's right to continue to ship the NTI Product Components and
Updates thereto after such termination (as to each NTI Product Component or
Update, only if development of such NTI Product Component or Update under this
Agreement is has reached alpha version and only with respect to those Cadence
Combined Products which have reached alpha version):
(a) Non-Intellectual Property or Payment Related Breach. If the material
---------------------------------------------------
breach by Cadence is not related to NTI's Intellectual Property rights or NTI's
right to receive fees under the Agreement, then after termination Cadence shall
only have the right to ship the then-current version of the NTI Product
Components available at the time of the breach as part of Updates to the Cadence
Combined Products to Cadence customers who, prior to breach, already purchased
the Cadence Combined Product.
(b) Intellectual Property or Payment Related Breach. If the Cadence breach
-----------------------------------------------
is a material breach relating to NTI's Intellectual Property rights or NTI's
right to receive fees under the Agreement, then Cadence shall have no right to
continue shipping any NTI Product Components under any circumstances.
14.8 Rights upon NTI Breach. In the event of a material breach by NTI,
----------------------
Cadence shall have the right either:
(a) to terminate this Agreement in accordance with Section 14.3 and have
the same rights as provided under Section 3 (as to each NTI Product Component or
Update, only if development of such NTI Product Component or Update under this
Agreement is has reached alpha version and only with respect to those Cadence
Combined Products which have reached alpha version) for the remainder of the
Initial Term and the Renewal Term (if (i) the termination took place before the
time for Cadence to make its election regarding the Renewal Term, or (ii)
termination took place after Cadence had elected to renew the Agreement), or
just the remainder of the Initial Term (if the time for election had passed
prior to termination and Cadence had not elected to extend the Agreement into
the Renewal Term); provided, however that except as provided in Section 14.8(b),
Cadence shall pay NTI a reduced License Fee in the amount of twenty-five percent
(25%) of the original License Fee (including the License Fee owed for the
Renewal Term, if Cadence elects to preserve its rights for the Renewal Term)
owed under this Agreement (any such additional payments will be due in
accordance with the schedule in Exhibit F); or
---------
(b) if the NTI breach was a material breach of Section 4, to terminate this
Agreement in accordance with Section 14.3 and have the same rights as provided
under Section 3 (as to each NTI Product Component or Update, only if development
of such NTI Product Component or Update under this Agreement has reached alpha
version and only with respect to those Cadence Combined Products which have
reached alpha version) with no further payments of the License Fee whatsoever
for either (a) the remainder of the Initial Term and the Renewal Term (provided
(i) the termination took place before the time for Cadence to make its election
regarding the Renewal Term, or (ii) termination took place after Cadence had
elected to renew the Agreement), or (b) just the remainder of the Initial Term
(provided the time for election had passed prior to termination and Cadence had
not elected to extend the Agreement into the Renewal Term).
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<PAGE>
14.9 Termination for Cadence's Failure to Achieve Development Milestone.
------------------------------------------------------------------
If any Development Milestone is not met by the corresponding completion date set
forth in Exhibit B and such failure was caused directly and solely, or directly
---------
and primarily, by Cadence's failure to perform its obligations under the
Statement of Work, NTI may notify Cadence in writing of such failure. Cadence
will then have thirty (30) days to perform its obligations. If Cadence performs
its obligations within this thirty (30) day period, this Agreement will remain
in full force and effect. If Cadence does not perform its obligations within
this thirty (30) day period and the cause of the failure to meet the Development
Milestone was directly and solely Cadence's failure to perform its obligations
under the Statement of Work, NTI may, at its option, by written notice to
Cadence effective immediately either (a) terminate this Agreement or (b)
terminate the exclusivity provisions in Section 4, in which latter case all
future payments of License Fees and Support Fees will be reduced by fifty
percent (50%). If Cadence does not perform its obligations within this thirty
(30) day period and the cause of the failure to meet the Development Milestone
was directly and primarily Cadence's failure to perform its obligations under
the Statement of Work, then NTI will have no right to terminate this Agreement
but NTI will have the option to terminate effective immediately, by written
notice to Cadence, the exclusivity provisions in Section 4, in which case all
future payments of License Fees and Support Fees will be reduced by fifty
percent (50%).
14.10 Rights upon Expiration. Upon the expiration of the Renewal Term (or,
----------------------
if none, the Initial Term), Cadence shall only have the right to ship the then-
current version of the NTI
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<PAGE>
Product Components available at the time of such expiration to the Cadence
Combined Products to Cadence customers who, prior to such expiration, already
purchased the Cadence Combined Product; provided that, Cadence shall only be
permitted to continue such shipments until the end of life of the release of the
Cadence Combined Products which were being shipped at the time of the
expiration.
14.11 Updates. In any case of termination of this Agreement, after such
-------
termination NTI will have no obligation under this Agreement to provide Updates
to Cadence.
14.12 Return of Materials. Upon the expiration or termination of this
-------------------
Agreement for any reason, and except for copies of such items as may be
reasonably required by NTI to exercise any surviving rights or fulfill any
surviving obligations, NTI shall promptly (i) return to Cadence the originals
and all copies (in tangible form or stored in storage or memory devices) of all
Cadence Materials, all Confidential Information of Cadence and all other
material provided hereunder by Cadence in NTI's possession or control; and (ii)
provide Cadence with a written statement certifying that it has complied with
the foregoing obligations. Upon the termination of this Agreement for any
reason, and except for such items as may be reasonably required by Cadence to
exercise any surviving rights or fulfill any surviving obligations, Cadence
shall promptly (a) return to NTI the originals and all copies (in tangible form
or stored in storage or memory devices) of all Confidential Information of NTI
and all other material provided hereunder by NTI in Cadence's possession or
control; and (b) provide NTI with a written statement certifying that it has
complied with the foregoing obligations.
14.13 Remedies Cumulative. If Cadence elects to terminate this Agreement
-------------------
due to a material breach by NTI, such termination will be Cadence's sole and
exclusive remedy for such breach. Except as specifically set forth in this
Agreement, termination shall be in addition to all other legal or equitable
remedies available to either party.
15. ESCROW.
15.1 Escrow Account. Within ninety (90) days after the production freeze
--------------
completion date for each portion of the NTI Product Components and Developed
Software, NTI shall place and maintain current in an escrow account with an
escrow agent in California selected by Cadence and reasonably acceptable to NTI
a complete copy of the Source Code Materials for the NTI Product Components and
Developed Software and any Updates that Cadence is licensed to use hereunder.
Cadence shall have the right at any time to contact the escrow agent for the
purpose of confirming that the Source Code Materials are in the escrow account
and verifying the instructions to the escrow agent to release the Source Code
Materials under the circumstances specified in Section 14.2 below. Cadence
shall bear all fees, expenses and other charges of the escrow agent to open and
maintain such escrow account.
15.2 Release. The escrow agreement between Cadence, NTI and the escrow
-------
agent will provide that, if (a) Cadence seeks release of the Source Code
pursuant to Section 14.4 (a "Development Default"), or (b) NTI (or its
successors or assigns) liquidates, makes general assignment for the benefit of
creditors, or ceases doing business as a going concern or ceases to support the
NTI Product Components or commits a material and ongoing breach of its support
-24-
<PAGE>
obligations under Section 8.2 above that is not cured within thirty (30) days of
written notice from Cadence (a "Non-Development Default"), then, upon notice
thereof by Cadence to NTI and the escrow agent, the escrow agent shall deliver
the Source Code Materials to Cadence. If NTI disputes Cadence's right to the
Source Code Materials, the matter shall be referred to arbitration or a court of
jurisdiction.
15.3 Licenses. If the Source Code Materials are delivered to Cadence as a
--------
result of a Development Default, Cadence will have the license, rights, and
obligations provided in paragraph (a) below. If the Source Code Materials are
delivered to Cadence as a result of a Non-Development Default, Cadence will have
the license, rights, and obligations provided in paragraph (b) below. In either
case, (i) Cadence shall not distribute, sell, or sublicense the Source Code
Materials, (ii) the Source Code Materials shall be subject to the
confidentiality provisions set forth in Section 12, (iii) Cadence shall restrict
disclosure of the Source Code Materials to those within its organization who
need to use it for the purposes allowed under the applicable license, and shall
keep it in a secure, locked location when not in use, and (iv) NTI shall retain
all right, title, and interest in and to the Source Code Materials initially
delivered to Cadence.
(a) Development Default. NTI hereby grants to Cadence a
-------------------
nonexclusive, worldwide, fully paid and royalty-free, perpetual and irrevocable
(except as provided below) license to use, reproduce, modify, and create
Derivative Works from the Source Code Materials in order to (i) complete the
development work described in the Statement of Work, (ii) correct Errors in the
NTI Product Components, maintain the compatibility of the NTI Product Components
with the Cadence Products and third party software used in conjunction with the
NTI Product Components, and provide minor functionality enhancements to the NTI
Product Components consistent with the enhancements being made to the Cadence
Products, and (iii) use, reproduce, distribute, make, have made, offer for sale,
import, sell, and support the NTI Product Components in object code form
pursuant to the licenses granted to Cadence in Section 3.1. The object code
derived from the source code so modified shall be deemed to be Developed
Software and the parties' respective rights in such code will be as provided in
Section 6. The license granted in this paragraph (a) shall survive termination
of this Agreement in accordance with Section 14 if the escrow provisions were
triggered prior to termination or expiration of this Agreement, but Cadence may
not trigger the escrow provisions post-termination or expiration.
(b) Non-Development Default. NTI hereby grants to Cadence a
-----------------------
nonexclusive, worldwide, fully paid and royalty-free, perpetual and irrevocable
(except as provided below) license to use, reproduce, modify, and create
Derivative Works from the Source Code Materials solely to correct Errors in the
NTI Product Components, to maintain the compatibility of the NTI Product
Components with the Cadence Products and third party software used in
conjunction with the NTI Product Components, and to provide minor functionality
enhancements to the NTI Product Components consistent with the enhancements
being made to the Cadence Products. The object code derived from the source code
so modified shall be deemed to be NTI Product Components hereunder and subject
to the same rights and restrictions on use, reproduction, and disclosure that
are contained in this Agreement with respect to the NTI Product Components. The
license granted in this paragraph (b) shall survive termination of this
Agreement in accordance
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<PAGE>
with Section 14 if the escrow provisions were triggered prior to termination or
expiration of this Agreement, but Cadence may not trigger the escrow provisions
post-termination or expiration.
15.4 Covenant Not To Sue. In the event of a Source Code escrow release
-------------------
pursuant to Section 15.2, effective on the date of release and any time
thereafter, each of Cadence and NTI agrees that it will not assert any claim or
bring any action for patent infringement against the other party with regard to
patents on the Developed Software and Derivative Works to the NTI Product
Components made by NTI or by Cadence through exercise of licenses and rights
granted in Section 15.3 which patents have a first effective filing date on or
prior to March 15, 2005 if the direct effect of such claim or action would be
to block further independent development of products that are derived from the
Developed Software or NTI Product Components. In any event this covenant not to
sue shall not extend to making or having made products made of silicon or other
semiconductor materials.
16. ASSIGNMENT.
Neither party may, by operation of law or otherwise, assign any of its
rights or delegate any of its obligations under this Agreement without the prior
express written consent of the other party. Notwithstanding the foregoing,
either party may assign all (but not part) of its rights and delegate all (but
not part) of its obligations under this Agreement to a third party as part of
any acquisition of such assigning party by such third party, provided that
notice of and details concerning such proposed assignment and delegation is
given to the non-assigning party, and Cadence may assign this Agreement to any
of its Affiliates; provided that, in no event may Cadence assign its rights or
delegate duties under this Agreement to any third party which Cadence has
engaged or is working with to develop, license, acquire, market, or distribute
any technologies which have substantially the same functionality as the NTI
Product Components as is permitted under Section 4.2 of this Agreement. Subject
to the foregoing, this Agreement will bind and inure to the benefit of the
parties, their respective successors and permitted assigns. Any permitted
assignment under this Section 16 shall be subject to the assignee agreeing in
writing to be bound by all the terms and conditions of this Agreement.
17. MISCELLANEOUS.
17.1 Waivers. No waiver of any provision of this Agreement shall be
-------
effective unless in writing and signed by the party to be charged. No failure or
delay by either party in exercising any right, power, or remedy under this
Agreement, except as specifically provided herein, shall operate as a waiver of
any such right, power or remedy.
17.2 No Limitation. Use of the word "including" is meant to be
-------------
illustrative only and not limiting.
17.3 Descriptive Headings. The descriptive 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.
17.4 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California without application of any
choice of law
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<PAGE>
principles. All disputes under this Agreement shall be brought in the courts
located in Santa Clara County, California.
17.5 Independent Contractors. The parties are independent contractors.
-----------------------
Neither party shall be deemed to be an employee, agent, partner or legal
representative of the other for any purpose and neither shall have any right,
power or authority to create any obligation or responsibility on behalf of the
other.
17.6 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been duly given when delivered in person, by
telecopy with answer back, by express or overnight mail delivered by a
nationally recognized air courier (delivery charges prepaid), or by registered
or certified mail (postage prepaid, return receipt requested) to the respective
parties at their addresses set forth on the first page of this Agreement or to
such other address as the party to whom notice is given may have previously
furnished to the others in writing in the manner set forth above. Any notice or
communication so delivered shall be deemed effective on delivery or when
delivery is refused. Any notice or communication to Cadence shall be addressed
to the attention of the General Counsel.
17.7 Severability. If any provision of this Agreement is held by a court
------------
of competent jurisdiction to be contrary to law, such provision shall be changed
and interpreted so as to best accomplish the objectives of the original
provision to the fullest extent allowed by law and the remaining provisions of
this Agreement shall remain in full force and effect.
17.8 Force Majeure. For purposes of this Agreement, "Force Majeure" means
-------------
a cause beyond a party's reasonable control (and not involving any fault or
negligence of the party affected) including, without limitation, acts of God,
acts of war, revolution, riots, civil commotion, acts of a public enemy,
embargo, acts of government in its sovereign capacity, strikes, lockouts,
boycotts, fire, communication line or utility failures, power failures,
earthquakes, floods, or other natural disasters. Failure by a party to perform
its obligations during the existence of a Force Majeure condition will not
constitute material breach of this Agreement, provided that such party uses
reasonable efforts under the circumstances to notify the other party of the
Force Majeure condition and to resume performance as soon as commercially
practicable. Each party's obligations under this Agreement will be suspended
during a period of non-performance by either party due to a Force Majeure, and
when performance is resumed the term of this Agreement and all applicable
schedules and time frames for performance under this Agreement will be extended
by the same period of time as the period of time during which performance was
suspended. However, should a Force Majeure condition prevent performance for
more than ninety (90) days, the party whose performance is not prevented by such
Force Majeure condition will have the right to terminate this Agreement by
written notice to the other party.
17.9 Entire Agreement. This Agreement, including all Exhibits attached
----------------
hereto, constitutes the final, complete and exclusive agreement between the
parties with respect to the subject matter hereof, and supersedes any prior or
contemporaneous agreement.
17.10 Amendment. No change or amendment will be made to this Agreement
---------
except by an instrument in writing signed on behalf of each of the parties
hereto.
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<PAGE>
17.11 Exhibits. Each Exhibit attached to this Agreement is deemed a part
--------
of this Agreement and incorporated herein wherever reference to it is made.
17.12 No Implied Licenses. No licenses are to be implied from any term of
-------------------
this Agreement other than the licenses expressly granted herein.
17.13 Counterparts. This Agreement may be executed in counterparts, each
------------
of which will be deemed an original.
IN WITNESS WHEREOF, the parties have caused this PSM Software Development
and License Agreement to be signed by their duly authorized representatives.
NUMERICAL TECHNOLOGIES, INC. CADENCE DESIGN SYSTEMS, INC.
By:_________________________ By:_____________________________
Name:_______________________ Name:___________________________
Title:______________________ Title:__________________________
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<PAGE>
Exhibit A: Cadence Products
[***]
[***]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTION.
<PAGE>
Exhibit B: Statement of Work, Specifications and Development Milestones
[***]
[***]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTION.
<PAGE>
Exhibit C: NTI Product Components
[***]
[***]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTION.
<PAGE>
Exhibit D : NTI Trademarks
Registered Trademark: Virtual Stepper(R)
Corporate Trademarks: Numerical Technologies(TM), Inc.
NumeriTech(TM)
The Numerical Technologies logo.
Product Trademarks:
iNPhase
TROPIC
N Abled
SiVL
ImagIC
SiDRC
SiImage
RuleGen
Model Gen
NOPC
IC Workbench
<PAGE>
Exhibit E: Production Release Milestones
Production Release Milestone #1
- -------------------------------
[***]
Production Release Milestone #2
- -------------------------------
[***]
Production Release Milestone #3
- -------------------------------
[***]
[***]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTION.
<PAGE>
Exhibit F: License Fee Payment Schedule
[***]
[***]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTION.
<PAGE>
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the use in this Registration Statement on Form S-1 of
both our report dated February 2, 2000 relating to the financial statements of
Numerical Technologies, Inc. and our report dated January 21, 2000 relating to
the financial statements of Transcription Enterprises Limited, which appears in
such Registration Statement. We also consent to the reference to us under the
headings "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
April 5, 2000
